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June 24, 2024
Should Digital Shelf Labels Stir Worries Over Dynamic Pricing?
Walmart announced that it is replacing price stickers in its aisles with electronic shelf labels at 2,300 U.S. stores by 2026 but insists the technology won’t be used for the controversial practice of dynamic pricing.
In a blog entry, Daniela Boscan, a food and consumable team lead for Walmart, described the arrival of digital shelf labels (DSLs) as “a win for customers and associates.” Her location in Grapevine, Texas, has been piloting the technology since last year.
For store associates, the benefits of DSLs include:
- Increased productivity and reduced walking time: With over 120,000 products on shelves, updating prices for new items, rollbacks, and markdowns, which used to take an associate two days to update, now takes minutes with the new DSL system. Boscan wrote, “This efficiency means we can spend more time assisting customers and less time on repetitive tasks.”
- Simplified stock replenishment: With the “Stock to Light” feature, associates can use their mobile phones to flash an LED light on the shelf tag to help quickly identify locations with low stocks.
- Faster order picking and fulfillment: The “Pick to Light” feature guides associates directly to the products needed for online orders, speeding up picking and improving order accuracy.
Electronic shelf labels are also environmentally friendly, promoting a paperless practice, Boscan noted.
For consumers, one benefit is easier-to-read labels, but the bigger advantage is that it gives associates “more time to support customers in the store,” according to Boscan.
Whole Foods has had electronic labels for years. Schnucks and Amazon Fresh use them too, and they’re common in stores across Europe. Kroger, Hy-Vee, Ahold Delhaize USA, and Dom’s Kitchen & Market are also piloting or rolling out the technology.
However, news of Walmart’s rollout led to numerous articles warning that DSLs can support dynamic or surge pricing, where retailers or other businesses quickly change the cost of products or services based on fluctuations in demand due to weather, traffic, or other issues. Amazon and other online players continuously adjust and evaluate prices based on real-time supply and demand.
In a statement to Retail Brew, a Walmart spokesperson insisted that the new program “is not designed for dynamic pricing.” The statement continued, “Walmart adheres to Everyday Low Price.”
At its annual shareholder meeting on June 5, Greg Cathey, SVP of transformation and innovation at Walmart, likewise indicated that Walmart had no plans to employ dynamic pricing with DSLs. He told Reuters, “It is absolutely not going to be ‘one hour it is this price and the next hour it is not.’”
Wendy’s in February came under fire in announcing plans to use dynamic pricing but later sought to reassure patrons it would be used to offer discounts and not to hike prices when demand is high.
Some believe dynamic pricing would be more accepted if consumers better understood their benefits, such as the opportunity for discounts on food items near their expiration date.
However, a global YouGov survey published in mid-June found that a slight majority of consumers already see dynamic pricing as “unfair” for sporting events, movie theaters, theme parks, and live concerts.
A Fast Company article on Walmart’s DSL rollout stated, “In short: People aren’t sold on the dynamic pricing model, even in areas where they’re used to it. So the idea that it could be used in other, unfamiliar settings—like grocery stores or big-box stores—is unsettling.”
Discussion Questions
Do digital shelf labels pack benefits for both store associates and in-store shoppers?
Should consumers be concerned that electronic shelf labels will lead to increased use of dynamic pricing inside stores?
Will a better understanding of the positives and negatives of dynamic pricing drive greater consumer acceptance?
Poll
Loading …BrainTrust
Scott Benedict
Founder & CEO, Benedict Enterprises LLC
David Spear
President, Retail, OrderlyMeds
Melissa Minkow
Director, Retail Strategy, CI&T
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Digital shelf labels allow for the possibility of dynamic pricing, but they do not make it inevitable. We also need to define what we mean by dynamic pricing. At present all prices are dynamic, they go up and down for various reasons – competitor price matching, changing supplier costs, deals and promotions, etc. Digital labels may shift the frequency of these changes. However, more radical steps like changing prices depending on the time of day, amount of product left in stock, or based on algorithms, could undermine consumer trust. I actually don’t believe this would work in the interest of a retailer like Walmart which has spent years building up its credentials around everyday low prices.
In the case of Walmart, the decision to move to electronic labels is not driven by a desire to implement dynamic pricing. It is driven by the very simple math that across Walmart’s thousands of stores a lot of labor hours are being spent on changing prices. That’s wasteful when it can be automated.
I agree – it’s not inevitable that this will lead to the dynamic pricing that consumers are so wary of – it may well lead, as you suggest, to even better deals! The question – as is so often the case when a digital transformation indicates that employees will have more time – is how that time is repurposed. Does Walmart let staff go and realize the savings on the bottom line, or are they effectively enabled to deliver an improved customer experience?
From what I have heard they won’t be letting staff go. However they will invest the time saving into providing more time for other customer service focused tasks and banking some of the gains by reducing labor hours.
The benefits of electronic shelf labeling are almost entirely internal to the retailer, with very little benefit to consumers. It is possible that the significant extra time of store staff will be funneled into improved customer service. I am concerned that retailers will use this opportunity to once again reduce their staffing in-store based on the cost savings.
It is inevitable, given their capabilities, that retailers will move to some level of dynamic pricing in their stores. That pricing may not shift from hour to hour but might shift based on available inventory or the desire to increase the gap between store brands and branded products daily or weekly. Walmart might only use price changes to highlight promotions at first. However, the temptation to adjust pricing to reflect cost changes in real time will be hard to resist. That is not true “dynamic pricing,” but it will feel the same from the customer’s perspective.
By the way, consumers are now used to dynamic pricing on airlines and for concert tickets. More dynamic pricing is coming…
No. I have worked with electronic labels since the early 1990’s. While it made the price coordinator’s work a lot easier in making/verifying price changes, one thing that the Walmart customers would not like is dynamic pricing. Customers are extremely sensitive to price now and they will be for a long time. The last thing they want is for a product to scan differently when they got to the register than the price they saw on the shelf.
I agree with you, Richard. I did not suggest that Walmart consider real-time pricing but rather that they might increase the frequency in which they adjust pricing to accommodate cost changes or promotional timing — weekly, monthly, etc.
Dynamic pricing does help the retailer look more competitive on price as the ability to adjust to changing market conditions doesn’t require the same level of manual process to update, print tags, and get them on the shelf. So that’s a win on price perception (if done right) at the consumer level with the benefit of making things more efficient for the retailer.
It sounds like what we have here is a failure to “trust” (not just communicate).
The benefits to retailers seem obvious in terms of effort-hours and error rates. Unfortunately, the benefits to consumers are a matter of trust. Do consumers trust retailers with the cost savings of such initiatives?
The problem is that dynamic pricing lends itself to abuse as sometimes evident during natural disasters. And there’s no denying that there’s something broken with the Tickemaster model. Consumers aren’t used to that. It’s a pill they’re forced to swallow.
The reality is that no amount of understanding can explain why prices rise so fast but are so slow to come down (anyone buy gas in California?). That along with the infinite amounts of misinformation and polarization of “everything” are enough to make “education” a meager solution at best.
I think that deployed and used properly this is an example of how to leverage technology to accomplish meaningful results. The question remains to whom those savings are passed. Are they passed to consumers (lower prices, better service), employees (higher salaries, better benefits), shareholders (stock price, dividends), the government (higher taxes) or D (all of the above)?
Do consumers trust that Walmart, the purveyor of everyday low prices, will do “the right thing” (whatever that is)?
Not looking forward to “surge” pricing in milk and eggs.
I think it’s super smart that Walmart did this, and it’s only a matter of time before other retailers follow suit. This will drive cost efficiencies, AND I do hope that brands in the future put effort towards educating consumers as to how dynamic pricing can benefit consumers. This is a separate issue from digital shelf labels right now, but it’s an important one because it could optimize shopping expenses for consumers if retailers implement dynamic pricing in a win-win way.
Great point about dynamic pricing Melissa! Dynamic pricing does not necessarily mean higher prices. Changing prices dynamically for slow moving inventory will likely lead to lower price adjustments to avoid larger markdowns later. Electronic shelf labels (ESLs) are a great techology that will improve the efficiency of price changes and will allow staff more time to service customers. And customers benefit from more product information and accurate prices. With the traditional paper price labels, it is quite common for shelf prices to be different than what the POS rings up, which causes customer dissatisfaction. I am a big propoent of ESLs and I think we will see this technology becoming pervasive in the near future, especially for stores with a lot of SKUs.
Two points:
1) yes it could lead to that, but it’s by no means an inevitably. (If we worried about everything that could go wrong and never did anything we’d be in 1804; and while that might seem tempting at times, on balance I think we’re better off in 2024).
2) NO, “better understanding” is not going to lead to greater acceptance. People understand the idea – squeeze every possible nickel out – quite well, thank you! let’s not insult their intelligence by pretending they‘re the problem.
Walmart’s DNA is grounded in efficiency, margins and value. Digital shelf labels offer this – and more, so perhaps we trust Walmart for their stated reasons in adopting the technology, as so many others already have, rather than rushing to judgement on unfounded speculation.
Why do we act as if customers are stupid and impotent victims? If they don’t like a store’s pricing policies, then they can go elsewhere.
Dynamic pricing is the norm for many categories. Why should Walmart be denied the freedom?
There are consequences for a retailer’s tactics. But it’s their opportunity to get better. They lose revenue if their customers reject it.
I agree with my colleagues who suggest there is a lack of trust. But too often it’s driven by those who bash businesses for sport.
Pricing stores is a very expensive endeavor. Bravo to all leaders who implement digital pricing. May they execute whatever pricing tactics they choose. Because ultimately, the market decides…
I’m already hearing grumbling about this among the people. Even the cooler benefits, like seeing nutritional info, etc. dynamic pricing is a non starter here. Period. There are cool things to be achieved wothcaeSLs but the specter of dynamic pricing is soiling the water
Yes. Agree 1000%
I know everyone is extra sensitive to dynamic pricing, especially after the Wendy’s debacle. But executing something like that in a grocery store is even more difficult than a restaurant – a grocery shopping trip could be 10 minutes or 60, and knowing what price the consumer should be charged is nearly impossible if a price changes sometime during that time. Most retailers who have experimented with grocery-based dynamic pricing have either run “happy hour” or doorbuster pricing, or have used it for expiring goods, like that last chicken wing on the steam table. You can dynamic price – as long as the price is always going down, from the consumer perspective, never up.
There are definitely big benefits for retailers that don’t have to rely on fully “dynamic” (by which I mean intra-day) price changes. You can execute a finer and more flexible pricing strategy that is not constrained by the labor involved in changing the price. You can do more to enforce display compliance and make sure that all discounts are properly applied on time (hey, a consumer benefit, too!). And for consumers, you can tap for more information and provide better access to digital (dare I say “more dynamic”) information about a product.
I mean, nobody accuses Kohl’s of shady practices around pricing and they’ve had ESL’s for years. This is just a new sensitivity. And because the operational piece of it is so difficult to execute in a store the size of your typical Walmart, I believe them when they say they have no plans to use “dynamic” (again, by which I mean intra-day) price changes.
Crucial point, @nikki. It would be bad bad bad if shoppers find that the price of an item in their baskets has increased during their walk from the shelf to the POS. Any retailer with good sense will instinctively recognize why this can never be permissible. Like you, I can’t believe Walmart ever wants that to happen.
But using ESLs to manage overnight price changes, ensure shelf prices are correctly displayed, flag items needing replenishment, and even enable “mini-markdowns” on slow-moving or short-dated items is all very promising. The potential operational savings should be reflected in elevated work experiences for store employees and better value for shoppers.
Others have already talked about the pros/cons of digital labels and dynamic pricing, but one thing that hasn’t been mentioned is the lack of attention-drawing SALE signage capabilities of these digital labels. There’s a reason why the paper versions are physically larger, bright red, bold and draws the eye. I’ve yet to see a digital version that mimics this effect to the same degree. At a glance, a wall of these things all just look uniform. I haven’t seen any studies about its efficacy, but I wonder if promo lift is indeed lower with these digital labels? The effect is probably not large enough to offset the operational savings, but not be immaterial either.
I have seen this done a few ways. Some retailers use overlays to shout out the promotion. Some use color E-ink displays to promote/flash the item. To your point, 100 labels in a 8 foot retail planogram segment just looks of sameness. Not a lot of differentiation…
Agreed. Most ESL screens I’ve seen in stores don’t have enough contrast. You could walk by hundreds of deals if you’re not paying attention. I have even watched customers use a mobile phone flashlight to read screen details. Paper with bright yellow or red is way easier for customers to quickly navigate to sale and promotional items from a distance. Your question about impact of ESL on brand and merchandising vs bright paper is worth an entire discussion.
Definitely. Count me in on that discussion.
Using digital labels to be more environmentally friendly is not a sufficient reason, and I wish that retailers would refrain from playing that card to explain something being done for other real reasons.
I also don’t buy that the digital labels will give employees more time with customers.
I like the benefit of easy-to-read labels. This is already the case where digital labels are in use in stores such as Whole Foods, Schnucks Hy-Vee, Ahold, and several others. I do believe that DSL’s will eventually take advantage of flexible price variations. But cost is cost, and cost does change, especially now, so I don’t see the problem with that. Db
I am dubious about the environmental claim as well – paper is an infinitely renewable and highly recyclable resource, and really doesn’t take much energy per unit to create. ESLs need electricity and batteries, so there isn’t an all-or-nothing trade there. I’d rather they just say, “we can fire the printing company and get rid of monthly / biweekly bills. The ESLs are capex that we can amortize.”
After a small project with Electronic Shelf Labels I came away very impressed with their current capabilities. There are multi-color options in use in European grocers that can be used as on-shelf ads or sale price call outs. The labor savings is a boon not only to the retail but to its employees. The employees I spoke with were relieved to have the prices set automatically every day. Even in low SKU retailers, repricing was a significant use of time and not a lot of fun.
The dynamic pricing concern is very ill placed. While some research has indicated shopper concern, research also shows that categories with ESLs have improved sales. Further, dynamic pricing should not be assumed to be an instant negative. The ability to centrally control pricing gives retailers the chance to price match in-store as they do online today. It simplifies markdowns. And overall it ensures pricing consistency and accuracy.
There are also added marketing opportunities for brands with certain versions of shelf labels as well as the ecommerce fulfillment benefit of pick to light capabilities noted in the article.
Now that I am familiar with current ESLs, I can’t think of a good reason for a retailer not to implement. They are clear, ensure pricing consistency, reduce very low value labor and offer a variety of enhancements over static shelf labels. More akin to the sensible move from price guns to scan codes than a sinister plot to adjust prices.
ESL’s are here to stay. There is great momentum in the market with a variety of high quality use cases that offer tremendous value to retailers. Walmart wouldn’t be investing in this technology just to erode their time-tested EDLP strategy. This would destroy the trust and credibility they’ve earned with consumers. They’re investing in it because of what the article highlighted around labor savings, customer experience and stocking enhancements.
There is a clear and understood benefit to store labor, and reduced hours required for pricing updates will assuredly be split between other customer serving activities as well as simply store labor savings for the retailer. There is also a clear benefit of accurate pricing, assuming that the merchandising and pricing solutions are able to update the store solutions, which is an ongoing challenge for many retailers. The concern of dynamic pricing is natural, but as others have said, it will go both ways, and retailers will be cognizant of both competitive pressures and consumer perceptions.
Undoubtedly, deployment of ESLs is a benefit to both retailers and to customers for all the reasons already stated in the introduction. However, consumers can rightfully be concerned that some retailers will introduce dynamic pricing using the functionality inherent in ESLs. Some retailers won’t. Traditionally, consumers ‘speak’ to retailers and lets the retailers know what they will accept and what irks them and, eventually, the negative practices wane and disappear. There is a bigger risk of a backlash by consumers if EDLP retailers were to institute dynamic pricing than if other retailers do so and, even then, there may well be consequences.
Wasn’t Kmart’s Blue Light Special dynamic pricing?
As long as prices go down, shoppers will not object. What they will object to is a price increase while they are on the shopping floor. I assume prices at the checkout are the same system as prices on the shelves. That $5.99 item on the shelf that turns into a $6.99 item at checkout will undoubtedly raise eyebrows and cause distrust. Retailers would be foolish to change prices during shopping hours.
The reality of price changes is that when the retailer buys inventory at a new higher price, the shelf price increases immediately, no matter the inventory’s value. Those decisions have nothing to do with ESL.
Having prices match at the shelves and register is a major plus. The number of times prices in places like Target come out different at the registers is insane. They will always honor the lower price, but you have to be on the ball to spot and keep track!
This. Good point. The integrity has to be there for the customer’s sake. And yes, it is insane!
“Insane” is a good word.
Ha! I do find it insane how often it happens. There are some stores where the prices are almost always off. Another thing Target is very guilty of is having lower prices on its website/app than in store. Again, they will price match but the customer has to check and request.
Walmart thrives on efficiency, this will certainly help them to drive expenses out of their store operations. This also will help to reduce the fines that all retailers pay, especially in California, for pricing integrity. That’s all good.
On the downside, consumers should be very worried that this will result in them paying more for products depending on when they shop. While stores may not change prices hourly, they definitely don’t want consumers to see their prices change between the shelf and the checkout, the temptation to obscure increases with small daily changes will be really hard to resist. And, will result in higher prices for consumers.
At this point I’m just going to applaud the cost savings and efficiencies offered by ESL’s and count on the market to sort out the dynamic pricing issues. The temptations to move towards dynamic pricing will be huge. The supply and demand logic is pretty simple. Is it the right thing to do? Do customers really embrace it as “fair”…??? Has living with the practice at hotels and airlines trained me into a nice, gentle acceptance of hi/lo pricing? Hell no. It’s aggravating as hell, no matter how well I understand the logic. Sure, I like getting a deal at low-demand times, but always feel gouged at high-demand times. Dynamic pricing sounds like a wonderful tool to manage rates of sale and inventory on time sensitive products with limited shelf life, or products with planned exit dates. Start at $X.xx and move the price down depending on rate of sale and planned exit date. Customers can buy…or wait…at their peril. Imagine an apparel floor that could take markdowns at the style/color level instead of just sticking a “Save 40%” sign on the fixture…?!? No need to markdown navy if it’s at 7 weeks of supply, but fuchsia is at 27 weeks of supply, so action is required.
This makes sense and is long overdue from an efficiency standpoint. I think the benefits are for the retailer, not the shopper.
I don’t think consumers should be concerned. We are all used to price changes and tend to be able to game the system (unless a monopoly like Ticketmaster) and figure out the best time to buy, wait for sales, etc.
The dynamic pricing buzz just seems like click bait ~ overblown to be a concern and by the time it gets “real-time” in our local grocers, the masses will be up in arms.
For those familiar with the term “dynamic pricing,” the first thought many have is how Uber or Lyft have “surge pricing” during busy times. The idea of raising prices for supply/demand purposes may concern consumers. Wendy’s found out the hard way yet quickly recovered. If Walmart (or any other retailer) can assure customers that prices won’t be raised to reflect a surge in demand but instead used for a more productive method to change prices for discounting and standard pricing practices, they will give customers confidence in the pricing strategies they are known for.
Dynamic pricing is really hard to do in a grocery store, where a product might sit in a cart for 20 minutes – be placed at one price, but hits the POS later at a different price. Creates lots of confusion and grief that the store associates don’t need. You might see daily pricing, but I doubt intraday will happen. Shelf label ROI based on just associate costs savings is a tough equation to balance. I expect more frequent price changes make that calculation easier to justify.
No…DSLs are not a precursor to dynamic pricing in stores at any retailer…most especially at Walmart. They are a labor saver, and a sustainability move…period.
As a former Walmart associate, I know of the cultural imperative to lower prices…not raise them. Dynamic pricing would fly in the face of Every Day Low Price, and if you think that Walmart would move away from that strategy, I would respectfully submit that you don’t know or understand Walmart at all.
As for other retailers, Walmart’s expansion of DSLs should drive costs for the technology lower, and increase the speed of adoption. A quick walk through a Walgreens, CVS or Dollar General tells me they are perfect candidates for this technology as well as nearly any grocery chain. I view this as an exciting development for retail, for store associates and for the consumer.
If for no other reason to implement digital shelf labels, the labor savings at grocery stores is clear. And yet from a customer standpoint, and without having more clarity from the grocer, they’ll hold doubt around whether they are shopping under a commonly understood weekly cycle of price changes, or is their resolve being tested daily under market supply and demand. And so it’s up to the grocery store to convey to customers why and how digital shelf labels are used, what they promise to do, or not do with them. Otherwise, why risk eroding the brand trust you’ve worked so hard to build?
Significant cost and time savings are attributed to leveraging electronic shelf label (ESL) capabilities. While the technologies have matured for over two decades, retailers like Walmart, Kroger, and others have just rolled out these capabilities at scale. Certainly, ESL technology can support dynamic pricing. However, dynamic pricing is not necessarily tied to ESL capabilities. Retailers have had the ability to increase prices due to competitive forces, supply and demand challenges, macroeconomic factors, and other elements.
The clear business value and benefits are for the retailer. In the case of Walmart, they can change prices at their central headquarters, reducing workloads and inefficiencies. There are additional business benefits, which include:
So, there is the ability to do dynamic pricing at scale for the Walmarts of the world. However, in the short to mid-term, it’s all about the operational and cost efficiencies at scale.