How UK businesses can protect revenue from inflation risks using AI

Justin Silver, PhD, AI Strategist at PROS, discusses how UK businesses can leverage artificial intelligence to mitigate the effects of potential inflation risks

As they navigate the easing of pandemic restrictions and embark on the road to recovery, UK businesses are facing new risks with the potential to undermine recovery efforts. One such risk is the UK rate of inflation, which has increased sharply in 2021 from 1.5% to 2.1% – the highest it has been for nearly two years. Businesses across many industries, especially in the travel sector, have already had to deal with major dips in demand, and now they are set to face a further challenge as inflation rises sharply against predicted waves of pent-up demand and trade complexities.

Inflation has a clear impact on pricing and revenue, affecting demand and the ability to accurately price within the market. While it is fundamentally a matter of supply and demand, inflation can be a maze that is difficult for businesses to navigate without proper strategy and tools at their disposal.

Challenges of accurate pricing

With changing legislation, border control and travel regulations, UK organisations will be challenged to accurately price products against fluctuating demand and inflation. Many industries have already started experiencing this challenge. For example, with semiconductor supply shortages battling rising demand for cars, automotive dealers are having to charge more, at inflated rates, even for used vehicles. Similarly, limitations on transporting products such as chemicals and food across borders have hampered businesses’ ability to keep their pricing relevant and accurate, particularly those who rely on manual pricing processes. Ultimately, this manual approach can open pricing teams up to errors and difficulties aligning pricing across the organisation from sales teams through to eCommerce leaders, further impacting the bottom line.

It is no secret that the cost of commodities is increasing, but how do you mitigate that? Across industries, cost-plus or markup tactics are no longer enough. While many businesses may focus on pushing for more revenue from the sales team or bolstering marketing campaigns, pricing is often an afterthought that could have a profound impact on business performance if done well. The ability to accurately forecast demand is essential and can help optimise price points, enabling businesses to stay ahead of the changing environment.

Utilising technology to protect against changes

Amongst such uncertainty, Artificial Intelligence (AI) enables businesses to adapt more nimbly to market changes like inflation rather than relying on cumbersome manual processes and reactive methods. In capturing complex data patterns from both proprietary and third-party historical data, AI can predict how consumer demand will respond to price changes. Product demand elasticity is not a static measure and needs to be captured systematically for businesses to keep their pricing relevant over time. Businesses that have thus far not turned to AI-based solutions are far more reactionary in their response to inflationary market conditions, leading to stale pricing that is unaligned across sales channels.

There are two key areas organisations need to focus on when it comes to pricing:

• Speed: Taking too long to complete pricing cycles can leave businesses behind market changes and lacking a competitive advantage.
• Accuracy: Unlocking the power of data can help businesses price their products accurately to capitalise on market opportunities.

AI-based pricing systems automate and support pricing decisions with a strategy that can balance multiple objectives – winning business, protecting profits, and keeping customers happy – even when there are disruptions in the market such as inflation. This will be crucial for businesses to remain flexible and agile in an ever-changing economic landscape, and to shore up their revenue for potential growth opportunities, as they navigate the post-pandemic world.

What happens next?

The rate of inflation will undoubtedly fluctuate in the coming years as UK economic recovery continues to take shape. The roaring twenties could be around the corner, but for the coming months at least, UK businesses need to remain alert to challenging market conditions. While consumer demand may be on the rise, accurate pricing will remain vital to staying competitive.

Having an adaptable pricing strategy and utilising the data available to them will help UK businesses navigate rising rates of inflation and an unpredictable climate to maintain and grow revenue. Utilising technology such as AI can help businesses better match competitors, protect the bottom line, and amplify their recovery efforts.