The digital transformation of retail has brought rapid expansion in sales for thousands of retailers. however, it increased the difficulty in managing inventories and pricingaffects the profitability of the business. This is because more and moreThere are many variables that affect the value of products and services. Not to mention the ease of changing prices as needed, for example in promotional activities.
Those who usually shop online or even in physical stores have already noticed that prices are constantly changing. If you buy more than one unit, you will be given a discount. Or a reduction in the amount due to a special date such as Christmas, Mother’s Day, Black Friday etc. For customers, everything counts in a continuous search.
It turned out to be very difficult to keep up with so many changes, and even harder without risking reducing the profitability of the business. Pricing is one of the most important strategies for the success of a business.🇧🇷 But in a digitalized society this is no simple task, on the contrary, it is quite complex. Costs, demand, competition, commemoration date, economic scenario, etc. What is the best price considering?
what is the importance of artificial intelligence prince?
thisThe most up-to-date way to stay competitive and profitable at scale is to use the most cutting-edge technology: solutions based on artificial intelligence (AI). These tools are capable of handling huge amounts of data that no human or large team can.
Artificial intelligence for those who don’t know Leverage learning in a system that uses a variety of data to make decisions and forecast, always in line with the business goal. Did you pay attention to the previous words? TRUE: always able to learn, decide and predict in line with goals🇧🇷
none The company can use this deep learning to predict sales, prices and maximize profitability. This is why more and more companies are embracing AI in their strategy.
Looking at the company in a holistic and integrated way, AI makes it possible to manage inventory, make dynamic pricing and analyze the competitiveness of the company without the need for human intervention. It is a multidimensional result. It is sufficient for the administrator to define the parameters and the goal to be achieved.
After all, how do AIs evaluate the variables available in business?
You have to ask yourself: How is this possible? It’s all about the elaboration of the algorithms, the structures of the programming line of the systems developed to collect the maximum variables involved. analyze this data in a business and calculate the ideal price. It still doesn’t stop there. All information for one year serves as a date for the next year.
And what are these variables? Traditionally, the selling price is based on the purchase price of the product, i.e. its acquisition cost. Also, the shopkeeper more or less knows how much money he has for expenses, commissions, taxes. Then it multiplies the cost price by a factor that pays the total costs and still leaves a profit margin. marking this is the simplest, most used way, but it doesn’t always work.
Over time, companies begin to realize that there is another factor that has an impact on sales: people’s intention to buy or pay that price. This other factor is often competition.
In other words, in addition to purchasing and operating costs, there is a third variable that companies consider when setting prices, the competitor. This form is also valid. It turns out that there are many other variables.
A simple example is that theoretically less ice cream is sold on a rainy day than on a sunny day. In other words, the climate for the ice cream shop is a variable that can be taken into account as it partially explains the demand for such products.
Events such as commemoration dates, seasonality, World Cup and Olympics, economic data, variables abound. Some may be relevant to your business, some may not, but each branch and product has certain variables to consider.
What AI does is precisely analyze a set of market information and the company itself, i.e. a set of variables. And AI has a mechanic to figure out which of these variables has stronger or weaker demand, which really explains why that consumer is willing to pay.
What explains the demand for each of the items on sale? That’s the challenge AI will solve. Technology uses the cost price of the product, information about expenses, commissions, taxes, competition data, economic data, confidence index, stock status, weather when this product is sold.
Whether it’s the strongest months of the year, the strongest weeks in the month, the strongest days in the week, the sales history itself is analyzed to determine seasonality, website searches are also analyzed to analyze the demand for the product.
But is there an “ideal price” for products?
The real question is: at what price – given the current conditions involved – will my claim change if I move? To get this answer, Artificial Intelligence follows a certain logic that ultimately gives it a lot of certainty.
- The first step of AI is to bring together the large number of variables described in the previous paragraphs. Based on this information, it is possible to discover which ones actually affect the sale of that product.
- Once you discover which of these influencing variables are and which are related to demand and sales of that particular product, the second step is to define what we call a model. well, describe how these variables can be used in a calculation to predict🇧🇷 We have seen that when it comes to ice cream, weather is an important variable and the IPCA, an economic indicator, is not an important item. Then we separate what is important and what is not.
- The next step is how to use these important variables within a math function. The simplest way is markup, as explained earlier. However, the price is not very accurate as it was created without considering all possible variables. The idea is to make predictions to be assertive in what we are looking for with AI. For example, if the goal is to reduce inventory, it is necessary to increase demand. And technology will do so by considering the most important variable of the moment. In short, after evaluating all the variables, AI creates a model, which is a mathematical equation. With this equation, you can manipulate values based on one or more variables to make predictions.
- So we assume that the variables for a given product are the climate and the competitor’s price. And the prediction is that the next day will be colder. Through this equation, it is possible to change the climate variable and understand what effect it has on the demand and price of that product.
How AI can be seen instantly and transparently, performs various calculations and offers pricing solutions based on a wide range of scenarios🇧🇷 The model created for each product by AI proposes to explain a behavior and vice versa. The function of the model is to present exactly the current conditions, the variables, and the prediction of what will happen with these informed variables. All of this is done for each product, for each product, on an ongoing basis. And it depends on the situation.
Artificial intelligence is used as an evolution of dynamic pricing technology, which primarily uses competitor data and internal company data such as costs and sales expenses to determine the optimal price.
However, AI brings in numerous other data sources as described earlier. It determines the ideal price of each product based on models such as price elasticity of demand, machine learning through reinforcement, and others. The solution uses real-time data analysis 24 hours a day to make business decisions. In this way, you create ambitious prices.
Retailers using AI outstrip many competitors who make decisions based solely on market price pressure. AI is the best solution for the difficult task of balancing the four big indicators: inventory coverage, conversion rate, revenue and margin. The manager only needs to worry about the company’s goal.
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* Ricardo Ramos is CEO of Precifica – [email protected]
As you can see, AI instantly and transparently performs various calculations and offers pricing solutions for the most diverse scenarios. The model created by AI for each product proposes to explain a behavior and vice versa. The function of the model is to present exactly the current conditions, the variables, and the prediction of what will happen with these informed variables. All of this is done for each product, for each product, on an ongoing basis. And it depends on the situation.
Artificial intelligence is used as an evolution of dynamic pricing technology that primarily uses competitor data and internal company data such as costs and sales expenses to determine the optimal price. However, AI brings in numerous other data sources as described earlier. It determines the ideal price of each product based on models such as price elasticity of demand, machine learning through reinforcement, and others. The solution uses real-time data analysis 24 hours a day to make business decisions. In this way, you create ambitious prices.
Retailers using AI outstrip many competitors who make decisions based solely on market price pressure. AI is the best solution for the difficult task of balancing the four big metrics: inventory coverage, conversion rate, revenue and margin. The manager only needs to worry about the company’s goal.
* Ricardo Ramos is CEO of Precifica – [email protected]
Source: Tec Mundo
