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Pricing strategy|A Step-by-Step Guide to Real-Time Pricing
Pricing strategy

A Step-by-Step Guide to Real-Time Pricing

An advanced AI model considers much more than what competitors are charging. by Marshall Fisher, Santiago Gallino and Jun Li

From the Magazine (November–December 2023)
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Summary.   

In today’s fast-paced world of digital retailing, the ability to revise prices swiftly and on a large scale has emerged as a decisive differentiator for companies. Many retailers now track competitors’ prices via systems that scrape rivals’ websites and use this information as an input to set their own prices manually or automatically. A common strategy is to charge X dollars or X percent less than a target competitor. However, retailers that use such simple heuristics miss significant opportunities to fine-tune pricing. Some companies are now applying machine-learning models to guide their pricing decisions, but even these retailers tend to take an overly limited approach. They try to match or undercut competitors’ prices without taking into account factors such as whether rivals are out of stock or how consumers make their purchasing decisions. In this article, the authors present a step-by-step process for dynamic pricing that focuses on building computer models that consider not just competitor pricing but also product availability and customer behavior to recommend optimal prices in real time.
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For digital retailers, the ability to revise prices swiftly and on a large scale has emerged as a decisive differentiator—especially during periods of inflation, when prices fluctuate more frequently. Many retailers scrape rivals’ websites for price information and use it to set their own prices manually or automatically, often using a strategy of charging X dollars or X percent less than the lowest-price competitor. However, retailers that use such simple heuristics miss significant opportunities because they fail to tailor their responses to product availability and demand, among other factors.

Read more on Pricing strategy or related topics AI and machine learning, Algorithms, Strategy, Experimentation, Consumer behavior and Retail and consumer goods
A version of this article appeared in the November–December 2023 issue of Harvard Business Review.
Read more on Pricing strategy or related topics AI and machine learning, Algorithms, Strategy, Experimentation, Consumer behavior and Retail and consumer goods

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