The reason why retailers try to offer a personalized price goes back to the downward sloping demand curve highlighted in Economics 101. This fundamental concept illustrates that, for most products, some customers are willing to pay more than others. To exploit that, pricing managers employ techniques that try to discern — and charge — the exact price that each customer is willing to pay. Outsize profits can be extracted from “top of the demand curve” customers, who value the product highly. Meanwhile, if discounts can be discreetly offered to customers with a lower willingness to pay, additional sales (and profit) are reaped. The result is a more profitable customer base, with some shoppers paying more than others. Personalized pricing can be found at most auto dealerships. The goal of salespeople is to determine how much each customer is willing to pay for a car through individualized negotiation. Prices are tailored by noting each customer’s characteristics and observing their actions. How shoppers dress, the car they currently drive, and answers to seemingly innocuous questions (Where do you live? What do you do for a living?) provide clues. Salespeople also observe actions, such as the other cars people are looking at and how they behave in negotiations (passive or aggressive). Evaluating each shopper’s characteristics and actions creates a pricing profile. Think of a profile as a polygraph test that suggests the highest amount each shopper will pay. Get the full story at Harvard Business Review