New Jersey is taking aim at a retail practice that critics say could one day mean two shoppers pay different prices for the same carton of milk. The state is banning grocery stores from using surveillance pricing, which sets prices based on a consumer’s personal information, before the practice becomes widespread.
The Fair Price Protection Act, which is set to take effect next year, also includes a provision that pauses the rollout of new electronic shelf labels for one year while the state studies their potential role in enabling surveillance pricing.
Maryland and Connecticut have recently enacted similar laws to protect consumer privacy at retailers, including grocery stores. Last year, New York also passed a law requiring businesses to disclose when they use algorithms to set prices. Although there have been reports of such practices among online retailers, there’s little evidence that surveillance pricing has been used in grocery stores.
A Hypothetical Concern
The concern stems from the fact that grocery stores now collect a significant amount of personal information through loyalty programs. That has fueled concerns that retailers could eventually tailor prices to individual shoppers.
Electronic shelf labels can be updated in real time and, in theory, could change prices multiple times a day. But for surveillance pricing to work in a physical store, the system would have to identify the shopper viewing the label, access that person’s purchase history, and then display a personalized price. The situation becomes even more complicated if two shoppers are looking at the same shelf tag at the same time.
“I don’t know any merchant doing this at the retail level,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “The complexity and potential to really tick off customers is not worth whatever extra profit they would generate.”
Experiments in Other Retail Settings
Other types of retailers have experimented with dynamic pricing. Wendy’s, for example, announced plans to use digital menu boards that could adjust promotions based on factors such as weather, time of day, and demand. The announcement drew widespread criticism from customers who interpreted it as surge pricing, prompting the company to clarify that it didn’t intend to raise prices during busy periods.
“It’s easier technically to do this in an e-commerce setting, but I don’t see it happening there either,” said Apgar. “Let’s say you go to your favorite website and the price of the product you are looking at is $199. Now you sign into your account with that merchant and the price changes. Do you still trust that merchant?”
“Retailers in general have done hardly anything with demand pricing,” he said. “This may prove to be another brilliant idea that fades away.”
