August 22, 2012
Is Customized Pricing Legit?
Several grocers are rolling out customized pricing based on shoppers’ buying habits. A recent article in the New York Times explored whether the practice of charging different prices for the same product to different people at the same time was fair.
In most cases, incentives — or a special discount — are provided to encourage a shopper to buy an item she already buys or a complementary one. The tailored offers are based on information decoded from their loyalty cards. So far, they seem to be coming in "personalized deals" at several grocers. But the pricing model "over time could displace standardized price tags," predicted the Times.
Critics claim the use of personal shopping data in this way raises privacy concerns. Joseph Turow, a professor at the Annenberg School for Communication at the University of Pennsylvania, believes grocery store pricing is not transparent enough and "there’s a sense of fairness that’s derailed here."
But retailers said individualized coupons have already proved popular and websites such as Amazon have made consumers comfortable with custom offers and varying pricing. Tailored deals are seen as the tradeoff for any privacy concerns.
"If our consumer information is right, personalization is really a consumer desire right now, not so much a consumer fear," Michael Minasi, president for marketing at Safeway, told the Times.
On Safeway’s second-quarter conference call, CEO Steven Burd said "highly personalized" offers under its new Just For U program had raised average basket sizes. He touted its advantages over past "mass-marker" approaches.
"I think that personalization will permeate the retail industry, the bricks and mortar industry, in a very broad way," added Mr. Burd. "It’s the only way for them to compete with the Internet."
The Times report also detailed Kroger’s work with dunnhumbyUSA to deliver specialized coupons to frequent shoppers as well as Shop & Stop’s new mobile app that enable shoppers to scan products in aisles to gain special deals.
The more than 250 comments to the Times article generally ran negative with many touching on "creepy" privacy concerns. Many felt personalized pricing would only lead to significantly higher pricing on a regular basis for new or less frequent shoppers or those who didn’t want to be data mined. Massysett, Washington, DC, suspected that knowing a grocer was providing special deals to certain customers may convince a customer to frequent a grocer with clearer pricing "where he knows he gets the same price as everyone else."
Still, a few were okay with the privacy tradeoff. Wrote Nasochkas, of
Cambridge, MA, "As a consumer, I would also prefer to receive offers I might actually use, as opposed to generic coupons for processed garbage I never buy."
- Shopper Alert: Price May Drop for You Alone – The New York Times
- Safeway’s Second Quarter 2012 Conference Call – Seeking Alpha
- Grocers see sense for custom pricing – UPI
- Safeway unveils "Just for U" mobile app – Baltimore Sun
- Is Customized Supermarket Pricing Gleaned From Loyalty Cards Creepy Or A Good Thing? – Consumerist.com
BrainTrust
Recent Discussions
Discussion Questions
How receptive will grocery shoppers be to personalized pricing? What do you see as the primary hurdles around consumer acceptance? Do you likewise see personalized deals as the next wave of retail pricing?
Poll
If shoppers feel that there is enough value, most will be willing to trade away some privacy. I see little wrong with offering personalized deals to consumers based on their shopping habits, and wonder why it’s taken so long for grocers to hone their customized offerings.
The answer is completely dependent on the framing of the question.
“Are you OK with retailers giving you a different price on certain products than the next person in line based on your purchase history?” No.
“Are you OK with retailers identifying special coupons just for you on the products you buy most?” Heck, yeah!
I think the Times article went a bit too far in concluding that personalized pricing could displace standard price tags. Rather, I see personalized pricing being successful as a layer on top of the shelf price.
Since the grocers mentioned are all premium-priced grocers to begin with, my guess is Walmart and Target will still be a better value. There is no way these chains could afford to sell groceries to anyone at Walmart levels. I seriously doubt even Safeway’s best customers would be given Aldi pricing, therefore consumers will not be impressed for very long.
Providing consumers with incentives and rewards that they value while simultaneously driving up loyalty, market basket, and/or wallet share is a win win for both consumers and retailers.
This is not a new concept but “Big Data” is taking this to a whole new level.
More forays into the “creepy zone” and some consumer backlash aside this trend will accelerate.
Customized coupons are here to stay. Psychologically speaking, I bet most shoppers will think that they are getting a better deal than their neighbor anyway….
However, as a practical matter, I am a bit nervous that income inequality might be made worse because of the cumulative effect of shopping habits. Some deals wouldn’t be accessible to those who couldn’t afford the purchase history to justify a particular discount. We’ll see.
I believe that personalized offers will be a critical marketing tactic for the future. The technology is now available to enable more dynamic marketing in the way of messages, pricing and promotional offers. In some cases, it is even conceivable to offer customized products.
While there are certainly privacy concerns, most shoppers are likely to positively view the trade off of some information for personalized offers and better value. If not, they have the choice to opt out.
Personalized pricing is a logical and beneficial next step in price optimization for retailers. It avoids wasteful blanket discounts and should ultimately result in retailers reflecting savings in sharper pricing to remain competitive.
On the issue of consumers being upset about “transparency” in pricing — shouldn’t personalized offers be — well, personal? And if conveyed via personal communication, shouldn’t they also be private?
As far as the aggravation factor, what could be more aggravating than today’s current practice of “loyalty card holder only” pricing? If your personal privacy concerns extend to not wanting to sign up for the retailer’s loyalty card, that practice puts the fact that YOU aren’t getting the best price right in your face.
So first, haven’t shoppers already agreed to give up their privacy by opting into the club card program in the first place? I’m a little confused by how they could get hung up on that one — “It’s okay for you to track all my personal data and keep it and analyze it and all that, but if you actually want to use it to mutually beneficial advantage, that’s invading my privacy?” That’s a logic I don’t follow.
It’s ironic that grocery is leading this charge, because it seems like the only logical response to price transparency, which is hitting other verticals much harder. With total transparency between online and store and all competitors in between, retailers are forced to offer sort of “list price” for everything — yes, that’s THE price, but it’s not YOUR price.
The other thing I don’t really get: what’s so unfair about rewarding better customers with better deals? Shouldn’t that be an incentive for shoppers lower down the tiers to give more business to the retailer in question, if they’re feeling left out? I think the only failure of transparency here is if retailers don’t show individual consumers the path to better deals — “Spend $100 more this month and you’ll make Platinum! Here are all the benefits…”
This is an idea whose time has come. I think it’s inevitable — and it won’t be for just grocery either. Transparency almost demands this kind of response.
For the most part, people aren’t even aware of the data gathering. And, if they understand, they assume it is to generate rewards to their benefit. How many shoppers have refused to use their loyalty cards to protect their privacy? This is a silly discussion and as David Livingston said whatever the retailers do, they still aren’t going to beat Walmart, Target or Aldi.
If I were a big-city mayor and found that stores were charging higher prices to poor people than they were to the affluent who enjoyed larger bases I’d be outraged. Creepy, indeed.
First I think there is a distinction between “Customized Pricing” and “Customized Offers.”
The grocery retailer is years behind what other retailers like Amazon, Zappos, L.L.Bean, and other e-tailers have been doing for ages. This is nothing more than that. Nothing more. What this really shows is how really inept grocery retailers have been at actually putting data that they have been collecting for years into smart use.
The acceptance issue is simply old history. It is part of the retail world and an expectation of the consumer. It is a far better use of data than simply making a customer swipe their card to get the weekly ad. That practice isn’t right and never has been.
Personalizing offers to certain customers, based on their shopping habits is nothing new, except the technology has made it much easier, and quicker to do.
If the consumer thinks it’s a deal, and buys the product, than good for the retailer. Deals for everybody still rules the day, which builds the bottom line over time.
This is another step in the loyalty process. And it’s a loyalty program that the retailer can actually measure and understand what works and what doesn’t.
Privacy issue? This is no different than having a personalized ad displayed in your browser, Facebook, or YouTube page. The only way the process could work is if it can identify a customer in some manner as they shop and purchase goods. Effectively used it’s no different than a coupon sent to a specific customer–and the retailer could decide which customer to reward with special pricing and promotions.
So we have two models: one where “deals” go out only to people who (normally) buy a product, and the other where they go out to everyone, but are only used by people who buy the product because…well, they’re the only ones who buy the product; it doesn’t strike me as very different, save for the cost of distributing unused offers (though that might be considerable). But one of the main purposes of promotion, of course, is to get people to try something that they normally wouldn’t. This would seem to risk missing that group unless the selection criteria are right…and based on what I’ve seen from Amazon’s annoying e-mails, I’m skeptical.
Personalized pricing has been offered since the very first retailers appeared. Technology is simply making the process easier.
I believe this approach will make it easier to keep customers in the store’s RTA loyal by offering an overall lower total bill — It eliminates the need to shop at multiple locations to get the best deal on detergent, pet food, or produce. Moreover, programs like Safeway’s allow the consumer the ability to plan their shopping trip from their home computer.
I would also like to know how this affects the consumer by segments (i.e. Boomers vs Millennials). I would think Millennials would be more open to the technology and to the idea of exploring and planning for their optimum shopping experience.
In terms of even advertised prices, there is a high percentage of customers who are unaware that they have even received a discount. They just wanted the item. In personalized pricing, will the customer even know they got the special price? Is there a value to this if you don’t know? Who pays for the discount? Do the retailers absorb the markdown or bill back to the manufacturer? Not sure the manufacturers will like the transparency question there. Much like the loyalty cards where you are told at checkout how much you saved. Saved over what? Compared to what? Much complexity, and potential legal risk with a dubious return.
David Ogilvy said it some 50 years ago, “The customer is not the village idiot, she’s your wife!”
Now, if Mr. Ogilvy was saying that today, he’d likely point out that the customer is your friend, neighbor, husband, wife, co-worker, etc. But the message is the same. The consumer is going to welcome the opportunity to be recognized, appreciated, and provided with added value.
The New York Times is worried about saving some type of “Fairness.” The consumer is interested in savings.
When economies or markets are stagnant, only companies that innovate or operate in thriving sectors are likely to rise. The grocery sector is not thriving. They can innovate, and work with their customers, and in the process, rise.
Let’s put the kibosh on the notion that personalized pricing violates privacy. At Safeway, I’m just a number. Their system is set up to print my name on my receipts when I use my loyalty card, so the clerk can say “Thank you Mr. Banks.” When they try that with me, they say, “Thank you Mr. – uh.” That’s because I opted not to give them my name when I signed up. With their new Just For U program, the only crucial information they require is an email address for delivery of my special offers. I created an email address at MSN Hotmail specifically for this program. My privacy has no chance of being violated. (Plus, I also get great gas discounts based on my purchase amounts.)
And, can we also put to rest the notion that it’s not fair for some shoppers to get better prices than other shoppers? Nearly everyone accepts this as a fact of life because they understand how it works and that they, too, can participate if they wish, with no fear of marginalizing their privacy. This is old news.
Let’s also examine the purpose of customized pricing programs — they’re not just for pricing. Yes, they can move you to other brands or larger sizes (like Checkout Coupon does) and incentivize you to spend more. But, they can also move shoppers to the more profitable perimeter departments. Move Oscar Mayer purchasers to the fresh deli. Frozen seafood buyers to the fresh seafood department. Packaged baked goods to the in-store bakery. Packaged cheese to the deli. Canned fruits and veggies to fresh produce. Of course, the store will have to bear the costs of these promotions — no manufacturer co-op money — but if managed properly, it’ll be worth it.
Horrible idea!
People talk thru Twitter, Facebook, Yelp, etc. and it won’t take long before the news is out. I’ve tracked price variations by community and whenever I’ve encountered a price bump, I am more than willing to broadcast it to my network.
Every week I earn a special price for a gallon of 2 percent milk because I am a loyal Just For U member at Safeway. That alone makes me shop there. It may be a loss leader for Safeway, but it brings me back to the store each week because they recognize the items I buy the most and want to pay the least for. I also love their banana prices.
Grocery store economics 101: bananas are usually one of the first items you see upon entering the store. If their price is high, then it’s a good probability that the rest of the store’s “sale” items are marked up as well. Banana prices for me have always been a barometer for determining how fairly prices are charged in the rest of a grocery store. Look at Aldi’s and Bottom Dollar Food. Their banana prices are the lowest in the marketplace. And they are an excellent example that the rest of the store has great bargains as well.
Each consumer, based on their experiences and values, places a different value on each product and category. Variable pricing allows retailers to identify value on their customers’ terms.
Big ticket retailers and car dealers do this instinctively — they continue to drop price until the customer buys the product.
The problem is consumer groups will find/create a bias (regardless of whether it exists or not). We live in a cynical transparent world where many of those you serve are convinced you’re trying to stick-it-to-them.
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If shoppers feel that there is enough value, most will be willing to trade away some privacy. I see little wrong with offering personalized deals to consumers based on their shopping habits, and wonder why it’s taken so long for grocers to hone their customized offerings.
The answer is completely dependent on the framing of the question.
“Are you OK with retailers giving you a different price on certain products than the next person in line based on your purchase history?” No.
“Are you OK with retailers identifying special coupons just for you on the products you buy most?” Heck, yeah!
I think the Times article went a bit too far in concluding that personalized pricing could displace standard price tags. Rather, I see personalized pricing being successful as a layer on top of the shelf price.
Since the grocers mentioned are all premium-priced grocers to begin with, my guess is Walmart and Target will still be a better value. There is no way these chains could afford to sell groceries to anyone at Walmart levels. I seriously doubt even Safeway’s best customers would be given Aldi pricing, therefore consumers will not be impressed for very long.
Providing consumers with incentives and rewards that they value while simultaneously driving up loyalty, market basket, and/or wallet share is a win win for both consumers and retailers.
This is not a new concept but “Big Data” is taking this to a whole new level.
More forays into the “creepy zone” and some consumer backlash aside this trend will accelerate.
Customized coupons are here to stay. Psychologically speaking, I bet most shoppers will think that they are getting a better deal than their neighbor anyway….
However, as a practical matter, I am a bit nervous that income inequality might be made worse because of the cumulative effect of shopping habits. Some deals wouldn’t be accessible to those who couldn’t afford the purchase history to justify a particular discount. We’ll see.
I believe that personalized offers will be a critical marketing tactic for the future. The technology is now available to enable more dynamic marketing in the way of messages, pricing and promotional offers. In some cases, it is even conceivable to offer customized products.
While there are certainly privacy concerns, most shoppers are likely to positively view the trade off of some information for personalized offers and better value. If not, they have the choice to opt out.
Personalized pricing is a logical and beneficial next step in price optimization for retailers. It avoids wasteful blanket discounts and should ultimately result in retailers reflecting savings in sharper pricing to remain competitive.
On the issue of consumers being upset about “transparency” in pricing — shouldn’t personalized offers be — well, personal? And if conveyed via personal communication, shouldn’t they also be private?
As far as the aggravation factor, what could be more aggravating than today’s current practice of “loyalty card holder only” pricing? If your personal privacy concerns extend to not wanting to sign up for the retailer’s loyalty card, that practice puts the fact that YOU aren’t getting the best price right in your face.
So first, haven’t shoppers already agreed to give up their privacy by opting into the club card program in the first place? I’m a little confused by how they could get hung up on that one — “It’s okay for you to track all my personal data and keep it and analyze it and all that, but if you actually want to use it to mutually beneficial advantage, that’s invading my privacy?” That’s a logic I don’t follow.
It’s ironic that grocery is leading this charge, because it seems like the only logical response to price transparency, which is hitting other verticals much harder. With total transparency between online and store and all competitors in between, retailers are forced to offer sort of “list price” for everything — yes, that’s THE price, but it’s not YOUR price.
The other thing I don’t really get: what’s so unfair about rewarding better customers with better deals? Shouldn’t that be an incentive for shoppers lower down the tiers to give more business to the retailer in question, if they’re feeling left out? I think the only failure of transparency here is if retailers don’t show individual consumers the path to better deals — “Spend $100 more this month and you’ll make Platinum! Here are all the benefits…”
This is an idea whose time has come. I think it’s inevitable — and it won’t be for just grocery either. Transparency almost demands this kind of response.
For the most part, people aren’t even aware of the data gathering. And, if they understand, they assume it is to generate rewards to their benefit. How many shoppers have refused to use their loyalty cards to protect their privacy? This is a silly discussion and as David Livingston said whatever the retailers do, they still aren’t going to beat Walmart, Target or Aldi.
If I were a big-city mayor and found that stores were charging higher prices to poor people than they were to the affluent who enjoyed larger bases I’d be outraged. Creepy, indeed.
First I think there is a distinction between “Customized Pricing” and “Customized Offers.”
The grocery retailer is years behind what other retailers like Amazon, Zappos, L.L.Bean, and other e-tailers have been doing for ages. This is nothing more than that. Nothing more. What this really shows is how really inept grocery retailers have been at actually putting data that they have been collecting for years into smart use.
The acceptance issue is simply old history. It is part of the retail world and an expectation of the consumer. It is a far better use of data than simply making a customer swipe their card to get the weekly ad. That practice isn’t right and never has been.
Personalizing offers to certain customers, based on their shopping habits is nothing new, except the technology has made it much easier, and quicker to do.
If the consumer thinks it’s a deal, and buys the product, than good for the retailer. Deals for everybody still rules the day, which builds the bottom line over time.
This is another step in the loyalty process. And it’s a loyalty program that the retailer can actually measure and understand what works and what doesn’t.
Privacy issue? This is no different than having a personalized ad displayed in your browser, Facebook, or YouTube page. The only way the process could work is if it can identify a customer in some manner as they shop and purchase goods. Effectively used it’s no different than a coupon sent to a specific customer–and the retailer could decide which customer to reward with special pricing and promotions.
So we have two models: one where “deals” go out only to people who (normally) buy a product, and the other where they go out to everyone, but are only used by people who buy the product because…well, they’re the only ones who buy the product; it doesn’t strike me as very different, save for the cost of distributing unused offers (though that might be considerable). But one of the main purposes of promotion, of course, is to get people to try something that they normally wouldn’t. This would seem to risk missing that group unless the selection criteria are right…and based on what I’ve seen from Amazon’s annoying e-mails, I’m skeptical.
Personalized pricing has been offered since the very first retailers appeared. Technology is simply making the process easier.
I believe this approach will make it easier to keep customers in the store’s RTA loyal by offering an overall lower total bill — It eliminates the need to shop at multiple locations to get the best deal on detergent, pet food, or produce. Moreover, programs like Safeway’s allow the consumer the ability to plan their shopping trip from their home computer.
I would also like to know how this affects the consumer by segments (i.e. Boomers vs Millennials). I would think Millennials would be more open to the technology and to the idea of exploring and planning for their optimum shopping experience.
In terms of even advertised prices, there is a high percentage of customers who are unaware that they have even received a discount. They just wanted the item. In personalized pricing, will the customer even know they got the special price? Is there a value to this if you don’t know? Who pays for the discount? Do the retailers absorb the markdown or bill back to the manufacturer? Not sure the manufacturers will like the transparency question there. Much like the loyalty cards where you are told at checkout how much you saved. Saved over what? Compared to what? Much complexity, and potential legal risk with a dubious return.
David Ogilvy said it some 50 years ago, “The customer is not the village idiot, she’s your wife!”
Now, if Mr. Ogilvy was saying that today, he’d likely point out that the customer is your friend, neighbor, husband, wife, co-worker, etc. But the message is the same. The consumer is going to welcome the opportunity to be recognized, appreciated, and provided with added value.
The New York Times is worried about saving some type of “Fairness.” The consumer is interested in savings.
When economies or markets are stagnant, only companies that innovate or operate in thriving sectors are likely to rise. The grocery sector is not thriving. They can innovate, and work with their customers, and in the process, rise.
Let’s put the kibosh on the notion that personalized pricing violates privacy. At Safeway, I’m just a number. Their system is set up to print my name on my receipts when I use my loyalty card, so the clerk can say “Thank you Mr. Banks.” When they try that with me, they say, “Thank you Mr. – uh.” That’s because I opted not to give them my name when I signed up. With their new Just For U program, the only crucial information they require is an email address for delivery of my special offers. I created an email address at MSN Hotmail specifically for this program. My privacy has no chance of being violated. (Plus, I also get great gas discounts based on my purchase amounts.)
And, can we also put to rest the notion that it’s not fair for some shoppers to get better prices than other shoppers? Nearly everyone accepts this as a fact of life because they understand how it works and that they, too, can participate if they wish, with no fear of marginalizing their privacy. This is old news.
Let’s also examine the purpose of customized pricing programs — they’re not just for pricing. Yes, they can move you to other brands or larger sizes (like Checkout Coupon does) and incentivize you to spend more. But, they can also move shoppers to the more profitable perimeter departments. Move Oscar Mayer purchasers to the fresh deli. Frozen seafood buyers to the fresh seafood department. Packaged baked goods to the in-store bakery. Packaged cheese to the deli. Canned fruits and veggies to fresh produce. Of course, the store will have to bear the costs of these promotions — no manufacturer co-op money — but if managed properly, it’ll be worth it.
Horrible idea!
People talk thru Twitter, Facebook, Yelp, etc. and it won’t take long before the news is out. I’ve tracked price variations by community and whenever I’ve encountered a price bump, I am more than willing to broadcast it to my network.
Every week I earn a special price for a gallon of 2 percent milk because I am a loyal Just For U member at Safeway. That alone makes me shop there. It may be a loss leader for Safeway, but it brings me back to the store each week because they recognize the items I buy the most and want to pay the least for. I also love their banana prices.
Grocery store economics 101: bananas are usually one of the first items you see upon entering the store. If their price is high, then it’s a good probability that the rest of the store’s “sale” items are marked up as well. Banana prices for me have always been a barometer for determining how fairly prices are charged in the rest of a grocery store. Look at Aldi’s and Bottom Dollar Food. Their banana prices are the lowest in the marketplace. And they are an excellent example that the rest of the store has great bargains as well.
Each consumer, based on their experiences and values, places a different value on each product and category. Variable pricing allows retailers to identify value on their customers’ terms.
Big ticket retailers and car dealers do this instinctively — they continue to drop price until the customer buys the product.
The problem is consumer groups will find/create a bias (regardless of whether it exists or not). We live in a cynical transparent world where many of those you serve are convinced you’re trying to stick-it-to-them.