Despite corporates being enthusiastic about the potential of artificial intelligence (AI) based pricing strategies (defined as the use of AI technologies and algorithms to determine the optimal prices for goods and services) more than half have yet to harness any form of AI for business purposes and only a meagre 27% deploy AI based pricing, according to a study out today from leading data and technology consulting firm Valcon.
The research study, which surveyed 1500 European, Asian and American companies, from SMEs to large global corporates (40% of respondents were companies with over 10,000 employees), found that 53% of companies do not believe their internal data is mature enough for AI-based pricing, in terms of quality and quantity. This means companies are unable to benefit from a practice that can help maximise margins at a time when they are facing headwinds from inflation, volatile market conditions and fluctuating customer loyalty.
In terms of the risks and barriers associated with AI-based pricing, respondents – who included CEOs, CFOs, CSOs and Chief Pricing Officers – believed the loss of control or a lack of understanding was the key risk (34%), followed by a lack of internal acceptance (23%), high maintenance costs (13%) and compliance and regulatory issues (11%).
Key statistics from Valcon’s Global AI-based Pricing Study 2023 include:
- 76% of respondents consider AI-based pricing to be relevant or highly relevant for managing prices and increasing profitability.
- 27% reported regular use of AI to optimise promotions – for example, 19% regularly review and optimise prices via Chat GPT and 8% use specific applications like dynamic pricing.
- 54% of corporates do not yet use AI for business purposes.
- 53% of corporates say their internal data is not robust enough for AI based pricing, whereas 37% says they velieve their data is strong enough for AI pricing.
- 67% say their IT infrastructure is not mature enough for AI based pricing, whereas 27% believe that theirs is sufficiently mature.
- Regarding data used for pricing decisions, 46% use historical transactional data, 21% use internal cost data and 11% use customer demographic data.
Danilo Zatta, head of Valcon’s pricing practice and author of the study commented:
“Even though most respondents recognise the transformative potential of AI based pricing, adoption rates are significantly lagging behind. 53% of respondents reported an increase in profitability in 2022, despite inflation and significant market volatility, but as economic growth continues to stagnate, the use of AI will become critical for corporates to drive top line profitability.
“It capitalises on machine learning and data analytics techniques to analyse large volumes of data, making pricing decisions that maximise profits, spur revenue growth or fulfil other objectives, such as increasing market share or customer satisfaction. Data quality and IT architecture are seen as the biggest inhibitors to AI-based pricing adoption, but as with any data initiative, organisations need to start with small, pilot projects –– the perceived enormity of big data projects often puts organisations off. It’s pricing and data evolution, not revolution. But time is off the essence in the AI pricing game and corporates need to move as quickly as their competitors if they want to benefit.”
To see Valcon’s Global AI-based Pricing Study 2023 in full, please get in touch.
