The challenge
brands4friends offers its customers constantly changing sales promotions in all product categories. The assortment includes over 200,000 products including product variants. Inventory Management was faced with the challenge of determining the best possible price for each individual product within the short sales cycle on a daily basis. The goal was to automate pricing processes in an A/B test, minimize the workload for Inventory Management and increase margins while maintaining stable sales development. To achieve this, brands4friends tested the use of the AI solution AIR | Dynamic Pricing.
The solution
In a four-month A/B test, brands4friends checked whether AIR | Dynamic Pricing met the requirements with regard to the aforementioned goals. The AI algorithms of the pricing solution calculate product prices dynamically and on a daily basis to achieve the ideal combination of sales volume, revenue and margin. AIR | Dynamic Pricing automates price adjustments semi- or fully automatically, as desired, to relieve inventory management. brands4friends can implement different pricing strategies for categories, brands or other product groups and includes numerous influencing factors such as inventory or demand in the price calculation. The price strategy simulation allows the shopping club to test the business impact of new pricing strategies in a risk-free virtual test environment. Due to the quickly rotating sales promotions, the company relies on Regular Pricing as well as Markdown Pricing.
Margin and revenue optimization through Regular Pricing
AIR | Dynamic Pricing calculates brands4friends’ item prices with the aim of optimizing sales and margins. The algorithms incorporate numerous influencing factors in real time during the calculation. In the peak phase of the product lifecycle, the AI solution prices on the basis of current
demand in order to sell products at full price, if possible.
Reduction of markdowns through sales optimization
When items are at the end of the product lifecycle, the focus shifts to selling them by a specific target date. For each product, the algorithms
take into account the current inventory as well as the target sell-through date and vary the product price according to demand; this way, zero inventory is achieved by the target date and, at the same time, sell-through is managed gently in terms of margin.
The result
The test group priced by AIR | Dynamic Pricing achieved up to 10 percentage points more margin than the comparison group, with stable sales development. By automating the pricing process, the workload on the part of brands4friends’ employees was significantly reduced, as AIR | Dynamic Pricing automatically calculates the optimal prices for the enormously large product range. Inventory management now invests its time much more effectively by strategically controlling the AI processes and thus achieving its own target KPIs in a predictable manner.
