3 Benefits of Halo Sales

When consumers shop, you can usually tell what activity or event they’re shopping for. For instance, a shopper with a couple of steaks, a few bags of chips, salad mixings and a set of tongs is almost certainly shopping for a backyard barbecue. A department store shopper with several shirts, jeans and socks along with three-ring binders, filler paper, markers and pencils in her cart is more than likely doing her back-to-school shopping. These are both situations where the consumer is shopping for an event or activity.

For retailers, one of the biggest challenges is knowing what products to promote. It's not simply a matter of selecting products that consumers want to purchase, but promoting products that drive sales of products related to other items (associated with an event or activity) with higher margins, otherwise known as "halo sales."

For instance, in the examples above, the steaks and jeans were likely on sale (or should have been), which in turn led shoppers to add other associated (higher margin) items to their carts. When executed effectively, the halo effect of promoting certain products has helped leading retailers increase sales by 5 percent and more than double net profits.

Advancements in technology have been integral in creating new opportunities for retailers to boost their halo sales effect, particularly artificial intelligence (AI) technology based on reinforcement learning (RL). RL is a type of machine learning technique that enables an agent to “learn” in an interactive environment by trial and error using feedback from its own actions and experiences. Using a retailer’s big data, RL-based AI can simulate a massive number of promotion what-if scenarios, analyzing and simulating the complex interactions between products using data on price and product elasticity, demographics, weather, and socio-economic conditions, to help retailers identify the best promotion options. It's a far more effective way to approach it than humans could ever do without AI.

While there are more and more new technologies available, any new addition to a retailer’s technology stack must drive better business outcomes. Keep these three benefits in mind as you explore new ways to amplify the halo effect for your business:

1. Higher Sales and Profits: When powered by AI, the halo should make the invisible visible. Retailers need to uncover which products will drive sales of related, higher-margin products. Ground beef, for example, drives sales of pasta, cheese, tomato sauce, and bread. AI with RL proves that. Without AI and data-driven insight, merchants rely on a combination of gut feel, intuition, and what was promoted last year to make promotion selections, when they should be using data, math and science to capitalize on the powerful relationships between products.
2. An Improved Customer Experience: Retailers that embrace AI and the halo sales effect become more effective in anticipating and meeting the needs of their customers, and as a result, manage their supply chain much more effectively. By analyzing transaction data, retailers promote the right products that attract customers — and keep them coming back in an increasingly competitive landscape.
3. Cost and Operational Optimization: A retailer that understands what drives halo sales is better at managing inventories and stocking only what will lead to purchases. This is an effective way to minimize waste, streamline operations, and avoid stock-outs and excess inventory.

Embracing and boosting the halo sales effect by leveraging RL-based AI gives retailers a serious competitive advantage. It eliminates the guesswork and gut feel, and replaces it with data-driven promotion insight. In today’s competitive marketplace, it’s a must-have in terms of technical capabilities. Without it, retailers will be left far behind their competition.

Gary Saarenvirta is founder and CEO of Daisy Intelligence, an AI-powered platform for retail and insurance.