Mathew PaquetChecklist · 4 min read
Three Checks Before AI Sets Your Prices
Before a vendor sets your prices with AI, find out what it reads, run the tag test, and keep your discounts honest.
At the end of September, Reuters found a Big Mac at $5.69 in one Fresno McDonald's and $6.89 at another about two miles away. Behind the menus: a machine learning engine that suggests a price for every item at every restaurant. McDonald's says AI doesn't set its prices, the owners do. But every business now faces the question: if AI helps set your prices, what is it allowed to know about the person paying? First, see that "AI pricing" is really two machines.
The second one is the one getting banned. From the outside, it looks like this: in a test published by Consumer Reports and two other groups, 437 volunteers filled the same Instacart basket from the same store at the same time. About three quarters of the products showed up at different prices for different people, some up to 23% apart. Instacart says these were randomized tests and it doesn't use personal data to set prices. Within weeks, it ended them all.
The shopper can't tell a test from a profile. They just see that their neighbor paid less.
The FTC's proposal also names two things to avoid: calling a personal price "specially selected," and showing a higher price as a loyalty discount. None of this is legal advice, and the rules change by state. But they all point the same way.
Write down every input the tool uses, and sort each one.
Most tools will show you this list if you ask. If a vendor can't, that tells you something. If it reads the person, you either get the customer's clear yes, or you switch that part off.
2. Which of those describe one customer rather than the product?
3. Can each of those be switched off for our account?
4. Who else in our market runs the same engine?
Why question 4: a customer has filed a lawsuit claiming McDonald's shared pricing system, across nearly 14,000 U.S. restaurants, is a way of coordinating prices. McDonald's disputes it, and it's only a claim for now. But if you and your competitors all buy the same tool and feed it the same data, keep that in mind.
Take the reason behind a price and imagine it printed right next to it, like New York's sentence.
Would I show this to the customer? [YES / NO]
If you'd be embarrassed to show it to the customer, that's your answer.
A personal deal is fine when the customer chose it and it's really cheaper. Run every deal past these three lines.
One price is turning into a selling point. Walmart's CEO wrote to customers in September: "We price the product, not the person." In a poll for a consumer group this year, 72% of voters said they'd accept smaller discounts if it meant everyone got the same price.
Let AI price the product. And if it ever prices the person, say so, or don't do it.Sources
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Before any tool suggests your prices, ask for the full list of inputs it reads and mark each one product or person.
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