Sam’s Club is adding AI to the shopping experience. Why are privacy advocacy groups worried?
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- Sam’s Club announces it will use an all-digital, AI-assisted system to replace the traditional checkout process.
- Privacy advocates worry that the use of AI will make it easier for retailers to track consumer’s shopping habits and use that data to promote higher-priced items and downplay discounts.
Sam’s Club is going register-free and introducing an all-digital, AI-powered shopping experience for its customers, a move that has privacy advocates worried that the new AI tool could be used to unfairly target some customers with higher-priced items based on their shopping habits.
The all-digital approach started with the reconstruction of a Sam’s Club in Grapevine, a suburb of Dallas, that was severely damaged in 2022 by a tornado.
When the retail location opened two years later it was the first of its kind to ditch its registers for a “Scan and Go” program that allowed customers to scan each item placed in their physical cart and pay through a mobile app. This program has since been piloted in nine Dallas metro locations and one store in Missouri, Retail Dive reported.
Instead of handing a receipt to a Sam’s Club employee to review before leaving the store, customers walk through an arch that’s equipped with AI-powered cameras to capture images of the items in the cart and electronically match them with the items paid for through the app.
Sam’s Club did not disclose when the AI technology would be coming to California stores but Sam’s Club has outlets in Torrance, Fountain Valley, El Monte and Riverside.
The company said it is using data collected from the app, sorting it with the help of AI to personalize promotions sent to club members via the store app based on their shopping habits.
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Consumer advocates are raising concerns that this type of data collection and customized advertising can be used to promote higher-priced products and underplay discounted products for some customers based on their shopping habits.
Sam’s Club said it always promotes low prices to all of its customers and is not using the new AI technology to upsell its shoppers.
What’s surveillance pricing?
Surveillance pricing is the practice of using a customer’s personal information such as location, demographics, shopping and online browsing history to tailor a specific price for that customer online, according to the Federal Trade Commission.
That means based on the data collected for each customer, a retail company can promote a higher priced item to them or adjust what products they see online.
The FTC offered the example of a pharmacy excluding regular customers for a special promotion for over-the-counter medications or weight-loss supplements under the assumption that those customers are likely to buy those products anyway. Instead, the pharmacy may target those discounts to infrequent buyers of those products to avoid losing them as a customer.
The price of a product normally fluctuates based on real-time supply and demand or competition in the market. But under surveillance pricing, the products customers are shown in the app or on a website is entirely based on the information AI has collected on the customer, according to Consumer Watchdog.
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Retailers have been collecting massive amounts of customer data for decades through loyalty reward programs and club cards. But the tools used to collect and analyze that data today, including the AI cameras at Sam’s Club, have become more sophisticated.
Surveillance pricing is just the latest method of pushing promotions and products on customers.
The term gained notoriety at the beginning of this year when the Federal Trade Commission found that at least six companies (Mastercard, Accenture, PROS, Bloomreach, Revionics and McKinsey & Co.) were frequently using this practice while collecting information on “a person’s location and demographics, down to their mouse movements on a webpage,” according to a news release.
The federal agency found that companies were working with third-party firms to process the collected customer data and tweak prices accordingly.
Massive amounts of these data are collected and processed through AI-powered algorithms to segment customers into different categories, including a segment that considers what a customer is most likely to buy, said Sara Geoghegan, senior counsel for the Electronic Privacy Information Center.
“[Companies] want to track us to know the highest price we are willing to pay for a product or service and they’re using AI-driven technology to do that,” Geoghegan said.
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Why is surveillance pricing potentially harmful?
“There are serious concerns about discrimination or price gouging and this happens in a black box that we don’t always know about,” Geoghegan said. “Someone might have a higher price for something and not understand why or just think ‘Well, the cost of things are going up.’ ”
The FTC study found that some third-party firms “can show higher priced products” to consumers based on their “search and purchase activity.”
For example, these firms can use such data to put a customer into a “new parent” profile and then promote “higher priced baby thermometers on the first page of their search results,” the report stated.
“I think surveillance pricing is a particularly nefarious practice, because we are talking about actual dollars that consumers are spending,” Geoghegan said. “This is a practice in which companies extract and exploit our personal information.”
The other concern is that the collected data are being shared with other retailers, third-party firms, data brokers or advertisers, she said.
Is Sam’s Club practicing surveillance pricing?
The warehouse club is collecting data on your shopping behaviors and using AI tools to analyze your habits but it is not using it to upsell you, said Harvey Ma, vice president and general manager of Sam’s Club Member Access Platform. But Ma said the warehouse club store is not practicing surveillance pricing.
Sam’s Club said it has an everyday low price retail pricing strategy, which means products are offered at low, competitive prices.
“Our merchants work tirelessly to make sure that that value is there every day and available for all of our customers and members,” Ma said. “We are not a high, low or promotional retailer, which I think is where the [surveillance pricing] practice started to come from.”
High-low pricing strategy is when a retailer sets an initial high price and then offers discounts or promotions over time.
But analysts expect sales will start falling off as the slew of tariffs increase costs for companies and many retailers are forced to raise prices.
Sam’s Club decided to bring in AI tools to analyze customer data because “millions, billions of signals are happening in real time, and our job is to use tools to sift through those signals, to understand the best form of intent,” Ma said. It was a practice that he and his team have done manually before but now can do much faster.
How can customers protect their privacy?
Any website or app uses different technologies to track and collect information about your online habits, according to the Federal Trade Commission.
Here’s what the FTC says you can do about it:
- Routinely delete your web browsing and search history as well as your web cookies.
- Adjust your privacy settings to deny mobile apps the access to track your activity across apps and websites. For example, in an iPhone’s “settings” app look for “privacy and security” and click on the “tracking” option. You can turn off the option to allow apps to request to track you and all newly downloaded apps will be automatically denied access.
- Download an ad blocker that prohibits ads from appearing on your browser.
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