Instacart has announced its decision to end its AI-enabled item pricing tests on the platform immediately, following numerous customer concerns regarding transparency and fairness.
The US-based grocery delivery service had previously denied the claims made against them; however, they later admitted on Monday that the program had fallen short of customer expectations.
These pricing allegations highlight larger concerns about dynamic pricing in customer experience, and how arbitrary or hidden costs can erode consumer trust.
Earlier in December, a study conducted by Consumer Reports and Groundwork Collaborative found that several Instacart shoppers had been shown different pricing for an identical product at a single store at the same time.
The investigation concluded that 74% of grocery store items had been offered at multiple price points to different Instacart shoppers, despite the store, item, and shopping time being identical.
This would include some items ranging from up to five different prices, with the average lowest-to-highest price difference being 13%, with some prices as much as 23% for the same product.
Consumer Reports also calculated that four-person households with a consistent exposure to the higher pricing groups could end up paying an extra $1,200 every year.
In response to the allegations earlier last week, Instacart argued that its pricing tests were not structured by dynamic pricing but rather short-term, randomized A/B tests, noting this was common retail practice rather than targeted consumer pricing.
The AI tool used on Instacart’s platform, which utilized Eversight technology to determine customer pricing, was claimed not to have set base prices, arguing that transparency around pricing policies was clearly outlined on each retailer’s storefront.
They also noted that their goal was to help consumers keep everyday essentials affordable and had not used personal data to set item prices.
However, this investigation has prompted further public scrutiny toward the delivery service, prompting Instacart shoppers and advocacy groups to raise ethical concerns around the company’s pricing methods.
This excessive media coverage also caught the attention of several US lawmakers and government agencies.
Published by Reuters earlier last week, the Federal Trade Commission (FTC) had announced an open investigation into Instacart’s pricing methods, issuing a civil investigation demand into its AI-enabled pricing tool.
The FTC stated:
“Like so many Americans, we are disturbed by what we have read in the press about Instacart’s alleged pricing practices.”
Furthermore, Instacart has been involved in unrelated lawsuit allegations with the FTC last week, as the delivery service agreed to settle for $60MN after claims over false ‘free delivery’ advertising, refund failures, and unwilling subscription enrollments toward its customers.
With frequent public backlash and failures to meet consumer expectations, Instacart had announced its decision to remove the AI pricing tool with immediate effect.
The delivery service acknowledged its inability to meet customer standards, with its AI pricing tool having compromised costs for several of its consumers.
Instacart has also announced that from now on, customer experience on the platform will remain consistent, ensuring that two customers will see the same price for an identical item at the same time.
Despite these allegations, Instacart continues to reiterate that the pricing tests had not been based on dynamic or surveillance pricing from personal data, whilst also ensuring that transparency and consistency will be maintained in line with customer pricing expectations.
Unfair and Dynamic Pricing Toward Customers
Dynamic pricing is a costing model where the value of a product or service will change to fit market demands.
These prices can be adjusted based on demand, supply, time of day, season, or competitor pricing factors, typically changed via software or algorithms.
This can also include individualized or surveillance pricing, where a customer may get charged a different amount than another customer, based on location, purchase history, and sometimes their willingness to obtain the product.
Whilst this technique allows companies to meet demands and adjust immediately to market changes, the consumers may perceive these product price shifts as unfair, especially in cases of individualized pricing.
Instacart and similar cases highlight the surge in customer-facing services and providers adopting dynamic pricing methods, with customers feeling unfairly charged without proper communication.
In one example with Wendy’s, the restaurant chain had attempted to introduce its own dynamic pricing model back in 2024.
The strategy was claimed to be adopting the ‘surge pricing model’, charging more for your meal order even if the cost stayed the same.
Whilst the chain’s strategy never came to fruition, this incident highlighted similar food-chain businesses at the time that were attempting to offer their menu at different prices throughout the day.
These issues contradict customer expectations regarding pricing, a crucial part of the customer journey.
Potential CX Risks
This pricing model, whilst likely beneficial to the companies, can pose an adverse effect on their customer experiences and on maintaining customer loyalty.
In the case of individualized or time of day pricing, customers may feel exploited if they see similar customers paying less for the same product.
This could cause shoppers to lose trust in the brand if they believe a company is negatively targeting them on a personal level or experiencing inconsistencies in pricing.
These dynamic pricing methods can also disproportionately affect lower-income households by basing prices on locations, making essential goods and services further inaccessible than before.
Regarding transparency expectations, dynamic pricing can be uncertain and unpredictable to customers who aren’t expecting consistent pricing changes.
This confusion can reduce customer satisfaction levels if the consumer is unable to accept disproportionate customer experiences.
And too many inconsistencies can encourage customers to move their loyalty over to a different brand or delay purchases for cheaper price options.
This may also discourage customers from partaking in brand loyalty programs or consumer benefits if a customer believes a company is not sincere in product pricing.
This could result in larger numbers of negative public perception, with customers taking to social media to express feelings of exploitation or manipulation to wide-spread backlash.
And with numerous public consumer complaints, this could also invoke regulatory and legal risk onto a brand, similarly with Instacart, algorithm or data-based pricing may attract regulatory bodies to investigate if too many consumers believe them to be deceptive.
This could result in further scrutiny from agencies like the FTC if brands continue to be non-transparent in their pricing methods.
