The news: Walmart recently secured patents for two tools that would give algorithms more influence over pricing, per the Financial Times.

• The first involves a “system and method for dynamically and automatically updating item prices” online to deliver markdowns.
• The second uses machine learning to forecast demand and suggest product prices.

Why it matters: The patents could draw scrutiny as consumers and regulators grow more sensitive to shifts in retailers’ pricing strategies—particularly ones that involve algorithms and the potential for surveillance pricing, which is based on shopper data. Nearly two-thirds (62%) of US adults are somewhat or very concerned about personalized pricing, according to a December survey by Talker Research. The company’s announcement that it plans to bring digital shelf labels to all stores within the next year could add fuel to the fire, especially as more states and federal lawmakers move to curb use of electronic labels to increase grocery pricing transparency.

While Walmart told the FT that its new tools are “unrelated to dynamic pricing,” it’s clear that they—along with its shelf labels—could markedly expand the retailer’s ability to change prices.

• Its demand-forecasting and price-recommendation tool would take into account sources like purchase data, prices, payment methods, and customer ID (such as a passport or driver’s license), which could be a precursor to personalized pricing.
• Its “end-to-end price markdown system” would adjust online prices based on predicted demand and shoppers’ price sensitivities.

The implications: For Walmart, the advantages offered by algorithmic pricing could outweigh the possibility of alienating some shoppers, especially if it leads to faster ecommerce growth.

• Dynamic pricing optimization is by far the most effective strategy for decreasing cart abandonment, according to a Blueshift survey of B2C marketers.
• At the same time, nearly 30% of consumers say digital shelf labels or smart carts that display personalized pricing would make grocery shopping easier in the future, per an Amazon Ads and EMARKETER survey.

Still, Walmart—and all other retailers experimenting with algorithmic pricing—need to tread carefully. The rising cost of living is making consumers especially sensitive to price changes, as well as any hint of potential price gouging. In the long run, maintaining consumer trust is more important than making aggressive pricing changes.