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Assignment 4

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21 views1 page

Assignment 4

Uploaded by

dishantprajapati71
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Case Study – Price Setting with Artificial Intelligence (AI)

Solutions

1. For historical reasons, the "manufacturer's suggested retail price" (MSRP) was
developed in order to discourage distributors from overpricing their products. In the
1920s, P.H. Hanes created MSRP to stop wholesalers from overcharging customers for
his knit pants. MSRP developed over time as a standard for merchants, assisting in the
preservation of uniform pricing across various channels and geographical areas.

2. A minor increase in prices can have a major effect on operating earnings, according to
a 2010 McKinsey study. According to the report, increasing prices by 1% without
sacrificing sales can increase operational profits by an average of 8.7%. The delicate
balance between setting prices too high and running the danger of losing customers and
setting them too low and passing up possible earnings, however, makes it difficult for
retailers to implement the best pricing strategies.

3. Modern price-optimization technologies are replacing outdated pricing strategies like


mirroring competitors' rates or putting set margins on top of costs. These methods
assess pricing elasticities for thousands of products using large transaction data sets and
mathematical models. Modern systems offer better precision and flexibility in today's
market climate by being able to predict client responses to various price scenarios and
recommend tactics to maximise sales or profits, in contrast to traditional techniques.

4. Beyond the study of past sales data, artificial intelligence extends the capabilities of
price-optimization systems by allowing them to identify patterns and links across
various items. In order to further improve pricing tactics, AI-powered systems can
integrate additional data sources, such as online reviews and tweets from customers.
This makes price decisions more flexible and dynamic, enabling them to instantly adjust
to shifting market conditions.

5. Retailers test price strategies and undertake scenario assessments to optimise sales
performance using cloud-based platforms and AI-driven pricing tools. Retailers can use
these platforms to model the impact of small pricing adjustments on a variety of
products or stores on overall sales within a given category. Retailers can address
customer demand and competitive demands while meeting profitability targets by
utilising artificial intelligence (AI).

6. The idea that AI-driven pricing systems always result in increased prices is a prevalent
misunderstanding. Matt Pavich of Revionics, however, disputes this idea, emphasising
that these kinds of systems might, in fact, enable price reductions on bestsellers that are
sensitive to pricing, while raising prices on other products in order to preserve margins.
Food distributor Sysco is a prime example of how well these systems work; by using
them, they can increase prices on some products while lowering prices on essential
value items, increasing sales and maintaining profitability.

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