The cost of your Starbucks order may have been modelled by AI
Save time by listening to our audio articles as you multitaskA seminal study from 2010 by McKinsey, a consultancy, estimated that raising prices by 1% without losing sales can boost operating profits by 8.7%, on average. Getting this right can be tricky. Set prices too high and you risk losing customers; set them too low and you leave money on the table. Retailers have historically used rules of thumb, such as adding a fixed margin on top of costs or matching what competitors charge.
These systems are becoming cleverer thanks to advances in artificial intelligence . Whereas older models used historical sales data to estimate price elasticities for individual items, the latest crop of-powered ones can spot patterns and relationships between multiple items. Makers of pricing software are incorporating new data sources into their models, from customers’ tweets to online product reviews, says Doug Fuehne of Pricefx, one such firm.
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