Economic headwinds, geopolitical tensions and budget-conscious consumers are creating a perfect storm of uncertainty for retailers. In this high-stakes environment, a retailer’s traditional playbook for pricing and promotions is no longer sufficient. To thrive, retailers must find a more dynamic strategy that is deeply rooted in data, analytics and an unwavering focus on the customer.
As the Holidays Approach, Consumer Resiliency Wavers
Recent surveys suggest that consumer optimism is trending downward. This is likely to cast a shadow over the holiday season. According to PwC’s 2025 Holiday Outlook survey, consumers expect their seasonal spending to decline on average by 5% from 2024. More broadly, 84% expect to cut back over the next six months, citing rising prices, new tariffs and the higher cost of living.
Faced with muted demand, the retailers that succeed will be those that listen to their customers and price and promote accordingly. Adjusting for cost increases without alienating value-driven consumers requires surgical precision. This is where advanced analytics and AI come into play.
The Strategic Shift to AI-Driven Pricing
Traditional pricing methods, often relying on a combination of manual processes, spreadsheets and rules-based automation, simply cannot keep pace with the speed and complexity of a volatile retail market.
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That is because the factors influencing a single pricing decision are multifaceted and numerous. Beyond both simple and tariff-driven cost changes, a robust pricing model must consider a multitude of variables in real time. These include:
- Price families: How will a price change for one item impact other similarly priced products?
- National brand vs. private label: What is the optimal price gap between a national brand and its private-label counterpart?
- Competitive landscape: What are competitors doing, and how should you respond? The competition is no longer just down the street; it’s on consumers’ smartphones, and they can compare prices in an instant.
- Supply chain: What products are subject to supply chain challenges? How will pricing impact or influence your inventory position?
- Customer behavior: How does a price change affect other products in a customer’s basket? Does a promotion simply cause a “stock up” effect rather than drive new purchases?
AI, on the other hand, shines in helping retailers account for the factors noted above while finding an optimal balance between profitability and price image. At the core of an AI pricing solution is understanding what consumers want and how they will react to pricing moves. By analyzing sales data, retailers can determine the products their customers care about most and how those product preferences vary by customer segment, region, channel, etc.
Equipped with that knowledge, retailers can invest aggressively to offer highly attractive pricing where it counts the most. Conversely, retailers can pinpoint what items don’t drive price perception, and they can price those items less competitively to boost margin without hurting customer loyalty.
While a focus on price image and competitive positioning is nothing new in the world of retail pricing, as the cost of goods goes up, retailers’ margins go down and consumers get more price-sensitive; there’s less room for error in every pricing decision. AI pricing tools – and their predictive scenario modeling capabilities – also become highly instrumental in negotiations with vendors to minimize cost increases.
Promotions Planning Requires Data-Driven Maturity
Pricing and promotions are two sides of the same coin, both serving to shape a consumer’s perception of value.
Yet it’s generally understood that approximately two-thirds of retail promotions are ineffective, resulting in reduced profits, wasted labor and missed sales opportunities.
In terms of data-driven maturity, promotions planning often lags other areas of a retailer’s business. This will change as more retailers tap AI and predictive analytics to get a better handle on promotions planning, including leveraging scenario analysis tools that let them experiment with new promotions and anticipate the outcomes before those promotions launch. For instance, a 10% or 25% discount might drive better results than a 20% discount, depending on the specific product and market.
And just like with pricing, retailers that tighten the focus of promotions to reach targeted customers will yield better results. Instead of a scattershot approach, an analytically influenced promotions plan will profitably grow share while catering to the nuances of each customer segment, location and category.
The Future is Human-Centric AI Pricing
The retail industry is at a crossroads. The clear winners will be those that move beyond guesswork and static pricing practices to embrace a more scientific, data-driven framework. This is not about technology replacing human intuition but about using technology to solve complex mathematical problems faster and at scale. It’s about leveraging AI and analytics to synthesize thousands of factors at once to make better decisions for the business and, most importantly, for the customer.
By focusing on a human-centric approach that uses technology to truly “listen” to the customer’s needs, retailers can find the perfect balance between profit and value. This strategy not only helps them survive the current environment but also builds the long-term trust and loyalty needed to win in a market defined by permanent instability.
Matthew Pavich, Senior Director of Strategy and Innovation at Revionics, is a recognized expert in retail strategy, pricing and customer-focused solutions. With a deep merchant background and decades of experience in retail consulting, buying, pricing and marketing, he has a proven track record of navigating complex markets to drive profitable growth. Pavich is passionate about leveraging data-driven insights and innovative technology to develop strategies that not only optimize pricing but also build long-term customer loyalty.
