Y Combinator-backed Luca aims to optimize retail prices at enterprise scale
Luca, a startup building price planning and prediction tools for retailers, today announced that it closed a $2.5 million seed round led by Menlo Ventures with participation from Y Combinator (Luca was in Y Combinator's winter 2023 class), Soma Capital and angel investors.
Luca was co-founded by Tanvi Surti and Yonah Mann, who worked together on Uber's dynamic pricing team. Mann was focused on Uber Eats pricing, while Surti led the UberPool pricing group.
"During my time on the Pool team in 2019, the business had bad unit economics," Surti told TechCrunch in an email interview. "Uber was on the verge of an IPO, and I was responsible for getting the unit economics working by reconfiguring Uber Pool’s pricing algorithm. In ten months, we succeeded in plugging a massive hole in Uber’s profit and loss using pricing tech. That got us thinking."
Surti describes Luca as a "pricing co-pilot for enterprise retailers." In plain English, it's a platform that taps AI to identify revenue and margin headroom, make recommendations for price adjustments and measure the outcomes.
"Pricing strategy is one of the most powerful levers that retailers have to create margin and revenue growth, yet most retail pricing teams are often shooting in the dark," Surti said. "Retail pricing teams have to incorporate large volumes of data from multiple channels to build a strategy -- sales history, market trends, competitor price changes and inventory availability. They have to do this across tens of thousands of SKUs and multiple stakeholders."
The need -- and the massive addressable market -- sowed the seeds for a number of pricing optimization and planning startups. Pricefx, one of the more successful vendors, has raised tens of millions for its algorithmic pricing software designed for software-as-a-service businesses. Fetcherr, which focuses on pricing adjustment for the airline industry, recently landed a $12.5 million equity investment.
Luca's platform attempts to optimize retail prices using historical data and other signals. Image Credits: Luca
Luca's differentiation, ostensibly, lies in its pricing engine, which takes in retailers' historical sales and inventory data as well as competitor signals to forecast the sales performance of products at different price points. Once its pricing recommendations are approved, Luca keeps tabs on sales volume, looking out for undesirable trends.
"Unlike some other players in this space, we are not a dynamic pricing company. We just don’t think that’s the right user experience for retail -- yet," Surti said. "Our solution is complementary to the human decision maker and our goal is to provide humans with decision making superpowers by turning a sea of data into clear recommendations, with high levels of explainability."
It's early days for Luca in terms of customer acquisition -- the startup's only worked with eight brands so far. But Surti claims that two brands that have shown interest are Fortune 500 retailers.
"Post pandemic, most retailers are feeling growth and margin pressures due to higher customer acquisition costs, reduced consumer spending and rising interest rates," Surti said. "Most retail software-as-a-service tooling out there rarely directly impacts business metrics, whereas retail executives we’ve interviewed are actively looking for revenue optimization opportunities ... That’s where we come in – our solution creates direct and measurable business value."
The seed funding will be put toward expanding Luca's engineering and data science teams, he added.