← Behind the Numbers: an EMARKETER Podcast
Behind the Numbers: an EMARKETER Podcast
Delta Plans AI-Driven Personalized Pricing—Is This Retail's Future? | Reimagining Retail
00:15:28
Loading summary
Transcript37 lines
- [00:00]
A
In a fast moving market, you have to know what's working. With Nielsen Ad intel, you'll know the where's, whens and hows of advertising across industries and channels. Maximize your ROI and achieve better results. Stop guessing, start winning. Nielsen Ad Intel. Hello, listeners. It's Wednesday, September 17th. Welcome to Reimagining Retail, an emarketer podcast made possible by Nielsen. I'm Rachel Wolff, your guest host for today's episode, which is all about whether AI powered personalized pricing is the future. Before we dive in, let me introduce today's guests. I'm joined in the studio by our Vice President of content, Suzy David Kanyon. Hi, Susie.
- [00:45]
B
Hi, Rachel. Zach.
- [00:47]
A
And we also have senior analyst Zach Stambor joining us from Chicago. Hey, Zach.
- [00:50]
C
Hey, guys.
- [00:56]
A
Delta got a lot of flack recently for revealing that it plans to ramp up the use of generative AI to price flights from about 3% of domestic flights today to 20% by the end of the year. According to Delta President Glenn Howenstein, the goal is to, quote, have a price that's available on that flight on that time to you, the individual, end quote. Those statements raised a lot of alarm bells, including from lawmakers. Democratic Senators Ruben Gallego, Mark Warner and Richard Blumenthal wrote a letter to Delta expressing their concerns over the airline's pricing plans, which they say raised data privacy concerns in addition to potentially adding to the strain on consumers wallets. So what do you both think of Delta's plans to use genai for pricing, and why do you think it generated so much backlash?
- [01:45]
C
Airlines have used dynamic pricing since the late 70s when Jimmy Carter deregulated the airline industry. But this felt different because Delta talked very specifically about targeting the individual rather than just more broadly basing pricing on supply and demand and other factors like that. So that felt icky. It felt like Big Brother. And I think the other thing that was troublesome was that the company delivered mixed messages. When Delta was talking to investors, it talked very specifically about personalized pricing to the individual. But then when the senators wrote the letter and they issued a response, they said, no, no, no, no, no. We're not talking about targeting individuals. We're just using this vast realm of data that we have to use a broader pool of data to dynamically price.
- [02:53]
B
I think that's the key here, right? It's that there was. There seems to be a trust gap and the company isn't authentic and transparent. And it almost feels like it's telling different stakeholder groups different things to try and alleviate tension. But if you think about, like Zach was saying it's not that new. Both sort of dynamic pricing. I know this is a little bit, you know, we're iffy on whether this was meant to be dynamic pricing or surveillance pricing. But this idea that you will get personalized pricing could even be a little bit more like the surge pricing or non surge pricing for an Uber, which is different from taking a taxi. Or like I was thinking about this, if you think about matinee pricing, right, it's the same movie, it's the same place, it's the same popcorn. But if you go at an off hour, whatever the theater deems as an off hour, it's a little bit of a cheaper price. So in some ways it's not unusual for companies to either use promotions, coupons, or other mechanisms like matinee pricing to change the cost of a good. But it's the way you do it and the way you frame it that I think for Delta was causing the most backlash.
- [04:06]
C
Yeah, I totally agree. I think like dynamic pricing is not new. The example that I think of is happy hour is like the prime example of dynamic pricing. There's a lull in demand, so you lower the price and demand then goes up. Surveillance pricing is different and it feels very different to the consumer because it's about you. It's about your personal data and how your personal data is being used. And I think people just generally feel uncomfortable about that.
- [04:36]
B
Right. And dynamic pricing, I think everybody's accustomed to it in some way around supply demand, where the item changes prices based on the time of day or, or the location so that, you know, there's a smoothed out demand curve and that feels fair. It's like, you know, when happy hour is, you know, when matinee pricing is, you know, to check for airlines in incognito mode on a Monday morning because that's when you'll have the better price. So like, I think in that way it seems much more palatable than a constant black box that could be surveillance. In addition to all the privacy concerns that come with that.
- [05:16]
A
Yeah, I mean, as you mentioned, a lot of companies have already engaged in dynamic pricing in certain ways. But do you think that there is a trend toward using AI to be even more dynamic? Right. Instead of having set times where prices are lower, you know, having them change throughout the day, for example, I mean.
- [05:31]
B
We'Re definitely seeing that already online. The sort of crystal ball is, will we be able to do that in a store, even with digital shelf tags? And there are a lot of nuances that companies are going to have to think about. But I was also thinking about online. If people are sharing passwords and they're using personal history sort of data, how do they know who I am when I have stuff in my cart? Do they know if I'm the mom or the dad or the kid? Is it the aunt using my account? You don't know. And so I think there's a lot of trickiness that happens with surveillance pricing online. That's even harder to manage in a store, I think.
- [06:10]
A
Also, dynamic pricing in general has a bad rap. Right. Any company that says they plan to use dynamic pricing, there will be an immediate backlash. So it's about how you sort of massage expectations in that regard.
- [06:20]
C
I think it kind of depends, though. I mean, I think people certainly use Uber and Lyft, and they. And they don't have a problem with that. They're accustomed to dynamic pricing with airlines. Their airfare has been a black box forever, and the person sitting next to you very well may have paid double or half as much as you did. And you just don't know. It's when it gets down to the grocery store or when you're shopping for apparel or whatever it might be, that's where it kind of feels different.
- [06:51]
B
Well, And I think Hotels.com was the company that made that ad where the two people check in at the same time and they're paying different, different rates for the hotel. And so, like, it's something everyone knows. I almost feel like we may have not made a big enough point that dynamic pricing is so different from surveillance pricing.
- [07:09]
A
Yeah, why don't we go into that a little bit and explain the. The definitions there?
- [07:12]
C
So dynamic pricing is pricing that adjusts based on market conditions. So that might be demand or seasonality or supply or anything along those lines. Surveillance pricing is when prices adjust based on the individual's data. So it might be their location, it might be whether they're a member of a loyalty program, it might be their demographics, it might be their browsing history. Lina Khan, the former FTC chair, even suggested that it might be based on your mouse movements. So there's like, all sorts of very personal information that gets filtered in to this formula that determines what price it is that you're paying. So that's very different than dynamic.
- [07:58]
B
Yeah, it feels much more. Much more discriminatory as well than dynamic pricing. And that's very different from coupons and promotions.
- [08:07]
A
Right.
- [08:07]
B
Because that too triggers a price change or markdowns, which are when something is on sale, but forever sale versus the price going up or down when it's a coupon or promotion. But customers are used to that. Just like they're used to Uber and Lyft having different pricing. It's that surveillance. Like it's. You had said it before, it's that big brother sort of watching me, sort of using me, gouging me kind of negative connotation.
- [08:32]
C
And I think right now it's particularly problematic because consumers are hyper attuned to price and value and they don't want to feel like they're being squeezed. If they feel like they're being squeezed because of who they are, where they live, what they looked at previously online, it makes them feel distrustful of the company that they're shopping at. And that gets to trust. You know, once trust is gone, it's really hard to win that back.
- [09:08]
A
Yeah, I mean, 68% of consumers agree that dynamic pricing is price gouging. And this is according to a civic science survey from last March. And that's obviously that's the majority of consumers. Right. So clearly there is a potential to lose customer trust by leaning too heavily on dynamic pricing or even surveillance pricing.
- [09:28]
C
Yeah, we saw a great example of the backlash to dynamic pricing last year when Wendy's began testing dynamic pricing with its digital menu board. And people freaked out. I mean, it was just like a massive uproar. And it gets to perception because while Wendy's thought we're going to lower the prices at slow periods of time, consumers saw prices rising during busier times. And so no matter how you frame it, shoppers are going to assume, rightly or wrongly, that they're going to end up paying more. I mean, they don't like that.
- [10:12]
B
No, they absolutely. Who wants to pay more for something that they know they can get at a better price? That's why outlet stores and like the TJXs of the world do well. But it does bring up another really interesting point around gamification. Price price coupons, sort of like a one day sale and stacking coupons and like using your loyalty points and doing this and doing that at the best price possible is what some consumers love doing. This is almost taken away from them. And so it's not only are they being squeezed, but it's also like, are you kidding me? You don't think I understand the system well enough to get it at the best price for me when I'm, you know, when I'm ready to do it? So I think there's also that element of consumer, not just lack of trust, but like not empathetic in any way. Because for some retailers it's really helpful to have dynamic pricing. Right. Or to be able to use one day sales, for example, or Kohl's days or whatever, you know, Amazon prime days to move merchandise or to be able to calculate their margin in a good way or to reduce waste to try and, you know, move merchandise to bring in the next set of merchandise for the next season. So if it's done well. And so one of your questions was around, will AI help us? I think if the AI vendors who help consumers see that it's happening as a natural part of the shopping journey and it doesn't feel like I gotcha moments and it's a seamless part where it's very transparent why the price is going up or down. And maybe it doesn't go up as much as it does down. You know, like there's a ceiling on the price, but the down piece is okay. That's kind of like a regular sale. Right? Everybody knows the dress is going to be $100 and if you really need it or want it, you pay the $100. But if you, if you're not obsessed with it, you'll wait till it goes on sale and then you'll buy it. I feel like there has to be a place where dynam pricing will work for everybody.
- [12:06]
A
So going back to surveillance pricing, the previous administration took some preliminary steps to curb the practice. Do you think that these efforts are going to continue and you know, if so, who's going to be leading the charge? Under Biden, it was the ftc. Or you know, will it be more like what we saw with data privacy, where it's more on a state by state basis?
- [12:26]
C
Yeah, I do not think the FTC is going to act. I think it will be up to the states. I think we have started to see the states move in this direction, or at least I should say a handful of states like California, I think Illinois, I think Georgia, a handful of others. But that creates a really challenging dynamic because you just have a patchwork of state bills that all are different and that makes it really difficult for a company to navigate. But we haven't even gotten there. Some of them are narrowing, some of them are stalling, some of them are just like falling flat. So right now there's just like not a whole lot of momentum in that direction. Even if there is some movement, do.
- [13:14]
A
You think that will change, you know, once inflation creeps up due to tariffs and there's a lot more attention being paid to pricing and how companies are approaching it.
- [13:24]
C
I think in some more progressive states there certainly could be some push in that direction. But even California just a few weeks ago saw their bill narrow and I think it's just kind of stalled out at the moment. And so, you know, there's a lot of pushback from the industry and getting past that is really challenging.
- [13:46]
A
Are there any benefits for retailers or consumers and or both to dynamic pricing?
- [13:53]
C
I think it depends on transparency. There's a Dutch grocer that uses dynamic pricing to move products that are going to expire. So the system, they have a system in place where there are more and more markdowns, the more the inventory needs to move and consumers can get a pretty steep discount. I think it's like 25 or 70% or 90% off, depending on when it's going to expire. And so ultimately, like it is for the consumer, they get a deal and it's good for the grocer because they move products that they otherwise would just like throw away, which is good for.
- [14:36]
B
A consumer if you understand how it works. Right. So if the retailer is open with you about how they're doing it, then that is good for your pocketbook too, and it's good for the environment.
- [14:45]
A
Yeah. I think you also have to trust that the grocer is pricing things fairly at the beginning of the day, though, to, you know, hold with that, you know, idea of transparency.
- [14:54]
C
Yeah, for sure.
- [14:55]
A
Alright, that's all we have time for. Thanks to Zach.
- [14:58]
C
Yeah, thanks for having me.
- [14:59]
A
And thanks to Susie.
- [15:00]
B
Thank you.
- [15:01]
A
And thanks to the editing crew and to everyone for listening in to Reimagining Retail, an emarketer podcast made possible by Nielsen. Subscribe and follow us to hear about new episodes and give us a rating and review if you have time. This show will be back next week with our September most interesting Retailers of the Month list.