Two of the largest retailers in the United States have announced plans to shift to digital price tags within the next few years, and the concept has raised controversy due to the possibility of price gouging as well as privacy concerns.
The new digital price tags could be updated at any time from a central computer or employee handheld device, creating the possibility that a price could change from the time a consumer picks an item off the shelf to the time they arrive at the cash register. While that has been the overriding concern about the scheme thus far, some privacy critics worry about implementing this technology along existing facial recognition systems and “loyalty programs” that provide an opportunity for personalized profiling.
Digital price tags appeal to labor-short retailers but raise serious questions
Kroger, which has a fleet of about 3,000 grocery stores spanning the US, has been trialing digital price tags in select stores since 2018 and expanded their use to 500 of its stores in 2023. It has announced that it wants to have them in the majority of its locations, about 2,600, by 2026. The situation with Walmart is similar: it has the tags in about 60 of its stores at present and wants to have them in 2,300 within the same timeframe.
The appeal for retailers is primarily in labor cost savings, particularly in a tight labor market in which they are hard-pressed to find and keep lower-end workers that perform these duties. At present, employees have to manually change price stickers on what can be hundreds of different items in just one aisle of a store. Ideally, the system would also reduce pricing mistakes that provide unpleasant surprises (and tie up customer service agents) when the item makes it to a cash register.
Both Kroger and Walmart have said that the system will not be used for “dynamic pricing.” Critics have raised concerns about this technology making a “surge pricing” system (akin to Uber) much more feasible, for example raising prices on rain gear during a storm or water with the announcement of a possible incoming natural disaster. Both retailers have scrambled to issue statements that digital price tags will not be used to raise prices during business hours, but both have longstanding issues of consumer trust to grapple with. The situation is not helped by Wendys, the second-largest burger chain in the country, announcing on its 2023 4th quarter earnings call that it planned to begin implementing dynamic pricing and “AI-enabled menu changes” as early as 2025 (Wendys rushed to clarify that in early 2024 by saying that the system would only be used to offer discounts from regular prices during certain periods).
Consumer advocates such as Senators Elizabeth Warren (D-MA) and Bob Casey (D-PA) are now also raising privacy concerns. These critics note that both stores have quietly rolled out facial recognition systems without the general public necessarily being aware of them; Kroger uses face scanners at the entrances of some stores for “security purposes” and has announced plans to identify the gender and age of customers at checkout to provide targeted coupons, and in 2015 Walmart admitted that it had been using facial recognition systems to attempt to identify shoplifters at its entrances but had abandoned the program due to poor performance.
Both Kroger and Walmart have dismissed privacy concerns by saying that the only intent of the digital price tags is to reduce labor, and that they might only be used during shopping hours to lower prices for an announced sale or place items on final clearance. Privacy advocates believe that they may stick to this plan initially, but once the systems are in place the temptation will always be there to misuse them.
Privacy concerns tie into existing “surveillance pricing” systems
While Kroger has directly responded to the potential price gouging issues raised by Warren and Casey, it has not addressed the privacy concerns the senators raised. In an early August letter to the company, the senators pointedly asked if the “ESL” platforms that back the digital price tags would allow users to opt out of any personal data collection or if any assurances would be offered that these systems could not be used in a discriminatory way.
In mid-July the FTC launched an investigation into “surveillance pricing,” or the practice of targeting prices to an individual consumer based on data collection about them and an algorithmic estimate of what the maximum they would be willing to pay might be. Those measures can consider things like a shopper’s previous searches across other websites, how long it has been since they received their last paycheck, credit card and bank balances, and even the time of day that they are shopping. While Kroger and Walmart are not among the eight companies called onto the carpet by the FTC, their retail peer Target raised privacy concerns and accusations of gouging in 2019 for using location data to raise in-app prices once the user pulled into the parking lot of one of their stores.
Aside from the investigations into privacy concerns that are shaping up, there are some reasons to question how viable digital price tags actually are as a strategy. Some stores that have trialed them have backed off from them due to the cost of maintenance and repair; they are not-infrequently swiped and damaged by employees moving pallets and customers pushing large carts or pulling merchandise off the shelf hastily.
