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Pini Mandel: Putting the ‘AI’ in retail: Why UK shoppers should expect to see dynamic pricing tech in groceries very soon

As the average retailer tries to play catch-up with competitors online, we may see technologies such as dynamic pricing become the norm within the UK retail sector before the year is out, writes Pini Mandel, CEO and Co-Founder of Quicklizard. 

Now that we have begun settling into a new decade, it’s becoming increasingly clear that the implementation of new technologies is an inevitability within the average UK retail setting. Technologies such as electronic shelf labels (ESLs) and dynamic pricing are set to become an everyday sight to the average shopper. Partly accelerated by the Covid-19 pandemic, both dynamic pricing and ESLs make more sense to retailers than ever before. 

The retail landscape is becoming increasingly competitive due to the boom in e-commerce – so retailers that may have previously been slow to adopt new technologies are finally embracing recent advancements. Over the next few years, we will likely witness the adoption of technologies and tools that can increase profit margins, improve inventory management and make it easier for the everyday brick and mortar retailer to compete with e-commerce giants. 

In regards to dynamic pricing, it is no longer a question of if – but of when. A range of British shops, including electronics stores, supermarkets, hobby stores, and many others will be adopting some form of dynamic pricing over the coming decade. 

Ushering an era of digital transformation in retail

In a physical store setting, implementing dynamic pricing has proven significantly more complex than it is online. While e-commerce merchants can change prices with the click of a mouse, physical stores, with their paper price tag system in place find simple price changes much more challenging. 

To date, most merchants in physical stores have felt dynamic pricing simply wasn’t practical in a store with thousands of items. However, we’ve started to see the digitization of price tags in stores, with ESLs. ESLs are essentially digital price tags, which can be integrated with the POS system, to present a single, unified price on a product throughout the shop.  

The introduction of ESLs removes the final barrier that inhibits physical stores from utilizing dynamic pricing. While shop owners have been justifiably reluctant to use employees to change paper price tags multiple times a day, ESLs can be updated with a click of the mouse, enabling numerous new technologies to be implemented in stores.

Based on our experience in the UK, as well as in countries across Europe, we expect to see digital pricetags entering stores over the next year or so, which will be followed by the implementation of dynamic pricing.    

What does this technology mean for consumers?

Dynamic pricing has been around for nearly forty years since it first appeared in the airline industry back in the 1980s. Few people today question whether a flight during peak travel times should cost more, or why a hotel room on the weekend, when rooms are in higher demand, costs more than a room on a Tuesday night. 

The London Congestion Charge, where drivers pay tolls for driving on roads during peak hours, is an example of dynamic pricing that UK drivers have been paying since 2003. Uber surge pricing is another common dynamic pricing event that UK residents are growing accustomed to. Moving to retail, Amazon had a record £19.4bn in sales in 2020. Amazon’s dynamic pricing strategy is well known by consumers, as prices change multiple times a day. 

Clearly, UK consumers have had time and opportunity to acclimate to the idea of dynamic pricing, and introducing market prices to local shops should not be that big a stretch for most. 

There will most likely be an adjustment period as consumers get used to the idea of product prices changing by the day. However, it’s important to realize that dynamic prices aren’t implemented solely to increase prices. 

Tackling waste

Effective dynamic pricing takes a number of things into consideration when recommending a price. An upcoming release of a new electronic device such as a console or computer, for example, would likely drive prices of the model that is currently on sale down as shopkeepers clear space for new inventory. Popular items may see a pricing increase unless competitors reduce prices on those items. In that scenario, the pricing engine could very well recommend reducing prices to maintain competitive pricing. 

Grocery shopping is another area where consumers will see some dramatic changes. Products nearing the end of their shelf life will see their prices go down to encourage consumers to buy them before they need to be discarded. Dairy goods, produce, meat, poultry, deli, and bakery goods will all have tiered prices, which use AI to find the optimal price point.

Even pricing increases can ultimately benefit consumers, in the same way, that surge pricing an Uber ensures that there are always cars for hire available. Without dynamic pricing in place, items that are in demand are sold at a set price on a first-come, first-serve basis. With dynamic pricing in place, however, the increase in price uses market forces to reduce demand, ensuring that popular products are always available to consumers who are willing to pay a premium price for them. 

In a true dynamic pricing environment, the retailer has a deep understanding of consumer purchase history and buying patterns. For instance, they know that consumers who purchase a laptop often buy a case, or consumers who purchase milk typically purchase biscuits as well. 

With the information in hand, dynamic pricing engines can recommend offers for specific customers. The discounts that are offered on preferred products, or on products that are frequently purchased together, help consumers understand that their favourite stores understand their needs. These advanced, individualized pricing models may also inspire loyalty by allowing retailers to demonstrate an even deeper understanding of their customers. This could ultimately represent a significant game-changer as brick and mortar retailers battle to survive against online competitors.