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The Modernization Directive: how personalized prices will be applied and the consumer’s right to know when they are paying more
The same item sold online and at various different prices, adapted to the consumer. Personalized prices are different prices offered to specific consumers or specific categories of consumers, based on automated decision-making and profiling of consumer behavior, allowing traders to assess the consumer’s purchasing power.
In abstract terms, personalized prices can offer benefits to sellers, since they allow companies to lower their prices for consumers who would not otherwise purchase their goods. Equally, the system enables companies to raise prices for consumers for whom price is not a determining factor. Specifically, the consumer might be buying a more expensive product without realizing it or being informed of it.
The right to information is a keystone of consumer protection reflected in the various consumer rights regulations and is based on the assumption that consumers, as the weaker party to the contractual relationship, are at a disadvantage compared to traders as regards the level of information to which they have access. The right to information thus requires transparency on the part of traders. The new Directive 2019/2161, on the modernization of Union consumer protection rules (the “Modernization Directive”), reinforces these duties of information and includes a new pre-contractual duty of information: the obligation to clearly inform consumers whenever they are presented with a personalized price.
Personalized prices should not be confused with dynamic prices, which change in response to market demand and vary depending on factors not related to the consumer. These factors may include the time of day, available supply or competitors’ prices, among others.
Personalized prices are different and have to do with variables directly related to the consumer profile, allowing different prices to be offered to different consumers for the same product. The more information available on consumer habits, the more accurate the estimated price these consumers will agree to pay for a product.
Therefore the Directive requires that consumers be informed that their price is personalized so that, being aware of this information, they can take this factor into account when it comes to making their purchase.
There is no clear evidence that the online world effectively carries out personalized pricing, and the compatibility of personalized prices with competition and data protection regulations is complex. The aim of the new Modernization Directive is to anticipate a reality that could become increasingly likely with the increase in Big Data and the consumer profile information available, making it transparent beforehand to the consumer that they are being offered a personalized price.
This obligation is also in keeping with the other obligations of the Modernization Directive related to transparency and the right to information, such as:
- the obligation for online market service providers to inform consumers as to whether, when they are shopping online, they are purchasing a product from a trader or an individual and that, in the latter case, consumer defense rights do not apply;
- the way in which contractual obligations are distributed between the third party offering the goods, services or digital content and the online marketplace;
- the need for traders that provide consumer product reviews on their websites to inform on which way they guarantee that the reviews published are real or made by verified consumers;
- the obligation for online marketplaces that offer product search tools to indicate the parameters determining the classification of the products presented to the consumer in the search result and the relative importance of these parameters compared to others
All these measures are in addition to an already fairly exhaustive list of information obligations for traders in the online universe that must be implemented by the Member States by November 28, 2021.