Adoption of AI-based pricing lags enthusiasm

A new study has found that despite the hype surrounding AI, less than half of corporates use the technology for any business purposes. In particular, only one-quarter of firms deploy AI to help craft pricing strategies.

Despite corporates being enthusiastic about the potential of AI, they seem oddly reluctant to deploy it as part of their key functions. A new study by Valcon surveyed 1,500 European, Asian and American companies, from SMEs to large global corporates (40% of respondents were companies with over 10,000 employees), and found that 54% of respondents are willing to use AI for business purposes.

Illustrating this contrast further, the research found that while 76% of respondents consider AI-based pricing to be relevant or highly relevant for managing prices and increasing profitability. But only 27% used the technology to enhance their promotions – deploying AI technologies and algorithms to determine the optimal prices to engage consumers with goods and services.

Considering the findings, Danilo Zatta, head of Valcon’s pricing practice and author of the study commented, “Even though most respondents recognise the transformative potential of AI based pricing, adoption rates are significantly lagging behind. 53% of respondents reported an increase in profitability in 2022, despite inflation and significant market volatility, but as economic growth continues to stagnate, the use of AI will become critical for corporates to drive top line profitability.”

When asked why this might be, the research study found that 53% of companies do not believe their internal data is mature enough for AI-based pricing, in terms of quality and quantity. At the same time, just 37% actively said they believed their data is strong enough for AI pricing. This means companies are unable to benefit from a practice that can help maximise margins at a time when they are facing headwinds from inflation, volatile market conditions and fluctuating customer loyalty.  

At the same time only 27% of companies believe that their IT infrastructure is sufficiently mature for AI based pricing. Meanwhile, 67% said their IT infrastructure is not mature enough for AI based pricing, further holding them back from its deployment. This led leaders to cite a number of risks which they thought their dodgy data and antiquated IT systems might invoke – with 34% suggesting there would be a lack of internal understanding of the technology, 13% pointing to high maintenance costs, and 11% noting compliance and regulatory issues.

Zatta added, “AI pricing capitalises on machine learning and data analytics techniques to analyse large volumes of data, making pricing decisions that maximise profits, spur revenue growth or fulfil other objectives, such as increasing market share or customer satisfaction. Data quality and IT architecture are seen as the biggest inhibitors to AI-based pricing adoption, but as with any data initiative, organisations need to start with small, pilot projects –– the perceived enormity of big data projects often puts organisations off. It’s pricing and data evolution, not revolution. But time is off the essence in the AI pricing game and corporates need to move as quickly as their competitors if they want to benefit.”