Is GenAI-Powered Dynamic Pricing the Future or a PR Nightmare?

Dynamic pricing is a hot topic in retail, but hints of such a strategy at big-name grocery retailers such as Kroger and Walmart have sent shoppers out the door. With over one-fifth of U.S. consumers shying away from retailers using dynamic pricing, the key is transparency.

Walmart is paving the way for electronic shelf labels to replace traditional paper tags by 2026. However, in a somewhat misleading way of addressing consumer backlash, both Walmart and Kroger have emphasized that they won't use this technology for dynamic pricing but rather to “lower costs and ensure accurate pricing.”

With the right approach and messaging, retailers and grocery stores can leverage generative artificial intelligence-powered pricing to build trust. By educating shoppers about how algorithms work, they can address their concerns on the topic while optimizing their e-commerce and in-store experiences.

Keeping Price-Sensitive Customers in the Loop

Shoppers don’t like to be kept in the dark or to feel cheated in any way. According to a Capterra survey, over half of consumers associate dynamic pricing with price gouging, while less than a third believe it's beneficial.

There are many ways to notify price-sensitive customers of price adjustments: email marketing, mobile app push notifications, and price comparison tools on your website, to name a few. The essential part is that you communicate with them according to the channels they opt in for and tailor prompts to their unique profiles.

Amazon.com is a great example of this practice. The e-commerce giant offers a price alert app where users can create a watchlist for Amazon products, set a desired price for each item, and receive automatic price alerts via push notifications and emails. Tools like price history charts also offer a transparent way for consumers to understand how prices fluctuate over time.

Integrating Pricing Strategies With Inventory and Customer Insights

Market forces drive prices to balance supply and demand. Ideally, prices adjust to ensure that all goods are sold and all consumers have access. However, some consumers may be left empty-handed if prices remain low during shortages. We only need to look back at the pandemic, when everyone cleared the milk and toilet paper aisles, to see how quickly people can panic buy essential items.

Historically, consumers would experience significant price fluctuations in cases like this, often exceeding 50 percent, based on delayed data updates to moderate spending. Instead, real-time dynamic pricing adjusts more gradually and frequently alongside inventory and market insights. These smaller incremental adjustments benefit consumers and producers as they promote price stability and reduce the impact of sudden market shocks.

Dynamic pricing strategies require considering diverse data, such as inventory, customer behavior, market conditions, and competitor pricing. Price intelligence engines use unified data platforms to analyze this data, generate pricing recommendations, and validate them with marketing mix models. GenAI offers a significant advantage over traditional rules-based pricing by continuously learning from new data and optimizing prices in real time.

Educating Shoppers to Foster Trust and Loyalty

Whether integrating new GenAI-powered dynamic pricing tools internally or simply optimizing the tools already in place, change management practices are critical to ensure the transformation runs smoothly. You need to get those impacted on board. Without clear communication to employees and customers, the plan is a bust.

That means being upfront and transparent. Clearly communicate with your team and customers how dynamic pricing works, why it's used, and how it benefits shoppers. Showing customers what factors influence pricing strategies, such as supply and demand, and how it's not used to manipulate prices arbitrarily, can demonstrate fairness. It can help to use real-world examples to illustrate how dynamic pricing can lead to lower prices.

For example, Marriott, Hilton, and IHG hotels use dynamic pricing to adjust room rates based on demand, time of year, and special events. These alterations can lower prices for guests willing to travel during off-peak seasons or on weekdays.

Target also does a good job of educating shoppers about price changes. The retailer lists both the new and original price in its announcement on its website of how it is ensuring competitiveness within the markets where it does business.

GenAI-Powered Pricing is the Future

It’s no question that dynamic pricing is here to stay. And now, with pricing intelligence tools being supercharged by GenAI, companies and customers alike can expect more individual, real-time pricing influenced by both shopper and market conditions. With the power of GenAI, it can be a win-win for companies to maximize profitability while increasing customer satisfaction and long-term loyalty.

Tina Wung is global vice president of marketing at Nisum, a technology consulting partner.