While consumers are embracing personalized nutrition and marketing in the food and beverage industry, personalized pricing in the sector could be curtailed significantly if, as expected, other states follow the lead of Maryland, which recently banned the use of personal data to set higher prices for specific consumers.
Maryland Gov. Wes Moore last week signed the Protection from Predatory Pricing Act (HB 895) – a first-of-its-kind law that prohibits grocers and third-party delivery services from using dynamic pricing, or consumers’ personal data, to set higher prices. This includes “any information that is linked or can be reasonably linked to an identified or identifiable consumer” – potentially including browsing or purchasing history, income and location.
It excludes publicly available information and doesn’t apply to discounts from loyalty or subscription programs, promotional pricing or price adjustments based on taxes and shipping to a specific location.
While the law focuses primarily on practices that raise prices for certain groups, it also restricts the use of “protected class data,” such as race, gender and ethnicity, to offer, advertise or sell a consumer good or service in a way that would effectively withhold or deny it to another consumer or group.
The law applies to large food retailers with 15,000 square feet or more, larger and substantial grocery operations selling food exempt from sales and use tax and third-party delivery providers, but only covers tax-exempt food items. That means food for immediate consumption or items like candy, soda and pre-made platters are not covered.
Maryland may be the first state to restrict the fast-emerging and evolving practice of dynamic pricing in grocery stores, but it likely will not be the last. More than two dozen other states are considering similar legislation, including Arizona, California, Illinois, Idaho, New Jersey, New York and Washington. Similar legislation in Colorado, Connecticut and Vermont have already passed the first chamber.
A key – and confusing – difference between the different states’ legislation is how they define increasingly popular pricing methods, many of which are made possible by AI.
For example, Maryland defines dynamic pricing as setting a price for a specific consumer based on their personal data. But the term, more generally, is understood to include several pricing methods, including algorithmic pricing, surge pricing and surveillance pricing.
The subtle difference between these terms could cause a compliance headache for grocers if other states pass similar – but slightly different laws. For example, California’s proposed legislation defines algorithmic pricing as any computational process used to recommend or set a price. It also defines surveillance pricing as increasing prices for specific consumers based on personally identifiable information collected through electronic surveillance technology. For comparison, Hawaii’s proposed legislation defines dynamic pricing as real-time price adjustments based on supply and demand and consumer trends.
Crackdown on pricing strategies
Maryland’s law follows an investigation by Consumer Reports and Groundwork Collaborative into the delivery service Instacart’s use of AI to allow retailers to charge different shoppers different prices for the same products at the same time.
In response to the report, Instacart stopped using Eversight technology to price test items on its platform.
“We’ve listened carefully to feedback from our customers. And we understand that the tests we ran with a small number of retail partners that resulted in different prices for the same item at the same store missed the mark for some customers. At a time when families are working exceptionally hard to stretch every grocery dollar, those tests raised concerns, leaving some people questioning the prices they see on Instacart. That’s not okay – especially for a company built on trust, transparency, and affordability,” Instacart said in a blog post.
The platform also agreed to pay $60 million in refunds to settle FTC allegations that it engaged in “numerous unlawful tactics that harmed shoppers and raised the cost of grocery shopping for Americans.”
Consumer advocates encourage oversight of dynamic pricing practices
Consumer advocates celebrated the passage of Maryland’s Protection From Predatory Pricing Act and encouraged additional oversight.
“Surveillance pricing can drive up the price of food. Retailers have a lot of data about individual shoppers; how often we search for or hover over particular items, whether we live near competitor stores, inferences about our likes and dislikes, our dietary needs, our income, our family size and more. Surveillance pricing allows companies to take advantage of that information asymmetry and charge you as much as they think you’re individually willing to pay,” Grace Gedye, senior policy analyst at Consumer Reports, said in statement.
“While it’s encouraging to see the Maryland legislature take up this issue, this bill has loopholes that will limit its real-world impact. We urge other state legislatures considering personalized pricing legislation to build in stronger consumer protections and avoid loopholes that weakened this bill,” she added.
Consumer Reports specifically takes issue with applying the ban only to personal data to set higher prices without establishing a baseline or standard price, exempting pricing associated with loyalty and membership programs and exempting pricing for subscription services.
The non-profit research organization Electronic Privacy Information Center (EPIC) said Maryland’s ban of surveillance pricing in grocery stores is “essential” because the practice is “extremely difficult for consumers to detect and avoid.”
In a letter to the Maryland General Assembly, EPIC urged an expansion of the legislation beyond grocery stores to other retailers and service providers. It also called for a harmonization of key definitions, such as personal data and surveillance data, with other states considering similar legislation.
EPIC also called the exception of discounts in Maryland’s definition of dynamic pricing a “large loophole” and urged for it to be struck or significantly narrowed.
A fast-approaching deadline
The grace period for ending dynamic pricing in Maryland, as defined by the law, is fast approaching – taking effect this Oct. 1.
Before that date, companies should consider what data they use in pricing decisions, whether pricing adjustments could be considered higher for a specific group, if any consumer data falls within the state’s definition of personal or protected and whether any exemptions apply, according to experts with the law firm Morgan Lewis.
Failure to comply with the law could result in civil penalties of up to $10,000 per violation or up to $25,000 per violation for repeat offenses.
