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Originally published August 13, 2012 at 5:49 PM | Page modified August 14, 2012 at 7:07 AM

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Grocery prices become more personal

Hoping to improve razor-thin profit margins, groceries are creating specific offers and prices, based on shoppers' lifestyles and behaviors, that could encourage them to spend more.

The New York Times

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It used to be that with dedication and a good pair of scissors, one grocery shopper could get the same coupons — and cheap prices — as another.

Now going to the grocery is becoming a lot less egalitarian.

At a Safeway in Denver, a 24-pack of Refreshe bottled water costs $2.71 for Jennie Sanford, a project manager. For Emily Vanek, a blogger, the price is $3.69.

The difference? The vast shopping data Safeway maintains on both women through its loyalty-card program.

Sanford has a history of buying Refreshe brand products, but not its bottled water, while Vanek, a Smartwater partisan, said she was unlikely to try Refreshe.

So Sanford gets the nudge to put another Refreshe product into her grocery cart, with the hope she will keep buying it.

A Safeway website shows her the lower price, which is applied when she swipes her loyalty card at checkout.

Safeway added the personalization program to its stores this summer. For now, it is creating personalized offers but says it has the capability to adjust prices based on shoppers' habits and may add that feature.

Airlines, hotels and rental cars have offered variable prices for years. Those prices, however, are almost always based on capacity and timing, or are given to groups — seniors get one discount, frequent users another.

Now grocers like Safeway and Kroger are going one step further, each offering differing methods to determine individualized prices.

Hoping to improve razor-thin profit margins, they are creating specific offers and prices, based on shoppers' lifestyles and behaviors, that could encourage them to spend more: a bigger box of detergent, bologna if the retailer's data suggests a shopper has teenage boys (expensive bologna if the data indicates the shopper is not concerned about lunchmeat prices).

The pricing model is expected to extend to other grocery chains, and over time could displace standardized price tags almost entirely, analysts say.

Even though the use of personal shopping data might raise privacy concerns, retailers are counting on most people accepting the trade-off if it means they get a better price for a product they want.

"If our consumer information is right, personalization is really a consumer desire right now, not so much a consumer fear," said Michael R. Minasi, Safeway's president for marketing.

There are skeptics. Joseph Turow, a professor at the University of Pennsylvania's Annenberg School for Communication, said shoppers should be cautious. The pricing at grocery stores and other retailers is not transparent enough to give consumers any real power or choice, he said, and "there's a sense of fairness that's derailed here."

Kroger, the Cincinnati-based grocery giant whose holdings include Fred Meyer and QFC, has long been sending its frequent customers specialized coupons with the help of dunnhumbyUSA, a consumer-research firm. A Kroger spokesman, Keith Dailey, said 70 percent of customers who received the coupon mailings redeemed at least one of the offers, a high response rate.

Kroger has had 34 consecutive quarters of same-store sales growth, which both it and analysts attribute in large part to the coupon offers.

Kroger calibrates prices by studying when someone redeems an offer for, say, ketchup at $1.70 but not for ketchup at $1.80.

"It comes down to understanding elasticity at a household level," said Stuart Aitken, the chief executive of dunnhumbyUSA.

The companies also track how frequently someone buys a product, at what times of year and when the last purchase was made.

Kroger has been sending customers mailings with "multiple price points," Aitken said. Now it is testing personalized prices via "other devices, or other ways of reaching out to the consumer," he said, which could include things like smartphone apps or loyalty card swipes.

At Safeway, the digital customization program allows the company to respond to current events. After a recent power failure in Washington, D.C., for example, it sent city residents coupons for freezer items to encourage restocking once power was back.

Sanford and Vanek, both of whom live in the Denver area, were among bloggers that Safeway asked to test its pricing program in return for a $50 gift card.

Like any good shopper, Vanek is already starting to game the system: She noticed she received cheaper prices on ground coffee when she alternated between Starbucks and Dunkin' Donuts brands rather than buying just Starbucks.

She said it would not bother her if someone else at Safeway were offered a lower price. "No two people are ever going to buy the same things, so I don't think it matters, at least not to me," she said.

So far, consumers say, the programs seem to reflect their buying habits. Sanford, who says she tries to buy health-conscious items, says offers for Kashi cereal and bagged lettuce reflect her preferences.

Ainy Kazmi, 35, a mother of four in Ellicott City, Md., said Safeway's program encouraged her to change what she bought. She tried to use the offers for a large bottle of cranberry juice, rather than the smaller bottle of cranberry apple juice she usually buys, and a box of Cocoa Puffs that was not on her shopping list — but she said the discounts for some reason were not loaded onto her card at checkout. She bought the items anyway.

She has used the program again since then, getting discounts on bananas, among other products, and says she is happier with it since Safeway worked out the kinks.

"It's a little bit creepy, but I figure they're checking everything anyway," she said. "I might as well get a good deal out of it."

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