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How does AI affect dynamic retail pricing? | ITProPortal

Let’s look at the ways that AI and machine learning affect dynamic pricing in the retail industry and how this model differs from personalised pricing.

Today’s consumers will be familiar with Uber’s ‘surge’ pricing at rush hour, increased electricity costs during peak usage periods or fluctuations in hotel room rates over the Christmas or summer season.

This model of variable or ‘dynamic’ pricing, in which a business alters its prices according to market conditions, is nothing new. It has played a role in consumer-facing sectors for decades – mainly in the airline industry – and is based on simple principles of supply and demand. However, the internet, and the subsequent growth of e-commerce, has propelled it into mainstream use.

Dynamic pricing is particularly crucial for the retail industry. Online shopping has brought about wider product ranges and uplift in market competition, with prices now available for comparison and scrutiny 24/7. Pre-internet, retailers may have only needed to account for the prices of one or two competitors in a 10-mile radius and across a handful of products. But e-commerce has changed everything.

Businesses now need to consider over 60,000 daily marketing and pricing decisions. Large retailers such as Amazon, for example, change their prices as often as every 10 minutes – making it far more complex and time-consuming to keep up. Indeed, our recent research found that UK retailers lose 246,000 working days every week trying to do so.

AI-powered systems can combat this by automating dynamic pricing strategies. Automation helps retailers to maintain margins and avoid a damaging ‘race to the bottom,’ thus providing a powerful way to combat the current, challenging retail climate.

Dynamic pricing is often confused with personalised pricing, something which has recently sparked a government inquiry. However, intelligent algorithms make it possible to price elastically, based on product, rather than customer data.

With this in mind, let’s look at the ways that AI and machine learning affect dynamic pricing in the retail industry and how this model differs from personalised pricing.

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How does AI affect dynamic retail pricing? | ITProPortal.

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