Pricing Strategies of AI-enabled and Regular Products

At present, the trend of artificial intelligence (AI) for product innovation is becoming widespread, and many manufacturers enhance their products with AI. In the process of AI-enabled product production and sales, manufacturers must make decisions on not only the retail prices of AI-enabled products but also whether to reprice their original products. This study investigates the optimal decisions for manufacturers, considering the degree of consumers’ AI preference and the substitutability of the two products. We find that manufacturers often need to reprice their regular products after launching AI-enabled products to gain maximum benefits. In addition, this study also explores the impact of price sensitivity and cross-price sensitivity on the manufacturer’s optimal pricing decisions. The results of numerical analyses yield managerial implications for product manufacturers engaged in AI enhancement.