If you and a friend visit your local Safeway store—same day, same time, same store—you may be surprised by something that is not the same: the price you pay for the exact same item. Using detailed consumer behavior data collected through its loyalty cards, Safeway and a few other stores are offering strictly personalized bargains.
The algorithm is relatively straightforward. If one consumer buys several of the store’s private-label products, such as paper towels and glass cleaner for example, she will receive a great coupon on the store’s private-label dishwashing detergent too. Another customer might receive a coupon for the same item, but if his behavior indicates he is less likely to buy the store brand (because he has purchased name brand paper towels in the past), that coupon will be worth much less.
Individual behavior is the primary but not the only determinant of the kind of bargains people receive. When Washington suffered massive power outages, Safeway sent local customers a wealth of coupons for freezer items, knowing that they likely had to restock. A family that lists many children on their loyalty card information get coupons for larger sizes—especially for products that the kids clamor for in the store, like sugary cereals.
As the newly implemented systems gain traction, observers question the ethicality of these tactics. If the pricing systems are not really transparent, customers may suffer from a lack of informed choice. Yet it seems that customers are increasingly accepting a state of affairs in which their neighbor pays dollars less for the same item. One test shopper even began to game the system. She realized her coupons were better when she switched between two brands. So even if she preferred one, she would occasionally buy its competitor—just to make sure she received the best bargain the next time around.
Source: Stephanie Clifford, “Shopper Alert: Price May Drop for You Alone,” The New York Times, August 9, 2012.
Kyle T. said:
Economically speaking, price discrimination has always been a goal of firms because it raises their profits at the expense of consumer surplus. However the ethicality of Safeway’s decision can definitely be scrutinized. Charging two different prices for customers who shop simultaneously appears wrong and unfair. It brings into question what qualifies as going too far when trying to maximize prices. Sales are traditionally used by stores to sell off products that have not sold well recently, but gearing sales towards individuals seems only to try to take advantage of the customer. In my opinion this practice is wrong, but that being said it is a great idea by Safeway if their sole goal is to maximize profits, even if it is at the expense of customer loyalty.