Using AI to Determine Price and Boost Revenue in Grocery


Grocers need to surf the waves of ever-changing customer expectations and do whatever it takes to not to join the ranks of the fallen retail empires. Everyone is citing customer experience as priority No.1 for retailers. However, another major lever for retailers to pull to stay alive and even thrive is the price of an item.

Big names highly recognize the importance of price, along with frictionless customer experience, a wide range of offered products and well-planned marketing activities.

Retail giants invest in price optimization heavily, which allows for creating the right price perception and persuade customers.

Advanced retailers recognize that traditional pricing approaches are broken. They are determined to embrace AI for pricing. But how exactly can technology make it easier for smaller operators to stand up and fight, and win?

AI to help retailers compete

Retail giants have been harnessing advanced analytical software like AI to set the right prices for years. Such technology used to be extremely expensive and available to the select few.

Today, more companies, including smaller operators, are getting the chance to grow as such software is becoming simultaneously more sophisticated and accessible to a wider number of players.

According to a series of market tests held by retail price optimization company Competera, elasticity-based machine learning algorithms can help retailers set competitive prices and raise revenue by 5 percent and beyond.

Vladimir Kuchkanov, pricing solutions architect at the company, comments on how artificial intelligence can be advantageous for smaller supermarkets competing with the likes of Walmart.

“The retail king has better chances from the beginning. Thanks to the huge amount of products it buys from suppliers, the company can negotiate better purchase prices,” he says. ‘To compete with it, smaller food chains need to identify a pool of products which have to be priced lower than at Walmart – even if they are selling at a loss. This would keep attracting customers. ”

However, it is just the start. “On the other hand, businesses need to indicate a group of items that can be priced higher without risking to scare off shoppers. This way retailers can compensate for low or negative profit margins they inevitably have in their fight with Walmart. But this begs two major questions: How to identify such items and how to price them. Managers can not do that as there are too many parameters to take into account. That’s why retailers bring AI into play,” adds Vladimir.

Another challenge the technology helps retailers to tackle is the management of private label products, which are essential for creating a unique and recognizable brand and winning the hearts of customers.

Retailers can choose one of two options when it comes to adopting AI in pricing. They can either invest heavily in developing an internal system or find a technological partner offering a turn-key solution evolving along with the needs of the retailer. 

Technology’s efficiency in recommending optimal prices

AI-powered algorithms enhance people with enormous computational power, making them very rapid and precise in their decisions. Such algorithms process massive and unyielding – for humans – amounts of data regarding hundreds of pricing and non-pricing parameters to suggest the optimal prices for the whole product portfolio.

The data AI needs to analyze include competitive prices, customer behavior, the retailer’s past performance, and current business goals, as well as weather and cross-price elasticity. Algorithms browse through the infinite number of pricing scenarios which equals the number of atoms in the universe to come up with the most beneficial one in real-time.

When it comes to calculating optimal prices for private label items, the technology identifies latent clusters of similar products and assigns such items to the most affinitive clusters.

What are the benefits for people? AI-enhanced managers switch to data-driven pricing, get ahold of unmanageable promotional campaigns, set the right prices for private label products that differentiate them from competitors, and finally have time to turn to high-level decision-making and improve customer experience.

As Microsoft’s chief technology officer, enterprise, Norm Judah explains: “AI is about augmenting human ingenuity. Whether you’re a seller, marketer, a lawyer or something else, AI will change the way you make decisions. It can help you navigate vast amounts of data and give you advice and recommendations about how to proceed. What you do with that advice is up to you. ”

The technology available to the big retailers is slowly becoming more accessible to companies. So, why not try out its proven potential to raise revenue and grow? If you are interested in transforming your business with AI technologies and business intelligence solutions contact allonline365 to get some advice on the best software systems that are affordable and the right fit for your business. Contact us on or  +27 (21) 205 3650.

Resource Credit | Progressive Grocer

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