Why it matters:
- Consumers have become more cautious in their spending, forcing retailers and brands to price more strategically.
- Both generative artificial intelligence and agentic AI applications are helping retailers optimize their pricing strategies.
- Merchants like Amazon and Target are extending their promotional discounting periods to drive sales gains, just as AI is helping brands and retailers determine whether they might be better served by raising the price of a product, experts said.
Amid ongoing inflation and economic uncertainty, consumers are increasingly cautious about their spending, especially when it comes to discretionary purchases.
As a result, brands and retailers are leveraging AI and making other strategic pricing maneuvers, navigating shifting tariff pressures and other costs to focus on getting the best possible deals for these discerning shoppers.
“I think retailers that are really focused on price perception are winning [market] share,” said Matt Pavich, Senior Director, Strategy and Innovation at price optimization platform Revionics, an Aptos Company. “Now is definitely the time to be an advocate for your consumer.”
A new campaign from supermarket chain Save Mart, for example, reflects the price-conscious nature of its shoppers. The company, which operates under multiple banners in California and Nevada, is rolling out what it calls its Right By You “affordability promise,” a multifaceted initiative that includes sharp price discounts — up to 50% on some meat and produce items, new private-label products, and special discounts for active members of the U.S. military. It also introduced free delivery (for orders of $35 or more) through the rest of the year and new buy now, pay later options on its website.
“We're meeting people where they are with solutions that actually help,” said Jim Perkins, President of The Save Mart Companies.
The campaign reflects some of the pricing trends that Pavich said he’s seeing in the marketplace, such as the addition of more private-label products and the rollout of longer-lasting promotions.
Retailers extend the duration of their promotional periods to boost sales
Amazon had a four-day Prime Day sale this past summer, doubling the time from the two-day sale period of previous years. This resulted in a significant increase in sales, according to reports. The company also rolled out additional promotions before its two-day fall sales event in October, effectively giving consumers more time to capitalize on discounted merchandise.
Likewise, Target followed its annual Circle Week Sale in October with a series of promotions, including launching its Holiday Price Match Guarantee a week earlier than last year. That promotion promises that if consumers buy an item from Target after Nov. 1 and the price goes down by Dec. 24, they pay the reduced price.
“We’re seeing an increase in promotions as retailers are raising their prices due to tariffs,” said Pavich, although he cautioned that retailers still need to apply pricing analytics to their promotional efforts to ensure they are discounting the right items.
Tariffs drive brands to alternative sourcing solutions and tap deeper data insights to maximize price performance
The ever-changing tariff environment poses serious challenges for brands and retailers who need to know what their costs are in order to set their pricing and determine their profit margins.
One way that retailers are battling these cost increases is through negotiations with their suppliers, at times persuading them to reduce their prices and accept lower margins in return for higher sales volumes.
“A lot of the vendors are hurting, too, because their costs are going up,” said Pavich. “So, having the analytical tools to find win-wins is powerful.”
Retailers also need to conduct analyses to determine how to optimize their prices by individual store or region, to ensure that they are maximizing their margins in areas where prices might be a little more elastic, for example.
Retailers are also looking to source from alternative countries, for example, to avoid the high tariffs on other countries, said Bashak Ilhan, Founder and CEO of Road, which provides support for international brands seeking to offer products through U.S. retailers.
“If the tariff numbers are really high for China and India, it’s an opportunity for countries like Turkey or other countries where the tariffs are not as [steep],” she said.
[Read more: BNPL Leaders Fuel Growth with Tech-Driven Financial Services for Consumers and Businesses]
AI is getting faster, smarter, more scalable, more [extendable], and able to solve more challenges,” he said, citing the ability to optimize prices for new items that have limited sales history, for example.
Trend toward smaller brands adds leverage for retailers
Another key trend is consumer interest in smaller independent brands, reflected in everything from local coffee shops to shoes and apparel. This can provide some pricing leverage for retailers seeking to negotiate better deals from larger brands.
“Young consumers in particular are gravitating to brands that offer unique or artisanal products rather than [mainstream] brands,” said Ilhan. “They like the brands that have a story behind them. They want to support the founders of these companies instead of buying the big labels.”
Sustainability and quality are also important considerations for these consumers.
A recent McKinsey report noted that smaller CPG (consumer packaged goods) brands had been gaining share rapidly before the pandemic, although their growth plateaued amid the post-pandemic price inflation.
“The explosion of small brands has effectively paused, but the underlying drivers of consumer preferences for ‘special, different and authentic’ remain in place,” the report said.
The trend toward smaller brands could give retailers more bargaining power when negotiating prices with the larger brands, said Pavich.
“I think that is going to give some leverage to retailers as they look to negotiate better deals with their vendors moving forward,” he said. “It’s always good to have multiple vendors to consider, because then you can advocate for more funding and better promotions, and then you can win and your customers can win.”
Gen AI and AI agents add to pricing optimization success
While AI has long been used in pricing optimization, it’s becoming more sophisticated and has the capability to do more complex analytics, said Pavich.
“AI is getting faster, smarter, more scalable, more [extendable], and able to solve more challenges,” he said, citing the ability to optimize prices for new items that have limited sales history, for example.
The emergence of generative AI during the last few years has added new dimensions to the pricing capabilities of brands and retailers.
“What gen AI has done is made all of that AI more accessible for the end user,” said Pavich. “It's created efficiencies.”
With generative AI, retailers and brands can ask questions in real human language, such as which products would be best to offer at a discounted price.
The next evolution in AI will be in the use of agents that perform specific tasks, said Pavich. Agents will be able to break complex tasks down into smaller, more manageable tasks, he said.
A recent report from Forrester cited the increasing levels of automation and enterprise integration that agentic AI can deliver for retailers.
“In a retail context, while a predictive analytics system might forecast seasonal demand patterns, agentic AI could autonomously adjust inventory levels, modify pricing strategies, and coordinate with suppliers to optimize the entire supply chain ecosystem,” the report said. “This demonstrates a level of operational intelligence that goes far beyond mere prediction to act, plan, and adapt.”
[Read more: How Brands Are Using AI to Optimize Digital Out-of-Home Advertising]
Reverse psychology adds twist to dynamic pricing ‘that’s been working’
Data analytics and AI are also driving the increased use of dynamic pricing, in which prices change based on shoppers’ activity and other factors.
Traditionally, shoppers who browse an item online repeatedly might see an offer for the item at a discounted price, according to Road’s Ilhan. However, AI is increasingly using analytics to determine whether a retailer or brand might be better served by actually increasing the price as the shopper browses it again and again, she said.
“If you see the item at a discount and you don’t purchase it right away but then you see the price increasing, you say, ‘Oh, I want to buy it,’” before the price goes up even more, she said.
“This is reverse psychology that’s been working, and AI does that,” said Ilhan.
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