Shoppers question AI pricing amid company denials and state restrictions

FTC issues proposed enforcement policy statement on deceptive or unfair personalized pricing

The concern spans retailers, restaurants, ride-share companies and grocers, with shoppers asking whether artificial intelligence can let businesses raise prices after assessing a customer’s needs or profile. Walmart, Kroger and McDonald’s say they do not use technology to set prices based on who is buying or a sudden need. Those denials have not resolved the anxiety expressed by consumers and advocates.

Social-media posts complained that stores are using AI in combination with digital shelf tags to track shoppers’ interest and make sudden or personalized price changes.

Nick Nadeau, a 38-year-old product manager who works at a technology company and lives in Belleville, Illinois, recently bought a hard drive through Walmart’s app. His phone listed the drive for $369, while his wife’s phone showed a price $110 less. “They are using cookies or stored data against me,” Nadeau thought. He bought the drive at the lower price his wife found but remained alarmed. “It just felt invasive,” he said.

A Walmart spokeswoman said the price difference resulted from an error that had been corrected, not from the company using personal information to calibrate the product’s price. Nadeau’s experience and Walmart’s explanation present sharply different accounts of why two phones displayed different amounts.

Adjusting prices according to demand or the time of purchase is not new. Airlines, hotels and ride-share companies such as Uber have used surge, dynamic or personalized pricing for years. Retailers also have long moved prices to reflect rising costs or maximize profits. Some retailer loyalty programs offer discounts based on purchase history or personal attributes, while discounts for students and seniors are common.

Shoppers are especially sensitive to price increases because overall prices, as measured by the consumer-price index, have risen more than 29% over the past six years. “Then you add to that the anxiety around AI,” said Jameson Spivack, who focuses on AI governance issues for the Future of Privacy Forum, a nonprofit that works with member companies, including Walmart and Apple, on technology-privacy issues.

Spivack said using data to set prices is not new, but companies now have more information about individual consumers and faster tools for changing prices online or in stores. That combination has prompted questions about whether businesses might respond to a shopper’s profile or immediate need with a higher price.

Much of the concern centers on electronic shelf labels, which have replaced printed labels at groceries and other stores. Research in the United States and Europe, where grocers have widely used the technology for more than a decade, found that digital labels do not lead to surge pricing, partly because price changes are obvious to anyone walking by. The research found that grocers instead used the labels to discount goods about to expire, reducing food waste. Retailers say the labels also save time on paper-tag changes.

Electronic labels have enabled some grocers in certain European markets to offer discounts hundreds of times a week. More commonly, stores raise prices overnight or at regular intervals such as Monday mornings. Walmart said it typically changes digital price tags while stores are closed, in part because it does not want to confuse shoppers.

McDonald’s said this month that its franchisees do not use artificial intelligence to set menu prices or change prices based on real-time conditions or demand. “There has been inaccurate reporting about how menu prices are set,” the company said.

Walmart Chief Executive John Furner wrote to customers last month that prices change but that Walmart will not use someone’s income, shopping history or moment of need to charge more. “We price the product, not the person,” he said. After the letter failed to quell criticism, Walmart’s head of corporate affairs, Dan Bartlett, sent another letter to a consumer advocate at the nonprofit Groundwork Collaborative. “Your recent public statements repeatedly mischaracterize Walmart’s pricing practices,” Bartlett said. He also echoed Furner’s earlier denial.

Groundwork Collaborative’s leaders said Walmart’s patents and technology could enable personal data to be used to raise prices, and the nonprofit called on the company to withdraw some patents. “A patent isn’t a plan,” a Walmart spokeswoman said. The company said it would not use or renew one of the patents that had drawn scrutiny. Under scrutiny, some companies, including grocery-ordering service Instacart, have backed away from experiments with variable pricing.

Consumer advocates and some politicians have also criticized companies for taking out patents and collecting growing quantities of personal data. Those critics say the technology could lay the groundwork for more sophisticated dynamic or personalized prices in the future.

A customer filed a lawsuit against McDonald’s earlier this month alleging that the company engaged in “algorithmic price-fixing” of menu items. McDonald’s said the lawsuit was “filled with inaccuracies.”

As complaints rose, several states passed laws restricting data-driven pricing or requiring companies to disclose algorithmic pricing. New York passed a law last year requiring companies to disclose when they have used algorithmic pricing on a product. Maryland, Connecticut and New Jersey enacted laws this year restricting certain types of personalized or data-driven pricing. Dozens of states are considering a variety of bills that would prohibit or regulate the use of personal data or real-time demand inputs, such as weather, to set higher prices.

“New Jersey families are already feeling the pressure of higher costs. The last thing they need is companies secretly using their personal data to charge them more than someone else for the exact same product,” Gov. Mikie Sherrill said when the state law was signed.

This summer, the Federal Trade Commission issued a proposed enforcement policy statement aiming to penalize companies for “any deceptive or unfair personalized pricing,” particularly “where consumers reasonably expect that prices for a product or service will not vary based on their personal data.”

Colorado Gov. Jared Polis, a Democrat, earlier this year vetoed a bill that would have made it illegal for companies to use personal data to set individualized wages or prices. “Because of the broad sweep, the bill would punish differentially lower prices, not just higher prices,” Polis said.