Dynamic Pricing - Its Time Is Now
AI-powered price optimization is key to business survival during the pandemic
Mike Romeri, A2Go CEO
April 21, 2020
As commerce slowly opens up in our world over the next few months, competition for customers will accelerate like never before. It remains to be seen how big the pent-up demand will be for dining out, consuming goods and services, and travel, for starters. After months of shutdown of all but essential services and loss of steady income for millions, will consumers slow or even stop their purchasing; or will those who can afford to, accelerate it?
What is the correct pricing strategy companies should adopt for this likely-lengthy transition period?
Pricing is one of the most critical and variable functions of any business—one that has immense impact on profitability margins. Yet the factors influencing pricing are many: from customer segments to seasonality to competitor prices to situational/behavioral relevancy (market need). And, of course, there’s market-based initial pricing, promotional pricing, and discount pricing that are all critical to achieving productivity and profitability goals.
The advent of AI-powered dynamic pricing solutions for dealing with multiple variables and data streams to establish “optimal prices” (arrived at by “If-then” or “what-if” scenarios) has automated this analysis and achieved it in seconds or minutes rather than weeks or months. The term “dynamic pricing” describes an ongoing, automated, analytics process that takes a company’s internal data and combines it with relevant external data and algorithmic models to arrive at optimal pricing recommendations.
The value of this capability can be seen in these benefits:
- Continuous analysis of the data that affect pricing allows for quick reactions to changing circumstances, whether from external forces like weather events (hurricanes, floods), biologic events (viral epidemics), or cyber events (especially relevant to eCommerce channels).
- AI-powered data intelligence uncovers the relationships among diverse factors such as competitive pricing, industry trends, and customer preferences and pathways to purchase.
- Creation and transparency of structured recommendations in the form of predictions or prescriptions for action form the basis for “intelligent” (meaning informed by data or facts) price-setting.
- Managing your pricing is the first step toward managing your margins. Our experience shows that dynamic pricing capability can provide benefits of 8% - 15% in incremental revenue and 30% - 40% in incremental profitability on optimized SKUs.
To meet the need for accelerated intelligence on pricing in the age of coronavirus, we at A2Go have developed a suite of SMART AI Profit-Lever Solutions. Our Dynamic Pricing solution is built to minimize your company’s time to ROI by requiring only a minimal amount of support from A2Go to ensure success in data onboarding and embedding your business parameters within the solution. So, it is 90% ready to go and 10% customized for you.
Some representative examples (use cases) of our work with retailers, distributors, and CPGs show the results: Dynamic pricing for an online retailer increased gross margins by 8%. A wholesale food distributor improved gross margins by 3% using supplier/customer price-optimization techniques. A supplier of beauty products gained 3% market share across 100 regional markets with our solution using market-share simulation.
Our recent partnership with Rulex on our Dynamic Pricing solution lends the visibility of rules-based logic to the mathematical/computational power of AI for our customers. And all of our solutions are offered as microapps accessible on your devices and deployable within your company’s IT infrastructure.
Mike Romeri has an extensive background in consulting and operations as well as in entrepreneurship and innovation in the technology sector. He has held several executive roles with manufacturing and software companies, including Senior Vice President of Flextronics’ Europe; CEO and Managing Partner at OPS Rules (acquired by Accenture); Managing Director at Accenture Analytics; and Executive Vice President for Business Development at Emptoris. He was also a partner for many years at the high-tech management consulting firm of Pittiglio Rabin Todd and McGrath (PRTM), later acquired by PwC.