In our book, “The Price Advantage,” we stressed the significance of the price advantage as a core capability accessible to nearly every company. While businesses often focus on various advantages like cost, distribution, technology, innovation, brand, and service, a price advantage enables a company to get fully compensated for the value it offers to customers and allows for investments in other core strengths. Without a price advantage, even superior companies risk losing their drive and ability to maintain their competitive edge.
Over the past decade, many companies have made substantial investments in pricing capabilities. They have established dedicated internal teams, hired experts, and adopted technology, all with the goal of creating a price advantage. However, we are now standing on the brink of an AI-driven revolution that will elevate the standard for achieving a price advantage.
Take the airline industry, for example, where advanced AI and scientific pricing algorithms have become essential for dynamic pricing and revenue management. Companies attempting to enter this market without leveraging AI have faced failure. Beyond airlines, AI is set to transform the entire pricing discipline, and those companies that fail to invest in this capability may find themselves at a similar disadvantage.
Here are the primary advantages that AI brings to companies investing in pricing capabilities:
- “Panning for gold”: AI possesses a remarkable ability to identify pricing opportunities often overlooked by traditional methods. For instance, our empirical data shows that over 2/3 of pricing upside comes from small adjustments in price, particularly for products and customers with decent margins. Traditional pricing analysis however typically focuses on obvious outliers – usually lower than average margin products and customers. AI efficiently discovers and allows companies to act upon these minute adjustments on these typically hard to find opportunities, which can lead to substantial benefits.
- Enhancing the customer experience: AI enables market-relevant pricing without the need for lengthy and cumbersome price negotiation processes. This improvement enhances the overall customer buying experience while also reducing sales costs. In fact, research indicates that two-thirds of B2B buyers prefer to buy from companies whose prices are algorithmically determined, trusting it more than opaque negotiation processes. AI automates the pricing and discounting process, providing substantially greater pricing precision and efficiency.
- Dynamic market adjustment: AI processes vast amounts of data, customer insights, and market trends with unprecedented speed and accuracy. This capability allows companies to optimize prices in real-time, adapting to changing market conditions and responding proactively to competitor actions. The days of time-consuming meetings and massive Excel spreadsheets for smartly adjusting prices are coming to an end.
As artificial intelligence continues to infiltrate various aspects of our lives, its transformative impact on business pricing models is becoming increasingly significant. A seismic shift is upon us; pricing strategies, traditionally relying on the human analysis of market trends and consumer behavior, are now becoming AI-driven business processes.
Embracing AI-powered pricing capabilities is essential for companies seeking to establish and maintain a price advantage in today’s fiercely competitive business environment. As neural network AI technology is now available and proven, businesses that harness its potential will be better equipped to navigate market challenges, enhance profit margins, and thrive in the dynamic pricing landscape. The price advantage achieved through AI-driven pricing strategies will undoubtedly become a vital component of sustainable business success in the years to come.