Artificially Intelligent Pricing

http://blog.vendoservices.com/vendo-blog/2015/08/20/artificially-intelligent-pricing

watson_on_jeopardy

There’s a lot of talk these days about the dangers of Artificial Intelligence (AI). Elon Musk and Stephen Hawking fear that AI will eventually destroy us and have written an open letter¹ to call for rules to govern AI. You can sign it, too (I did). The kind of AI they are talking about is military. It’s related to future Artificial General Intelligence, or AGI.

AGI shows up in movies as the Terminator or HAL in 2001 or the girl in Ex Machina. It doesn’t exist yet. It’s science fiction. No one knows when, or if, it will exist. We’re not sure what the consequences will be so we are playing out imagined scenarios in our books, tv shows and movies.

Artificial Narrow Intelligence, however, is here. It’s all around us. The definition of AI is: “a system that perceives its environment and takes actions that maximize its chances of success.” It powers the self-driving car that drives better than any human. It took the form of Watson to beat the best players on the game show Jeopardy! (see photo above). IBM’s Deep Blue beat the best chess player in 1997. What did that IBM machine do for its next trick? United Airlines bought it and put it to work pricing airline seats. Today AI drives Google’s search, Netflix’s recommendations and the pricing decisions of every major ecommerce retailer (ex. Amazon) and hotel chain (ex. Marriott) and airline (ex. United, of course).

The advantage of AI is simple. It does certain things much better than humans. At Vendo we’ve spent years developing our pricing AI. It analyzes and acts on hundreds of millions of interactions to give each new visitor the best price for him or her. The best price is the one that generates the most revenue.

In contrast, a human approach to pricing is the following: 1. Look at what everyone else is doing 2. (maybe) A/B split test with major groups of people (ex. people who live in the US) 3. Offer a few discounts here and there. But where is the feedback loop? How could a human brain possibly calculate the impact on revenue (conversion and lifetime value) of each pricing decision? And how could it take into account all of the interacting factors at play each time there is a new visitor?

The costs of not using AI pricing are high. If you show the wrong price the visitor won’t buy…or will spend less than he/she would have. Pricing is one of those things that is simply beyond human intelligence. Airline, hospitality and ecommerce leaders have known this for years. That’s why AI is in charge of their pricing.

Will AGI arrive? Some really smart people like Kevin Kelley, co-founder of Wired, think its a myth that a computer can gain consciousness. But Artificial Narrow Intelligence is already here and its a powerful tool that too many companies haven’t been able to access. At Vendo we’re bringing AI to companies that have been missing out on the revolution.

What are your thoughts on AI? Do you welcome or fear AGI? How is ANI present in your life?

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1. http://tinyurl.com/awletter

4 thoughts on “Artificially Intelligent Pricing

  1. Could be a reality, every day the human person depends more of the AI , if you have a perskn who talk in spanish could traduce this. El ser humano cada dia depende mas de la Inteligencia Artificial y lamentablemente existen las personas que quieren hacer daño a otras y no se si esta preparado el ser humano para ganarle a la inteligencia artificial, ya perdieron dos batallas los del ajedrez contra las maquinas.

  2. This is one of my favorite topics and one of my favorite projects all rolled in to one. 🙂 We’re working on an episode of the Vendo Terrace podcast for a deeper dive.

  3. Well said. Join the revolution! It is too powerful to ignore. For the people that want to spend less you have a chance to get the sale. For the people who would happily spend more based on different factors you get more profit. Winning.

    • I think revolution is the right word. Industrial revolution, Information revolution and now AI revolution. It’s changing everything.

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