Evan Schuman's StorefrontBacktalk

Now that we have eliminated individual pricing and gone to “shelf” pricing, retailers have a greater incentive to move to electronic shelf labels (ESLs). Instead of the cardboard shelf tags that display the cost and unit cost of, say, a bottle of soda, an LCD display linked to a computer in the back office will display the “price” of that pop.

The computers can calculate the lifespan of the product (say, broccoli) and lower the price as the item is reaching its shelf-life. If the computer determines that a product is not selling well, it can also lower its price automatically to help push sales. Because the ESL is linked to the inventory and POS systems, presumably the prices on the label and the price charged at the register will match—except in those cases where the “price” has changed while the consumer is shopping. As a result, the system would have to have some type of grace period equal to the typical time spent shopping, whereby the lowest of the prices would be charged at the register.

Such a dynamic pricing system could be a boon to retailers. But that may be the problem. With the ability to change prices at will, there is both the incentive and the capability for rampant “abuse.” Such dynamic pricing also fundamentally changes the concept of offer and acceptance embedded in consumer contract law.

In a pure Adam Smith system, retailers will charge the maximum price that a consumer is willing to pay for a product. ESLs and RFID technology enable that price to change at will. We can have time-of-day pricing. We can have weather-related pricing (temperature drops, price of soup goes up). We can link pricing to an individual consumer. Loyalty cards can be replaced with loyalty fobs, which display the price to that consumer that day.

This fundamentally changes our conception of price. Because the “advertised” price changes at the whim of the retailer (particularly as we move away from printed and semi-permanent media), the concept of the “advertised price” dwindles. The “price” of a bag of ice may depend on the time of day or the number of bags left in the cooler, or on whether there is a power failure.

The concept of a “fair” price or a “true” price disappears when the “advertised” price is dynamic. The consumer contract requires retailers to honor the price offered—but not to maintain that offer for any period of time. As the technology changes, retailers can change the price more often, and dynamic pricing becomes predatory pricing.

It’s not that the POS terminal is getting the price wrong, which was the concern of the legislatures in the 1970s. It’s that the technology changes the whole idea of “price.”

It’s like that joke about a scientist, an engineer and a lawyer who are individually asked to solve the math problem, “What is 2 + 2?” The scientist and engineer each reply, “Four!” The lawyer asks, “What do you want it to be?” And that may be how we determine prices in the future.

If you disagree with me, I’ll see you in court, buddy. If you agree with me, however, I would love to hear from you.