AI: The game-changer in holiday retail pricing and discounting

| 5 min read
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As we near the holiday season, retailers face the pressures of meeting consumer expectations for discounts, managing stock availability, and capturing the attention of last-minute shoppers. However, this year is bringing a couple of new dynamics – inflation fatigue and consumer skepticism.

While consumers continue to respond to headwinds, more and more, they are telling retailers that a one-size-fits-all strategy is a thing of the past, making holiday promotional day strategies a challenge. It’s hard to prepare for the unexpected. Fortunately for retailers, technology has their backs covered.

The evolution of holiday promotions

As many of us remember, in the not-so-distant past, holiday promotions were largely one-size-fits-all. Retailers would roll out the same doorbuster discounts, hoping these generalized offerings would appeal to the masses. However, times are changing; discount expectations are more evenly distributed across ranges this year. Our Holiday Shopping Study shows that only one-third of consumers expect discounts to fall within the typical range of 26% to 40%. Meaning a nuanced approach that caters to consumers’ individual needs will be the strategy moving forward.

Enter AI. Artificial intelligence integration is shifting traditional, static pricing strategies to dynamic, data-driven approaches. Let’s explore how AI is transforming holiday promotions in the retail sector.

Dynamic AI-Enabled pricing

AI-driven pricing is a delicate balance between data analysis, machine learning algorithms, and real-time adjustments. It allows retailers to set prices that are not just competitive but also strategic.

  • Real-time market insights: AI constantly searches the market for data on competitor prices, consumer demand, and other relevant factors. This real-time data allows retailers to adjust their prices on the fly, ensuring they remain competitive and attractive to shoppers.
  • Optimal pricing strategies: AI algorithms can identify optimal pricing strategies, such as dynamic pricing based on supply and demand, seasonal trends, and consumer behavior. For holiday promotions, this means retailers can offer discounts at the right time and on the right products.
  • Personalized discounts: AI can analyze consumer data and behavior to provide personalized discounts. This level of personalization enhances the shopping experience, making customers feel valued and more likely to purchase.

Personalized shopping experience

Our study revealed that 63% of consumers plan their shopping within the two weeks leading up to Black Friday and Cyber Monday. These last-minute shoppers represent a significant portion of the market, and capturing their attention is critical for retailers to make their promotional day sales goals.

Personalized strategies are invaluable in this context. AI can analyze customer data and behavior, enabling retailers to send targeted promotions and marketing materials to these last-minute shoppers.

  • Recommendation engines: AI-driven recommendation engines analyze customer data and behavior to suggest products that align with their preferences. This leads to more targeted holiday promotions and increased cross-selling opportunities.
  • Targeted marketing: AI can segment customers into various groups based on their behavior and demographics, allowing retailers to send personalized holiday promotions and marketing materials that resonate with each group.
  • Increase customer loyalty: Personalized shopping experiences make customers feel valued and understood. This leads to increased customer loyalty, and loyal customers are more likely to make repeat purchases.

Inventory optimization:

Another challenge highlighted by the study is the unreliable and inconsistent availability of products on the shelves in brick-and-mortar stores. If shoppers cannot find the product they want or are faced with empty shelves, they will go to another location or shop online. Retailers are not only losing out on a sale but there are long-term loyalty implications that can compound over time.

AI-driven inventory optimization is the answer. These algorithms can predict which products will be in high demand during the holiday season and ensure the right products are in stock at the right time. This reduces the risk of stockouts and allows retailers to maintain customer satisfaction and loyalty.

Boosting retailer profitability

AI-enabled pricing and personalized discount strategies are not just impulsive responses to consumer expectations; they are strategic tactics for staying competitive. While AI may seem like a significant investment for retailers, the long-term benefits far outweigh the initial costs.

Better growth through AI strategies:

  • Maximize margins: AI helps retailers find the optimal pricing, maximizing profit margins without deterring customers with exorbitant prices.
  • Reduce surplus: With accurate demand predictions, retailers can order the right quantity of products, reducing the amount of unsold stock that often goes to waste.
  • Increase customer loyalty: Personalized shopping experiences make customers feel valued and understood. This leads to increased customer loyalty, and loyal customers are more likely to make repeat purchases.
  • Adaptability: AI allows retailers to adapt quickly to changing market conditions. For example, if a competitor suddenly drops prices on a hot item, AI can help a retailer respond promptly.

Challenges and ethical considerations

While AI has incredible potential, it also comes with challenges and ethical considerations. Privacy concerns, algorithmic biases, and the potential to manipulate consumers are important issues that retailers need to address when implementing AI in their holiday promotions.

  • Privacy: Retailers must be transparent about the data they collect and how it’s used. Customer consent and data security should be top priorities.
  • Algorithm bias: AI algorithms can inadvertently perpetuate biases present in the training data. Retailers should continuously monitor and adjust their algorithms to avoid discriminatory outcomes.
  • Consumer manipulation: AI can personalize offers to the point where consumers feel manipulated. Striking a balance between personalization and maintaining customer trust should always be a consideration.

What’s next for retail holiday promotions?

The holiday shopping experience is no longer about Black Friday doorbusters and one-size-fits-all deals. Consumers are savvy and demand more from their shopping experiences – it’s about understanding each customer’s unique preferences and crafting promotions that cater to them.

The intersection of AI and holiday promotions is a win-win for both retailers and consumers. Retailers gain the ability to optimize pricing and inventory, increase profitability, and foster customer loyalty. While consumers benefit from personalized shopping experiences that make their holiday shopping season more convenient and leave them feeling they found the best deals.

As we move forward, we can expect to see even more sophisticated AI-driven approaches to holiday promotions, further transforming the retail landscape and redefining what it means to shop during the holiday season.

Retailers who embrace AI will be better positioned to compete, satisfy customer expectations, and maximize profitability.

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