In the past year, retailers of all sizes have witnessed the advantage that AI-driven pricing has given retailer behemoths, such as Amazon seeing net sales jump 22% in 2021. Why? Because retailers today face many challenges to deliver intelligent pricing for their customers and using technology to combat human bias with AI eliminates mistakes that can erode the bottom line. The cure: services for autonomous pricing that are affordable, faster to launch, and use best-in-class AI and data science. In recent conversations with retailers in the U.S. and abroad, I’ve discussed a different model for delivering these services. It’s not a new model for many industries, but it’s refreshingly new and timely for retail.
Pricing as a Service?
First, as I have written recently, retail behemoths have been leveraging autonomous, AI-powered price optimization for quite some time now. For a mounting number of reasons, many retailers find themselves competing more and more with the likes of Amazon and Walmart in an economy wracked by supply-chain issues, rising inflation, and labor shortages. Simply put, autonomous pricing – which eliminates the risk of human bias while meeting the humanly impossible demands to price precisely at scale – matters. Taking a page from the Silicon Valley playbook, what if autonomous pricing could be offered “as a service” to democratize pricing technology for all retailers?
There’s another familiar ring to this story, as well as a metaphor. For many years, retailers have partnered with CPGs to outsource expert work in category management. Manufacturers who do this are known in the industry as “category captains.” Category captains have played an essential part of the extended merchandising team, namely in the areas of assortment and display. With “pricing as a service”, experts in AI-driven pricing are added to the potential partners.
And the metaphor? Captain. But the captain we imagine sits not behind the screens parsing the numbers. The captain, whether chief merchant or head of pricing, vigilantly watches the waters. By outsourcing pricing to an extension of their crew, the captain can focus on which direction to go (to meet business goals), set the speed and coordinates, and spend more time understanding customers impacted by the “weather.”
Analogy: it’s like getting behind the wheel of an electric vehicle and planning a trip. The road is open before you, but by delegating some of the tasks that the car itself can do better, you can drive to your destination with more confidence.
Beyond that, pricing as a service can remove all sorts of barriers – the cost of technology ownership, training, time to market, and time to value. Retailers could have a faster, simpler, and less costly way to compete.
Retail Embraces SaaS
In closing, let us imagine a future where advanced technology for retail pricing is democratized. Like prior technology democratization, AI-driven pricing as a service will ultimately lead to a time when autonomous pricing is table stakes, unlocking resources in the enterprise to innovate in other areas. That’s what happened when Salesforce released a SaaS version of CRM; the mid-market matured and was empowered to compete with larger companies that had large IT teams to manage complex CRM implementations. With that movement, Salesforce and the mid-market began to explore other applications for the modern enterprise, leading to the development of a large developer community with a common set of tools. Another earlier example was ERP’s move to the Cloud; the mid-market embraced the change that leveled the field and enabled them to better compete against the giants for the customer – and win.
In the end, the “pricing as a service” model tracks in parallel to what we have been experiencing over the last two decades. While this might support the argument that retail is behind the times, what matters is that the right model for retail pricing is a time-tested service model. That bodes well for the retail industry. The big may get bigger, but the rest of the industry can grow and improve margins, too. That’s the democratic spirit we see the industry embracing, and we salute it.