A new book by a progressive, anti-corporate-power economist argues that American consumers face a growing system of corporate price manipulation.
But a veteran retail pricing expert says that isn’t happening.
The book, written by Groundwork Collaborative President and CEO Lindsay Owens, is Gouged: The End of a Fair Price — and What That Means for Your Wallet. It is being released September 29.
In the book, Owens contends major companies increasingly use algorithms, consumer data and digital tools to identify how much customers will pay. She argues that pricing systems once governed primarily by posted prices and competition are giving way to opaque, technology-driven methods designed to maximize revenue.
Kallman
“From a very pragmatic perspective, let’s just say two people are standing in front of mayo at the same time,” Lee Kallman, chief commercial officer of RDSolutions, told Legal Newsline. “How does that work? How can you charge one person one price and a second person a different price? That’s a hurdle I don’t know how you overcome.”
In a September 17 appearance on Jon Stewart’s The Weekly Show, Owens cited a Walmart patent for a “smart shopping cart,” and she used an example involving tuna and mayonnaise.
Owens cited, an example of a shopper buying tuna at a store. “Once you’ve got the tuna, the price of mayonnaise should adjust, right? Because you’re probably making tuna salad.”
But there is no smart-cart system of that kind in operation, or evidence of customers being charged different prices based on personal information, purchase history, urgency or presumed willingness to pay, said Kallman. He said retailers actually are doing the opposite of that.
“Every retailer has different strategies as it relates to price, but it’s safe to say nobody’s strategy is to be the highest price at anything,” he said. “They want to have the lowest price or provide the best value.
“If somebody’s pricing is higher, that might be a decision to not shop there. Everything they’re doing is about customer retainment. As soon as you lose trust of the consumer, it seems like you’re going to lose.”
The “smart cart” example has been circulated by Owens, Groundwork and U.S. Sen. Elizabeth Warren (D-Massachusetts), Owens’ former employer.
Warren said the patent could make “surveillance pricing” possible, describing a scenario in which a shopper scans tuna and then sees a higher price for mayonnaise “but only for you.”
Yet a patent is not proof a company has put the underlying technology into operation.
Companies routinely file patent applications and maintain patents for a range of reasons: to protect research and development, preserve future options, prevent competitors from securing exclusive rights to a concept, strengthen a company’s intellectual-property portfolio or create leverage in negotiations and licensing disputes. Many patented inventions never become commercial products.
Walmart has said that is the case here.
“A patent does not mean a technology is in use today or will become a Walmart product or service,” a Walmart spokesman told Fortune.
RDSolutions is a retail intelligence and in-store execution company that audits, tracks and optimizes retail performance.
“All [retailers] want to know what the other guys are doing so they can beat the competitors,” he said.
Kallman said most retailers in the United States have an underlying strategic focus of being more competitive.
“Retailers’ strategy is about showing more value, and that’s always been the case,” Kallman said. “But it’s especially true in the last six years or so with a focus on price sensitivity.
“Everything in how you see retailers operate, it’s about how they’re going to incentivize you to buy more from them by lowering the price.”
In addition to technology changes, Kallman said consumer shopping habits and trends change as well.
“Ten years ago, a consumer shopped in one store in a weekly shopping trip,” he said. “That model has blown up. Many people now will go to Costco to buy something, then to Walmart to buy something else, and then to Aldi and Whole Foods for other items.
“Retailers want to figure out how to get more of their items in your basket, and low prices are a big part of that.”
Prices for some items do change, but Kallman said many stay stable for a while.
“There are a lot of items that don’t change prices for a long period of time,” he said. “And some things that have more volatility. We’ve seen that recently with produce, meat, eggs.
“Each retailer is different, but typically there is an advertising circular. They mostly exist in an online setting now. And in a lot of cases, those trigger new prices set for the week.”
Kallman said that’s where an electronic shelf tag comes into play.
“The reality of it is that before electronic shelf tags, the retailer had to print new tags each week, a human had to take those tags and put them on the shelves. It takes time and money, and there is always a margin of error if a tag gets lost or misplaced.
“Electronic shelf tags eliminate all of that. They eliminate the margin of error and the time. All of the discussions I’ve had is that this is the driving force for electronic shelf tags. It’s about greater efficiency. Also, there are marketing opportunities for the brands.”
Kallman said online prices can change. But once an item is in an online shopping cart, he said the price holds.
“If you have milk in your shopping cart at a store, it can’t change by the time you get to the register,” said Kallman, who has more than 30 years of market experience.
“The idea of custom prices for different people … just looking at it from the pragmatic side, how could that work? To get more of a share of your basket. You’re not doing that by gouging customers.”
