Instacart Shuts Down AI Pricing Tests After Consumer Backlash | Fast Five Shorts
This segment of the Omni Talk Retail Fast Five, sponsored by the A&M Consumer and Retail Group, Mirakl, Ocampo Capital, Infios, Quorso, and Veloq, breaks down Instacart’s decision to shut down its AI-driven pricing tests after consumer backlash.
Chris and Anne dig into why pricing transparency still matters, how quickly trust can erode, and what this means for AI-powered pricing across grocery and retail. A sharp conversation on where experimentation crosses the line.
⏩ Watch the full episode here.
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Transcript
Instacart says that it's ending a price testing program that allowed retailers to charge online shoppers different amounts for the same products, according to Grocery Dive.
Speaker A:The decision comes just weeks after Instacart landed in the hot seat following an investigation by Consumer Reports and Groundwork Collaborative that found grocery prices could differ by as much as 23% between customers on the E commerce platform.
Speaker A:Instacart said that the report misclassified its tests as dynamic or surveillance pricing that utilize consumer data to update prices.
Speaker A:The company said it was running short term randomized AB pricing experiments that were, quote, never based on supply or demand, personal data, demographics or individual shopping behavior.
Speaker A:End quote.
Speaker A:Retail partners can still set different prices for items, however, on a store by store basis on Instacart, just as they can with physical stores, instacart said.
Speaker A:Chris, this is now the eighth A&M put you on the spot question.
Speaker A: t you on the spot question of: Speaker A:A&M wants to know how should retailers and brands think about the trade off between sophisticated pricey experimentation and retaining long term customer trust, especially in an increasingly AI driven retail environment.
Speaker B:Oh wow.
Speaker B:Wow.
Speaker B: tart off, we start off hot in: Speaker B:I get the first put you on the spot question for the very first headline.
Speaker B:Lucky me.
Speaker B:All right, well, I'll get to that.
Speaker B:I'll get to my answer to that in a second.
Speaker B:But first, you know, I'm glad this topic's leading the show because I think there's much more conversation to be had around it than we had, you know, a couple weeks ago.
Speaker B:You know, my initial inclination and is that Instacart had to do this.
Speaker B:And for me it all comes down to cognitive dissonance.
Speaker B:So like grocery shopping is different than how we buy airline tickets.
Speaker B:We walk into the store same as everyone else and see one price on the shelf.
Speaker B:Everyone knows that.
Speaker B:Which is why the whole thing makes people feel like they are being taken advantage of or taken advantage of or potentially being manipulated.
Speaker B:So the right way to do this and to get to the question at hand to answer that from A and M is I don't think you make your prices different, but you make your discounts different.
Speaker B:You leverage your retail media networks via discounting as more volume moves online.
Speaker B:Far few people, I think this is my opinion, if any, honestly would have a problem with getting served up discounts.
Speaker B:And cognitively it's already happening by way of individualized reward schemes and also through display advertising.
Speaker B:So it's just an evolution in that, in that arena that's where I'd be putting my focus and my time to get the most out of my pricing strategies.
Speaker A:Yeah, I think that makes sense and I think I agree we'll start to see more retailers go this way.
Speaker A:You know, it's, it's, I give you my loyalty or my information, you, you give me a deal that's catered specifically to me and my shopping behaviors.
Speaker A:I think that feels, definitely feels much more acceptable from a consumer standpoint.
Speaker A:But I still don't know that I agree that grocery shopping online via Instacart is different than how we buy airline tickets.
Speaker A:Like I, I guess I'm, I'm less, I don't like how they were, how they were scheming and charging.
Speaker A:But I think that the media has really blown this out of proportion.
Speaker A:Like the same report said, oh, it costs customers $1,200 a year.
Speaker A:Well that's, that's if you, you know, amortize that over the course of a year.
Speaker A:This was a short term experiment so I guess I don't have as much issue with it.
Speaker A:We see retailers still doing this today.
Speaker A:There's a different place online when I, you know, go on target.com and then I buy something in the store.
Speaker A:Will they correct it for me if I bring it up?
Speaker A:Sure.
Speaker A:But I think there's still something to be said of having the con like Instacart is still a convenience to me.
Speaker A:And so I think that, you know, I'm glad they're ending this program.
Speaker A:I think going the loyalty scheme route makes a lot more sense.
Speaker A:But I think the key here is really for retailers to be paying more attention to the fact that customers are more savvy when it comes to price transparency.
Speaker A:They are looking now at grocery shopping the same way they're looking and comparing gas prices the same way they're comparing Uber and Lyft prices and airlines.
Speaker A:You know, like this mentality is now available at consumers fingertips with some of the tools that we've talked about on this show to upload your, their grocery list to ChatGPT and find the best price available wherever they are or wherever they want to do their shopping.
Speaker A:So I think that's the key takeaway.
Speaker A:You have to think really long and hard about what your strategy is going to be.
Speaker A:I like your option of the, the loyalty schemes instead of the variable pricing, but I still don't think that we'll see variable prices, pricing go away completely and I don't know that I'm, I'm upset about that.
Speaker A:When you're using something Like Instacart.
Speaker B:Yeah.
Speaker B:So, okay, so you're kind of talking out of both sides of your mouth, to be honest, because you're saying like you're okay with it.
Speaker B:Actually, you, it sounds like you as a consumer are okay with it, but then, yet you like that Instacart is discontinuing the practice.
Speaker B:So, like, so help resolve that dichotomy.
Speaker A:I think, I think if you're going to shop via Instacart, you are paying a premium.
Speaker A:It's a convenience.
Speaker A:If you're shopping via Shipt, if you're shopping via any one of those programs, it's not walking into the store like you're talking about, and you're looking at Heinz ketchup at, you know, the Kowalski's or Cub Foods, and you're looking at Target.
Speaker A:It's, it's.
Speaker A:That's a different shopping mentality.
Speaker A:So to me, I think that if there's going to be a premium charged on, on somebody doing your grocery shopping for you, you should not expect premium price parity across the board.
Speaker B:But that's not what this is about.
Speaker B:This is about.
Speaker B:This is about you electing to use in.
Speaker B:You say you electing to use Instacart and then me electing using card and me getting a different price from you for using it.
Speaker A:I mean, it's happening.
Speaker A:It happens with all kinds of convenience products.
Speaker A:Like, I just, I mean, the same thing happens with Uber.
Speaker A:Are you getting upset because an Uber costs you one price and cost me one price?
Speaker A:No, we're all at the.
Speaker A:It's a convenience thing for us.
Speaker A:So I think there's.
Speaker A:Instacart has to make money.
Speaker A:How are they going to make money?
Speaker A:It's going to be based on supply and demand.
Speaker A:And so I guess I don't, I guess I don't take as much issue with it in a convenience setting.
Speaker A:When it's something, you're doing something for you.
Speaker B:Yeah.
Speaker B:So if you're Instacart, then should you just held your ground?
Speaker A:I don't, I, I think there, I feel like there's still some, there was some manipulation happening here in the way that they were doing it, but I would have, I think I would have held my ground a little bit more if I was Instacart.
Speaker A:And I know that's probably not a popular opinion, but, but Instacart's a business.
Speaker A:They have to still try to make money.
Speaker A:There's a lot of people that are going to choose not to use Instacart as a result of this.
Speaker A:And that's a repercussion that Instacart is going to have to consider.
Speaker A:And I think actually positions the grocery retailers in an even better spot to do their own fulfillment, which we'll talk about in a little bit, because customers are working specifically with one grocer versus, you know, going on Instacart.
Speaker A:I need something last minute.
Speaker A:I want it delivered.
Speaker B:Yeah.
Speaker B:And the other, the other factor here is we haven't even talked about the government side of this.
Speaker B:The government gets involved in this.
Speaker B:The government doesn't like this type of thing.
Speaker B:And for, and in my opinion, for good reason, because I actually disagree with you 100%.
Speaker B:I don't, I don't think, I don't think this, this works, particularly in the grocery arena, because of the cognitive dissonance of when I go to a grocery store, I get the same price as everybody else, the same regular price.
