How AI Can Improve the Shopping Experience Through Price Optimization
Consumers are massively changing their shopping patterns and preferences. According to McKinsey, 40 percent of U.S. buyers said they had switched to other brands or retailers for the past few months. The first two reasons they provided were lower prices and a better price/value ratio.
A logical and the easiest step to take here would be to ensure that you offer the lowest prices in the market and entice all the customers from your target audience. However, it wouldn’t be the wisest approach, though, for at least three reasons.
Firstly, you will undoubtedly eat into your profit margin. While your sales will grow significantly, your profits will go down. Secondly, you will most likely attract discount hunters that will buy from you at a lower price and leave with no regrets once you stop offering discounts. Thirdly, you’ll ruin your brand reputation, which will take time to restore — or won’t be restored at all.
So, what do you do? If you're planning to stay in the market for a long time, you should do whatever it takes to build the right brand perception. Once completed, it will be safe to grow your prices, hence margin and profit, without the risk of losing customers.
Creating the most rewarding customer experience is the right way to strengthen a brand for those that are willing to play the long game. The key to success here is to find a balance between your customers’ expectations and your offer at a price that seems fair for both sides — the buyer and the seller.
What constitutes a gratifying shopping experience? Essential elements are price, product, convenience, core values and personalized experience — in this precise order, says Deloitte. Enhancing all of them at once may be an unyielding task for most, even extremely advanced retailers, in terms of both investment and time.
That’s why I suggest focusing on price optimization as the first step to build a game-changing customer experience. First of all, the price of a product is what customers care about the most. Secondly, price optimization brings the fastest return on investment at the smallest investment as compared to introducing a new product or opening a new store. Thirdly, it allows you to create the right price perception, which is extremely important to any retailer. For example, Lidl has called for a review of a survey that had concluded that Aldi, Lidl’s main rival, was offering lower prices than the retailer. Fourthly and most importantly, it allows you to upgrade your shopping experience constantly.
Here’s how it works: Once you’ve optimized your pricing, you can improve your website design, offer a new delivery option, etc. — and you can again tweak your pricing with these new variables in mind and keep attracting customers even at higher prices. This gives you endless opportunities to increase prices fair and square as you offer something no one else in the market does.
Artificial intelligence (AI) is the best tool to optimize pricing for mature retailers with thousands of products to handle. It allows for balancing prices across the whole product portfolio in order to achieve the right price perception and reach business goals, such as grabbing a bigger market share or boosting gross profit by 4 percent to 10 percent.
All in all, creating the right shopping experience is what sets winners apart from losers. Using AI is the right way to optimize one of the key elements of a rewarding customer experience — pricing. It allows you to handle pricing in a way that makes your customers choose your brand, while also saving your gross profit and profit margin.
Andrew Mulvenna is managing director, Americas and EMEA sales at Competera, a retail price optimization company.
Andrew Mulvenna is Managing Director, Americas & EMEA Sales at Competera, a retail price optimization company.
After 8 years as co-founder & building Brightpearl, Andrew spent 3 years investing in AI startups as a VC, before returning to his operational roots to build a high growth AI startup Competera. Andrew has a BSc in Artificial Intelligence.