Before the holiday break, there was considerable media coverage of allegations that that pricing on Instacart could be dynamic – some would say unacceptably fluid – and was pushing up prices selectively, for some shoppers. Essentially, a study by the Groundwork Collaborative, a progressive policy group, and Consumer Reports, said that when a number of people went on a retailer’s Instacart site at the same time, they found that they were being charged different prices.
The suggestion was that Instacart was using sophisticated algorithms to adjust prices quickly in response to competitors’ offers and consumer behavior, including raising prices during high-demand times. The question was raised whether Instacart was raising prices on its own to test what the market could bear, or whether it was doing so in concert with its retail clients.
From the Wall Street Journal coverage:
“The report said that the experiment, using 437 shoppers across four cities who added the same items simultaneously to their Instacart shopping carts from the same store, saw an average difference of 13% between the highest and lowest prices, with some differences as high as 23%.
Instacart’s position was that “just as retailers have long tested prices in physical stores to understand what resonates with customers, a small subset of our retail partners – 10 U.S. retail partners that already choose to apply markups – use Instacart’s Eversight technology to run limited online pricing tests. These short-term, randomized tests help retail partners understand category-level price sensitivity so they can sustainably invest in lower prices where consumers care most. For example, as a result of these tests, some consumers may see slightly lower prices on essentials like milk or bread, and slightly higher prices on items like specialty snacks or craft beverages.
“Most importantly, these short-term, randomized tests follow strict guardrails: These tests are not dynamic pricing – prices never change in real-time, including in response to supply and demand … These tests never use personal, demographic, or user-level behavioral data … (and) These tests are not designed to increase the average markup set by a retail partner.”
During the holiday break, CNBC reports, “Instacart said it will no longer allow retailers to run AI pricing tests on its grocery delivery platform after the practice drew widespread scrutiny.” The company said that “it will cease the use of artificial intelligence-driven pricing tests on its grocery delivery platform after the practice was scrutinized in a wide-ranging study and rebuked by lawmakers. The company said in a blog post that retailers will no longer be able to use its Eversight technology to run pricing experiments on its platform, effective immediately.”
From the Instacart blog posting: “We understand that the tests we ran with a small number of retail partners that resulted in different prices for the same item at the same store missed the mark for some customers … At a time when families are working exceptionally hard to stretch every grocery dollar, those tests raised concerns, leaving some people questioning the prices they see on Instacart. That’s not okay – especially for a company built on trust, transparency, and affordability.”
CNBC writes that “the company also rejected characterizations of the technology as surveillance pricing or dynamic pricing, and said the tests were never based on personal, demographic or individual-level user data.”
The Journal writes that Instacart originally said that “the tests helped retailers understand consumer preferences. On Monday, a spokesperson said that the tests fell short of expectations … Instacart has disputed characterizations that tests were a form of dynamic pricing, saying that the prices didn’t change in real-time, or that the prices were a form of surveillance pricing that used personal, demographic or behavioral data. Instead, Instacart said the tests were similar to how retailers run price tests between different stores.”
KC’s View:
As noted in my headline, I have two takeaways from this story.
• First, this is what happens when you lose control of the narrative, or don’t bother to tell your story at all. I’m not sure we know exactly what was going on here; the Instacart take and the Groundwork Collaborative diverge on a number of points. I’m old enough to know that either the truth probably is somewhere in the middle, or actually is on another plane of existence entirely.
But let’s say, just for the sake of argument, that there was some dynamic pricing going on here. (There was something going on here.) Customers didn’t know, at least not until the Groundwork Collaborative started doing research, found something that it believed that the companies were not being transparent about, and then cast it in an unflattering light.
I actually have no particular problem with dynamic pricing, though i’ve always felt that retailers miss the opportunity that the strategy presents. The assumption – made by consumer advocates, lawmakers and consumers – is that dynamic pricing allows retailers to raise prices at high-demand times. A reasonable conclusion. But one also could argue – and I would suggest should argue – that dynamic pricing allows retailers to lower prices at low-demand times. (The same could be said about electronic shelf labels, by the way.) It is all about establishing what the regular price is, being transparent about it, and then making the case for how dynamic pricing actually is pro-consumer. You have to deliver on that proposition, of course – you can’t say something that can be demonstrably proven to be nonsense.
The bottom line: You have to understand your story, and you have to tell it clearly and consistently.
• Second, the story that was being told fluctuated when it came to whether this was an Instacart initiative or a joint program being tested by Instacart and its retail clients.
I think what this demonstrates something that I’ve often written about here: Retailers have to be careful about the degree to which they empower Instacart – or any third-part entity – to the point that those companies are seen as the primary connective tissue between the store and the consumer. The question becomes, whose value proposition is this, anyway?
Instacart clearly has proven itself to be an invaluable partner in the e-grocery sector – there are retailers that would be unable to compete against Amazon’s and Walmart’s e-commerce initiatives without partnerships with Instacart (and its e-grocery brethren). For that matter, we know that even Kroger is depending more on such companies as it lays out out its digital strategies for the future.
But retailers have to be engaged, have to be in control, have to be full partners, have to dictate the collaborative construct.
With few exceptions (the really big companies with seemingly limitless resources), every retailer has to partner with a number of technology companies that allow them to play the game – it is table stakes for competing. (They also have to differentiate themselves in ways that have nothing to do with technology, ways in which the really big guys cannot or will not invest.) But they can’t just assign those functions to an outside provider, and can’t allow a narrative to be spun that disintermediates them from the store-shopper relationship.
The post Two Takeaways From Instacart’s Dynamic Pricing Kerfuffle appeared first on MNB.
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