AIR Dynamic Pricing by GK

by GK Software SE

Dynamic price optimization in retail: The potentials of automated pricing methods

Pricing is one of the most effective turnovers and sales levers in retail; however, large product ranges and complex framework conditions make it virtually impossible for category managers to guarantee an ideal number for each individual product. Modern pricing tools such as AIR Dynamic Pricing by GK can automatically adapt prices to both customer behavior and constantly changing market, environmental and competitive situations.

AIR Dynamic Pricing automatically adjusts the prices of thousands of SKUs, including product variants considering all relevant contextual conditions daily. Streamlined updates of transaction and master data ensure that price elasticities and sales forecasts can be modeled in memory and on the SKU level. This is the basis for permanent up-to-date predictions and a highly performant calculation of optimized prices.

The main challenge in price calculation is the product life cycle, especially regarding the connected sales KPI targets. While finding optimal prices at the beginning of the life cycle is key, the main two use cases for dynamic pricing lie at the high phase and the end of the product life cycle:

  • Regular Pricing: During the high phase of the product life cycle and never-out-of-stock items, the AI pricing algorithms are optimized to increase margins and revenue. The weight of either of these sales KPIs is controlled by category management via the web interface. Demand-driven, the AI intelligently adjusts prices to reach the specified (weighted) average targets across the different product ranges.
  • Markdown Pricing: At the end of the product life cycle, the goal of the AI markdown pricing algorithm is to reach zero stock by a defined target date. For each item, the algorithm respects the current demand and controls the sale via price. Considering the current demand ensures preserving as much margin as possible while avoiding losses resulting from not selling off in time.

The AI solution combines given business rules and constraints with advanced machine learning algorithms. Via an intuitive and user-friendly web interface, pricing processes can be aligned across all sales channels and locations.

By automating the pricing process, the workload of the category management is significantly reduced. AIR Dynamic Pricing automatically calculates optimal prices for the entire product range. Nonetheless, category management can review price recommendations in a half-automated workflow, especially for customer-focus items such as KVIs. This workflow includes a reasoning feature, allowing the user to understand the AI price recommendations. Altogether this enables category management to invest its time much more effectively by strategically controlling prices and thus achieving defined target KPIs reliably.

At a glance