With the implementation of an AI digital shopping experience, Sam’s Club has raised issues for privacy advocacy groups. These advocacy groups are worried that the new AI program might be used to predetermine and unfairly price certain items for specific customers using their shopping history or sell heavily marketed discount items.
The Register-Free Experience
Sam’s Club in Grapevine, Dallas, implemented a “Scan and Go” program after a tornado in 2022, allowing customers to scan items on their mobile apps. This program has been expanded to nine other Dallas locations and one Missouri store. The California store, Torrance, Fountain Valley, El Monte, and Riverside, is expected to implement AI technology in the coming months.
AI, Data, and Personalization
The firm claimed that it is using information gathered through the mobile application. This information is being organized through the use of artificial intelligence in order to tailor specific offers that are sent to club members. These tailored promotions are sent through the store application and are tailored to the shopping habits of the members with the intention of providing them with offers and products that are most pertinent to their purchase history.
Pricing Surveillance and Privacy Issues
Consumer advocates are concerned that the combination of customized advertising resulting from comprehensive data collection poses a potential threat. They argue that it may be used to market higher-priced products while downplaying discounted ones based on shopping behavior. Surveillance pricing, as defined by the Federal Trade Commission (FTC), is the practice of customizing a price for a customer using sensitive information like their place of residence, age, gender, previous purchases, and online browsing history.
Retail companies could suggest overpriced products to customers, customizing what they display to them, like in the store app or website. This is different from real-time market supply and demand or competition activity. Under surveillance pricing, the items consumers see in an application or on a site are determined by the AI’s algorithmic profiling of the consumer. Retailers have been gathering large amounts of customer data for decades through loyalty reward programs and club cards, but today’s technology is more advanced, including AI cameras used at places like Sam’s Club. Surveillance pricing is considered the most recent attempt to push promotions and products on consumers using detailed data analysis.
FTC Findings and Third-Party Data Use
The FTC has found six companies, including Mastercard, Accenture, PROS, Bloomreach, Revionics, and McKinsey & Co., practicing surveillance pricing by obtaining detailed personal information on individuals, including location, demographics, and website movements. These companies collaborated with other firms to structure customer data and tailor prices, using AI algorithms to predict customer behavior and estimate maximum prices.
Estimating the Harms of Surveillance Pricing
Sara Geoghegan highlighted the potential harms of surveillance pricing, including potential discrimination and price gouging. A FTC study found that third-party firms can show higher-priced products to consumers based on their search and purchase activity. Geoghegan criticized this practice as it involves companies extracting and exploiting personal information, and concerns also arise about selling collected data to other retailers, third parties, data brokers, or advertisers.
Sam’s Club Responds
Concerns about surveillance pricing have now been addressed by Sam’s Club. In their defense, Harvey Ma, Vice President and General Manager of Sam’s Club Member Access Platform, claimed that the warehouse club is gathering shopping data and utilizing AI technologies to analyze shopping patterns, but this is not being done for customer upselling. Ma claimed the warehouse club is not practicing surveillance pricing. Sam’s Club follows an everyday low price retail pricing policy, where products are sold at lowered, marketable prices to all customers.
Ma was quoted saying, “Our merchants work tirelessly to make sure that that value is there every day and available for all of our customers and members,” and “We are not a high, low, or promotional retailer, which I think is where the [surveillance pricing] practice started to come from.” He described how AI was integrated into the company to assist in understanding “the best form of intent” out of the “millions, billions of signals” taking place in real time, which was previously done manually but has now been expedited.
Safeguarding Your Privacy
In the eyes of the FTC, any site or application employs a variety of methods to monitor and gather data on user behavior online. As the FTC points out, there are several actions that users can carry out, such as routinely deleting web histories and web search histories, including web cookies. Another course of action would be to change the privacy settings in mobile applications so that access to tracking activities across apps and websites is denied (for example, on iPhone: settings -> privacy and security -> tracking -> disable ‘Allow Apps to Request to Track’ -> new apps are auto-denied). Another suggestion would be using ad-blocking software that prevents advertisement windows and banners from emerging on your web browser.
