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  • Harvard Business Review

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

By: Marco Bertini and Oded Koenigsberg
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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.

Keywords

Algorithmic Pricing; Dynamic Pricing; Price; Change; Information Technology; Brands and Branding; Perception; Consumer Behavior

Citation

Bertini, Marco, and Oded Koenigsberg. "The Pitfalls of Pricing Algorithms: Be Mindful of How They Can Hurt Your Brand." Harvard Business Review 99, no. 5 (September–October 2021): 74–83.
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About The Author

Marco Bertini

Marketing
→More Publications

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More from the Authors
  • Carbon Footprinting and Pricing under Climate Concerns By: Marco Bertini, Stefan Buehler, Daniel Halbheer and Don Lehmann
  • Project Maji: Pricing Water in Sub-Saharan Africa By: Elie Ofek, Marco Bertini, Dilyana Karadzhova Botha and Esel Çekin
  • When It's Time to Expand Beyond the Base By: Marco Bertini and Nader Tavassoli
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