What Is Consumption-Based Pricing and Why Does It Matter?

According to the report by Next Move Strategy Consulting, the global Consumption-Based Pricing Market industry is driven by several factors such as growing adoption of cloud computing, boosting music and recording industry, and growing smartphone adoption. The market is however, hindered by the problems associated with the pricing model but on the other hand, integration of AI in usage-based pricing model is anticipated to create significant future opportunities.

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Consumption-based pricing charges customers according to their actual usage of a product or service—whether that means hours streamed, gigabytes consumed, or features accessed. While this model offers flexible pricing aligned with customer needs, it increasingly overlaps with surveillance-based pricing, where personal data shapes what individuals pay.

As consumer transactions become more data-rich, pricing strategies are evolving from standardized rates to individualized offers based on behavioral, demographic, and contextual insights. This shift has profound implications for fairness, transparency, and regulatory oversight.

Summary

Personalized pricing models:

• Align cost with actual consumption for perceived fairness
• Encourage efficient use of services and resources
• Can boost satisfaction—when transparently communicated

How Are Personal Data and Consumer Behaviors Used in Consumption-Based Pricing?

According to the Federal Trade Commission’s (FTC) January 2025 staff perspective, many companies rely on detailed personal data to shape individualized pricing strategies. This includes:

• User location
• Browsing history
• Mouse movement
• Shopping cart activity
• Demographic and psychographic profiles

These data points help businesses estimate a customer’s willingness to pay and adjust pricing dynamically. For instance, a user lingering over premium products may be offered fewer discounts—or even shown higher prices.

The FTC emphasized that its study is preliminary, based on anonymized, aggregated documents collected through its 6(b) authority, and that it has not made legal conclusions about the lawfulness of these practices.

Summary

Data-driven price adjustments:

• Use of real-time and historical data to estimate payment thresholds
• Customers may see different prices for identical items
• Raises questions about price equity and algorithmic fairness

Which Intermediaries and Retailers Are Involved in Surveillance Pricing?

The FTC’s review encompassed documents from major intermediary firms that enable retailers to implement personalized pricing. These firms include:

• Mastercard – Offers insights from payment and loyalty program data
• Accenture – Consults on dynamic pricing and personalization
• PROS – Develops pricing optimization software
• Bloomreach – Provides customer behavior personalization tools
• Revionics – Supplies retail pricing and promotion platforms
• McKinsey & Company – Advises on data strategy and algorithm design

Together, these firms serve over 250 retail clients across sectors such as groceries, apparel, health, and personal care.

Summary

Key intermediaries:

• Facilitate real-time, individualized price changes
• Support both discount promotions and price discrimination
• Shape how pricing systems respond to consumer behavior

What Are the Impacts on Consumers and Market Competition?

The FTC’s staff report raises several red flags around the implications of surveillance pricing, especially when pricing is based on inferred personal data. In one hypothetical example, a new parent was shown higher-priced baby thermometers due to their user profile.

Such cases illustrate how algorithmic pricing may result in unequal treatment, with consumers unknowingly paying more based on their life circumstances, habits, or inferred income level. This raise concerns around:

• Fairness
• Loss of price transparency
• Market power concentration, especially if only dominant firms have access to rich datasets

These concerns reflect risks to consumer trust and competitive parity, even if not currently deemed unlawful.

Summary

Consumer and market effects:

• Pricing may reinforce existing inequalities
• Lack of transparency could damage consumer trust
• Data-driven advantages may erode fair market competition

How Are Regulators Addressing Consumption-Based and Surveillance Pricing?

On January 17, 2025, the FTC issued a Request for Information (RFI) seeking public comment on surveillance pricing’s impact on:

• Consumer welfare
• Market competition
• Gig-worker compensation

However, just five days later, the RFI was withdrawn following a leadership change. Newly appointed FTC Chair Andrew Ferguson halted the comment process, a move that drew internal criticism, including from former Chair Lina Khan.

Although no formal enforcement action has followed, the internal debate signals that surveillance pricing remains on the regulatory radar.

Summary

Regulatory response:

• RFI initiated then withdrawn amid leadership change
• Internal dissent highlights tensions around consumer data use
• No final ruling, but further scrutiny is likely

Next Steps: Actionable Takeaways for Businesses

1. Audit Data Practices
   Assess what consumer data is collected, how it is used, and whether pricing algorithms rely on behavioral signals.
2. Enhance Transparency
   Clearly explain to customers how their usage and personal data might influence pricing decisions.
3. Monitor Regulatory Trends
   Even though the FTC’s RFI was halted, businesses should track future federal and state-level developments.
4. Ensure Ethical Compliance
   Pricing models must be regularly reviewed to avoid discriminatory outcomes and reinforce fairness.
5. Educate Consumers
   Build trust by offering educational content on how pricing works and what consumer protections apply.

Conclusion

Consumption-based pricing has the potential to empower consumers and optimize costs, but its convergence with surveillance-based strategies demands ethical design and regulatory awareness. As the FTC’s findings evolve, businesses must balance innovation with fairness, transparency, and respect for privacy to build sustainable trust.