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This holiday season may be a nail-biter for some retailers. While resilient, shoppers are more cautious this year and are searching for bargains as they focus on getting the best bang for their buck.

Price-sensitive consumers put a lot of pressure on retailers and brands. Not only do they need to have the right product, it must be at the right price too. Here, Prashant Agrawal, founder and chief executive officer of Impact Analytics, discusses pricing strategies and how AI-powered technology can be deployed.

WWD: How should retailers be thinking about pricing strategies this holiday season? Will dynamic pricing be more important this year, given the macroeconomic conditions?

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Prashant Agrawal: Pricing will be one of the most important considerations for consumers this holiday season. Consumers are still feeling squeezed by inflation on everyday essentials, despite the recent Fed rate cut, which means that retailers and brands are going to need to work harder to sell nonessentials this holiday. Identifying which categories will drive traffic, increase basket size and ultimately deliver higher margins and profits will be key. By segmenting the categories that will be the big engines this holiday, retailers will have more latitude to be more selective with their promotions.

Dynamic pricing with targeted coupons will be one way that retailers can respond to shoppers’ demands for value this holiday season. By diving deep into the data, retailers will have a greater ability to understand the regional nuances that will help them satisfy shoppers and maintain margins this year. Leveraging data across category, channel and customer segmentation is the smart way to determine whether promotions will be necessary or not.

WWD: When is the right time to start discounting this holiday season?

P.A.: Amazon kicked off holiday promotions during their October Prime Big Deal Days, which may have a ripple effect throughout the industry.

Developing a cadenced approach to discounting may prove to be the best strategy for most retailers. Taking initial markdowns, and just continuing to reduce from there, may not be necessary. Small, temporary markdowns, taken periodically throughout the season, may help many retailers maintain profit margins. It’s important to monitor shoppers’ behavior and adjust based on that data rather than simply repeating the same promotions year after year. Retailers should also vary discount timing and depth based on category type/seasonality and other planned marketing activity like print/digital ads, social media marketing spend, etc.

Prashant Agrawal

WWD: How does AI play a role in pricing? How can it best be used to help retailers during the holiday shopping season?

P.A.: It’s important for retailers to hold the pricing discipline that many started during the pandemic. Leveraging data and AI makes that much easier to do. AI tools, like image recognition and machine learning, can provide retailers with faster, deeper insights into the unique attributes of various customer segments. It can help them more quickly assess the effectiveness of a promotion on a given customer segment, identify ways to drive incrementality, increase conversion or entice lapsed customers to rediscover the brand.

Optimizing loyalty with highly personalized offers can also allow retailers to increase frequency, basket size, and maximize long-term value. Tracking social media responses and competitor activities can also be easily accomplished with use of AI.

WWD: How should retailers decide which items to promote and which ones to hold steady on? Should this change by category, customer segmentation or by region/geography?

P.A.: Retailers should utilize the data at their disposal to fine-tune their targeted pricing strategies. AI tools can allow them to see clearly the patterns within categories, channels and customer segments. It will arm them with the information they need to make the right decisions, whether that’s deciding early in the season to quickly reduce a lagging product to free up inventory or to maintain pricing for a trending item for the duration of the season.

Retailers often rely on historical data from previous seasons to make decisions, but by reacting quickly to the data at hand and responding to how the market is performing will be retailers’ best bets for a successful holiday season.