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Retailers blend intuition with AI for smart pricing

"Apparel retailers are embracing advanced analytics and blending intuition with science to regain control and price smarter. This has brought about a margin and sales lift of three to six percentage points for some companies. Pricing smarter requires understanding where customers perceive value and having the agility to respond to competitors’ moves with full insight into the impact on financial performance. Industry leaders are investing carefully in price and promotion, as well as leveraging insights from advanced analytics to make smart decisions."

 

Trendspotting 2019 Retailers blend intuition with AI for smart pricing 002Apparel retailers are embracing advanced analytics and blending intuition with science to regain control and price smarter. This has brought about a margin and sales lift of three to six percentage points for some companies. Pricing smarter requires understanding where customers perceive value and having the agility to respond to competitors’ moves with full insight into the impact on financial performance.

Industry leaders are investing carefully in price and promotion, as well as leveraging insights from advanced analytics to make smart decisions. This approach gives merchants clear, analytics-informed price for a style before they plan sales volumes and make inventory commitments. Such foresight can spell the difference between strong sell-through and piles of excess inventory later in the season.

Integrating technology for price-sensitive styles

New styles appear every season, often with little connection to products sold previously. As a result, products do not have a long sales history to analyse. Artificial intelligence can address these style-matching challenges more accurately and efficiently than merchants ever could. Integrating techniques such as computer vision, text mining, and machine learning can identify groups of styles that are likely to respond similarly to changes in price and promotions.

In many other industries, and even in some retail sectors, off-the-shelf models of price elasticity and responses to promotionsTrendspotting 2019 Retailers blend intuition with AI for smart pricing 001 describe consumer behavior accurately. But the nuances of apparel—not least of which are seasonality and trends—require a more tailored approach.

Analytical approach to determine preseason decision

To isolate the impact of each promotion, leading retailers have integrated cutting-edge approaches to elasticity modeling, controlling for factors that might dampen or amplify sales results. This enables planners and merchants to assess the impact of their promotional plan and in-season tactics on both the top and bottom lines of the business.

In the era of real-time, dynamic, and individualised pricing, it’s even more challenging to make investment, costing, and pricing decisions months before a product hits the floor and consumers react to it.

Many retailers address this challenge with concept testing, online or in stores. However, retailers can apply analytical approaches to better inform preseason buying and pricing decisions. Instead of relying solely on trends or intuition to plan each style, they can use analysis to deconstruct style-level performance into discrete drivers, such as underlying category trends, changes in prices, and inventory levels by store.

Retailers must now take into account the logistics costs of shipping inventory between stores and between channels. This requires understanding consumer demand at much more granular levels to determine not only appropriate markdown timing and depth but also optimal channel and location.

Of course, leading retailers use a combination of algorithms helpful for optimising markdown options, including a number of trade-offs inherent in the omnichannel model. The best rank and prioritise scenarios to make it easy for planners to manage by exception rather than by reviewing every potential consideration.

Accessing key facts needed to make smart pricing decisions: price elasticity, competitors’ prices, and the role of a category in creating value perceptions etc, requires a year-round commitment to pricing analytics. Apparel retailers who apply science to their historically art-based pricing decisions will develop a powerful capability that can restore full-price selling.

 

 
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