Retailers are using AI pricing tools more and more to improve their competitive pricing strategies. AI tracks competitors’ prices in real-time, helping businesses adjust their own prices to stay ahead. It allows for quick changes based on the market. Many companies think AI will help them stay competitive and give customers better value while managing pricing efficiently. But is AI alone really enough to achieve this? 

 

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AI-driven competitive pricing can be useful, but relying too much on it might create issues. It’s easy to overlook other important factors when focusing mainly on price adjustments. This approach could lead to decisions that don’t fully align with business goals or customer needs. There’s more to pricing than just staying competitive, and ignoring that can have negative consequences down the line.

 

In this article, we are going to discuss AI-driven competitive pricing focusing on retail. First, we present how AI pricing tools are used to monitor and adjust prices. Then, we delve into the potential challenges of relying solely on AI for pricing. We argue that balancing AI with human insight is crucial for long-term success.

 

At Taylor Wells, we believe that retailers should integrate technology while maintaining a focus on customer value. By the end, you will know how to combine AI pricing tools and human judgment for sustainable pricing strategies effectively.

 

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How Competition in the Retail Industry is Driving the Use of AI Pricing Tools

 

John Lewis has reintroduced its “never knowingly undersold” promise, this time using AI-driven competitive pricing to monitor and adjust prices against 25 competitors daily. The retailer’s goal is clear: to stay competitive during the holiday season, adjusting 30,000 prices in just one week. This move underscores the increasing reliance on AI in pricing strategies, but what does it mean for other retailers?

 

For Australian businesses, this highlights a growing trend. AI pricing tools allow retailers to monitor competitors and make quick pricing adjustments. While this adds efficiency, relying heavily on AI doesn’t always guarantee long-term success. John Lewis’ approach demonstrates how advanced these tools have become, yet also raises questions about sustainability.

 

AI tools enable businesses to stay competitive in the short term by offering attractive prices to consumers. However, aggressively adjusting prices can shrink profit margins. While John Lewis may attract customers with lower prices, it risks sacrificing long-term profitability and quality if margins tighten too much. This raises an important question: Can AI-driven pricing truly drive long-term sales?

 

Australian retailers should pay attention to this trend. As AI pricing becomes more widespread, understanding its effects on competitiveness and profitability is essential. Retailers in Australia face similar pressures, with increasingly price-sensitive consumers and fierce competition.

 

By following developments like those at John Lewis, Australian businesses can better prepare for changes in the retail landscape. Making informed decisions about AI integration and staying ahead of the curve is vital to retaining a competitive edge.

 

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How to Properly and Effectively Use AI Pricing Tools in Retail

 

Relying solely on AI pricing tools and competitive pricing isn’t a sustainable approach. While AI can quickly adjust prices to stay competitive, it misses out on deeper insights. Competitive pricing might bring short-term results but often neglects long-term success. Instead, integrating human insight with value-based, customer-centric strategies is key.

 

These methods focus on understanding what customers truly value and how your brand differentiates itself. By combining AI with thoughtful, value-driven pricing, businesses can not only stay competitive but also build lasting success and stronger customer relationships. Balancing AI pricing tools with strategic insight ensures pricing supports both business goals and customer satisfaction.

 

Balancing competitive pricing with maintaining customer experience and brand identity is crucial for any business. Here’s a seven-step approach to achieving this balance.

 

7  Steps on Balancing Pricing Strategy Based on Competition with Customer Experience

 

1. Prioritise Quality and Service

 

First, ensure that competitive pricing does not compromise quality or customer service. Lowering prices should not mean cutting corners. Pricing should reflect the total value of the product or service, not just the cheapest option.

 

For example, if a store lowers the price of a high-end product, it should still meet the high standards customers expect. Customers remember the overall experience just as much as the price. Therefore, maintaining high quality and service ensures that customers see value beyond just the cost.

 

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2. Maintain Clear Communication

 

Next, be transparent with customers about pricing changes. Explain why prices are adjusted and assure them that lower prices do not equate to lower quality. This transparency helps build trust and strengthens brand loyalty. For instance, if a store uses AI to monitor prices and adjust accordingly, it’s essential to communicate that these changes are part of an effort to remain competitive, not a reflection of diminished quality.

 

3. Assess the Impact on Brand Value

 

Before adopting any AI-driven pricing strategy, evaluate its impact on your brand’s perception. Competitive pricing should enhance, not undermine, your brand’s value proposition. For example, if a luxury brand suddenly offers deep discounts, it may diminish its perceived exclusivity. It’s vital to assess how such price adjustments might affect how customers perceive your brand and ensure that they align with your brand’s image.

 

4. Develop a Dual Focus Strategy

 

Balance price competitiveness with a strong focus on delivering exceptional customer experiences. Use AI to offer competitive prices but also invest in areas that create lasting value. For instance, a retailer can use AI for pricing but also provide personalised service or premium product features that enhance the customer experience. This dual focus ensures that while prices are competitive, the overall value and customer satisfaction remain high.

 

5. Adapt Pricing with Flexibility

 

Create a flexible pricing strategy that allows for human intervention. AI-driven decisions might not always capture market nuances or customer sentiment. Therefore, businesses should be ready to adjust prices based on real-world insights. For example, if an AI tool suggests a price drop that might affect profitability, a human decision-maker should evaluate the broader context before finalising the change.

 

 

6. Ensure Consistency Across Channels

 

Maintain consistency in pricing across all sales channels, including online and in-store. Inconsistencies can confuse customers and harm your brand’s reputation. AI tools can help align prices, but they should be implemented in a way that ensures consistency. For instance, if a retailer offers different prices for the same product online and in-store, it could lead to customer dissatisfaction and mistrust.

 

7. Blend AI Pricing Tools with Human Judgment

 

Lastly, blend AI technology with human judgment. AI can track competitor prices and adjust your own, but it should complement, not replace human insight. Commercial teams need to interpret the data, consider the broader market context, and ensure that pricing decisions align with the brand’s long-term vision and values. For example, while AI may suggest lowering prices to stay competitive, human judgment can assess whether such a move aligns with the brand’s strategic goals and customer expectations.

 

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Organisational Adjustments that Come with Utilising AI Pricing Tools

 

Blending technology with human insight is crucial for shaping the future of pricing for Australian retailers. AI pricing tools can offer precise, data-backed pricing adjustments, but human insight ensures these decisions align with customer needs and brand identity.

 

Retailers should also build high-performance pricing teams. Skilled professionals are essential for interpreting AI data and making balanced decisions. These teams ensure that technology complements human expertise rather than replacing it.

 

Our findings show that with the right set-up and pricing team in place, incremental earnings gains can begin to occur in less than 12 weeks. After 6 months, the team can capture at least 1.0-3.25% more margin using better price management processes. After 9-12 months, businesses often generate between 7-11% additional margin each year as they identify more complex and previously unrealised opportunities, efficiencies, and risks.

 

Furthermore, embedding commercial capabilities across the organisation is vital. Pricing strategies must be integrated at all levels to be effective. This approach ensures a cohesive strategy, where technology and human expertise work together seamlessly, leading to better pricing decisions and overall business success.

 

Our findings show that when a business builds and embeds commercial capability across the business; bolstering its internal pricing skills and capabilities to build a sustainable pricing system, it can generate at least 3-10% additional margin each year while protecting hard-earned revenue and volume. This is at least a 30-60% profit improvement straight to the bottom line.

 

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Bottom Line

 

John Lewis’ AI-driven pricing model teaches important lessons for retailers everywhere. It shows how AI pricing tools can help businesses monitor competitors and adjust prices quickly to remain competitive.

 

However, the key takeaway is that relying solely on AI-driven pricing, without human oversight, can risk long-term business sustainability. Focusing only on competitive pricing may lead to reduced profit margins and can even weaken a brand’s identity over time.

 

Blending AI technology with human insight is crucial for making well-rounded pricing decisions. While AI can efficiently manage price changes, human understanding of customer behaviour, brand perception, and market trends remains vital. This combination helps retailers react to competitors and build long-term value for customers.

 

To succeed in the long run, retailers must maintain their brand identity, prioritise customer experience, and ensure their pricing strategies reflect both technological advancements and deep market knowledge. This balance will drive sustainable growth.

 

For a comprehensive strategy to prevent revenue loss in your company, Download a complimentary whitepaper on Digital Transformation.

 

Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 9000 1115.

You can also email us at team@taylorwells.com.au if you have any further questions.

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