How AI-Powered Pricing Software Can Improve Decision Making for Retailers and Suppliers
With signs that retail sales are slowing and inflation remaining stubbornly elevated, more businesses are turning to artificial intelligence (AI)-powered pricing software to maximize revenue and protect operating margins. While cost cutting will always be important, it's this focus on the top line that now creates lasting competitive advantage.
The momentum behind AI shows no signs of letting up. A report by Bloomberg Intelligence forecasts that the market for generative AI will total $1.3 trillion in 2032 compared to $40 billion last year, representing a 42 percent compounded annual growth rate. And we're only at the beginning with a growing ecosystem being formed around this technology and its application.
During conference calls with investors to discuss third-quarter financial results, retail and consumer products executives continued to talk about the benefits of the technology. On the technology side, software giants such as Microsoft and Google also discussed at length how AI, machine learning (ML) and robotic process automation applications were benefiting their customers.
Harnessing the power of pricing software will be crucial to sustained success in the retail industry, especially if consumers start pulling back on spending. Case in point: The latest report from the U.S. Commerce Department showed the first decline in retail sales (down 0.1 percent) since March. As with many new technologies, “wait and see” is also not really the best approach as early adopters will quickly pull ahead as they gain confidence and skill.
Pricing decisions are exceedingly complicated and subject to many unknown, interrelated variables that prevent reducing problems to straightforward equations. Pricing software using AI and ML solves that problem by collecting and analyzing multiple sources of information to help leaders make informed pricing decisions. Especially important are new capabilities around modeling and scenario analysis. A robust pricing software program offers multiple benefits, including:
- Better product management: A centralized application makes it easier to manage pricing across multiple sales channels, products, customers and regions with rapid response times when changes arise.
- Superior forecasting and simulation: Simulating the impact of pricing changes on revenue, profit and other key metrics can help improve sales forecasting and drive deeper insight in a way that unlocks the value of data.
- Advanced consumer insights: Pricing software can collect, sort, analyze and create dashboards to aid leaders in better understanding customer behavior and communicating, as needed.
- Better compliance: Pricing software can be integrated with federal, state and local rules and regulations to ensure compliance with pricing policies, including transparency, tax and anti-trust laws.
- Improved recordkeeping and documentation: The software can easily log and document pricing decisions for audit purposes and can ultimately make the audit process more efficient and less expensive.
At first glance, choosing the right pricing software can seem confusing and overwhelming. To simplify the process, first identify the unique needs of your business and its pricing challenges and use this to develop a general strategy and approach to pricing across product lines and channels. Once you've completed that step, it's time to start evaluating different vendors. Discuss with vendors how their software features, scalability, integration capabilities, industry and business model fit pricing and customer support. It’s also important to evaluate vendors on their staying power within the new category. Those discussions will yield a wealth of information and will likely provide you with new data points to consider when integrating the technology into your business.
In today’s retail environment, businesses must be able to move quickly, decisively and confidently to capitalize on rapidly changing consumer behavior. AI-powered pricing software can help you identify new opportunities that can help increase revenue, boost profits and improve your competitive position for sustained success.
Tony Klimas is a partner and president of Horváth US, an independent, international management consulting firm.
Tony Klimas is a partner and president of Horváth US. He brings 25-plus years of consulting experience with a specialization in finance transformation and enabling technologies. For his undergraduate education, he attended the US Naval Academy in Annapolis, MD majoring in Mathematics and subsequently served as an Officer aboard several Navy ships. After leaving active duty, he received his MBA in finance, graduating with honors from the Kelley School at Indiana University in Bloomington. In addition to his professional role, Mr. Klimas serves on the Southeast Region Board of Directors for the United Service Organizations (USO), a non-profit organization that supports US active-duty service members and their families.