(Graphic: iStock/JuSun)
By Wesley Niemann
Loyalty programs, online platforms, supply chains and advanced data analytics mean supermarkets are collecting enormous amounts of information about consumers’ buying habits, preferences and spending patterns.
In my previous article “What does your supermarket know about you?” I wrote about how modern retailers increasingly know more about their customers than ever before.
Also read: What does your supermarket know about you?
However, there is a following question that may be even more important: What happens when that knowledge begins to determine what a consumer pays?
For more than a century, modern retail has been built on a simple principle: The same product should have the same price. Whether you are a student, teacher, doctor or pensioner, the bread costs the same. The milk in the fridge has one price tag. The person in front of you and the person behind you in the checkout line pay the same amount for the same product.
We rarely think about it, because it has become so obvious. But technology is beginning to challenge this principle.
The idea of dynamic pricing is not new, of course. When we book a plane ticket, we know that the price may differ later today or tomorrow. When booking hotel accommodation, we understand that prices increase during peak seasons. When we use an order taxi, we accept that a trip may be more expensive when it rains or when demand is high.
In these markets, consumers have learned to accept dynamic pricing as part of the rules of the game.
However, there is an important difference. A plane ticket is not bread and a hotel room is not milk. Food is not a luxury purchase or a holiday. This is something households need week after week. Therefore, consumers expect food prices to be visible, predictable and fair.
This is precisely why the debate about dynamic pricing in food retail feels different.
However, the real change does not come from the supermarket shelf. It comes from the screen in your hand. In a traditional store, everyone sees the same shelf and the same price tag. Online, that limitation doesn’t necessarily exist. Digital platforms make it possible to tailor offers, discounts and even prices based on individual consumer profiles.
(Graphic: iStock/JuSun)
Retailers today know a lot more about their customers than most people realize. Millions of South Africans use programs such as Shoprite Xtra Savings, Pick n Pay Smart Shopper and other loyalty programs. These programs offer real value to consumers through discounts and special offers. But every purchase also leaves a digital trail.
Over time, a particularly detailed picture of consumer behavior emerges.
Retailers don’t just know what we buy: They know when we buy, how often we buy, when we switch brands and when we switch to cheaper alternatives. Using data analysis, they increasingly understand how sensitive different consumers are to prices.
From a business point of view, the attraction of this is easily understandable. More accurate pricing can help better manage inventory, reduce waste and increase sales. Products that sell slowly can sell faster. Discounts can be applied more purposefully. Consumers may even pay lower prices in some cases.
This is not the question most consumers will ask. The question is whether they can trust the price.
For decades, consumers have known the rules of the game. The price on the shelf was the price everyone was paying. You could like it or not, but at least you could accept that the same rules apply to everyone.
Dynamic pricing changes that premise.
When prices are increasingly adjusted based on data, buying behavior, timing or personalized offers, it becomes harder for consumers to know if the price they see is also the price others see.
This does not necessarily mean that dynamic pricing is unfair. Nor does it mean that everyone will soon be paying different prices for the same products. But it does mean that the conversation about pricing is changing.
For retailers, the challenge is not simply to calculate smarter prices. The biggest challenge is to maintain the trust of consumers. Because ultimately consumers don’t just buy products. They buy with the confidence that the price they pay is a price they can understand, explain and accept.
Perhaps this is the real question that dynamic pricing poses to the retail of the future: Not whether the technology works, but whether consumers will still trust the price.
About the author:
Wesley Niemann is a lecturer, researcher and consultant in supply chain management and logistics in the department of business management at the University of Pretoria. (Photo: Provided)
Wesley Niemann is a lecturer, researcher and consultant in supply chain management and logistics in the Department of Business Management at the University of Pretoria. His research focuses on supply chain resilience and how organizations respond to disruption and uncertainty in complex supply chains. He also works with the industry through executive training, short courses and consulting services.