A Road Map for the Right AI-Driven Pricing and Promotions

By Cheryl Sullivan

Much has changed in the retail landscape, from the relentless rise of the power of the shopper vs. the retailer, to an explosion of online and brick-and-mortar competitors, to the ease with which consumers can compare prices and promotions across all channels, brands and retailers with a few taps on their mobile device. Some core truths persist, however. Recent Revionics-commissioned global shopper studies conducted by Forrester Consulting found that for the majority of consumers, price is the single most important factor in determining where they shop — and this applies across multiple retail sectors, including DIY, grocery, apparel and discounters.

Clearly getting prices right is one of the most important ways retailers can remain relevant to their customers in an era of declining shopper loyalty. And leveraging artificial intelligence-based pricing is the only confident path to the win-win of giving shoppers prices they respond to on the items they care most about, while recovering margins elsewhere to sustain a healthy business. Shoppers are on the same page. In fact, 78 percent of shoppers feel changing prices using data science is fair, and they trust the science more than retailers to give them a fair price.

The case for AI is equally compelling when it comes to promotions. In a cutthroat retail environment where every single margin dollar is hard-fought, it’s astonishing how unfocused retailers are with their promotions: 52 percent of retailers’ weekly or monthly promotions go to customers who say they would have happily paid full price. The risks here go beyond just margin losses. A subsequent study found that 37 percent of consumers feel annoyed, shop less often or indifferent when receiving promotions for items they would be content paying full price for. Far from engaging shoppers, these misguided promotions actually risk alienating them.

We know that shoppers are comfortable with AI technology that delivers fair, relevant pricing and promotions. Retailers say they feel the same: 76 percent of retailers believe AI-driven pricing would have a positive impact on shoppers. And only powerful AI-based predictive and prescriptive analytics can enable retailers to offer carefully crafted promotions that give shoppers the right offer in the right vehicle for the right item in the right channel.

For retailers that know AI is the way to go but have yet to take the plunge, it’s reassuring that a significant and growing number of retailers have been leveraging AI with proven success. They're generating return on investment for price and promotion optimization. These capabilities can help retailers provide targeted, segmented prices as well as offers, across all channels, all of which factor into shopper sensitivity and competitive elasticity, down to the store-item level. Because many of these capabilities date back a decade or more, the science is road-tested and real-world hardened. Furthermore, the self-learning algorithms continue to grow more accurate as they gain experience, and can provide the only reliable early detection of changes in shopper, competitor and market signals.

Cheryl Sullivan is the chief marketing and strategy officer for Revionics, a global SaaS provider of science-based pricing, promotion, space and competitive insight for innovative retailers.