What do changing customer behaviors, supply chain disruptions and cold weather have in common? They all greatly impact order management. With all three factors converging during the next few months, managing seasonal inventory can prove to be a major challenge for retailers.
In a recent report about the 2022 holiday season, McKinsey shared that “consumer demand has softened, while inventory levels are higher than they’ve been in years.” The change in customer demand detailed is most likely due to inflation. With U.S. inflation rates remaining around 8 percent, 42 percent of shoppers are concerned about their financial stability. Shoppers are much less likely to make discretionary purchases, and many are tightening their holiday shopping lists. Despite these challenges, retailers are still tasked with offering shoppers the right items at the right time and at the right price.
Whether it’s about keeping the season’s hottest toy on the shelf or getting winter coats out of the stock room before spring, dynamic pricing can help retailers manage inventory and maximize profitability.
How Dynamic Pricing Works
Dynamic pricing gives retailers the ability to change the price for items based on their availability and demand. These tools use machine learning and artificial intelligence to determine pricing variables and recommend the optimal price. These variables include historical data, inventory, transactional data, company sales goals, seasonal trends and regional factors, including weather.
Once the optimal price has been discovered, retailers can either manually change tickets in-store, as they have in the past, or they can rely on electronic shelf labels (ESLs) that automatically change prices based on the dynamic pricing algorithm. Either way, retailers have the final say — they can approve or deny pricing suggestions based on their customer's preferences and previous experiences.
How Retailers Can Use Dynamic Pricing to Manage Inventory
Dynamic pricing is valuable year-round, as clothing and household trends are always fluctuating. During the holidays, retailers often have an abundance of seasonal inventory to sell through, including decorations and attire. When dealing with these items, retailers want to make as much profit as possible, without risking wasted inventory after the holiday season is over.
With dynamic pricing, retailers can automatically decrease the price for holiday decorations as the end of the season grows closer. This can entice bargain hunters, who might be more likely to buy the items before the holiday, earning the retailer the sales and helping it clear shelf space for New Year’s Eve or Valentine’s Day products.
The Benefits of AI-Driven Dynamic Pricing
Despite misconceptions that dynamic pricing only benefits the retailer, the technology actually helps customers get the best deal, too. For example, a winter coat will be of less use to someone in March when the season is almost over. As a result, the shopper should be able to receive a discount for making a late-in-the-season purchase, a transition that dynamic pricing can automatically recommend.
This mid-season price change can encourage the shopper to not wait until the next year to buy the coat they desire. Using dynamic pricing, the retailer is able to sell through seasonal inventory and receive a boost to sales.
Additionally, dynamic pricing compares market pricing factors, helping the retailer offer more competitive prices which will, in turn, increase customer loyalty.
The Future of Pricing is Dynamic
Every holiday comes with different retail challenges, but with dynamic pricing tools, retailers can rest assured knowing that their pricing strategy will be effective. Whether it’s New Year’s Eve or July 4th, dynamic pricing will help customers receive the optimal price and enable retailers to improve stock turnover to make the most of seasonal profit margins.
Michael Jaszczyk is the CEO of GK America, a leading omnichannel solutions company.