American supermarket chain Kroger, founded in 1883 and the second-largest retailer in the US after Walmart, is introducing a new model of “dynamic pricing” based on artificial intelligence. The technology has sparked controversy and criticism, perplexity.ai reports.
The system, which allows prices to be adjusted in real time based on factors such as demand and customer data, was pitched by Kroger as a way to improve customer service, but has raised questions about corporate profiteering and the ethical implications of personalized pricing strategies.
Even some senators have expressed concerns about potential privacy breaches and increased inequality.
Kroger’s pricing system raises serious privacy concerns because of its extensive data collection and exploitation capabilities. The company plans to install cameras on digital displays that use facial recognition to determine customers’ gender and age, presenting personalized offers based on that information. Furthermore, the Enhanced Display for Grocery Environment (EDGE) system allows Kroger to create detailed customer profiles, potentially determining a person’s maximum willingness to pay for groceries.
This level of data collection and analysis has alarmed critics, who say such practices violate consumer privacy and could lead to discriminatory pricing based on personal characteristics or purchasing power. The use of AI to exploit consumers’ sensitive data to maximize profits raises ethical questions about the balance between technological innovation and privacy rights in retail.
Impact on consumer trust and loyalty
Implementing dynamic AI-powered pricing strategies like Kroger’s could have a significant impact on consumer trust and loyalty. While AI can improve the customer experience, research points to growing skepticism about AI applications in retail. According to Edelman’s Trust Barometer 2024, consumer trust in AI has fallen from 61% to 53% globally over the past five years, with an even greater decline in the U.S., from 50% to 35%. This decline in trust poses challenges for retailers implementing AI-powered pricing models. Consumers may perceive such systems as unfair or exploitative, especially if they believe prices are being manipulated based on personal data. To maintain customer loyalty, retailers must balance the benefits of AI-powered pricing with transparency and ethical concerns.
Ensuring fair pricing algorithms and implementing explainable AI models that provide clear reasons for pricing decisions can help build trust. Additionally, retailers should remember that affordability remains a top priority for consumers, who are more likely than ever to identify as “Affordability First.” As AI-driven pricing strategies evolve, maintaining consumer trust through ethical practices and clear communication will be critical for retailers to maintain customer loyalty in an increasingly AI-driven market.
Benchmarking with competitors' AI-based pricing models
Several major grocery chains have implemented AI-powered pricing strategies, each with unique approaches and features.
While Kroger’s system is the most technologically advanced, using facial recognition and personalized pricing, competitors like Shoprite rely more on traditional loyalty programs with AI enhancements. ALDI takes a different approach, focusing on consistently low prices rather than dynamic adjustments. Local chains like Hy-Vee and Acme compete by emphasizing community preferences and excelling in specific departments. Each strategy presents unique benefits and challenges in terms of consumer trust, pricing transparency, and overall value proposition.
