Author
Alok Joshi
Pricing and promotion planning involves determining the best price points and promotional strategies to maximise customer demand and profitability, while building long-term loyalty. The process can be hard to get right, requiring a balance of market insights, data analytics, commercial expertise, customer behaviour understanding, operational constraints, and more.
What’s Involved to Optimise Pricing and Promos
Getting it right means the right offer on the right products, at the right time in the right location. Optimising these key decisions means understanding not just your product demand at different price points (price elasticity), but the operational requirements and impacts to execute your promotion and set it up for success. If not done correctly, you can easily leave customers dissatisfied with a lack of availability or not a deep enough discount to make it enticing and have a meaningful impact on sales.
Why is it so Hard
There are a number of moving parts in the end to end value chain of a retailer. It involves the coordination of supplier agreements, inventory management, logistics, forecasting customer demand driven by the selected promotion and change in price point, the available range in each location, operations at sites and channels etc. You then need to overlay competitor impacts, cross-category effects and business constraints / compliance considerations. As you can see, to juggle the number of permutations that could be possible and achieve an optimised plan can be very difficult and daunting.
An Example
Imagine a planner tasked with creating a promotion plan for 200 products for the upcoming quarter. Among these, some are new products with not enough sales history, some have never been on promotion before. There are data on history but the planner knows past performance doesn’t always predict future outcomes.
They need to decide which products to promote, the right price points, and the best promotional mechanics (e.g., discounts, bundles, or buy-one-get-one-free). The goal is to maximise sales and profitability, but the planner also has to account for multiple factors:
- Demand Forecasting: Will a deep discount on a popular product drive enough additional sales to offset the lower margin?
- New Products: How should new items be promoted to gain traction without risking excess inventory
- Competitor Actions: How will competitor promotions impact the demand for these products?
- Cross-Category Effects: Will promoting one product cannibalise sales of another or drive complementary purchases?
- Logistics and Inventory: Does the supply chain have the capacity to handle a surge in demand for promoted items?
- Compliance and Constraints: Are there agreements with suppliers or category rules that limit the types of promotions allowed?
To make things more complex, the planner must create a week-by-week schedule that aligns these promotions with operational capabilities, avoids oversaturation, and ensures profitability across the 200 products. The sheer number of combinations of products, prices, and mechanics to evaluate makes this an incredibly challenging task, especially when factoring in unpredictable variables like market trends or customer behaviour shifts.
Without the right tools, this can feel like trying to solve a massive puzzle with countless moving pieces, making it clear why pricing and promotion planning is such a daunting problem for retailers.
How Can AI Optimise Pricing and Promos
With potential massive data volumes for algorithms to gain insight and learn from in today's customer management systems and resource planning systems, AI can help simulate impacts of changes to promotion and pricing strategies before you make the decision. With customers choosing multiple ways to interact and connect, omni-channel approaches and considerations are a must. Across location, product, channel, offer and price you can find the optimal configurations to meet your commercial objectives, while automating constraint considerations and removing unnecessary manual guess work. These capabilities make AI a powerful partner for driving smarter, more adaptable promotion planning decisions.
Opportunities for AI-empowered Promotion Optimisation
Channel-Specific Offering
AI enables retailers to tailor promotions to specific sales channels, such as in-store, online, or mobile. By analysing customer behaviour and preferences in each channel, AI ensures that promotions are relevant, targeted, and more effective at driving sales while reducing waste from generic campaigns.
Price Elasticity
Understanding how customers respond to price changes is crucial. AI can model price elasticity for different products and customer segments, predicting how varying discount levels impact demand. This helps retailers strike the right balance between attracting customers and maintaining profitability.
Optimised Promotional Mix
AI can process vast datasets to recommend the ideal combination of products, discounts, and promotional mechanics. This ensures a balanced promotional strategy that maximises sales and profitability while avoiding over-promotion or category cannibalisation.
Scenario Simulations and Adjustments
AI empowers planners to simulate multiple promotion scenarios, predicting outcomes for sales, profit, and demand. It also enables real-time adjustments by incorporating market changes, competitor actions, and customer behaviour trends to refine strategies on the fly.
Automated Constraints Considerations
Retailers face numerous constraints, such as supplier agreements, inventory limits, and operational capacity. AI can automatically factor in these constraints when generating promotion plans, ensuring compliance and feasibility without compromising the overall strategy.
Supplier Negotiations
AI provides insights into past supplier agreements, product performance, and market trends, enabling retailers to negotiate better terms and collaborative promotions. By using data-driven insights, retailers can secure more favourable deals and align supplier incentives with their promotional goals.
Pricing and Promotion Solution at jahan.ai
At jahan.ai, we offer a comprehensive, all-in-one platform designed to streamline every aspect of pricing and promotion planning. From identifying opportunities with advanced analytics to managing promotion campaigns seamlessly, our solution empowers retailers with AI-driven promotion plan generation and recommendations. It also provides functions for tracking performance and measuring benefits, ensuring optimised outcomes and enhanced profitability at every step.
Need help picking the right AI solution to optimise your pricing and promotion strategies? Speak to one of our experts. Reach out at info@jahan.ai or on LinkedIn - we love to talk AI and optimisation.
At jahan.ai, we build AI twins for retail and supply chain businesses. These AI twins go beyond traditional digital twins, which are virtual replicas of business processes. They not only mirror these processes but also use AI to automatically optimise decision-making, helping businesses boost efficiency and go beyond their potential.
aiml
optimisation
pricing
promotion
retail