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10/22/2021

Leveraging AI pricing to entice this year’s holiday shoppers

Kevin Sterneckert
Kevin Sterneckert, chief strategy officer, DemandTec

The fast-approaching holiday season represents huge opportunities for all.

Retailers face both unprecedented opportunity in a season projected to see exciting upticks in shopper spending over recent years, and unprecedented challenges across the supply chain, combined with rapidly changing shopper and competitor behaviors. This is all occurring in a retail landscape so unrecognizable that reliable pricing and promotion strategies from prior years hold little relevance.

Winners during this season will adapt quickly, leverage advanced artificial intelligence/machine learning (AI/ML) capabilities and offer the customer choices that represent clear differentiation in the market. Price, promotion and markdowns are entering a new era of leverage for winning retailers. 

Shoppers are more informed – and skeptical – than ever

One of the most remarkable shifts during the past two years is the rapid adoption of e-commerce across every retail sector and every shopper demographic. More than 18 months on, temporary behaviors initially prompted by the COVID-19-related desire to promote social distancing have hardened into habit and preference.

An August 2021 consumer poll sponsored by CreditCards.com revealed that 62% of shoppers plan to make their holiday purchases online. These online shoppers have unprecedented visibility into prices, offers and availability for every item across virtually every competitor, and they have become extremely savvy in their decision-making.

Price-sensitive shoppers concerned about inflationary threats are carefully scrutinizing retailers’ prices, offer types and offer vehicles. Many have personally experienced unreliable fulfillment times and will be weighing the attraction of a hot deal against a retailer’s reliability and integrity of timely fulfillment.

What price is being offered? What promotions? What targeted offers, coupons, etc.? Customers will be looking for the best deals. A hot price won’t necessarily cause a customer to skip the availability and reliability/integrity of the retailer, but a failure to present the right prices and offers will drive fickle shoppers into competitors’ arms.

Fortunately, AI-based pricing and promotion capabilities deliver real-time insights into shopper demand signals and price elasticities, enabling retailers to leverage autonomous pricing and promotions for highly targeted consumer demand-based prices and offers.  

As channel lines blur, shoppers will be organized and disciplined about setting a budget and sticking to a planned shopping list. Chain retailers will need to present prices and offers on the items shoppers care most about, taking a surgically crafted approach that taps leading-edge data science to deliver granular prices and promotions that factor in geography, channel awareness and cross-item effects including halo and cannibalization.

The buying season starts early, so does building trust

Shoppers are making purchases earlier than normal this holiday season. Worries about availability and delayed delivery times are motivating shoppers to shop earlier in 2021.

Only retailers who know shopper price sensitivities at the granular store-channel-item level can present real-time prices that engage shoppers from the very beginning of the purchase journey. Retailers who present shoppers with a price that is perceived to be out of touch with the market risk losing that shopper, not just on the item under consideration but on their entire holiday shopping experience.

With real-time insights that present price and promotion recommendations based on accurate demand signals sifted from all the noise, AI-powered autonomous pricing enables retailers to offer aggressive prices on the items to which shoppers are most price-sensitive. At the same time, the AI-powered recommendations guide retailers to opportunities where margin recovery is possible throughout the entire assortment without alienating shoppers.

Further, inflationary pressures are impacting retailers with unpredictable costs. AI-powered autonomous price and promotion solutions are designed to move quickly and provide the best recommendations. Retailers do not have the luxury to spend a month, a week or even a day manually evaluating myriad scenarios. Amazon changes 3 million prices per day – that’s the new order and winners must develop capabilities that reach their shoppers quickly as well.

 Chain stores must take an integrated view

Chain stores have a unique opportunity to position against competitors by leveraging an interdisciplinary team approach. A pricing team with AI-powered autonomous price and promotion tools can serve as strategic counsel to their merchant partners, leverage advanced consumer demand analysis to accurately understand the impact of price changes and promotional offers before they are deployed, as well as take in-flight corrections as market, competitor and shopper behaviors shift.

The importance of fulfillment integrity in this key holiday season also gives chain retailers an advantage if they take a holistic view of inventory across stores, locations, DCs and banners. The collaborations of  supply chain, pricing, marketing and merchant teams, can all leverage AI powered demand sensing analysis in their respective disciplines and can present a great competitive advantage.

AI science delivers the win-win

The unpredictability of the 2021 holiday season is symptomatic of the dramatically altered retail landscape as a whole. Retailers who could rely on gut instinct, manual spreadsheets and tweaking last year’s strategies and cadences are rapidly losing ground to their more innovative AI-powered competitors.

The good news is that shoppers embrace and recognize retailers who take the initiative to enable autonomous prices and promotions that attract and engage them – while retailers get the benefit of delivering predictable financial results, fresh and relevant prices and offers, and a business structured for long-term success.

Kevin Sterneckert is chief strategy officer, DemandTec