With Massachusetts' Blessing, All States Prepare To End Item Price Labels. It Begs The Question: What Will Price Mean?

Attorney Mark D. Rasch is the former head of the U.S. Justice Department's computer crime unit and today serves as Director of Cybersecurity and Privacy Consulting at CSC in Virginia.

Legislatures first enacted requirements that grocery stores and other retailers individually price items because they simply didn't trust the barcode and other price-scanning technology. With Massachusetts the last jurisdiction set to remove such legal requirements, we are faced with a new problem. The technology is fine, but now the government doesn't trust the retailers.

My grandfather grew up in Germany during the Depression. With hyperinflation eroding the value of the Deutschmark, he told stories of shopping several times a day and running ahead of the poor clerk with the labeling device to avoid the inevitable price increases and get the "best price." With the advent of UPC codes and scanners in the 1970s, grocery stores could replace individual prices on each can of corn and bottle of soda with a shelf tag, which would list the price of the item to be scanned at the register. Legislatures were concerned that this would lead to inaccurate pricing at the register, because they didn't trust the scanners to perform properly, in addition to being worried about price manipulation by retailers.

They were also concerned that such practices would disempower the consumer, who would not have the real ability to run back to the shelf each time they wanted to check a price. The Michigan legislature, for example, noted when it passed a law mandating individual pricing in 1976 that the "removal of prices from items and the reliance on a computer code as a means of pricing does not adequately permit a consumer to monitor the price." Consumer protection organizations were concerned that the price charged at the register would not reflect the "true price" of an item, as reflected in the price stamped on that item. It was the technology they did not trust.

Over the course of some 40 years, we have become inured to the technology. Remember how awkward and out-of-touch President George H.W. Bush seemed in 1992—20 years ago—when he said he was "amazed" by the then 20-year-old technology of barcode scanners? The technology is commonplace and accepted. That is why the Massachusetts House of Representatives has recently passed H 4089, which removes the requirement that supermarkets and other retailers individually price items but does require such retailers to display and charge the "correct price."

The Massachusetts law defines the "correct price" as the lowest of (1) the advertised price, (2) the price displayed at the store or (3) the price charged at checkout. The law also requires grocery or food stores to disclose the correct price and "All prices represented to the consumer for the same item shall be consistent with each other and the correct price."

Great. But what is the "price" of an item? New technologies enable the prices charged, and the display of those prices, to change instantly. Ask anyone trying to purchase a plane ticket from New York to Detroit what the "price" of that ticket is.

Technology has brought us back to the where the "price" of an item can depend on supply and demand, the volatility and perishability of the product, the price sensitivity or gullibility of the consumer.

Barcode scanners are only the first step. Obviously, technologies such as RFID can enable retailers to change the price of entire grocery carts of items instantaneously. Loyalty programs enable differential prices for members and non-members. Coupons can enable for even lower prices to particular consumers. We could even have paired pricing. Buy Dole bananas and get Reddi-wip whipped cream, Hood ice cream and Hershey's chocolate syrup 20 percent off. The shelf price, like the unit price, becomes dynamic.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.

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