AI-Powered Pricing Replaces Too Much ‘Gut Feeling’ with Cold, Hard Data

Vicki M. Young
·4 min read

How goods get priced is really a delicate balancing act.

“Do you have a sophisticated demand forecast?” asked Moritz Kuhn, vice president, pricing and inventory at Centric Software. “Another challenge that we see is speed in decision-making. So when it comes to pricing in season, do you guys really decide on yesterday’s data or does it take you a week or two or three to make a decision?”

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Those are the two primary challenges, while a third that often comes up revolves around inventory. Pushing inventory is easy, but “you need a proper stock turn and sell-through at the end. So balancing that is key,” Kuhn said, who spoke at Sourcing Journal’s Fall Summit last Thursday along with Reid Swanson, Centric’s sales director for North America East, in a discussion moderated by Sourcing Journal managing editor Jessica Binns.

Kuhn became chief operating officer in 2022 of AI-powered predictive platform Aifora, which predicts what customers will buy, when, where and at what price. Kuhn took on his new role at Centric after it acquired the retail automation platform in September.

Kuhn also noted that brands and retailers often make the mistake of relying too much on “gut feeling.”

Companies routinely fall into the trap of watching “what the competition is doing instead of really what your product and your situation is and then foreseeing where you end the season,” he said, urging fashion firms to keep data at the heart of their pricing decisions.

Kuhn believes AI has become an important part of the pricing equation because the influencing factors for demand are too difficult to manage manually. And with collections now skewing shallow and wide, the number of SKUs multiplied by the number of doors are now “complexities” that companies must address.

Kuhn also noted that when companies move to an AI-based pricing platform from one without the tech built in, different departments all the way down to the shop floor must work hand-in-hand on embracing the change, with clear ownership, roles and responsibilities, as well as who is making the final decision on pricing. “That is something that we see lags quite a lot,” Kuhn said.

He recalled the moment during his seven-year tenure with Adidas that became the turning point on technology’s role in pricing. Even though he knew the football boot collection well, Kuhn said, referring to soccer cleats, he was mistaken in thinking that he could do a better job at pricing than a “machine.”

Kuhn said the companies moving to Centric’s platform see a 5 percent increase in their usual gross margins of 45 to 55 percent. Some get $10 back in gross profit for every dollar spent on the software, he said on the issue of return on investment.

He also said that clients find that using Centric helps them bring in the right amount of inventory and avoid lost sales, which typically average 5 to 10 percent. “So if you can avoid 50 percent of that, that’s already an uplift in sales and gross margins right there,” Kuhn said, adding that the additional benefit is at least a 5 percent increase in stock turns. Because the third quarter wasn’t great for retail in Europe and the U.S., he expects a highly promotional holiday season with steep markdowns this year.

Meanwhile, Swanson said most retail customers knew how to price their best sellers, but for the other 90 percent of their portfolio, “depending on how big they were, it was kind of a rough estimate.”

He added that as firms expand into new geographies, they must understand how to price for goods according to market nuances. “AI allows you to be able to consume and analyze so much more data than a person would have been able to do and it’s going to get you a lot closer to where you need to be,” Swanson said.

He said that there’s still “so much room for improvement,” noting how overproduction and the need for markdowns means “we’re not on target very often,” and that’s where AI can help with improving margins and sustainability. “If I know what the market wants and needs and the customer and the price, then I’m going to be more sustainable,” Swanson said.

What’s next for Centric? “AI is all based on the data,” Swanson said. “We’re looking at how do we make sure that the market has this data [so they can] make those decisions that are based on fact and that are going to help the company.”

He said Centric is building a single platform so customers have data about the whole market from pricing to assortments to discounts so they can both optimize their own pricing in relation to the competition. That would feed into the planning process so clients would have the right assortment in the beginning that could be pushed into the development stage so companies can “design and develop to margin,” Swanson said.