In today’s rapidly evolving business landscape, the synergy between Artificial Intelligence (AI), Decision Intelligence, and Digital Operating Model Transformation has become a key driver of success. Businesses that want to stay competitive and customer-centric must redefine their strategies enabled by the broad application of Artificial Intelligence in developing situational awareness and contextual intelligence.
We can find an excellent example of this transformative synergy from a success story shared by the Boston Consulting Group of a North American grocery retailer that integrated AI-based decision intelligence into a holistic pricing strategy and revamped operating model.
The Need for Holistic Approaches
Traditionally, businesses relied on rudimentary methods for pricing, often needing more intricate causal factors influencing customer behavior and market dynamics. Recognizing this, the North American grocery retailer embarked on a journey beyond conventional pricing strategies. They took a holistic approach that embraced AI-driven insights in their pricing decision intelligence and underwent a fundamental operating model transformation.
The Role of AI in Pricing Strategy
The retailer established the data and AI platform and incorporated massive amounts of data from their entire business ecosystem. The retailer developed an advanced pricing tool with a built-in demand forecasting capability that allowed for proactive adjustments ahead of the competition. The Pricing tool was integrated into the enterprise systems across all aspects of business – pricing, promotions, markdowns, and personalization.
The model was quite extensive, considering diverse factors such as localized consumer sensitivity, competitor data, and the elusive “magic price points “(ending with 7 or 9)
The model output was quite granular – It enabled the retailer to optimize prices at various granular levels-by, SKU, store, and channel-while accounting for the intricate interdependencies.
The technical scope was quite elaborate – setting up data platforms to integrate with the enterprise landscape.
But even after that, the technical effort was just 30% – developing AI-driven pricing tools and a comprehensive technology ecosystem.
What’s most interesting is the finding that 70% of the effort went into transforming business processes and capabilities – refining business processes, breaking silos, and redefining the pricing operating model.
The real return of effort and competitive advantage come from integrating the predictions and optimizations with pricing, promotions, marketing, and personalization strategy.
The results were significant a 2-5% sales lift in the first and a 4-5 % gross profit lift without raising average prices (selectively increasing and reducing prices in local contexts)
This case study showcases the immense potential of AI in pricing strategy but, most of all, the necessity to invest significant time and effort in transforming business processes and operating models.
Decision Intelligence: The Strategic Backbone
AI doesn’t operate in a vacuum; it requires intelligent decision-making. Decision Intelligence is the art of translating AI-driven insights into strategic actions that align with business goals. In the case of the grocery retailer, decision intelligence transformed raw AI outputs into a comprehensive pricing strategy that resonated with customers and positively impacted the bottom line.
It’s essential to note that decision intelligence is not limited to single-point decisions. It’s about weaving these decisions into a cohesive strategy, considering long-term implications and customer-centric perspectives. This holistic approach ensures that AI-driven insights align with the bigger picture, which, in this case, was to enhance customer value perception and drive sustainable profitability.
Operating Model Transformation: The Catalyst
While AI and decision intelligence provided the brainpower, the operating model transformation served as the catalyst to bring these concepts to life. It’s not enough to have groundbreaking insights if the existing processes and structures hinder their implementation. The retailer recognized this and undertook a fundamental overhaul of its pricing operating model.
Breaking down silos, streamlining collaboration between different teams (pricing, promotions, customer loyalty), and aligning the entire organization with the customer-centric value strategy were crucial components. The operating model transformation ensured that the AI-driven pricing tool seamlessly integrated into a broader “customer value engine,” optimizing all value levers.
Moreover, the integration with an advanced technology ecosystem played a pivotal role. This ecosystem encompassed supporting data and platform technology, creating a solid foundation for the AI-powered strategy. It ensured that the retailer’s pricing strategy wasn’t an isolated effort but part of a cohesive digital transformation.
The Path Forward: Fusing AI, Decision Intelligence, and Operating Model Transformation
The success story of the North American grocery retailer highlights the immense potential when AI, decision intelligence, and operating model transformation converge. It’s a paradigm that other businesses can learn from, especially as they navigate today’s complex and fast-paced environment.
Integrating AI with decision intelligence ensures that AI-driven insights are translated into strategic actions that align with business objectives. The operating model transformation ensures that these strategies can be effectively implemented, breaking down barriers, optimizing collaboration, and aligning the organization toward a common goal.
The need for such integration is not confined to pricing strategies alone. It extends to various facets of business, from customer experience optimization to supply chain management. As enterprises seek to innovate, remain agile, and thrive in an increasingly digital world, the synergy between AI, decision intelligence, and operating model transformation becomes an essential strategic imperative.
The North American grocery retailer’s success story underscores the value of this integrated approach. As businesses adapt, transform, and envision the path forward, they must recognize the interplay between AI, decision intelligence, and the operating model. This fusion holds the key to unlocking new frontiers of growth, customer satisfaction, and enduring competitive advantage. Let’s embrace this transformative synergy and shape a future where innovation thrives and businesses flourish.