A.I.-powered algorithms help companies price items based on data like competitor pricing, inventory levels, and customer response to sales promotions. Using A.I. can help grow profit margins, develop loyalty from price-conscious customers, and take the work and mystery out of setting prices manually.
Here are three ways startups are using A.I. to better price their products.
Repricing key-value items.
Using A.I., startups can easily lower prices on "key-value items" -- products that are popular with price-sensitive customers -- while raising prices slightly on other products to make up for the loss. As explained in The Economist, companies that use this strategy can increase profits while keeping prices low for consumers on items they purchase most often.
Expanding data sets.
Since the 1980s, when airlines first rolled out dynamic pricing, it has been common to see prices fluctuate day-to-day based on changing demand. However, A.I. has made real-time customer feedback a key part of pricing products and services. As The Economist article linked above explains, companies that make A.I. pricing software are incorporating new data sources into their algorithms, including customer tweets and online product reviews.
Helping workers -- not replacing them.
Some workers who set prices as a part of their job may fear that A.I. technology will eliminate their roles. But according to Boston Consulting Group, A.I. often frees workers up to take on more important tasks and pursue long-term goals, rather than having to deal with daily tasks and everyday pricing research. Humans working side by side with A.I. is only expected to become more common in the workplace as time goes on.
One potential downside to using A.I. for pricing is drawing the ire of customers, who may understand dynamic pricing in industries like travel but could get frustrated when the price of retail products or other services change at the same rate.