Data-Driven Pricing and Retail

The issue

Since the earliest days of commerce, the cost of goods, labor, rent and transportation, as well as competitor pricing, have shaped how retailers set prices for their goods. As markets become more competitive and fast-moving, retailers are leveraging technology and deploying modern pricing tools to do what they have always done — manage inventory, respond to consumer demand and compete on price — only now with greater efficiency and consistency. 

These data-driven pricing tools, such as digital shelf labels and algorithmic pricing, enable retailers to anticipate customer demand and compete on price in an increasingly dynamic marketplace. They can create more choices for consumers, reduce waste or inefficiencies, and result in lower prices because savings are shared by the retailer with the consumer.  

An algorithm is simply a set of instructions, typically in the form of a mathematical formula, used to solve a problem. In retail, an algorithm can be as straightforward as taking the total cost a retailer paid for its goods and adding a markup to cover the costs of bringing those goods to market.  

Although displaying prices digitally and using algorithmic formulas may sound futuristic, they are simply new tools built on long-standing retail pricing practices. These retail practices do not replace existing consumer protections, and their uses are already governed by federal and state laws that guard against deception, discrimination and consumer data misuse. 

Far from being a novel or dangerous practice, algorithmic tools enable retailers to compete more effectively in today’s fast-moving marketplace while providing greater efficiency and accuracy and improving the customer experience. 

How retailers compete to make prices more affordable

Why it matters to retailers

Federal and state legislatures are considering proposals to restrict the use of algorithmic pricing technology and digital shelf labels, while raising important questions about the role of innovation and competition and its subsequent impact on consumers. 

The answer is not a patchwork of broad, vaguely worded disclosures, nor is it restrictions on tools that improve customer service, ensure accuracy and eliminate waste. These proposals will make it difficult for grocery stores to efficiently mark down products before they spoil and can no longer be sold. They will also prevent retailers from lowering prices to match seasonal trends and respond to consumer demand. 

Creating new compliance burdens will ultimately add to the cost of goods and introduce confusion for the consumer and the shopping experience. Mischaracterizing longstanding pricing practices will discourage retailers from offering personalized discounts, tailored incentives or timely pricing updates — ultimately limiting flexibility and reducing benefits to consumers without addressing conduct that is already prohibited under existing law.  

How do digital shelf labels work?

NRF’s position

NRF supports policies that preserve retailers’ ability to respond efficiently to market conditions while protecting consumers and promoting competition. We support a highly competitive retail ecosystem, along with the responsible use of data by retailers to deliver affordable and relevant products to consumers.  

At a time when policymakers are focused on promoting affordability and competition, maintaining retailers’ flexibility to respond to changing market conditions is essential. Algorithmic pricing tools help retailers adjust to supply, demand and the competitive pressures of a digital economy while also supporting fair pricing and consumer choice. NRF opposes deceptive or discriminatory pricing practices; to that end, policymakers should legislate along the bifurcation of unlawful conduct and the routine use of data analytics that enables retailers to compete, manage inventory, and respond to evolving consumer demand.  

A robust framework of state and federal laws is already in place to protect consumers. Antitrust laws prohibit price fixing and other anti-competitive behaviors.  Consumer protection laws require truthful advertising and accurate pricing, while prohibiting deceptive practices. More than 40 states and territories enforce price gouging laws that protect consumers from excessive price increases during emergencies and unique times of increased demand. Civil rights laws ban discrimination based on protected characteristics, and 20 state privacy laws regulate how businesses disclose, collect and use consumers’ personal information. 

Building customer trust and loyalty is paramount for retailers. Retailers operate in a highly competitive environment where they work to generate loyalty, provide value and deliver the best possible price for consumers.