How AI powers Pricing Optimization to Drive Maximum Profitability for Grocers

How AI powers Pricing Optimization to Drive Maximum Profitability for Grocers

When it comes to the grocery category right now, there are few greater factors impacting profitability than the pricing strategy. Whether the approach is based on high-low, EDLP or dynamic promotional strategy, ultimately supermarket chains will typically make the majority of pricing decisions based mainly on what their rivals are doing. A.I.-powered pricing optimization is, by now, a proven solution for maximizing profits in the grocery space. By analyzing years of transaction log (TLOG) data to find intricate patterns, we deploy math and science to uncover dynamic relationships between cross-category cannibalization, promotional cadence, product affinities, price sensitivity, and seasonality; enabling grocers to optimize decision-making around promotion, pricing, and inventory forecasting. While it’s true that powerful technology and “traditional” data analytics software enable grocery retailers to battle it out with competitors on a weekly, daily and even hourly basis, the big question is, does beating competitors on price always lead to higher profits? In other words, how closely is your organization’s pricing strategy aligned to long-term financial goals? The reality is, most non-A.I.-powered retail pricing solutions don’t drive maximum chain-wide profitability because its beyond their computational ability to analyze the impacts of cross-price elasticity, cross-promotional elasticity, affinity or halo relationships across multiple products. The issue here is around historical pricing systems which treat each product like an independent event. There’s a lack of consideration regarding the “halo effect” relationship between products, which in turn ignores product affinities when making price recommendations. For example – consider carbonated soft drinks! What price should we put Coca-Cola (Coke) if our goal is to increase profits? A historical pricing system will generate a price...