Q&A: Pricing considerations in the face of tariffs
With new far-reaching tariffs taking hold, Chain Store Age spoke with Matt Pavich, senior director of strategy and innovation at Revionics, about how AI can help counter the adverse effects of the levies.
How is 2025 looking with a retail-consumer economic lens, and what role will pricing play into retailer outcomes?
This year 2025 will be a highly disruptive year for retailers. On again/off again trade wars, coupled with looming supply challenges, market uncertainties, and a possible recession means retailers have to be more nimble than ever at a time when customers are looking for value, consumer debt is rising, and the competition is fierce.
Not only do retailers need to be able to react quickly — they also need to have the right analytics to react correctly while being able to accurately forecast the impacts of their pricing decisions.
How is AI being leveraged by retailers looking to combat adverse tariff impacts on their customers’ wallets and their business outcomes?
Similar to inflation, tariffs are fundamentally a pricing challenge for retailers. Items that are impacted by tariffs will cost more from vendors and retailers will need to figure out how to manage those cost increases effectively while trying to remain competitively priced without losing margin. Pricing with this must precision and sophistication requires AI-based price optimization.
Unlike inflation which was more like a slow boil, the impact from tariffs will be more immediate. Tariffs will impact some products in a category and not others, and will involve (in most markets) much larger cost increases which may all hit at once.
As with all challenges, however, tariffs can also offer opportunities for retailers that have the right analytics and are committed to following pricing best practices.
What does the trickle effect look like with tariffs on retailers and how should they respond most strategically?
When the costs of goods rise, retailers have to respond. Some may go old school and simply pass on increases to the consumer to maintain margins. This is a blunt-edge approach, and we know there's a better way to respond, one that balances product elasticities, market segmentation, and, of course, profit and margins while delighting customers with great pricing.
Using an AI-powered pricing solution, retailers can find the exact right response by item and market to make sure that customers get lower prices on the products they care most about. One item might require a 9% price increase in one market, but only a 5% increase in another. A different item may be so important to consumers that the right move for the retailer is to not pass on any increase to their consumers while finding margin opportunities elsewhere in their assortment.
What words of wisdom do you have for retailers to stay positive in this indefinite period of instability?
This may be a time of uncertainty, but as we saw with inflation, retailers can use AI pricing optimization tools to find the right balance that delivers win-wins for their customers and business. Retailers cannot control macro-economic events or trade policies between nations... but they can arm themselves with the best tools to move quicker and smarter when change occurs.
Retailers can also create better internal practices and processes to think outside of traditional reactions and drive more data-informed decisions. Ultimately consumers are watching and will reward the retailers that cater to their interests and offer the best prices and promotions.
One thing that is always critical for retailers to remember is that customers can’t see and frankly don’t care what your cost structure is or if your margin is growing or shrinking. They do care about your prices and your promotions and will reward the retailer that meets their needs.
Matt Pavich is senior director of strategy and innovation at Revionics, a leading provider of AI-driven pricing optimization solutions to retailers globally (He is also a former buyer and retail pricing expert for Target Corp.)
