In the world of retail, 2023 had some high highs and low lows. At the start of the year, many retailers and brands alike were struggling to transition from ‘Growth at all Costs’ to the new mantra - ‘Profit or Perish’.
While profitability has always been the goal for business, the pandemic forced many to prioritize a frictionless e-commerce experience for customers with services like curbside pick-up or BOPIS (buy online pick-up in-store) taking precedence over efficiency and profitability. Now, retail executives are facing the uphill battle of trying to find a way to make these omnichannel experiences (that consumers have come to expect) financially viable. In the published Publicis Sapient/Salesforce survey, they reported that 37% of retail decision-makers said their e-commerce business was not meeting profitability targets. Beyond that, 25% reported their e-commerce operation was not profitable at all. To compound the challenge, raising capital has become more difficult, thus getting to profitability as quickly as possible is key for survival.
The generative AI wave of 2023 ushered in a new era of incredibly powerful retail technology tools. These solutions could allow those same retailers and brands the ability to adopt the playbook of the Big Box retailers and innovate like never before - and maybe even achieve profitability sooner than ever thought possible.
As we look ahead to the new year, pricing strategy emerges as a key area of opportunity to improve profitability. However, no business can afford to lose customers in the process by simply increasing prices. Introducing Price Optimization, Spresso.AI’s generative pricing solution - an effective solution to the industry’s persistent pricing problems. Price Optimization empowers retailers and brands to maximize profitability without compromising on customer conversion.
We’ll explore how you can unlock the profit-generating potential of Price Optimization, turning your data into dollars.
The Data-Driven Dilemma
In the highly competitive world of e-commerce, pricing for profit is a constant challenge, too high and you lose customers, too low and you’re missing margin targets. Data is at the heart of retail decision-making, yet at times the abundance of data can be overwhelming. Simultaneously, assessing a customer’s willingness to pay is not an easy data point to collect.
Price Optimization as a generative pricing solution solves for this data-driven dilemma. Using first-party data, such as your consumers’ behaviors on your website to inform the model, the solution is able to dynamically allocate traffic to top-performing price point. It effectively assesses a customer’s willingness to pay in real time. This translates to a data-driven pricing strategy that is tailored to your unique customer base, not your competitor’s prices, effectively freeing the retailer from reliance on third-party scrapers and cookies.
By adopting a generative pricing strategy, retailers no longer find themselves trapped in the lose-lose cycle of price wars and the race to the bottom.
What is Price Optimization and How Does It Drive Profitability?
Price Optimization is the generative pricing solution from Spresso.AI. Like all of Spresso.AI’s technology, the solution was designed by retail operators in direct response to their own challenges as retailers.
Generative pricing, or AI-powered pricing, is a dynamic pricing strategy where product prices are adjusted in real time in response to customer behavior insights. Effective generative pricing solutions use artificial intelligence (AI), machine learning (ML), and advanced analytics to determine the most effective price point, and then optimize website traffic according to goals set by the business. This means the brand or retailer is able to set a goal of increasing profitability while maintaining conversion and the solution will optimize prices towards that goal.
Numbers speak louder than words (that’s the saying, right?) To learn how one $200M retailer was able to net an additional $1.2M on a single category check out the case study here.
Balancing Profitability and Conversion With AI-Powered Pricing
Since profit and conversion exist on a spectrum, Price Optimization puts the power in the hands of the business to determine where to fall on that spectrum. Price optimizations can be as minute as the SKU level, enabling a retailer to invoke layered pricing strategies, or goals, for different products and categories.
Within Price Optimization, both profitability goal and price point range are established at the campaign level. Products and/or categories are added to campaigns and inherit the campaign details.
For example, a retailer can set up a conversion-focused campaign to sell-through seasonal merchandise, and simultaneously layer a campaign focused on improving the profitability of top-moving SKUs. The solution will optimize traffic based on the campaign’s goal.
And generative pricing works. The numbers speak for themselves:
- 18% average profitability gains across optimized SKUs
- 23% average revenue gains across optimized SKUs
All while maintaining conversion.
Price Optimization for 2024
As you can see, Price Optimization isn’t just a solution, it’s the answer to the age-old question of how to prioritize profitability without losing your customer base. In fact, Price Optimization gives your customers a vote on your pricing by taking into account their perceived value of your products and their willingness to pay. Integrating seamlessly into the backend of a retailers’ website, Price Optimization truly is a profitability easy button! This win-win strategy is transforming the retail industry and you don’t want to be left behind.
See how you too could have Price Optimization working in your business by Thanksgiving with a personalized demo from Spresso.AI
