THE SOFTWARE BEHIND RETAIL PRICING: ONLINE, GAS STATIONS, HIGH TURN BUSINESS WITH FLUCTUATING PRICES

Posted on May 9, 2017

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WSJ: “One recent afternoon at a Shell-branded station on the outskirts of this Dutch city, the price of a gallon of unleaded gas started ticking higher, rising more than 3½ cents by closing time. A little later, a competing station 3 miles down the road raised its price about the same amount.
The two stations are among thousands of companies that use artificial-intelligence software to set prices. In doing so, they are testing a fundamental precept of the market economy.”

The artificial intelligence software, commonly referred to as A.I., learns it’s retailer’s market and designs pricing to best benefit that retailer. Prices are kept low at times to not lose customers and increased when the prospects are willing to pay more.

The online retailers went with this pricing, imagine the benefits for a company such as Amazon. While online, with all of that information available, they can propose matching products as you shop or close out. The retailers keep the information and send those offers after your sale.

The problem with the pricing was low margins, everyone followed everybody up and down the pricing ladder. How does high turn volume business eliminate starving profits? A company developed a2i software which monitored real time data not focused specifically on pricing.

“One client called to complain the software was malfunctioning. A competitor across the street had slashed prices in a promotion, but the algorithm responded by raising prices. There wasn’t a bug. Instead, the software was monitoring the real-time data and saw an influx of customers, presumably because of the long wait across the street.”

This retailer increased margins with better service instead lowering prices.

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WSJ: Why Do Gas Station Prices Constantly Change? Blame the Algorithm

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