What:  A report exploring what is at stake when it comes to pricing managed by AI.

Why it is important: Dynamic pricing is key to leverage profitability in an ever competitive market, and all IADS members experiences lowered profitability in 2020 due to promotions and, in some cases, price wars. Using AI in that field is an example of digitalisation applied to the back-office, helping earning additional points of productivity. Two interesting business cases illustrate that point.

Retail Week produced a report in December 2020 based on its key learnings from UK customers: 42% think that their income was reduced during the Covid-19 peak crisis, and 27% remain concerned that it will be still the case in one year. No wonder that for 46% of them, price and free delivery were key elements in their purchase decision for Christmas, and that with the expansion of digital, they will use even more Internet to compare prices, at the expense of physically visiting stores (44% plan to visit always or often a store after the pandemic, vs. 77% before).

Perception of unfair pricing also impact the willingness to stay loyal to a store. Interestingly, most of the UK retailers remain laggards when it comes to automation in that field: 40% manually input prices, 43% manually operate promotions and 57% manually operate markdowns. AI allows to connect the dots between demand in real-time, cost of acquisition and market situation. There are 2 examples in the study:

• Albert Heijn in the Netherland, which shows on electronic tags original price, real-time calculation of discounted price and the date of expiry of the offer (especially adapted to fresh goods taking into account their expiry date),
• Carrefour Brasil, which is using AI to become a pricing leader instead of following the market, by automating its pricing structure in 10 stores across 10 to 15 categories during 6 months, leading to gains in margins and profits at same level of sales.

how AI will win the price war