Maryland recently became the first state to restrict personalized, data-driven grocery pricing, reflecting growing concerns about how retailers use consumer data to influence prices. Yet the public debate has often blurred the distinction between dynamic pricing, personalized pricing, and traditional loyalty discounts.
These three are not the same thing – and treating them as such risks banning programs consumers already use and value.
Much of the backlash stems from the controversy surrounding Instacart’s pricing ‘experiments.’ Consumer Reports found that some shoppers were shown prices as much as 23% higher than other customers shopping the same items at the same store at the same time. Instacart ultimately discontinued the program after public criticism and regulatory scrutiny.
The problem is that this wasn’t traditional grocery pricing. It wasn’t even dynamic pricing in the way consumers understand airline tickets or ride-sharing services. It was individualized price testing conducted through a digital platform.
What is Dynamic Pricing?
It’s become clear that the industry hasn’t really gotten a handle on how to explain the differences to consumers and regulators alike. In many cases they’ve gotten loyalty, personalized and dynamic pricing lumped together as the same thing.
Instacart and its pricing ‘tests’ set the tone – poorly – for grocery pricing technology, and there really hasn’t been the proper response or defense. The industry was set on its back foot and hasn’t really addressed the issue appropriately yet.
So let’s get some definitions out of the way so we can effectively respond.
Dynamic Pricing: Dynamic pricing refers to prices that change based on market conditions such as demand, inventory levels, time of day, seasonality, or external events. The price adjustment is based on circumstances, not the identity of the shopper.
Commonly used in industries like airlines, hotels, ride-sharing, and event ticketing, the same customer may pay different prices at different times depending on prevailing market conditions. Consumers already are given dynamic pricing; or surge pricing, in many parts of the country in many different industries. I don’t see a place for it in grocery stores.
What is Loyalty Pricing?
Loyalty Pricing: Loyalty pricing provides discounts or special offers to customers who voluntarily participate in a retailer’s loyalty program. Unlike personalized pricing, loyalty pricing typically rewards engagement and membership rather than relying on individualized price calculations.
These programs often provide members with access to advertised discounts, digital coupons, fuel rewards, points programs, or other benefits in exchange for ongoing participation and customer loyalty. Grocery stores have used loyalty pricing for decades.
What started as box-top rewards programs in the early 1900s, became electronic tracking and ‘club’ cards in the 1990s. These programs rewarded users with personalized prices and cash back in some models.
What is Personalized Pricing?
Personalized Pricing: Personalized pricing occurs when prices or offers are tailored to an individual consumer based on factors such as purchase history, shopping behavior, demographics, location, or other customer data.
In this model, two shoppers purchasing the same item at the same time could potentially see different prices or promotions because the offer is tied to the customer rather than the product or market conditions.
While these terms are often used interchangeably in public discussions, they represent fundamentally different pricing strategies with different goals, consumer impacts, and regulatory considerations.
Consumer Pushback on Surge Pricing for Groceries is Real
Americans already encounter dynamic pricing in airlines, hotels, ride-sharing services and entertainment tickets. Investigations into ride-share pricing have found that two customers requesting nearly identical trips can receive dramatically different prices depending on timing, demand, and algorithmic factors.
Consumer skepticism is understandable. When shoppers hear that grocery stores are adopting digital shelf labels and AI-powered pricing tools, they naturally assume similar practices are coming to supermarkets.
Critics of dynamic pricing often envision supermarkets behaving like ride-share companies during a snowstorm – using ESLs to raise prices on essentials precisely when consumers need them most.
That concern is understandable. We don’t want surge pricing as a consumer either.
Yet evidence supporting those fears remains surprisingly thin. A study from University of California Rady School of Management examining more than 180 million grocery price observations before and after the adoption of electronic shelf labels found no evidence that the technology resulted in real-time surge pricing or demand-based price increases.
Researchers concluded that digital shelf labels primarily improved operational efficiency rather than enabling price gouging… I wish this conclusion would get more attention.
Just when technology gives retailers the ability to tailor their advertising programs, legislatures are getting in the way.
Grocery is Still a Relationship Business
At its core, the grocery business is a relationship business. The industry is built on being a trusted partner for the communities they serve. The industry is proud of their position – earned through years of customer service.
Grocery retail already operates under a very different framework than most online businesses. Price-gouging laws exist in every state, retailers compete fiercely on value, and most supermarkets depend on long-term customer trust rather than one-time transactions.
A grocery chain that doubled the price of milk before a snowstorm would not only face regulatory scrutiny; it would destroy years of customer goodwill – and potentially all repeat business. No store wants to take that chance.
The brick and mortar grocery industry shouldn’t have a problem with banning daily price updates and dynamic pricing – both run counter to their businesses and their product cycles.
Online grocery – with its ability to take advantage of dynamic pricing – is a different animal altogether. The technology companies that are exploiting their users with pricing shenanigans are the ones with the most to gain – and who should be facing the most scrutiny.
Retailers we talk to increasingly view personalized promotions as the next evolution of loyalty programs. Technology assisted Personalized and Loyalty pricing programs help give retailers a new way to promote products and encourage better shopping behaviors. They are an untapped resource for the industry; both in information and revenue.
Industry surveys show grocers expect targeted offers, app-based promotions, and loyalty-integrated discounts to become among their highest-priority promotional tools over the next several years. Rather than raising prices, these systems are often designed to deliver discounts to shoppers most likely to respond to a specific offer.
Retailers should begin viewing – and defending – shelf-edge technology, their existing loyalty benefits and customized pricing programs through a broader strategic lens. Being clear on customer benefits and educating participants on the technology’s usage needs to be a priority.
Consumers value transparency and trust, and those principles should remain paramount to all involved.