After testing AI-driven pricing, Instacart has ended the practice after negative backlash from not only customers but also regulators. This stems from research that found that the company’s pricing tools led to many shoppers paying different prices for the same product from the same place.
While the feature was supposed to help retailers boost sales and improve growth, while also providing the best deals for customers, it actually led to many customers paying more for their groceries.
Instacart Ends AI Pricing Tests
Recently, Instacart ended the company’s AI pricing test model that it had in place since 2022. Back in 2022, Instacart acquired Eversight for $59 million. Eversight is software that allows retailers to hold pricing tests that gauge how shoppers react to higher and lower pricing on certain items.
When Instacart began using this technology, the company said that it would help retailers grow and boost their sales, and also assist customers in finding the best deals.
Consumer Backlash and Regulator Scrutiny Led to the Change
But after a lot of scrutiny, the company has decided to stop using these AI-driven pricing tests. The likely cause, or at least a major catalyst, of this move was the release of a recent study by Consumer Reports, Groundwork Collaborative, and other organizations.
The study discovered that Instacart’s pricing tools often caused shoppers to pay different prices, even if they bought the exact same items from the same store. It involved conducting an experiment that involved 437 shoppers across four cities, doing live tests.
The results found that 74% of items in the experiment were offered to shoppers at different price points. In fact, the same item at the same store at the same time had as many as five different prices offered on the platform.
The cost of the Instacart basket totals varied by an average of 7% for the same items from the same store at the same time. According to the average amount that a household of four spends on groceries in the US, according to Instacart, this 7% could represent around $1,200 in extra grocery costs per year.
Many shoppers want the prices of the things they buy to be consistent, predictable, and transparent. It’s difficult for families to budget properly if the items they frequently buy are constantly swinging by an average of nearly 10%.
In addition to this, it was reported that the Federal Trade Commission (FTC) is also investigating the AI pricing tool.
Instacart’s Response
In the post announcing the ending of the AI pricing feature, Instacart said that retailers have always set their own prices, and said that the company’s pricing tests were not dynamic pricing or surveillance pricing, and were never based on personal data, demand, demographics, or individual shopping behavior.
However, the company does admit that the pricing tests fell short of expectations and said that customers should never have to second-guess the prices they’re seeing for products.
I believe this was a good move for Instacart to make, as you never want your customers to worry about inconsistent or unstable prices, especially on essentials like groceries.
This may also serve as a cautionary tale for other businesses. While AI certainly has its place and it can help companies in a variety of ways, you need to ensure you’re using it in the right way. If you use it in the wrong way (such as in a way that costs customers time, effort, or money, or hurts the user experience), it may alienate your customer base and drive people away.
