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The big picture: Dynamic pricing is becoming an unavoidable reality, despite its unpopularity among many consumers. This shift is being driven by technologies like electronic shelf labels (ESLs). Retailers argue that these innovations increase efficiency and reduce costs in an industry known for its slim profit margins. However, consumers worry that this could pave the way for even more aggressive dynamic pricing practices. As Walmart begins deploying ESLs in its stores, industry observers will be closely watching how consumers react to this change.
Walmart is leading the charge to replace traditional paper price tags with electronic shelf labels (ESLs) by 2026. The retailer aims to introduce the technology in 2,300 stores, signaling a significant shift that has already taken hold in Europe. With several locations in California already utilizing ESLs, Walmart may be paving the way for a nationwide transformation.
Electronic shelf labels use display technologies, such as e-paper or LCDs to present product information. These labels are connected to a central server wirelessly via radio frequency, Bluetooth, Wi-Fi, or Zigbee. This connectivity allows for real-time updates to product information, but most importantly, prices.
The adoption of electronic labels offers numerous advantages to stores, as the ability to quickly update prices saves time and labor compared to the manual process of changing paper labels. However, the ease of changing prices has raised concerns about potential price gouging and the facilitation of dynamic pricing strategies, where prices fluctuate based on demand factors such as time of day or weather conditions.
In fact, the technology is tailor-made for dynamic pricing. ESLs allow retailers to adjust prices in real-time based on specific conditions, such as raising prices during peak shopping hours or offering discounts during off-peak times to attract more customers.
Despite this, both Walmart and Kroger, have assured consumers that they do not intend to use electronic labels for dynamic pricing. Instead, they claim the technology will be used to lower costs and reflect sale prices, not to increase prices throughout the day.
They are walking a thin line with consumers, however, as they deploy the technology. Trust can quickly be eroded if consumers feel they are being charged unfairly, particularly if they suspect prices are being manipulated based on their purchasing behavior or personal data. A Capterra survey found that 52% of consumers equate dynamic pricing with price gouging, and only 34% believe it benefits them.
Santiago Gallino, a professor specializing in retail management at the University of Pennsylvania, notes that he hasn't observed signs that retailers plan to use ESLs for surge pricing. "In my conversation with retailers, it's clear that those who are pushing towards this technology are mainly trying to drive efficiency up in the stores and try to reduce costs," Gallino told the Los Angeles Times. "Grocery retailers operate on very thin margins, so every time they find technology that can help them save in labor, they will do that."
Nonetheless, skepticism remains among some policymakers. US Senators Elizabeth Warren and Bob Casey expressed their concerns in a letter to Rodney McMullen, CEO of Kroger, which is also using ESLs in its stores. "These digital price tags may enable Kroger and other grocery chains to transition to 'dynamic pricing,' in which the price of basic household goods could surge based on the time of day, the weather, or other transitory events," they wrote.