Chapter 1: What is surveillance pricing and how does it affect consumers?
By now you know that companies will do just about anything to jack up prices on you, and AI is offering them an additional itch.
Delta Airlines is bragging about how they're going to boost profit margins with a new AI algorithm that determines how much you will personally pay for your next ticket. Thanks, AI! It's almost Christmas time. But when I was searching American Airlines website, I'm at the screen where I'm submitting my credit card information and the flights went up over $100 a flight. This is price gouging.
It's not dynamic pricing. It's price gouging. They are charging different amounts based on what they believe you will pay for your groceries.
Dynamic pricing, surveillance pricing, lots of terms that mean companies set prices based on what they know about you. And they know a lot. That's coming up on Today Explained.
I might not have money for food or to hang out with my friends, but I always have money for candles. I always have money for candles. Support for this show comes from Odoo.
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Chapter 2: How is AI used to determine grocery prices on platforms like Instacart?
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Chapter 3: What findings emerged from the Consumer Reports investigation?
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Okay, let's see here. Today. Today. Explained. Explained.
Today.
I'm Noelle King with Derek Kravitz.
Chapter 4: What are the implications of algorithmically changing prices?
He's an investigative journalist at Consumer Reports. And Consumer Reports recently investigated Instacart. Why, Derek?
Yeah, so Instacart bought a small AI company a few years ago called Eversight. And as a result, they are far and away the most sophisticated tech company in retail. And so many companies are investing in AI, but specifically Instacart uses AI in a way that supercharges or turbocharges their data collection and their use of data for individual shoppers. And they're huge.
They've grown to now roughly 300 million orders on pace for 2025. So we really just want to know how much AI is driving grocery store prices through a service like Instacart? How can grocery retailers use this technology to set prices that you see in app or online?
Welcome, welcome, welcome. You have found your way to the Consumer Reports grocery pricing webinar.
So we recruited hundreds of volunteers from across the country to hop on video calls with us.
What has begun? Virginia, Denver.
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Chapter 5: Is surveillance pricing a legal practice in the U.S.?
Yo, Gene, thanks for being with us.
And we all shopped live, right? We all shopped for the same exact items from the same exact grocery stores at the same exact time.
Enter the word Honeycrisp. H-O-N-E-Y-C-R-I-S-P.
trying to control for as many variables as we could to understand how Instacart is using this tech, this AI, to inform their grocery prices.
Sarah is getting charged $2.44 for an apple.
Can anybody beat Sarah?
$2. Brian, winner, winner, chicken dinner.
What we found were, you know, 75% of the products we tested had algorithmically changed prices. Everything from 7 cents on the low end all the way up to $2.56 on the high end. And some of the products had really large price variances. Skippy peanut butter had a 23% price variance between the low and the high.
And, you know, that adds up to real money over time when we extrapolate that out over the course of a year using
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Chapter 6: What is the current status of legislative efforts against surveillance pricing?
Instacart's own estimates for how much Americans spend on groceries in a given year. That's the difference between $1,200 for a household of four.
We'll keep on it. We'll figure out what we can do and how we can guide you all through it. And again, thank you all so very much. 901 Eastern Standard. So we'll sign off now. What are you saying when you say prices were algorithmically changed? What was actually happening?
You know, a lot of people liken it to like A-B testing. And when I say that, I mean, you know, they're toggling one price, 5, 10, 15 cents more, and then another price, 5, 10, 15 cents less, and trying to figure out that perfect mix of price points that will compel you, the shopper, to buy those products. If you're more willing to pay more money to buy alcohol or sweets on a Friday...
Late on a Friday and you group all those products together on a Friday. For a company, they understand that purchase history and they understand that they can charge you more based on that purchase history. And they can sell those insights, that information and data to retailers as a really valuable opportunity.
Chapter 7: How do companies justify the use of surveillance pricing to consumers?
bit of information on you, the shopper. And of course, retailers want that. And they see, you know, the ability to make more money, especially in a business like grocery that has really low margins. Historically, this means something this this 123 percentage points means hundreds of millions of dollars in additional revenue. And that's the difference between, you know, making a profit or not.
Okay, so your investigation finds out what Instacart is doing, and then you call up Instacart and you say, guys, we know what you're doing. What does Instacart say?
So they did say, you know, look, this is something that we're pretty open about. We've been telling our business clients for years, this is happening. It's online. It's out there. And look, we still believe that it's negligible price differences, small, limited time and randomized. And really, at the end of the day, it helps grocery retailers and us know why.
which products people care most about and trying to, in the attempt to try to make groceries more affordable for more Americans. Our data showed something a little bit different.
Chapter 8: What can consumers do to avoid being affected by surveillance pricing?
Very few people in our testing got the lowest price possible. When we looked at it, 8% of our testers got the lowest available price on products. And everyone else, 92%, got something higher.
And generally speaking, when we look at the marketing materials and things that are out there by Instacart for their grocery clients, it's all in an attempt to maximize profits and to, again, get a little bit more sales revenue or a little bit more profit margin. And really that means you're either buying more or you're paying more per item, right? And usually a combination of both.
Okay, so Instacart is able to do this because they have this small AI company, Eversight. And Eversight AI is clever and it's figuring all this out. Is it just Instacart or are other companies doing this to us?
Other retailers are doing it, yeah. And the more technologically savvy they are, the more likely they are to be using this at a scale that really affects more Americans.
When we looked at a grocery retailer called Kroger, which is actually the second or third largest retailer by most metrics, they own a bunch of different banners, King Soopers and Fred Meyer and QFC and all these grocery chains around the country.
We found that they actually use a lot of personal and demographic data on their customers, and they drive a lot of people through their free loyalty program. And then with that data, they tailor promotions and discounts to particular people. And they use that personal data, those demographics, to dictate who gets what promotion or discount.
So we find that, again, a lot of retailers are using this debt and using it effectively. And really, it bears out in their earnings and in their quarterly reports if they're publicly traded or even if they're privately held. We see a lot of increase in meaningful profits and revenue for some of these companies.
Is this legal?
It's a very good question. It's really a gray area. I think everyone we spoke to about this acknowledged that, look, there's no specific federal surveillance pricing bill. And when I say surveillance pricing, I'm talking about the idea of using your shopping history or your buyer behavior or demographics even.
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