Examining the Advantages of AI in Price Optimization with Home Depot
Discussing how AI can help retailers quickly adapt to market changes, improve demand forecasting and deliver personalized pricing strategies.
Between rapidly changing macroeconomic conditions and consumer trends, retail has experienced unprecedented market changes over the last several years. And with many of these shifts caused by sudden supply chain issues, the rise of remote work and an increase in time spent at home, few industries have felt the effects quite like home improvement.
Industry leaders like Home Depot are adapting to these market changes faster with AI price optimization.
Home Depot Mexico’s Eduardo Gutiérrez Peña, Merchandising Financial Planning Sr Manager, and Mariana Esparza Leal, Merchandising Financial Planning Department Head, recently joined Revionics’ Juan “JJ” Thorne, Vice President of Customer Success to discuss these circumstances in the webinar, “Price Optimization in Retail: Embracing AI for Competitive Advantage with Home Depot.”
Here are some of the highlights from the broadcast as the pricing experts delved into the current challenges retailers face, retail pricing in the Latin American market and the potential of AI pricing.
How does price optimization help retailers adapt to inflation, deflation and changing consumer behaviors?
Home Depot experienced some of its largest increases in sales at the onset of the pandemic. In this inflationary context, product elasticity changed quickly and constantly. Products that had once been irrelevant became key products virtually overnight. The role of eCommerce and other sales channels changed across the industry.
Now, Home Depot faces a new set of challenges brought by deflation, particularly the pressure it places on retail margins.
“Price optimization strategies have allowed us to maximize the units of key products and improve profitability,” Peña said. “It was all done with [Revionics] Artificial Intelligence. It has the real-time read out of how the trends are changing, the elasticities, market demands and customer expectations.”
A successful pricing strategy is defined and aligned at the commercial, category and store levels. Retailers should have a plan for each category including key products. Commercial teams must ensure all areas of the organization are aware of the strategy. And communication with operations and stores colleagues is critical to achieve strategic objectives.
How can Artificial Intelligence help retailers adapt to market changes?
With industry-leading AI, Revionics’ price optimization solutions help retailers like Home Depot adapt faster and more successfully than their competitors:
Dynamic pricing enables retailers to adapt quickly to changing market conditions.
“Our Artificial Intelligence can analyze large amounts of information or data in real time and adjust to them dynamically,” Thorne said. “This ensures that our customers remain competitive, can obtain the best financial results and can react quickly to changes in supply and demand.”
In-demand forecasting helps retailers better predict how much they will sell, determine how much inventory they should carry at each store and mitigate sales loss caused by inventory issues.
“Migration to the Cloud has unlocked barriers that existed as to how much information a company could store,” Thorne said. “The power of processing has also increased… on average we are seeing very high forecast accuracy of 85-90%.”
Promotion optimization helps retailers create targeted, personalized promotions.
“[Artificial Intelligence helps] ensure that promotional discounts and offers are targeted at the products that have the strongest attachment to the final customers. This, in turn, helps to increase sales,” Thorne said.
How does price optimization meet the needs of a consistent business strategy and those of a diverse regional market?
AI price optimization balances overall commercial strategy with market demands to optimize pricing in favor of the consumer and retailer alike.
“Optimization goes hand in hand with commercial strategy,” Peña said, adding that Revionics helps retailers balance “the price that the consumer is looking for in a way which satisfies the needs of the KVIs.”
How do pricing teams utilize and measure the benefits of price optimization?
Internal alignment is the foundation for price optimization.
“[Alignment] helps all of us in Home Depot work in the same direction for each category, groups of SKUs or departments. The configuration done in Revionics forces us to be aligned, which is beneficial of the company,” Leal said. “Another advantage of using Revionics Artificial Intelligence is that it has helped us to be much more accurate in forecasting… With Revionics, you focus more on the action — on the viable ways — and not so much on the analysis itself.”
Where does Artificial Intelligence overcome the shortcomings of traditional methods?
AI adapts to new trends, adjusts forecasts and makes better decisions with significantly less learning curve and risk than traditional methods.
“It leads you to… make less mistakes. Not learning all at once, but learning with intelligence and to execute the best possible strategy,” Peña said. “That used to be very complicated. It could be done but it would have taken us a couple months to learn, we probably wouldn’t have made the best decisions and we would have learned with some implicit costs.”
What should retailers remember when planning to adopt AI price optimization?
Evaluate results at the category level
“When it’s a new merchant, there is usually resistance from them because they are very zealous with their prices. They think when you say price optimization, it means margin expansion,” Leal said. “When we show the results of other categories — or even in the same category — that he or she had in other years, it makes it easier to accept the process of configuration and price optimization.”
Emphasize communication and alignment
“We, as a pricing and planning team, are part of the commercial team indirectly. We provide them with the services to achieve their objectives,” Peña said. “The other [priority] is the alignment with the merchant’s objectives… this helps a lot because we as a planning team define the target, we make the plan and then we do the optimizations, then tie that all together.”
Earn buy-in with help from executive leadership
“It is critical that the organization that is embarking on a price optimization tool and Artificial Intelligence be clear that there is a need for change,” Thorne said. “If they don’t see the relevance, it’s going to be very difficult for them to adopt a new tool… Having an executive board to be champions of this initiative [is critical], especially in the early stages of decision-making.”
See what Revionics and Home Depot pricing experts have to say about AI price optimization
Duncan Llovio is a B2B content marketer with a passion for product and distribution. If he isn't writing and researching, he's either watching basketball or trying out a new recipe.