The Pitfalls of Pricing Algorithms: Be Mindful of How They Can Hurt Your Brand

Bertini, M and Koenigsberg, O (2021) The Pitfalls of Pricing Algorithms: Be Mindful of How They Can Hurt Your Brand. Harvard Business Review, 99 (5). pp. 74-83. ISSN 0017-8012

Abstract

More and more companies are relying on pricing algorithms to maximize profits. The use of artificial intelligence and machine learning enables real-time price adjustments based on supply and demand, competitors’ activities, delivery schedules, and so forth. But constant price shifts have a downside: They may trigger unfavorable perceptions of a firm’s offerings and its brand. It’s vital, therefore, to understand and manage the signals being sent by the algorithms. The authors offer real-world examples of companies that have succeeded in this endeavor and others that have not. And they recommend four steps to avoid harm: Determine an appropriate use case for algorithmic pricing and explain its benefits to customers; designate an owner to supervise and be accountable for the system; set and monitor guardrails, both to protect against wild surges and to learn how price changes affect all aspects of the organization; and override the algorithms when necessary.