Avoiding Pitfalls of Speculative Pricing Changes: CPGs and Retailers Can Optimize Price With AI
The biggest names in retail are seeking ways to lower prices. While that’s great news for consumers, certain retailers and especially CPGs are likely feeling uneasy.
Price changes and increased promotional activity can further thin profit margins, something many retailers are already seeing in their quarterly reports. However, by working with internal teams and by leveraging predictive analytics and AI, CPGs don’t need to settle for thinner margins and volume tradeoffs. Brands of any size can confidently test various pricing and promotion scenarios within AI-powered predictive tools to identify the most effective pricing strategies.
In this blog, brands will learn how AI-supported pricing analysis uncovers the price changes that matter most for their consumers, ensuring volume and profitability become healthier.
Retailers rally around slashing prices
Across channels, retail leaders publicly promised to lower prices on thousands of products through this summer. Notable examples include:
Walgreens said it will cut prices on 1,300 items, particularly snack foods and personal care products.
Target said it will drop prices on more than 5,000 frequently purchased items across its assortment.
Aldi aims to double the savings on 250-plus summer items, claiming to save shoppers $60 million.
The push to appease price-sensitive shoppers also includes a new private brand food line from Walmart called bettergoods, which includes items priced at less than $5. It’s Walmart’s first private-label food launch in 20 years, and the company said it’s the fastest brand that it has ever brought to market, emphasizing the urgency of price-conscious products.
Retailers aren’t just shaving off a few pennies, too. Walgreens listed price reductions on many of its personal care items, and consumers will save one or two dollars per item. Target similarly is trimming prices by around a dollar across both national and private brand foods.
With the U.S. Consumer Price Index showing a hold on price increases, inflation seems to be cooling off, also opening a door for retailers to entertain price cuts. But brands and retailers need to be smart about how they adjust prices; for what gain, and where. Predictive AI applications can deliver data-driven recommendations on the products with the most pricing adjustment opportunity, including how much to adjust price, at which stores, and what corresponding changes to expect.
AI helps brands defend prices strategically
Insite AI’s pricing applications contain price elasticity models. These run inside a brand’s IT environment, leaning on limited sales data and macroeconomic feeds to deliver precise readouts on how prices are performing and an outlook of how they will perform. Models are customized to a CPG’s data set and other business logic is formatted to fit how brands like to work.
This process is important to how brands target and control pricing with AI. The Insite AI models give CPGs predictions and strategic actions on their business that brand teams can experiment with in very easy to use planning software.
Here are a few examples of what brands can do with AI-supported pricing applications:
Score and rank the true price-sensitivity of products within seconds. To assess prices, brands need to learn which products within a category would benefit most from a price decrease, hold, or increase. Good models don’t just look at historical data but also can incorporate messy data such as retailer sales, competitors, shopper group reactions, macroeconomic trends, and attributes – like ingredients, pack sizes, rate of sale, assortment architecture, and more – to holistically identify prices expected to underperform. The modeling also spots items that consumers will buy anyway — whether prices go up or down — allowing retailers to keep prices at a profitable number. Looking at the total behavior in the category, brands can help illustrate their strategy to retailers on the most effective assortment, price architecture, and pricing within minutes, as opposed to teams having to crunch through hours, weeks, or months in tightly controlled meetings.
Get a granular, data-backed story to defend prices. Insite AI models deliver highly granular metrics from pricing changes down to the SKU and store level. By being able to quantitatively attribute the factors which drive and drag on a pricing decision or price elasticities, brands can decide their strategy. A CPG may find in a certain region, channel, and set of products that pricing can remain strong without effect to volume – because of a lack of competitor options, shopper resilience, and infrequency of promotion. That same CPG will inevitably find in a different set of products and retailers’ other factors – such as disposable income, product costs, and non-performing innovation – an opening for price tradeoffs that lend to better volume gains.
Better allocate trade promotion budgets. Similarly, brands can run several scenarios to see how certain trade budget allocations will impact sales volume, incrementality, and profits. CPGs can detail budget allocation more wisely by brand, products, shopper segments, stores, or regions to truly hyper-optimize results on “last year’s promotion calendar.” Retailers that are looking to lower prices will favor brands that bring data-driven insights on how well trade dollars work on top of optimized pricing across the category. Furthermore, being able to demonstrate incrementality of promotion tactics and types across days, weeks, and months are highly enabling to sales teams.
Brands brace for savings beyond the summer
While much of recent news highlights a summer of savings for consumers, CPGs that tap into predictive analytics and machine learning projects to refine pricing can leverage strategic pricing for many seasons to come. Running AI models to review ongoing pricing and promotions down to a store level, by item, by day, week, and month, helps brands maintain and subsequently plan effective pricing on an aggregated basis, all year long.
Reviewing pricing strategies aren’t just a one-off play, and the tendency to let events play out – such as elections, interest rates, or consumer confidence reports – are becoming archaic due to their reactionary nature. Brands need to use data, regardless of its state, to pinpoint accurate and precise pricing and promotions for all their goods – and at their retailer partners – to maintain margins.
Contact Insite AI to see how our custom applications help you stay on top of pricing strategy.
[Video] The AI Powered Future of Category Leadership
Join Vic Miles, retail and consumer goods industry leader at Microsoft and Shaveer Mirpuri, co-founder and CEO of Insite AI on this episode of “Beyond the Tech”
In this episode, of “Beyond the Tech” Mirpuri shares his journey into the field of artificial intelligence (AI) and how his experience in data science, computer science, and business led him to explore the practical applications of AI in various industries, including retail and consumer goods. He discusses the role of AI in automating data ingestion, scenario planning, optimization, and forecasting, enabling humans to focus on strategic and creative decision-making. Mirpuri emphasizes the importance of AI that provide explainable demand forecasting and insights into the drivers and constraints affecting sales for consumer brands.
The conversation focuses on the potential of AI to drive value for consumer goods companies in areas like hyper localized assortment optimization, demand forecasting, understanding price elasticities, and scenario planning. Mirpuri emphasizes the importance of explainable AI models that can break down the drivers and constraints affecting demand, sales, and pricing. He discusses the ability of AI to project accuracy into the future based on historical data and various factors, as well as the capability to run simulations starting from future time periods when business changes are planned. Mirpuri also highlights the value of scenario planning using AI to prepare for unpredictable events and macroeconomic conditions. Overall, the discussion underscores the potential of AI to provide granular insights, optimize decision-making, and drive growth strategies for consumer goods companies.
The discussion revolves around the necessity and potential benefits of investing in AI for consumer goods companies. Mirpuri acknowledges the significant time and efficiency gains AI can provide, enabling employees to be more strategic and thoughtful.
Mirpuri also underscores the exponential lead early adopters could gain over late adopters, as AI allows brands to optimize assortments, pricing, promotions, and decision-making processes. However, he stresses the importance of executive education and understanding AI methodologies to appreciate its use cases and ROI fully.
About Shaveer Mirpuri
Former executive and board member of two early stage VC backed companies (IPO and acquired), Shaveer subsequently invested in several tech companies in e-commerce, AI, consumer brands, and manufacturing, including new businesses with large corporate partners. Prior to this, he was a consultant to Walmart’s former CEO on AI. In 2019, the American Chamber of Commerce named him a top 3 in entrepreneurship, and today he is an active member of the Forbes Technology Council.
About Vic Miles
Vic Miles is the Americas Business Strategy Leader for Microsoft’s Retail Industry solutions group. Vic is responsible for go to market strategies, guidance to the client service teams and the integrated solution plan for Microsoft products in the retail industry. Vic joined Microsoft in April 2008 after over 10 years in retail as a Wal- Mart IT leader. Vic has built a specialty around retail store operations. His knowledge comes from leading application development for in-store retail systems, during his tenure at Walmart. Vic serves as an advisor to retail executives around the globe where he helps to achieve the Microsoft mission of empowering every person and organization on the planet to achieve more.
Connect at Groceryshop
Connect at Groceryshop
Accelerate Your Sales, Revenue Growth, and Category Management Initiatives
Groceryshop | September 19-21, 2023 | Mandalay Bay, Las Vegas
Connect with Insite AI at Groceryshop and find out how our revolutionary approach can accelerate your top initiatives. Our team of AI and strategic consulting teams have walked in your shoes, giving them unparalleled insights into your industry-specific hurdles. Our Strategic Advisors are consumer brand and retail veterans from Coca-Cola, PepsiCo, Mars, Anheuser-Busch InBev, Walmart, Target, 7-Eleven, Kroger, among dozens of others.
Let us guide you in tackling your organization’s distinct challenges head-on. Through our collaborative approach, we craft a tailored solution to elevate your product assortment, pricing strategies, trade promotions, and demand forecasting.
Don’t miss this opportunity to expedite your success and lead your organization toward a more efficient and profitable future.
We’re the only partner that lets you dial in multiple scenarios, and confidently predict how they would perform on a forward looking basis against multiple KPIs, with details down to the most granular level, regardless of complexity. Make confident decisions at either the big-picture strategic or tactical level involving commercial aspects such as assortment, pricing, trade, space, and planning. In one click, foresee the results of exactly what will happen in any given scenario. Our unique capabilities take in multiple conditions and assumptions; alternatively, decision makers can rely on us to leverage the technology on their behalf. Act with extreme certainty, speed, save significant time, and ensure your actions will achieve commercial results.
Define your specific objectives, and receive new and creative ways to reach them.
Are you seeking to grow volume? Maximize prices? Grow shelf space? Improve trade effectiveness? Outperform a competitor? Rationalize spend? Our capabilities “goal seek” the exact new strategies or tactical outputs to achieve this, taking into account all of your business dynamics, beliefs, and nuances. Get multiple novel strategies that are truly implementable and actionable. Fuse your vision with our technological levers that incorporate an incredible number of factors. See the forward looking and granular articulation on the recommendation’s performance. This is something any large team of experts aren’t capable of.
Explainable assortment, space, pricing, and trade promotion decisions.
Harmonizing data and searching it for insights is old news, and few companies see value from it. We provide internal and external narratives that are defensible and truly differentiated. In one click, our capabilities explain and decompose the “why” on a forward-looking basis; and the data is presented in a powerful, immediately understandable manner. Incrementality, demand transference, price elasticities, cross elasticities, attributions, shifts, patterns, and factors affecting your existing or recommended actions are clearly articulated.
Former SVP of Merchandising at 7-Eleven, Brooke brings nearly 20 years of grocery and convenience retail experience to Insite AI. She understands what it takes to build valuable partnerships with retailers, and in her role as EVP of Strategy Consulting, she advises consumer brands on ways to elevate strategic business planning, achieve category leadership, and create optimal shopping experiences for their consumers.
Former leader at Coca-Cola, Dr Pepper Snapple, and Delhaize, Capri brings extensive strategic leadership experience from both retail and supplier roles in the consumer goods industry. She was recognized as a Senior-Level Top Woman in Convenience in 2022 and has also received recognition for her leadership in collaborative/joint business planning with top retailers across multiple channels and formats.
Kristine is a highly accomplished retail executive and former VP of Merchandising at Walmart. Kristine led strategic initiatives that resulted in substantial revenue growth for the company across Grocery and prior to that Personal Care. Widely recognized as a visionary leader, she played a pivotal role in optimizing Walmart’s merchandising with large CPGs.
Why Insite AI?
A Consultative Approach
Our team becomes an extension of your team. Our Strategic Advisors are consumer brand and retail veterans from PepsiCo, Mars, Anheuser-Busch InBev, Walmart, Target, 7-Eleven, Kroger, among dozens of others. Our top priority is ensuring you have the guidance and support you need to achieve your goals and maximize the value of your investment.
Everyone else starts from scratch, yet Insite AI has already invested over eight figures of capital and several years into building leading edge technology; creating unmatched advantages for tackling your top initiatives.
We deeply tailor our engagements and fully configure our solutions to meet the unique needs of your brand. Insite AI is a true innovation partner providing CPGs with fully customizable solutions built to solve their unique challenges, enabling them to adapt quickly to changing market conditions and outperform their competition.
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