by Alexander Wissel, Executive Editor|
On the heels of some disastrous PR by Instacart over its “consumer price tests” the company was forced to publicly cancel the initiative. This month’s hullabaloo is centered around this situation that Wegmans has found itself in with its use of biometrics.
Both of these situations are the result of cutting edge technologies, AI and biometrics, that retailers are using to try to increase profits or reduce losses. They are both errors of omission and transparency, and neither of these companies got out in front of these needed public conversations.
We know Wegmans as a top-notch operator and a best-in-breed in the Northeast. Ownership and management are incredible. As a company in my local market we can’t say enough about them. (National company Instacart looks and acts more like a big box, so we’ll save their critique for later.)
The larger point we want to make is that both of these technologies are important for retailers to protect and should defend their use.
Using them quietly, getting caught and dumping their usage – or worse, getting them outlawed – isn’t a good place for the industry to be. To that point, Connecticut legislators are already rushing to ban the use of facial recognition technology.
Instead of cutting and running, as an industry we need to protect these technological avenues of margin and profitability.
So Why Are AI and Biometrics Both So Important?
We’ll start with biometrics.
Facial recognition technology is a staple in Las Vegas. You can’t go anywhere, especially not a casino, without being recorded, tracked and classified. It’s important to stop and police crime. Biometrics prevents bad actors from stealing from casinos and consumers alike. Imagine Las Vegas casinos without the ability to know when a thief or a con artist walked onto their gaming floor.
Why should grocery stores be any different?
Security should be an easy sell here. An average grocery store has anywhere from $3 million to $5 million in product sitting on its shelves. A Costco might have $12 million to $16 million on its shelves. If we consider that a Wegmans is two to three times the size compared to a typical store, we could assume its shelves are worth about the same as a Costco. That’s worth protecting.
Shrink is a massive industry problem. Not just for grocery stores, but for most retail. I’d wager that the same person stealing from CVS is the same hitting up the neighborhood grocer and Walmart. I can’t be the only one who is sick of every product locked up behind plastic.
But biometrics isn’t just about security. It’s about media, advertising and giving consumers what they want. No doubt you’ve seen the push for displays screens and TVs with targeted ads. Media networks are salivating at the prospect of putting screens all over every store.
There’s a problem though. Without some ability to track who is watching which screen, for how long and whether or not that drives a purchase decision – the media vehicle becomes worthless. If we can’t prove that consumer X, watched the front of store screen Y, we can’t know for certain that it drove the purchase decision for Z. And you certainly can’t charge top value for the ad placement in the future.
The reason why advertisers pay for Youtube and digital ads in the first place over terrestrial TV is because they have the ability to know that someone is actually watching. Cookies – the online ones – are effectively doing the same.
To track this behavior in store – without getting super invasive and dystopian – biometrics is the easiest way to do this. Biometrics allows the – already existing – cameras to identify a single person’s route through the store.
Biometrics will allow grocers to unlock the real value in their customer shopping journeys to sell to media networks. Without that data, those screens are as useful as the TV in a tire changing outlet.
Say it with me: Biometrics is the best way to track consumer shopping journeys within our store to deliver the best shopping experience vs online. Biometrics allows us to deliver ad content that is relevant to our customers and helps us find new products they love. Biometrics helps us figure out if our investments in cutting edge grocery technology are worth it.
AI-Powered Pricing Tests
It is actually illegal to charge different prices for food. The Robinson-Patman Act of 1936 made it illegal for sellers to charge different prices if it harms the competition. This was an amendment to the Clayton Act for antitrust enforcement. Ultimately its main benefit is that it prevents suppliers from giving huge discounts to large chains at the expense of small ones.
This law is the backbone which today’s fair food pricing is built upon.
So let’s get back to pricing games. Instacart is back in the regulators’ crosshairs after it was discovered that it was using AI and algorithmic tools to affect how prices appeared to consumers.
Test groups and Consumer Reports consistently found that identical grocery items could appear at different prices for different users simultaneously, with variations reportedly up to 23%. The technology comes from Instacart’s acquisition of an AI pricing platform, which was designed to help retailers test price changes in real time.
To be fair, the optics were even worse. Instacart quickly – publicly at least – discontinued use of the technology. Which is another shame.
Grocery stores have been caught in a low margin proposition since practically forever. This technology could have given them insights into what consumers were willing to pay and what prices make sense for each product. They could use this technology to discover not what the retailer, manufacturer or even wholesaler think, but what consumers actually think a product is worth to them. I’d imagine that some of these insights would be wild.
When we want to test a headline on a piece of copywriting, we would create an A-B split test. You would take 10% to 20% of your list and send half copy “A” and the other half copy “B” to see which headline got more people to open it. The winner was sent to the remaining 80%.
Without testing, you might never learn that your customers want something a specific way.
All these companies involved in the Instacart pricing fiasco needed to do was put a link/explanation at the bottom of every digital order that said something to the effect of:
“We are testing our online prices to make sure that you are consistently offered the best price. You might have received pricing that is different from others. Please use this code to check if you are due a price match rebate. If so, you can use that coupon on your next purchase.”
Simple. Transparent.
Transparency is the key here. American consumers understand that stores are “trying to make a buck,” but they won’t stand for inequality in food prices. As an industry we need to be upfront with the reasons why we are trying new things, and be prepared to offset those experiments.
Your margins are too important to be pidgeonholed into not using the technologies and advantages that other industries use. I’ll say it again, instead of cutting and running, we need to protect the use of these new technological advancements for margins and profitability.
And these might be the first two, but they won’t be the last. There will be more of these types of technology, social privacy, fairness and safety concerns going forward with the mountain of AI advancements coming for us.