How retail pricing, loyalty programs and electronic shelf labels really work

Questions about consumer data, loyalty programs, electronic shelf labels and dynamic pricing have fueled recent policy debates. While these issues are often discussed together, misconceptions about how retail technology works can obscure the realities of a highly competitive industry. 

No other industry in the United States is closer to the consumer than retail. Retailers are in the business of building consumer trust and loyalty, and gaining a deeper understanding of how to serve their customers better. 

As policymakers examine how retail pricing and technology work today, it's worth taking a closer look at the reality of what’s happening on the ground. Retailers are using data and new technology to do what they have always done: create a customer experience to market relevant products at compelling prices. They're using new tools to innovate and keep pace with consumers that have nearly limitless shopping options while upholding long-standing, well-established retail practices. 

How competitive is the retail industry? 

Look at other industries today: You can probably name all the rideshare apps, airlines and major hotel booking platforms. But there are over 600,000 unique retailers in the United States. Retail is a competitive, thin-margin business where high prices and poor service are quickly punished by customers. 

That competitive dynamic doesn't apply the same way to industries that don't have an array of competitors waiting two doors — or two clicks — away. Equating retail with fundamentally different industries blurs the distinctions necessary to understand the issue and craft effective consumer protection policy. 

Are loyalty programs a "Trojan Horse"? 

A loyalty program is not a bait-and-switch. Loyalty program benefits are advertised transparently and offer equal terms to every person who voluntarily enrolls. All the benefits are visible upfront, and the entire business case for these programs depends on the customer who sees the value and stays loyal to the brand. 

If a loyalty program fails to provide benefits that consumers value, its members will leave. Retailers have every incentive to keep these programs delivering genuine savings, because customer trust and loyalty are the assets they rely on. 

It’s important to consider that not every retailer utilizes loyalty programs or discount programs, and that these programs are critical to how retailers compete. New laws in Maryland, Connecticut, New Jersey and New York seek to address concerns about the use of consumer data, algorithms and personalized pricing. However, some of the definitions in these laws are untested, broad or unclear. As written, they could unintentionally restrict loyalty programs, customer rewards programs and other initiatives retailers use to compete for customers and provide savings. 

Encouraging competition is the best method to ensure consumers continue to have access to products, services and affordable prices. Government interventions into the setting of prices, and restricting the ability of retailers to create programs to serve their customers and deliver savings, will only lead to higher prices for all. When retailers compete, consumers win.  

What are electronic shelf labels? 

Electronic shelf labels are digital price tags that display prices on store shelves. They do not observe, track or connect with consumers’ devices to determine a price in real time. 

Retail store managers and associates control the timing and process of price changes. Electronic labels improve accuracy and consistency — making sure the shelf price matches what's charged at the register, reducing price errors and helping store associates manage inventory and fulfill online orders faster. Electronic shelf labels do not identify individual shoppers to determine or fluctuate individual prices. 

History shows that fears about retail technology often miss the mark. Critics raised similar concerns about UPC barcode and electronic scanners nearly 50 years ago, and again 25 years ago with the rollout of self-checkout systems. Despite those predictions, grocery retail employment has continued to increase and remains near historic highs. Innovation streamlines repetitive work, allowing retail workers to focus on customers and opening the door to more opportunities. 

Are retailers already regulated by consumer protection laws? 

Retailers operate under a dense web of consumer protection law: antitrust prohibitions on price fixing and price gouging civil rights laws banning discrimination on protected characteristics; truth-in-advertising requirements; and state privacy laws governing how businesses collect and use personal data. The system is working as intended, and it argues for continued enforcement and, where needed, narrow fixes — not sweeping new bans. 

It is dangerous to define the entire retail industry as one that secretly uses consumers' personal data to squeeze every last dollar. That assumption overlooks the highly competitive environment in which retailers operate and serve their customers. The conclusions being drawn by some confuse and misconstrue the retail industry with examples from industries that operate very differently than retail. 

Retailers know their customers. A small mom-and-pop store on Main Street is family to many of the people who walk through its doors; its owners know birthdays, milestones and important life events. 

Retailers offer data-driven discounts because they understand the value of loyalty, and consumers keep coming back because they've built a relationship of trust with the retailer. That relationship is worth protecting as this conversation continues.