Instacart Utilizes AI-Driven Dynamic Pricing to Increase Rates
A recent investigation has uncovered that Instacart employs an AI-driven dynamic pricing strategy, resulting in significant price fluctuations for grocery items. Households could see an increase of over $1,000 annually due to these pricing practices.
Dynamic Pricing Experiment across Four U.S. Cities
The investigation, conducted by Groundwork Collaborative, Consumer Reports, and More Perfect Union, involved 437 shoppers across four locations: Seattle, Washington, D.C., North Canton, Ohio, and Saint Paul, Minnesota.
Shoppers participated by selecting the “pickup” option instead of delivery, revealing dramatic cost disparities. The average increase in prices for items subjected to the dynamic pricing scheme was approximately 13%. In some cases, price variations reached as high as 23%.
Notable Price Discrepancies
- A dozen eggs in Washington, D.C. showed prices ranging from $3.99 to $4.79, marking a 20% increase.
- A box of cornflakes from the same location varied between $2.99 and $3.69, a rise of 23%.
- In Seattle, the cost for the same grocery basket varied dramatically, costing some shoppers $114.34 and others as much as $123.93.
Overall, the pricing variations resulted in an average basket cost discrepancy of about 7%, potentially leading a family of four to pay an extra $1,200 yearly.
Instacart’s Response and Pricing Techniques
An Instacart representative confirmed the existence of these pricing changes. They claimed that such adjustments aim to help retail partners understand customer preferences and identify areas for price reductions. However, a representative from Target, one of the tested stores, indicated that they are not responsible for pricing on the Instacart platform.
The dynamic pricing strategy incorporates various factors, including:
- Customer purchase history
- Proximity to competing stores
- Customer behavior on the app
- Demographic information
- Weather conditions
This pricing practice is supported by an AI-powered tool known as Eversight, acquired by Instacart in 2022. Retailers utilizing this technology reportedly experience a revenue increase of 1-3% and profit growth of 2-5%, significantly impacting approximately $80 billion in revenue.
Legislative Attention on Pricing Strategies
Dynamic pricing strategies have attracted scrutiny from politicians. Some lawmakers are introducing legislation to address concerns regarding price gouging in grocery items. Recent reports have indicated that retailers like Kroger and Walmart are exploring surveillance technologies to adjust prices based on individual customer data.
Instacart’s methods highlight the evolving landscape of grocery pricing amid affordability challenges. As technology plays a larger role in consumer pricing, ongoing scrutiny is expected from consumers and lawmakers alike.
