Ola, Uber, And the Mores of Smart Capitalism, But What About Transparency?

Differential pricing for products isn't unusual, and even permissible, but not when it is transparently unethical.

The Central Consumer Protection Authority (CCPA) has issued notices to Uber and Ola regarding differential pricing for customers who use an expensive smartphone like an iOS-based iPhone than those who use a humbler Android OS equivalent.

(Image: Sourav Dihingia/The Quint)

"Art is what you can get away with," is a famous quote on creativity attributed to painter Andy Warhol.

We can think of its business equivalent in the era of smart capitalism, where companies can get away with pricing of similar, and in some cases, the same products or services, in a way where profits depend not on competitors or costs, but on how the profit margins are raised.

Last week, the Central Consumer Protection Authority (CCPA) issued notices to ride-hailing cab companies Uber and Ola on whether they were charging higher prices for customers who use an expensive smartphone like an iOS-based iPhone than those who use a humbler Android OS equivalent.

Both companies have denied the charge of snooping on OS details to fix prices. Still, it is an undeniable fact that it is technically possible for the software to sniff out the category of a customer – and then take things forward.

Uber and Ola are in the clear if their statements are to be taken at face value. However, there are lingering questions on how regulators can police violations of fair business practices in an internet-based transaction.

Are digital supercops who snoop in on the software practices of app-based businesses viable? Collecting, analysing, and processing data are crucial in digital-era transactions.

We shall await further details on how the Department of Consumer Affairs goes about this in the Ola-Uber case.

Smart Pricing 

Smart pricing is a key concept taught to MBA students while it is true that unfair trade practices can boomerang on businesses. Ola and Uber have gotten away with 'surge pricing' in peak hours but have also faced a backlash when prices reached levels perceived as 'absurd' or 'exploitative' by customers.

In the world of salespeople, it is quite common for smart pushers to size up a potential customer walking into a store based on looks, attitude, and behaviour, and persuade them to go for a product that gives the best profits or commissions to the store.

The EQ (emotional quotient) of a smart salesperson is the stuff of legends and jokes now. Technology and data science can increasingly do that job. Online shops cash in on this, but consumers do wake up, and regulators do probe deals where fair play is questioned.

However, differential pricing is often justified legally, and sometimes played on in grey areas, where it is not easy for customers to compare or distinguish between the same or similar offerings sold at different prices.

Let's take an example. A Levi's 501 blue jeans for men now costs roughly Rs 2,000 a pair in India. The same thing in the US costs about $62 (or Rs 5,350 in rupee equivalent). Do you think that is unfair? It all depends on the details.

Assuming an apple to apple product comparison, factors including transport and distribution costs can make a difference if the sold product is manufactured in India or nearby countries.

But look hard after doing some cargo numbers, and you may find that a higher price denomination in a dollar-denominated market is something manufacturers can get away with because, in psychological terms based on purchasing power, the average American buying a pair of jeans for $62 in the US may find the stuff more affordable than a counterpart in India.

An opposite factor can also help a product to be priced higher.

A 'branded' or 'designer' product costs more because in reality or in perception it has a higher quality or often, gives bragging rights to the buyer.

The 'Power Pricing' Toolkit 

Robert J Dolan and Hermann Simon are authors of a celebrated book, Power Pricing, in which they advise businesses on how to get the most out of pricing.

Their toolkit includes something called 'customer value perception' that goes well beyond the old-world formula of cost-plus-markup route to profit.

We often see how one boasts of a brand, a designer tag, or the place where a product was bought to show off one's status or drop a name to signify its quality or prestige. Among trendy young people, a fashion product bought on Myntra appears way cooler in a conversation than a bargain basement purchase on Meesho, where great products often come straight from manufacturers, but without the social boast value of a big brand or smart marketing.

Power pricing experts list brand recognition, uniqueness of a product, customer loyalty, and tendency to invest in innovation among factors that influence higher profit margins. A less discussed but key factor is 'switching cost', where it costs more for a customer to switch loyalties.

For example, you can buy one toothpaste brand this month, and another a few weeks hence, but you can't do that easily with a mobile phone or a mobile service provider. You pay more because you are locked in.

However, in contrast to Warhol's quote on art, "The Eleventh Commandment" (title of a novel by Jeffrey Archer), which refers to an unwritten rule in business, perhaps remains key: Thou shall not get caught!

That rule is now in clear and present danger.

'Thou Shall Not Get Caught'

With social media abuzz with customers exchanging notes, views, and experiences on what they went through at airports, banks, flights and malls alike, what economists call 'information asymmetry' is becoming less common. Information asymmetry happens when one party has more information than another in a transaction.

Businesses often exploit information asymmetry between customers to price things higher.

(You could say that HR departments of companies often ask employees not to compare annual appraisals with each other for the same reason.)

Differential pricing is common in business but not when it is transparently unethical. Where businesses do not add frills, fluff, value-added features or social status to a brand, or where value-for-money is a core issue, it is difficult to get away with differential pricing.

A brand may lose a well-earned reputation when it is seen doing unfair things, be it exploitation of labour in a poor country, a controversial piece of advertising, or treating customers of the same product or service based on factors other than the value provided.

The customer is queen, but she has to be an informed one to be truly treated like one!

(The writer is a senior journalist and commentator who has worked for Reuters, Economic Times, Business Standard, and Hindustan Times. He can be reached on Twitter @madversity. This is an opinion article, and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)