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• Companies like Walmart are shifting to digital price tags and menus in many of their stores.
• They said they won't use the technology to surge prices at times when products might be in high demand.
• But new pricing strategies could present risks to consumers down the road. 

There's not much the American consumer loves more than a discount, and companies are constantly competing with each other to offer the best prices — or at least make the shopper think that they are.

Take Walmart, the latest big company rolling out new pricing innovations. In early June, it announced it would begin implementing digital, on-shelf labels in 2,300 stores by 2026.

A Walmart spokesperson told Business Insider that, even with the ability to quickly adjust prices via the digital shelf labels, the company will not surge prices for consumers when demand is high: "There is no plan to change the frequency of price changes or implement different pricing methods."

However, the practice brings up major questions for some experts concerned about the implications of shifting pricing strategies. While airlines and ride-hailing companies like Uber have been using surge pricing for decades, experts worry that if dynamic pricing becomes even more prevalent in retail and grocery stores, enabled by technology like digital price tags, consumers could struggle to budget for basic necessities. On the other hand, those with the time and resources to shop around and wait could take advantage of lower prices.

To be sure, adjusting prices based on supply and demand is a basic tenant of the capitalistic system in the US. Many retailers and restaurants have long had differentiated pricing at different times, whether it's a back-to-school sale or a happy hour. However, the digitization of shelf tags and menus, as well as other shopping methods like apps and websites, speeds up the process and allows companies to offer a wide range of prices to different customers — and shoppers could struggle to keep up.

A new era in pricing — rooted in old strategies

The Walmart spokesperson told Business Insider that the primary goal of digital price tags is to streamline tasks for employees, such as the time-consuming process of manually switching out price tags for hundreds of items each day to accommodate changes due to inflation or discounts.

"The new operational efficiencies enabled by digital shelf labels allow associates to spend less time on onerous tasks and more time serving customers and meeting their needs," Greg Cathey, senior vice president of innovation and transformation at Walmart, said in a statement to BI.

Elizabeth Pancotti, the director of special initiatives at the left-leaning think tank Roosevelt Institute, told BI that while digital pricing strategies are not new, she's concerned to see it applied to necessities.

"There are so many folks that are relying on more stable prices. Prices are high, but they're at least stable," Pancotti said. "And you could see a lot more instability. I think when you think about our macroeconomic tools, the Fed doesn't have the ability to fight for price stability when they're waging a war against digital price tags that can change every three seconds."

Imagine it's pouring rain, and you find yourself outside without an umbrella. You see a seller on the corner charging $20 for an umbrella, up from his usual $5 price on a sunny day. You're likely more willing to spend that $20 because you need the umbrella to stay dry, and you have no other option. With digital price tags, big retailers, in theory, could do the same.

Federal Reserve Chair Jerome Powell has said that type of dynamic pricing is "incredibly important in our economy."

"I think we need to give companies the freedom to do that as long as they're not fixing prices or failing to disclose the nature of the price changes to the public," Powell said during a Senate hearing on monetary policy in March.

Some experts agree, saying dynamic pricing practices could benefit consumers who are able to gain some understanding of the system and shop around. Z. John Zhang, a marketing professor at the Wharton School at the University of Pennsylvania, told BI that changing prices throughout the day would allow consumers who cannot afford a full-price product to seek out lower prices and discounts.

"In the airline industry, if you're patient, you can probably wait to buy tickets and get a lower price," he said. "But imagine if you only had one price. That's not very efficient for the company, and certainly that would deny a lot of people access to flights."

But as Wendy's learned earlier this year, some customers are skeptical. Its CEO announced during a February earnings call that it would begin testing out dynamic pricing features like digital menus that could change prices and menu items throughout the day. After customers complained online that those changes would surge prices, a spokesperson announced the company did not intend to implement surge pricing.

Wendy's said the digital menu boards would instead be used to offer discounts to customers more easily. But this type of pricing experimentation is what's making some consumers and experts nervous, especially when they can make these changes without significant oversight, Pancotti said.

"I commend companies for being creative and trying to find these places where they can operate without regulations and without a lot of government capacity," she said. "But I think it's a huge risk for consumers."

What's at stake for shoppers

Some Democratic lawmakers have expressed concern over the rise of new pricing strategies. Sen. Sherrod Brown held a Senate banking hearing in May to address that topic, saying in his opening statement that some companies are "adding electronic menu boards to restaurants and digital price labels to shelves so that corporations can raise the price at a moment's notice."

"It's frustrating, and it makes it impossible for people to compare prices and shop around – key ingredients in any fair, open market," he said. "Families with fixed budgets cannot afford to walk into the grocery store or pharmacy not knowing how far their paycheck will get them."

While many of the companies adopting digital strategies have denied that they will engage in surge pricing, Pancotti said there could be consequences down the road should they do so. For example, Americans relying on federal benefits like SNAP could be impacted the most because the amount of assistance they receive is based on pricing data, and it would be difficult to calculate those benefits accurately should prices constantly change.

As The American Prospect highlighted in a recent series on price gouging, shifting prices could lead to highly personalized pricing in which companies collect data on consumers' shopping habits — they could even find information on income and family size — and tailor prices of products based on that data.

With dynamic pricing already a part of consumers' lives, think changing prices at gas stations, Zhang said shoppers just might have to get used to it as it makes its way into other industries. But they — and lawmakers — will be watching.

"All of this is a game," Pancotti said. "They all have the same goals of maximizing profits, and we're just finding new ways to do so as our economic conditions change."

Where have you seen surge pricing in your life? How does dynamic pricing impact you? Share your story with this reporter at asheffey@businessinsider.com.

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