Skip to content

Blog

Retailers Know They Need AI-Based Pricing. What’s Stopping Them?

By Cheryl Sullivan, President, DemandTec

In a recent article, I wrote about how we at DemandTec recently commissioned a study[i] about how retailers view the world to come as we at some point pass into the post-pandemic era. In it, I discussed the ways in which retailers predict shoppers’ behaviors will remain transformed for the long term, and what retailers say they need to do in response to the transformed landscape. One major disconnect jumped out: AI in retail pricing has been widely proven for over a decade and has been repeatedly cited as a driving reason for positive performance by retailers in their earnings calls. In addition, 70% of the retailers say they are willing to take humans out of key processes and rely on AI-powered automation and dynamic pricing. However, shockingly, today more than 90% of them report that they have manual or only semi-automated processes for pricing, promotion and markdown.

Clearly the vast majority of retailers have not yet successfully selected and implemented optimized lifecycle pricing which consists of science-based price, promotion and markdown technology. Why is there a big gap between knowing what they should do, and then actually doing it, especially since price optimization has been proven over and over again by some of the most prominent retailers across the globe? It’s useful to start by looking at what is NOT the barrier to adoption. Having been in the retail pricing arena for over 25 years, I personally observed how even a few short years ago that cultural resistance to adopting new-generation technology and truly embracing automated processes was a significant barrier among the majority of retailers. Today the good news is that 73% of retailers say fear of technology and processes is NOT a barrier to implementing and leveraging science-based pricing.

The shift away from fearing technology to embracing it is a big change and a big change for the better. At a time when data has exploded to astronomical levels and historical data on shopper price sensitivities, competitive elasticities, and even KVIs is virtually meaningless in understanding current shopper behaviors and predicting future ones, manual, human-based processes will obviously fail. On the other hand, data science-based processes are proving now more than ever the importance of rapidly picking up on real-time shopper behaviors, shifting preferences, and heightened price sensitivity across channels, free of any human biases or assumptions.

This still leaves us with the question of why significant numbers of retailers still have not taken decisive steps on their optimized pricing journey. In their survey responses, I was stunned to get a candid glimpse into the real issue at hand: 57% of retailers said uncertainty about assessing solutions providers is a barrier to adopting science-based pricing.

It’s no secret that the retail price, promotion and markdown optimization arena is filled with a lot of confusing messages for would-be buyers to sort through. The business processes and complexity across the pricing arena are large and challenging, often complicated further by organizational silos that need to be overcome. Promotional processes alone often involve multiple players including their CPG partners that require several integrated products to handle the full end-to-end process from deal collaboration and negotiation all the way through promotional planning, optimization, and execution. Many vendors make audacious claims about their capabilities and technology maturity with no track record of fully implemented, satisfied customers, to back it up. Merger and acquisition flows create turmoil and turnover, resulting in distracted organizations focused on integration, internal priorities, and competing for resources and investment rather than on their retail customers and bringing new innovations to the market.

Here are six key considerations to help retailers evaluate and select the right pricing technology partner:

1.      Look for a provider with a proven history in your retail sector. 
For example, if you’re with a grocery, drug or convenience store organization, you want a partner who has domain experience in your sector and who has helped other retailers in your arena successfully plan, configure, implement and adopt price, promotion and markdown optimization. Do they offer all the pieces to the lifecycle pricing puzzle or will you find yourself riddled with multiple disconnected vendors when all is said and done? Has each piece been proven with happy referenceable customers?

2.      Validate the talent.
The people matter as much as the products themselves. Look at the experience level of the entire organization. Are they customer-oriented? Do they possess some of the best talent in the industry? Pricing is a very complex domain. Solid products are highly configurable to meet the needs of various retailers globally. You need the best of the best talent to help you implement the solution, provide you with superior support, and have a strong desire to collaborate with you on their roadmap.

3.      Ask for retailer references, and spend time with them. 
Some of the most successful customer adoptions I’ve seen follow a thorough due diligence process on the part of the retailer with other retailers in their sector who have implemented the same vendor’s technology. Seeing upfront the powerful business impact of a retailer who is well along in their price, promotion, or markdown optimization journey, while at the same time having advance exposure to best practices to follow and pitfalls to avoid, sets the tone for effective executive sponsorship and team leadership.

4.      Focus on vendors who partner with retailers for the long term. 
Do they have customers that stay with them for 5 or 10 years or even longer? This speaks loudly to the continuing ROI those retailers are finding in their price vendor partnership. Do they have a high customer retention rate? In an industry like retail with many long-term players, a bit of judicious asking around can reveal which vendors have made unsupportable claims and promises and lose customers as a result. Clearly they’re the ones to avoid. Vendors who partner for the long term also invest in customer support, a true multi-year partnership approach, and strong, proactive customer communication.

5.      Spend time understanding the provider’s market, product and roadmap vision and strategy. 
Does the vendor have mature roadmap processes that keep their products aligned with the retailer realities of today and get them ready for challenges that are on the horizon? Does their roadmap consist of innovation and can they demonstrate progress toward it? Do they invest significant resources in product innovation and communicate their plans to customers?

6.      Does the vendor have a unified, end-to-end approach to the full pricing lifecycle?
Increasingly retailers want a single, deep partnership with a provider that views their pricing challenge holistically, from the introduction of a new item through its promotion offers phases, including trade deal management, and ultimately markdown and clearance. Taking this collaborative full-lifecycle view enables the retailer to most strategically support their desired price image and seamlessly keep pace with shoppers’ abrupt behavior pattern shifts. Taking a best-of-breed approach creates downstream complications and disconnect. Partnering with a full lifecycle vendor who supports incremental adoption best positions the retailer to deliver ever-increasing long-term measurable impact.

[i] “Smart Pricing Strategies for the Post-COVID World,” Tim Denman, Editor-in-Chief, RIS News, June 2020.