Maximize Results and Drive Sustainability in Fashion Retail with SAP and GK AIR Dynamic Pricing

[GK_AIR]

Retail is and has always been very volatile by its very nature. Today, maybe more than ever, retailers face constantly shifting consumer expectations, strong competitive pressure, and dynamic economic and technological changes. This also applies to fashion retail.  

Dynamic Pricing is a powerful opportunity to overcome these challenges to stay competitive and profitable. The AI solution GK AIR Dynamic Pricing is based on more than 25 years of experience in developing AI applications for the retail sector and is available in the SAP Store. The solution aggregates data through retailers' SAP Systems, creates forecast models, and automatically optimizes prices. The AI solution takes into account the complex interactions between price-determining factors (e.g. demand, competition, price sensitivity, weather). This blog article is about how GK AIR Dynamic Pricing brings retailers decisive advantages, especially in fashion retail. 
  
How to master the challenges in fashion retail with dynamic pricing 
Fashion retail presents specific challenges and opportunities in terms of pricing. Generally, this industry offers great potential for Dynamic Price Optimization because clothes are always needed, and the average margins are comparatively high. For these reasons alone, the use of AI methods for price optimization offers a great deal of scope and creates a large lever for profit potential. However, there are a few technical and strategic requirements that should be considered to get the most out of a dynamic pricing software solution. 

1. The life cycle of many items in a fashion assortment is relatively short - often only 4 to 6 months. In this short period of time, an item must be successfully launched, generate as much profit as possible in its peak season, and sell out in a timely (yet margin-efficient) manner to free up inventory for the next season. Take swimsuits, for example, a product that's often introduced early in the spring for a summer target, before warmer clothing replaces its inventory in the fall. The more excess inventory on the shelf and in the backroom in September, the less profitable a retailer will be and also, bad in terms of sustainability. This is why it is so important to adjust prices regularly and strategically. 

   How does dynamic pricing software support these needs? 

   • The solution offers various algorithmic methods for pricing all phases of the product life cycle. 
   • The solution allows for differentiated control of the optimization target (revenue, sales, profit, etc.) for each product life cycle phase and product group. 
   • The software can provide relevant, demand-driven pricing at least daily. 
   • By selling on time, retailers proactively reduce clothing waste and minimize the resulting losses.
2. Fashion assortments are typically both broad and deep. That is, they contain many different items and many variations of those items. Think about the number of dresses, skirts, pants, and shoes you see in a store - as well as the number of sizes and colors. This creates both technical and strategic requirements for dynamic pricing.

   What does dynamic price optimization software need to do? 

   • The solution must be able to handle master variants. This means that master and variants can be treated both as a relational unit (keyword: family pricing) and separately from each other - both in the algorithmic calculation of demand and in the final pricing. This is because women's running shoes in size 10 are likely to have different demand than size 7 and - if this is part of the strategy - may need to be priced in different increments. The pricing software must therefore be able to calculate and deliver differentiated master and variant prices. 
   • The solution must also have powerful tracking functionality to capture and process demand in detail at the variant level. This is the basis for sales forecasting and thus for optimal price control. 
   • The solution must be able to handle large and complex data volumes with high performance. On average, fashion assortments consist of 20,000 to 50,000 items, and when variants are included, this number increases to several million. A dynamic pricing solution must scale linearly to track demand for each item at the variant level, derive price elasticities and sales forecasts, and provide optimized prices. 
3. Promotions and marketing campaigns are an integral part of every fashion season and customer expectations. To be successful with promotions and above all not to give away too much profit potential, two things are crucial: retailers have to promote the right items to increase customer frequency and have to set the right prices for all non-promotional items. With this combination, promotions are highly successful because the promotion itself drives foot traffic and the Dynamic Pricing software keeps the margin on all other products at a stable, high level. In this way, retailers increase frequency, revenue and profit all at the same time. 

How can AI-based pricing software support marketing campaigns? 

• The solution should be able to suggest products for marketing campaigns that are relevant and timely for customers, for example, based on current demand. 
• The software should be quick and easy to control so that promotional products can be excluded from the algorithmic price calculation with just a few clicks. 
• The solution must be able to differentiate between promotions and "normal" buying behavior so that promotions do not lead to a reduction in the general price level. 

 
Basically, a dynamic price optimization software solution should fit into existing processes as seamlessly as possible. It should also leverage and complement the wealth of experience and knowledge of pricing managers, including highly complex data analysis and statistically valid decision support. The solution must be able to support existing pricing processes and optimize them to help retailers' business units achieve sustainable growth.  

 GK AIR Dynamic Pricing takes into account the complex interactions between the pricing influencing factors 

GK and SAP – a valuable partnership for retailers' success 

For more than ten years, SAP and GK Software's strategic partnership has continued to take the lead in the retail industry and aims to deliver innovative solutions that help customers to achieve sustainable growth and cost-effective transformation. An integral part of SAP's industry cloud initiative for the retail sector is among other GK solutions, GK AIR Dynamic Pricing. 

The AI solution is based on more than 25 years of experience in developing AI applications for the retail sector and can handle the challenges of fashion retail very well. 

Fashion retailers such as 11teamsports successfully use GK AIR Dynamic Pricing for their business.  

“Our price management has been very successful with GK AIR and we have decided to pursue this partnership over the long term. We have been impressed with the intelligence behind the pricing solution and the professional support on the part of the GK AIR project team,” says Tim Blümel, Director of Sales at 11teamsports. 

 To find out more, visit GK at the SAP Store.