![]() 15 May 2020
![]() Blue Yonder Setting the right price has always been a complex question for fashion retailers. On the one hand, a high price will risk losing customers – according to McKinsey, customers will not return to a retailer if prices are more than 30% higher than competitors. Whereas a low price leaves the retailer with little-to-no profit. Promotions have been a common tactic over the past few years to drive more sales; however, fashion retailers need to find the right time to do this. If discounts are applied too early, potential profits will be eroded. If they come too late, they could find it difficult to reignite customer interest in the item at all. Customers can also quickly become conditioned to the discounting process if it is too predictable, and will simply wait for their desired items to be marked down. To date, many fashion retailers have largely made pricing decisions based on instinct or simplistic analysis. In an increasingly challenging market, retailers need to embrace artificial intelligence (AI) to ensure that these pricing decisions meet business objectives.
The AI DifferenceWhile there are a lot of factors at play to keep prices on-trend, retailers who use AI can make a real impact on sales. These include:
Challenges to OvercomeSo why is it not yet common practice for fashion retailers to use AI within the pricing decision-making process? There are two key reasons AI will struggle to get a foot in the door if decision-makers don’t buy-in:
Fashioning a Path to SuccessThose able to overcome the initial challenges will reap the rewards. Many online fashion retailers are already using AI to set prices—they are likely to be more familiar with adjusting prices fairly frequently. However, many traditional operators have found it harder to leave conventional thinking behind. Retailers might view AI as ‘the unknown,’ but in fact, it puts them in the know by making better-informed decisions than ever before. A lot of businesses talk about data being their most important asset. AI-driven pricing represents a chance for fashion retailers to practice what they preach. Setting the right price is the single biggest profit driver a retailer is in control of, as a 1% increase in price for the right items can lead to twice as much profit as a 1% reduction in costs would. By supporting retailers to make the best decisions possible, AI can tangibly boost profitability by 15% over the course of a season. Pricing is the easiest start for fashion retailers to begin their AI journey as it gives them quick returns with minimal business change. Those fashion retailers that adopt AI-driven pricing will ultimately be the ones best placed to react to the ever-fluctuating retail environment. So don’t risk being left behind!
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