How Artificial Intelligence is Changing the Retail Game
Contrary to what Hollywood would have you believe, artificial intelligence (AI) isn’t going to take over the world.
We don’t have to worry about an army of rogue human-like robots descending on towns across the US.
While AI isn’t about to be used for world domination, it’s going to have a major impact on the business world, especially the efficiency and profitability of the retail industry.
In fact, it’s projected that AI will boost retail and wholesale profits by nearly 60% by 2035. And according to a study from Juniper Research, global retailer spending on AI will grow to $7.3 billion annually by 2022. That’s up from the estimated $2 billion spent this year.
So just how is AI impacting retail? Don’t worry, it’s a lot less scary than rogue robots.
What is AI
AI is a term that’s thrown around a lot, but what exactly does it refer to?
According to SAS, AI “makes it possible for machines to learn from experience, adjust to new inputs and perform human-like tasks. Using these technologies, computers can be trained to accomplish specific tasks by processing large amounts of data and recognizing patterns in the data.” It’s a broad field that includes various methods and technologies that serve different purposes.
While AI has become more well-known in recent years, the initial research behind it actually dates back to the 1950s. In the 1960s, the US Department of Defense took an interest in the research and began training computers to imitate basic human thinking.
Wondering what AI technology looks like nowadays? Well, chances are that you’ve used it a form of it today. Siri, Alexa, Netflix, and Nest thermostats are examples of AI.
AI is already being used in various industries including health care (with applications that can provide personalized medicine) and manufacturing (to analyze data and forecast expected loads).
When it comes to retail, the leading AI benefit is in self-learning algorithms. The algorithms keep learning from customer responses to information and can then improve the experience each time a customer interacts with a brand. And that evaluated interaction includes more than just a customer’s purchase history, it also looks at a customer’s response to targeted ads and promotions.
AI Uses in Retail
1) Personalization
Did you know that brands that use personalization strategies have seen sales increase by up to 10%?
The thing is, for any personalization strategy to work, it’s important to make sure recommendations are properly tailored. Mistargeted recommendations can have the same effect, or even worse, as having no personalization approach. Research from Accenture found that in 2016, 41% of US consumers switched companies due to poor personalization and a lack of trust, costing businesses $756 billion.
AI helps retailers enhance personalization by analyzing data to identify a customer’s trends and behaviors and then automating tailored product recommendations based on that information.
That means the right product is recommended to the right customer at the right time.
That’s because AI does a lot more than just look at the basic information of previous purchases, age, gender, and location. It gathers data on a customer’s real-time location, values, preferences, and purchase behaviors to determine actionable insights on each individual. AI can even figure out the best way to maintain engagement with a customer.
The technology can also be used to figure out regional trends, which lets retailers design different ecommerce sites that are specific to the preferences of customers in a particular country.
2) Sales Forecasting
No retail business wants to live in the past.
But that’s what happens when retailers rely solely on past experiences to determine future product demands. While historical data is useful, it’s no longer enough to provide a competitive advantage.
AI takes demand forecasting to the next level in terms of detail, speed, and accuracy.
Remember those learning algorithms mentioned earlier? In this case, they’re used to learn from customer habits and purchases, as well as various influences (like weather, performance of similar items, and online reviews) to help predict future demand and manage inventory.
Aside from better managing a supply chain to mitigate instances of overstocking or understocking, AI forecasting can boost a customer’s experience and overall loyalty to a brand by making sure in demand products are available.
Just think of the advantages that could provide for major shopping days like Thanksgiving weekend.
But that’s not all that AI can help predict. The technology is also being used by some companies to help forecast upcoming fashion trends by analyzing social media posts to determine popular fashions and allowing retailers to react well in advance.
3) Customer Service
Every retailer knows that customer service is crucial to the success of a company.
And customers who aren’t pleased with the service they receive from a company are increasingly showing their dissatisfaction by taking their business elsewhere. In 2017, 54% of customers stopped interacting with a company due to bad service, up from 49% in 2016. And one report found that US companies lost out on $75 billion in sales last year because of poor customer service.
But for those that get customer service right, 77% of shoppers would recommend a business after having a positive experience with it.
AI can help improve customer service with the use of chatbots, which work around the clock and can answer questions immediately. With chatbots, AI technology enables computers to understand human language and allows a machine to respond without human direction.
In fact, one study concluded that retail is going to be the most promising industry for chatbots. By 2023, it’s expected that more than 70% of chatbot use will be retail-based, with the technology contributing to $112 billion in ecommerce sales by the same year.
Aside from improving customer service response times, chatbots can help address staffing shortages due to the tight labor market and even contribute to solving the problem of mobile cart abandonment, which currently costs US online retailers $9 billion annually.
Retailers can even use the technology to reinforce their brand’s image by having chatbots outfitted with personality traits that reflect the company’s persona.
There’s no question about the advantages that AI offers the retail industry.
But it’s also no secret that those advantages currently come at a price that is uneconomical for the budgets of many small businesses. However, there is promise of future price tag relief; according to one study, the cost of AI will drop by 8% over the next four years.
That’s likely welcomed news for many retailers since it’s no longer a matter of if they should invest in AI tools, but when.
