Catching Up with Prof. Oliver Roll: AI, Inflation, and the Evolution of Pricing Strategies
A frank chat with the renowned business admin prof and management consultant on the ripple effects of AI, Trump, and the 2022 inflation surge on today's pricing tactics
"Costs are increasingly adapting in real time"
Recent inflation waves, particularly those seen in 2022, have radically reshaped corporate pricing approaches, asserts Professor Oliver Roll, business administration whiz and founder of R&P, a leading management consulting firm.
Martin Pirkl, Frankfurt
The years 2022 and 2023 saw a significant surge in inflation, leaving an indelible mark on German businesses. Many companies, primarily in the B2B sector, used to revise their pricing strategies annually. However, in recent times, they've found themselves making adjustments more frequently due to escalating costs, as per Roll, a business administration and international marketing savant at the University of Osnabrück. "The unprecedented cost hikes have pressured businesses to revisit their pricing regularly," notes Roll. "This trend of pricing agility is here to stay."
Despite the ECB's concerns, Roll suggests that we are unlikely to see drastic volatility in inflation rates. However, the increased frequency in price adjustments might expedite the transmission of monetary policy, i.e., the reflection of key interest rate changes in the economy.
Dynamic Pricing Goes Mainstream
Coinciding with this flexible pricing trend is the widespread adoption of dynamic pricing, Roll adds. Once popular in sectors like transportation, today more industries are experimenting with this approach, such as container prices, the transport sector, and e-commerce retailers. Some retailers even factor in weather conditions when setting prices, as rainy days tend to increase online shopping demand. "Welcome to a world where prices are becoming increasingly fluid," remarks Roll.
This dynamic pricing revolution owes much to the burgeoning use of AI in commerce. After analyzing voluminous data, AI processes information in near real-time and incorporates it into pricing strategies. Yet, Roll points out that this space is still in its infancy. As AI tech evolves, it's expected to become integral for an increasing number of companies. "It will be pivotal for companies to retain manual control over AI-generated prices, ensuring they comprehend the pricing logic behind it," explains Roll.
Wage Growth and the Inflation Engine
Looking ahead to 2024, wage growth is anticipated to remain a primary driver of inflation, but at a reduced rate. Roll believes the labor market will experience a cooling-off phase, citing numerous reports of job cuts across large corporations like SAP, Deutsche Bahn, and Volkswagen. Consequently, substantial wage hikes in collective agreements may decline, potentially impacting non-unionized companies as well. "The repercussions of collective bargaining negotiations resonate throughout industries," says Roll.
2025 may see another inflationary factor: tariffs retaliatory to US tariffs by the EU. Companies are likely to pass these tariffs on to consumers, according to Roll.
Economic Downturn Curbs Price Hikes
Besides the aforementioned factors, inflation control depends on negative sentiment surrounding the German economy, inflationary expectations, and sector-specific trends. "Inflation expectations from central banks and overall economic outlook indicators play a role in companies' sales forecasts," explains Roll. Factored together with production cost forecasts, these projections influence corporate pricing decisions.
Making credible forecasts, however, isn't always straightforward. Overestimating price increases could lower demand, leading companies to employ alternative strategies like promotions or added features to revive sales, rather than rolling back price hikes to avoid appearing indecisive.
- Professor Oliver Roll, an expert in business administration and founder of R&P, asserts that the radical reshaping of corporate pricing approaches in 2022, due to inflation, is a trend that will persist.
- In light of the increased frequency in price adjustments, Roll suggests that the transmission of monetary policy may become more expedient, given the widespread adoption of dynamic pricing, particularly in sectors such as container prices, transport, and e-commerce retailers.
- Roll also anticipates that wage growth will remain a significant driver of inflation in 2024, but at a reduced rate, due to job cuts across large corporations like SAP, Deutsche Bahn, and Volkswagen, potentially leading to a decline in substantial wage hikes in collective agreements.
- In 2025, Retaliatory tariffs by the EU in response to US tariffs may lead companies to pass these tariffs on to consumers, according to Roll, although the economic downturn and inflationary expectations could curb price hikes.
