While luxury plays its game with the Multiverse, within the platforms of e-tailers, there are those (like Levi’s) who entrust the management of prices and receipts to the algorithm of Artificial Intelligence. And in doing so, it opens the door to the fluidity of a revolution that could completely change the commercial (and checkout) scenarios of brands and labels
OK, the price is right! So exclaims the price strategist at the end of his delicate work. A long and complex job because he had to consider a multitude of factors and other variables to determine what he believed to be the right price for each product or service. Now, to his rescue comes Artificial Intelligence, capable of taking into account hundreds of variables for each individual product, including customer tweets, online reviews, weather, and more. And it also comes to the rescue of fashion.
Artificial Intelligence and Pricing
Now, even fashion has realised this. To illustrate: the AI is able to detect how price increases or decreases of a brand of ketchup in different shops affect sales not only of that specific condiment but of the whole category. Or, think of a hotel. In order to decide on room prices, it has to take into account the remaining available rooms, the rate of bookings, searches, the rate of cancellations, competitor prices, the effect on other room types, and the impact on different dates. It is simply impossible to do this manually.
Also coming to the rescue of fashion
Defining a price, therefore, is today much more than in the past, resulting from a complex equation whose variables suffer from staggering volatility. Fashion is not exempt from this and suffers from it in the same way as many other production sectors. Rising energy and labour costs, inflation, and the schizophrenia of other production factors, necessarily place the ‘critical and reasoned’ development of price lists at the top of the priority list.
Not least because, as McKinsey estimated in 2010, increasing prices by 1% without losing sales means, on average, increasing operating profits by 8.7%. So, while the fashion industry faces a digital challenge that in some respects may seem more marketing than anything else (see: Multiverse), here comes Artificial Intelligence, as in the case of JCPenney and Levi’s.
How Levi’s uses it
Levi’s first applied Artificial Intelligence at the beginning of the pandemic to manage promotions. Now it has extended this method to 26 countries, again in the context of promotions, but also in the general determination of all its in-store prices. The way this is done may seem disconcerting, but it is illuminating in many respects. For example, the algorithm used by Levi’s takes the weather into account and breaks it down into 20 factors, including predicted maximum and minimum temperatures, sunrise and sunset times, humidity, and so on.
It does this: the brand has found that the slight difference in temperature between Rome and Milan is enough to influence shopping behaviour. So, the AI sets different prices for the same garment or accessory between Rome and Milan. And so it does in every one of its shops around the world. Warning: the price can also change depending on the size and finish of the same model.
Benefits and fluidity
Artificial Intelligence’s benefits can be enormous, turning sales price management into a science and avoiding errors in the calibration of receipts. For example, AI can increase profits by keeping prices of best-selling items low and slightly increasing those of other products. Furthermore, the brand will have an ever-increasing wealth of data while (at the same time) the algorithm can expand the factors taken into account. Where will it go from here? Analysts believe that fashion product prices will become increasingly dynamic and fluid in the future. To the point that they will change from one day to the next within the same shop. Just like a hotel room. (mv)
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