The value of dynamic pricing technology has long been demonstrated by e-commerce platforms such as Amazon, but will it ever play a role in the average grocery store or pharmacy?
Dynamic pricing engines, which use AI to recommend prices on thousands of items in online and physical stores, are steadily making their way into the grocery aisle. Coupled with electronic shelf labels (ESLs) which enable real-time price changes in a physical store environment, dynamic pricing has been shown to help grocery stores increase revenues by up to 30% while boosting bottom-line profit figures by about 10%. This is why we can expect grocery stores to gravitate toward this technology in 2021, as many stores currently survive on razor-thin margins.
However, the promise of increased margins isn’t the only useful contribution dynamic pricing can make in the grocery sector.
Inventory spoilage has long been accepted as part of the cost of doing business in the grocery sector. Each year, businesses throw out billions of dollars’ worth of food: produce that’s looking wilted, dairy products that have reached their sell-by date, bakery goods, raw meat, prepared foods, and deli all end up in the industrial-sized trash bins behind grocery stores.
Supermarkets are often unable to give the food away due to litigation concerns, so rather than risk a lawsuit, they simply toss it away. However, dynamic pricing can provide groceries with an alternative. Rather than simply tossing food in the trash, dynamic pricing enables supermarkets to use price factors to incentivize their customers to purchase the older products.
Imagine a shelf with two cartons of milk, identical in every way except for one – their sell-by date. In most grocery stores, consumers have every reason to reach behind the milk that is nearing its sell-by date and take the carton that will be good for three weeks. It doesn’t matter if a consumer believes they will finish the carton before the sell-by date. If they are paying attention to the date stamp, they take the fresher product.
Dynamic pricing changes the equation. It recognizes inventory levels and uses machine learning and sales history to identify the ideal price point to incentivize a consumer to select the product with a limited shelf life. Dynamic pricing can save groceries from having to discard products. Using AI, it can identify the price points where consumers are willing to buy a donut that has been on a shelf since 10 AM.
As a result, groceries that deploy dynamic pricing find themselves throwing out less inventory, and cutting their losses by selling off inventory before it goes bad. As food waste becomes an increasing concern, we are likely to see retailers turn to technology to tackle the issue.
