Blog: Pricing & AI—Retail Analytics and Strategies

The specifications for pricing software describe the rules the tool must apply, the constraints it must adhere to, and the scope of stores, channels, and products it covers.

Retailers are now calling for tiered and cumulative rules, margin safeguards, cross-channel price corridors, and alerts regarding promotions and crossed-out prices.

The real deciding factor isn't the number of rules it handles, but how the tool resolves conflicting rules and explains the final price.

Rules and artificial intelligence complement each other: the former set the boundaries, while the latter seeks the best price within those boundaries.

Pricing in the foodservice industry is structured in three tiers: foodservice distributors set net prices on a customer-by-customer basis; institutional foodservice adjusts its prices according to a contract clause; and commercial foodservice sets menu prices subject to constraints related to ingredient costs and local competition.

Each level has its own timing mechanism, and the one that passes on price changes most slowly absorbs the difference. For a distributor, profit margins are lost primarily in the time lag between a price increase and its implementation, and in discounts granted once and never adjusted.

Managing toy pricing involves setting a price for each product that is appropriate for the time of year, the product’s lifecycle, and what customers are comparing it to. Specialists generate 64% of their sales from January through October: it’s outside of the Christmas season that profit margins are determined, when prices aren’t simply imposed.

A new brand stands out early on, a classic holds its ground, and a birthday gift is chosen based more on price range than on a discount. Baby products are priced like equipment, based on trust and product line consistency, and post-holiday unsold inventory—which cannot be destroyed—is sorted by individual item.

The price of home appliances is determined more by the purchasing situation than by the specific appliance itself. Replacing an appliance after it breaks down is urgent, and while comparisons are typically made among a few benchmark models, built-in appliances are evaluated based on the total cost estimate, and small appliances are chosen based on budget ranges, often as gifts.

Aligning the entire product line with the lowest-priced clearance items means focusing on sales where customers compare prices the least. The annual renewal of product lines disrupts price comparisons and sales history, but this is corrected through product matching and cross-selling, and the actual margin is reflected in total sales, including services.

The pricing strategy for garden centers involves assigning each section of the store a distinct pricing role—traffic, margin, or image—and then setting each price based on that role and on the competitor against whom the customer is comparing it. The same margin logic applies across the board: underpricing the garden supplies section and overpricing the pet supplies section.

The produce section is guided by the condition of the items and showcases the product; the pet section relies on a few closely compared items; the regional foods section sets the margin; and the well-stocked garden section aligns only with products that are truly comparable. Before delisting a product, testing a price reduction helps determine whether a product is unnecessary or simply mispriced.

The pricing of office supplies is determined by two different systems within the same catalog. A handful of frequently compared items—such as reams of paper, original-brand ink cartridges, or brand-name pens—set the price benchmark. The rest of the catalog, which is vast, is almost never checked.

In a declining market, a discount on a product with few comparable alternatives amounts to a margin concession. The margin is maintained through contracts monitored line by line, within a targeted price range that includes original, remanufactured, and compatible cartridges, and across adjacent product categories.

The price of a piece of furniture is the price at which a retailer sells each product, including delivery and any options. In a declining market, a succession of promotions has taught customers to wait for discounts and to no longer trust the list price.

The 30-day rule reduces the discount that can be advertised when sales follow one after another. A consistent base price per collection, measured promotions, and carefully managed markdowns at the end of a collection restore credibility to the price.

In the beauty industry, “promotional dependency” refers to a situation in which an increasing share of sales is generated solely through promotions, because customers are waiting for the next discount. The cap on promotions for personal care and fragrance products has shown that a portion of these sales existed only because of deep discounts.

A 20% discount on a product with a 40% margin requires doubling sales just to break even. Prestige is maintained through infrequent, transparent promotions; everyday appeal is earned through a fair base price; and sales channels must remain consistent with one another.

Pricing for sporting goods involves setting, for each SKU, size, and store, the price that will clear out a seasonal collection before the next one arrives. The year’s profit margin is determined in the final weeks of each season, when a decision must be made between maintaining the margin and clearing out inventory.

Marking down an entire product line offers discounts on sizes that are still selling; the bike market is driven by model year, and the brand stands out from the major brands. The secondhand market and the end of the destruction of unsold inventory make this the right time to mark down prices.

The price of a high-tech product declines as it ages: held steady at launch, it drops in stages upon the announcement of its successor, then weighs on inventory that loses value each week. With operating margins in the 2% range, an unnecessary 1% drop wipes out half of the profit.

Constantly matching the lowest price is tantamount to letting your competitors set your prices. Profit margins are rebuilt through the product bundle, accessories, and services, and are maintained in the face of refurbished products, which cap the price of new products from the previous generation.

The price of auto parts is determined by a vast catalog, where the same part is available as an OEM part, an aftermarket part, or a compatible part, with part numbers that vary from one website to another. Without a reliable way to compare equivalents, any price discrepancy may be inaccurate.

The customer compares a short list of products—tires, batteries, oil, and wiper blades—which define the price image. The technical long tail is primarily about availability. Aligning it with the lowest price offers discounts that no one asked for.

FMCG pricing refers to a pricing model in which the brand does not set the final price. The retailer is free to set its own resale price, and setting a minimum price is prohibited. The brand’s margin is therefore determined upstream.

Pricing and negotiated net prices, subsidized promotions, and the structure of product formats in relation to private-label brands and direct channels are the levers she controls. Managing them requires tracking the actual prices charged by each retailer, every week.

In the toy industry, Black Friday kicks off the Christmas shopping season, which accounts for more than a third of annual sales. With the 30-day rule, its price becomes the benchmark for nearly all December promotions.

The discount applies only to the toys being compared, not to licensed products or this year's new releases. Baby care—a thoughtful purchase driven by the timing of births—calls for moderate discounts.

In the high-tech sector, Black Friday accounts for a major portion of annual sales and takes place two months after the back-to-school product launches. It is intended to clear out the previous generation of products rather than to sell off the new ones at a discount.

Refurbished products set a ceiling on the price of new items, and some prices are rising due to the cost of components. The advertised discount is always calculated based on the lowest price over the past 30 days.

When it comes to home appliances, Black Friday success depends more on the selection of models than on the size of the discounts. An 8% price reduction may require a 50% increase in sales to maintain the same profit margin.

It's best to act quickly on the models that are actually being compared, maintain the prices of exclusive models, focus on delivery, installation, and trade-ins, and prepare the 30-day policy starting in October.