The Point: In the era of AI, companies have access to advanced algorithms that enable them to personalize their pricing strategies and charge different prices to different customers based on their purchasing behaviors, preferences, and demographics. However, with great power comes great responsibility, and companies need to ensure that their pricing strategies are ethical, fair, and socially responsible. In this article, we will explore the concept of ethical pricing in the age of AI and provide some guidelines and best practices for companies to balance profit and societal impact…Enjoy!
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Asking the Right Questions
To avoid negative social impacts, companies need to ask themselves three questions that can help reduce the chances of their pricing strategy harming their customers or society.
The first question is about what they are selling and whether the prices charged can impede access to essential products. For instance, during the COVID-19 pandemic, some companies increased the prices of hand sanitizers, face masks, and other essential goods, making them unaffordable for many consumers. This led to public outrage and regulatory intervention. Companies need to be aware of the societal value of the products they sell and ensure that their pricing strategy does not prevent people from accessing them.
The second question is about who they are selling to and whether the prices charged can harm vulnerable populations. For example, if a company charges higher prices to low-income customers, it can exacerbate social inequalities and perpetuate discrimination. Companies need to be mindful of the social implications of their pricing strategy and ensure that it does not harm those who are already marginalized or disadvantaged.
The third question is about how they are selling and whether the prices charged manipulate or take advantage of customers. For instance, if a company uses behavioral data to target vulnerable customers with higher prices, it can exploit their weaknesses and erode their trust. Companies need to ensure that their pricing strategy is transparent, fair, and respects the autonomy and dignity of their customers.
Creative Pricing Solutions
One way for companies to balance profit and societal impact is to explore creative pricing solutions that align with their values and goals. For example, Meny, a Norwegian retail chain, priced its hand sanitizer at a normal price for one bottle but charged $100 for each additional bottle to prevent hoarding. This helped to ensure that customers could access the product they needed while discouraging panic buying and stockpiling.
Hyundai, during the Great Recession, offered customers a car-return guarantee in case of job loss instead of reducing prices across the board. This helped to reassure customers and mitigate their financial risk without compromising the company’s profitability.
Such creativity has worked well in the past, as seen with automakers during the pandemic, and can help companies balance profitability with social responsibility.
AI for Good
AI can also be used as a force for good by encouraging safer driving behaviors through telemetry data and usage-based pricing, which can reduce claim frequency and make insurance more affordable while simultaneously making roads safer.
By using AI to incentivize pro-social behaviors, companies can align their pricing strategy with their social values and promote positive outcomes for their customers and society.
Transparency and Communication
Finally, companies need to communicate their pricing strategy with transparency and engage with their stakeholders to ensure that their decisions are well-informed and well-received.
For example, Uber capped surge pricing during emergencies and disasters, while also informing consumers about the extra cost and donating commissions earned to the American Red Cross. This helped to mitigate the negative social impact of the surge pricing and demonstrate the company’s commitment to its social responsibility.
By communicating their pricing strategy with transparency and engaging with their stakeholders, companies can build trust, loyalty, and goodwill among their customers and society.
Ethical pricing in the age of AI requires companies to balance profit and societal impact by asking the right questions, exploring creative pricing options, and compromising when necessary. Companies must consider the potential social consequences of their pricing strategies and incorporate ethical deliberation into their decision-making process. By doing so, companies can use their pricing capabilities to benefit both their customers and their communities. In today’s market, pro-social pricing strategies are not only ethical but also good for business, enabling brand differentiation and increased customer loyalty. It’s time for companies to embrace ethical pricing and harness the power of AI for good.
Sam Palazzolo, Managing Director