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China tech

China targets apps 'bullying' loyal customers with higher price

Big data algorithms single out fans unlikely to flee to competitors

Travelers at Beijing Daxing International Airport. A travel-booking site was told to pay damages to a plaintiff who claimed to have charged a higher price for being a repeat customer.    © Reuters

GUANGZHOU -- China's tech regulators have stepped up their crackdown on so-called customer bullying, a practice among internet companies to charge higher prices to loyal customers unlikely to switch to competitors based on data algorithms.

In a landmark case that pushed the topic to the forefront of the national debate, a district court in Zhejiang Province in July ordered travel booking site to pay roughly 4,800 yuan ($745) to a customer for false advertising.

The customer filed the lawsuit in summer 2020, after she was charged 2,889 yuan to reserve a hotel room on the app that was available for less than half that price. The woman argued that instead of rewarding members like herself, the company exploited them using big data collected through the app. and other companies have been accused of charging higher prices to frequent customers. The Zhejiang Province ruling made no determination on whether engaged in customer bullying.

Online review sites are filled with complaints alleging shady pricing practices. In one anecdote, two users had compared their rates on a ride-hailing app and found that the more frequent, higher-ranked user was charged more. Similar trends have been observed in food deliveries and other online services.

China's State Administration for Market Regulation responded to these concerns in June by overhauling penalties for illegal pricing practices. Companies found to be engaging in customer bullying now can lose their business license.

A new data privacy law taking effect in November also urges companies to price services fairly. The city of Shenzhen, which often serves as a testing ground for new legal frameworks, will enact a new fine and other detailed regulations against customer bullying in January.

But identifying illicit pricing schemes poses a challenge. For example, companies could attribute different rates among users to their location or to a discount offered only to new customers. The new rules in Shenzhen will let companies offer promotions that result in different prices for different customers, as long as they last for only a reasonable amount of time.

Some legal experts say authorities must go as far as to monitor price-setting algorithms in order to crack down on customer bullying.

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