Harvard Case - PittaRosso: Artificial Intelligence-Driven Pricing and Promotion
"PittaRosso: Artificial Intelligence-Driven Pricing and Promotion" Harvard business case study is written by Ayelet Israeli. It deals with the challenges in the field of Marketing. The case study is 6 page(s) long and it was first published on : Oct 4, 2021
At Fern Fort University, we recommend that PittaRosso implement a multi-pronged strategy leveraging AI-driven pricing and promotion, coupled with a robust marketing campaign to capture market share and drive sustainable growth. This strategy will focus on enhancing customer experience, optimizing pricing strategies, and expanding into new markets while maintaining brand integrity and profitability.
2. Background
PittaRosso, a leading Italian footwear retailer, is facing a competitive landscape with online giants like Amazon and Zalando encroaching on its market share. The company is seeking to leverage AI and machine learning to optimize pricing and promotions, enhance customer experience, and drive growth. The case study highlights the company's existing data infrastructure and its desire to implement a data-driven approach to decision-making.
The main protagonists of the case study are:
- Marco Bonetti: CEO of PittaRosso, seeking to leverage technology for competitive advantage.
- Luca Rossi: Head of IT, responsible for implementing the AI-driven pricing and promotion system.
- The PittaRosso team: The marketing, sales, and operations teams who will be impacted by the new system.
3. Analysis of the Case Study
To analyze PittaRosso's situation, we will utilize a framework combining SWOT Analysis and PESTEL Analysis to identify key internal and external factors influencing the company's strategic decisions.
SWOT Analysis:
Strengths:
- Strong brand recognition and loyalty: PittaRosso enjoys a strong brand reputation in Italy, built over decades.
- Extensive retail network: The company has a wide network of physical stores, providing a strong physical presence.
- Data-driven approach: PittaRosso has a robust data infrastructure, enabling it to leverage AI and machine learning.
- Experienced team: The company boasts a team with experience in the footwear industry and retail operations.
Weaknesses:
- Competition from online retailers: Amazon and Zalando pose a significant threat to PittaRosso's market share.
- Limited online presence: PittaRosso's online presence needs further development to compete effectively in the digital space.
- Lack of data analysis expertise: While the company has data, it may lack the in-house expertise to fully leverage its potential.
- Limited international presence: PittaRosso's focus on the Italian market limits its growth potential.
Opportunities:
- Leveraging AI for pricing and promotion: AI can optimize pricing strategies and personalize promotions, increasing profitability.
- Expanding online presence: Developing a robust online platform and e-commerce capabilities can attract new customers.
- Entering new markets: Expanding into international markets can unlock significant growth opportunities.
- Building a stronger customer relationship: Leveraging data to personalize customer experiences can enhance loyalty.
Threats:
- Increased competition: The footwear market is becoming increasingly competitive, with new players emerging.
- Economic uncertainty: Economic downturns can impact consumer spending and affect sales.
- Technological disruptions: New technologies and business models could disrupt the retail industry.
- Data privacy concerns: Data security and privacy regulations could limit the use of customer data.
PESTEL Analysis:
- Political: Government regulations and policies related to data privacy, online commerce, and trade agreements can impact PittaRosso's operations.
- Economic: Economic growth, inflation, and consumer confidence levels influence consumer spending patterns.
- Social: Changing consumer preferences, lifestyle trends, and increasing demand for sustainable products impact product development and marketing strategies.
- Technological: Advancements in AI, e-commerce, and mobile technology offer opportunities and challenges for PittaRosso.
- Environmental: Sustainability concerns and environmental regulations influence product sourcing and manufacturing processes.
- Legal: Data privacy laws, intellectual property rights, and consumer protection regulations impact business operations.
4. Recommendations
1. AI-Driven Pricing and Promotion Strategy:
- Implement a dynamic pricing system: Leverage AI to adjust prices in real-time based on factors like demand, competitor pricing, and inventory levels.
- Personalize promotions: Utilize customer data to tailor promotions and offers based on individual preferences and purchase history.
- Optimize inventory management: AI can predict demand and optimize inventory levels, reducing waste and maximizing profitability.
- Analyze customer behavior: Track customer interactions and purchase patterns to identify trends and personalize marketing efforts.
2. Enhanced Customer Experience:
- Develop a seamless online shopping experience: Invest in a user-friendly website and mobile app, offering a wide selection of products, secure payment options, and convenient delivery services.
- Offer personalized recommendations: Utilize AI to provide personalized product suggestions based on customer preferences and browsing history.
- Improve customer service: Implement AI-powered chatbots and virtual assistants to provide instant support and answer customer queries.
- Build a loyalty program: Reward loyal customers with exclusive discounts, early access to new products, and personalized experiences.
3. Market Expansion:
- Expand into new international markets: Identify promising markets with high growth potential and adapt products and marketing strategies to local preferences.
- Develop strategic partnerships: Collaborate with local retailers, distributors, and influencers to gain market access and build brand awareness.
- Leverage digital marketing channels: Utilize social media, search engine optimization (SEO), and online advertising to reach new customers in international markets.
4. Brand Management and Marketing:
- Reinforce brand positioning: Communicate PittaRosso's core values, heritage, and commitment to quality and style through consistent branding across all channels.
- Develop engaging content: Create compelling content, including videos, blog posts, and social media updates, to showcase products, brand values, and customer experiences.
- Leverage influencer marketing: Partner with relevant influencers to reach target audiences and build brand awareness.
- Run targeted advertising campaigns: Utilize data-driven marketing strategies to target specific customer segments with relevant advertising messages.
5. Basis of Recommendations
The recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with PittaRosso's core competencies in retail operations, brand management, and customer service, while also supporting the company's mission to provide high-quality footwear and exceptional customer experiences.
- External customers and internal clients: The recommendations focus on enhancing customer experience, addressing the needs of both existing and potential customers, while also empowering internal teams with the tools and data they need to succeed.
- Competitors: The recommendations address the competitive threats posed by online retailers like Amazon and Zalando by leveraging AI and digital marketing strategies to enhance online presence and customer experience.
- Attractiveness: The recommendations are expected to improve profitability by optimizing pricing, reducing inventory waste, and driving sales growth through targeted marketing and market expansion.
6. Conclusion
By implementing these recommendations, PittaRosso can leverage AI and data-driven strategies to enhance customer experience, optimize pricing and promotions, and expand into new markets. This will enable the company to maintain its market leadership, compete effectively with online giants, and achieve sustainable growth.
7. Discussion
Alternatives not selected:
- Focusing solely on price competition: While price competition can attract price-sensitive customers, it can also erode brand value and profitability.
- Ignoring the online market: Ignoring the online market would be a strategic mistake, as online retailers are rapidly gaining market share.
- Adopting a purely digital strategy: While digital channels are crucial, PittaRosso's physical store network remains a valuable asset and should be integrated into the overall strategy.
Risks and key assumptions:
- Data privacy concerns: PittaRosso must ensure compliance with data privacy regulations and maintain customer trust.
- Technological advancements: The rapid pace of technological advancements requires ongoing investment and adaptation.
- Consumer behavior changes: PittaRosso must continuously monitor and adapt to evolving consumer preferences and market trends.
8. Next Steps
Timeline:
- Phase 1 (6 months): Implement AI-driven pricing and promotion system, enhance online shopping experience, and launch a loyalty program.
- Phase 2 (12 months): Expand into new international markets, develop strategic partnerships, and launch targeted advertising campaigns.
- Phase 3 (18 months): Continuously monitor and adapt strategies based on data analysis and market feedback.
Key milestones:
- Launch of AI-driven pricing and promotion system: Within 3 months.
- Launch of new online platform: Within 6 months.
- Expansion into first international market: Within 12 months.
- Launch of influencer marketing campaign: Within 18 months.
By following these recommendations and milestones, PittaRosso can successfully navigate the evolving retail landscape, leverage the power of AI and data, and achieve sustainable growth.
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Case Description
PittaRosso, a traditional Italian shoe retailer, is implementing an AI system to provide pricing and promotion recommendations. The system allows them to implement changes that would affect both the top of funnel and bottom of funnel activities for the company: once the objective function was defined, they could plan the season and choose which products to markdown and by how much, which additional promotions to apply and when, and how much to spend on online marketing. But what was the right objective function? Should they focus on revenues, margins, or the sell through of older inventory? Each department had different views. The case supplement spreadsheet contains a simplified version of the AI system to allow students to examine the effect of different strategic and tactical decisions and make data informed choices and arguments, in addition to the information provided in the case.
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