Dynamic pricing sparks controversy at Kroger supermarkets
Dynamic pricing means its price will automatically increase or decrease depending on factors such as the demand for a given product. This practice is commonly used by airlines, transportation companies like Bolt and Uber, and ticketing agencies. Kroger has also been accused of manipulating prices using artificial intelligence. So, what will happen if dynamic pricing enters grocery stores?
9:53 AM EDT, August 19, 2024
Dynamic pricing, or a dynamic pricing strategy, involves adjusting the prices of products or services in real-time based on various factors such as demand, supply, time, customer behaviour, competition, and even the time of day.
If the demand for a certain product increases, the price may rise. Conversely, when demand decreases, prices may drop. Prices will also be higher during peak hours or in certain seasons. Companies can monitor online customer behavior and adjust prices based on browsing history, location, the device used for shopping, etc. Dynamic pricing is used by corporations like Uber and Bolt, airlines, and ticketing agencies such as Ticketmaster. Besides inflating costs, another problematic aspect is the monopoly on services—sometimes the customer has no choice and has to pay whatever the company demands.
Dynamic pricing in the supermarket?
Kroger was founded over 140 years ago and is one of the largest in our country. Recently, it faced serious accusations related to the introduction of dynamic pricing.
In Kroger stores, they decided to use electronic price displays. Continuously changing paper price tags was too time-consuming. Unfortunately, with an easy and quick price-changing system, stores might be tempted to introduce dynamic pricing. What does this mean? For instance, ice creams could become 30% more expensive on a hot day. Product prices might increase slightly between 4 PM and 7 PM because stores experience the most traffic. When shopping with a child, every item for the youngest might be priced higher than the nominal. Dynamic pricing is not consumer-friendly.
Due to troubling suspicions, American senators have scrutinized sudden price changes in Kroger stores. Speculations have arisen that supermarkets might employ dynamic pricing. In February of this year, the company partnered with Microsoft, which provides its technological services, including those related to artificial intelligence.
American politicians fear dynamic pricing
Senators Elizabeth Warren and Bob Casey have asked the CEO of Kroger to respond to 11 questions regarding artificial intelligence, labels, and Microsoft's EDGE technology. The company has until August 20th to answer all of them. The CEO was asked about:
- How Kroger sets dynamic prices using the EDGE system
- How customers are informed about price changes: if this information is conveyed, in what way and with what advance notice
- The average percentage of price changes for all items subject to dynamic pricing using EDGE in the first six months of using the system
- A complete list of products in the store that had their prices change more than once a day
- The use of customer data to implement personalized pricing on their ESL platforms
- The possibility for customers to opt-out of data collection by the company
- Assurance that Kroger will not use customer data from the ESL platforms to discriminate based on protected criteria such as race, gender, or age when offering personalized prices
It is unclear if the CEO of Kroger's statement will be publicly available.
