AI-Driven Surveillance Pricing Exploits Consumer Data for Profit

Key Quotes

"Instacart bought a small AI company a few years ago called Eversight and as a result they are far and away the most sophisticated tech company in retail and so many companies are investing in AI but specifically Instacart uses AI in a way that supercharges or turbocharges their data collection and their use of data for individual shoppers and they're huge they've grown to now roughly 300 million orders on pace for 2025 so we really just wanted to know how much AI is driving grocery store prices through a service like Instacart."

Derek Cravens, an investigative journalist at Consumer Reports, explains that Instacart's acquisition of Eversight has positioned them as a leading tech company in retail. This integration of AI allows Instacart to significantly enhance its data collection and utilization for individual shoppers, impacting a vast number of orders annually and prompting an investigation into AI's role in grocery pricing.

"What we found were, you know, 75% of the products we tested had algorithmically changed prices, everything from 7 cents on the low end all the way up to $2.56 on the high end, and some of the products had really large price variances. Skippy peanut butter had a 23% price variance between the low and the high, and you know, that adds up to real money over time."

Derek Cravens highlights the findings of the Consumer Reports investigation, revealing that a significant majority of tested products exhibited price changes driven by algorithms. The range of these price variances, from minor to substantial, indicates that these algorithmic adjustments can lead to considerable financial differences for consumers over time.

"You know, a lot of people liken it to like A/B testing, and when I say that, I mean, you know, they're toggling one price five, ten, fifteen cents more, and then another price five, ten, fifteen cents less, and trying to figure out that perfect mix of price points that will compel you, the shopper, to buy those products."

Derek Cravens describes the method behind algorithmically changed prices, comparing it to A/B testing. This process involves adjusting prices incrementally to identify the optimal price points that are most likely to encourage consumers to make a purchase.

"So they did say, you know, look, this is something that we're pretty open about. We've been telling our business clients for years this is happening, it's online, it's it's out there. And look, we still believe that it's negligible price differences, small, limited time, and randomized, and really at the end of the day, it helps grocery retailers and us know which products people care most about and trying to, you know, in the attempt to try to make groceries more affordable for more Americans."

In response to the investigation, Instacart acknowledged the practice of algorithmically changing prices, stating they have informed their business clients for years. Instacart characterizes these price differences as negligible, temporary, and random, suggesting the practice helps retailers understand consumer preferences and aims to make groceries more affordable.

"The FTC even has an active probe into surveillance pricing, so it's an open question. You know, I wonder, I wonder if there is a case for this. So let's say you have two American neighborhoods, one of them is very upper income, one of them is very lower income, and the people in the upper income neighborhood, they spend a lot more because they can spend a lot more. Lower income neighborhood, they're strapped, and food is very expensive. Is there a case for this that says, look, if you're rich, you should be able to pay the $3.50 for the peanut butter or the $5.50 for the peanut butter, and if you're in a poor neighborhood, okay, we charge you $2.50?"

The discussion touches upon the legal gray area of surveillance pricing, noting the FTC's active probe. It raises the hypothetical scenario of differential pricing based on neighborhood income levels, questioning whether such a practice could be justified by consumers' varying ability to pay.

"We're moving into a very fast-paced, quick use of this really sophisticated tech with now AI involved, and you know, regulators and the American public are playing catch-up, and so we're trying to figure out, you know, what this all means and how we should best react to it."

Derek Cravens points out the rapid advancement and adoption of sophisticated AI technology in pricing strategies. He emphasizes that regulators and the public are currently in a reactive phase, working to understand the implications of these practices and determine appropriate responses.