The UK's Office of Fair Trading has warned businesses that use personalised pricing schemes to be transparent about how they are using customer data.
The OFT launched an investigation into "personalised pricing" last year, and published its findings today.
The watchdog found that a number of business use customer data, especially web usage data, to offer discounts. This information typically includes the time of a purchase, the location of a customer, and their route into a website.
"For example a business may use information collected about consumers to identify who [has] not made a purchase for a number of weeks and offer a discount on future purchases," the OFT said.
It concluded that the practice offers value to both business and consumers. It did find evidence of businesses using personal information to increase prices offered to customers.
However, it did warn that business must be transparent about they are using customers' data.
"Where personalisation takes place, it is less likely to be harmful where consumers know it is happening, understand how it works and can exercise effective choice," the OFT said. "Businesses could do a lot more to make their practices more transparent about what information they are collecting, how it is being used and give consumers real choice about this."
It warned that unless they become more transparent, businesses may erode trust in e-commerce in general.
"We think that consumer trust is essential for the digital economy to develop optimally," it said. "Our most significant concern currently is the potential for personalised pricing to harm consumers by leading to a reduction of trust in online markets."
The OFT's investigation found that consumers have a low level of understanding about the way in which business are using information about them, but have "high levels of concern about businesses that collect and sell on information".
The warning echoes a recent recommendation from the Association of British Insurers for car insurance companies using telematics data from their customers' cars to offer "pay-as-you-drive" pricing.
"Maintaining consumer confidence in telematics products will be a key determinant of the long-term viability and success of the telematics market," it wrote. "Consumers need to trust insurers to treat them fairly and protect their personal information."
"Consumers should have access to an explanation of the collection and use of any piece of data that could impact them directly," the ABI advised.