Don’t Get Caught on the Wrong Side of the AI Divide
A growing chasm is cutting through the retail sector. Amazon.com and other retailers that are embracing artificial intelligence (AI) and omnichannel strategies are on one side. On the other side are businesses that are not investing in new technology and the future.
If members of the second group don’t get moving on AI fast, they'll be left teetering on the precipice — or worse, disappearing into the retail abyss.
Amazon hasn’t just set the bar; it is the bar. As we all know, that has changed the game for all of retail. A McKinsey & Co. report indicates that 35 percent of consumer purchases on Amazon come from AI-powered product recommendations. And that report was published back in 2013. Therefore, retailers that haven’t begun formulating their AI strategies are already late to the game.
The Time to Invest in AI Is Now
The pace of the retail game will only accelerate in the years ahead. That means retailers must embrace AI now to survive and thrive in an increasingly competitive marketplace.
Research suggests that’s what many retailers plan to do. Retailers around the world will invest $12 billion on AI services by 2023, Juniper Research says. That’s a 230 percent increase from 2019.
Juniper Research expects more than 325,000 retailers to contribute to that increase. In return, retailers will enjoy back-office efficiencies, better forecasting, greater agility and higher margins. And Gartner says that by 2023, most organizations using AI for digital commerce will achieve at least a 25 percent improvement in customer satisfaction, revenue or cost reduction.
AI Efforts Should Be Part of a Holistic, Omnichannel Strategy
Yet some retailers remain hesitant to embrace AI. That may be due to reports about others’ failures to gain expected financial results from AI. In one survey, 40 percent of companies said they had yet to report any business gains from AI. However, the same report indicates that AI “winners” view the technology strategically, not just as a point solution.
Buy-in on AI investments needs to come from the top. With the proper buy-in, and experienced technology and integration partners, retailers can reap the benefits of AI across their entire organizations — within their supply chains and both in-store and online.
Taking a holistic approach to AI also enables retailers to support omnichannel strategies. Omnichannel strategies enable retailers to meet customers where they are and deliver seamless experiences, whether they're shopping in-store or online. The omnichannel trend is illustrated by the fact that many formerly online-only businesses, including Amazon and Germany’s Mister Spex, have recently opened brick-and-mortar stores.
Presenting Shoppers With Optimal Search Results and Recommendations is One AI Benefit
AI and omnichannel strategies enable both digital-first and traditional retailers to combine data across their case management and CRM, logistics, point-of-sale, third-party segmentation, and mobile and CMS systems. AI solutions can stitch that data together to identify patterns that retailers can leverage to understand shopper behaviors, helping them to deliver the ideal product mix, assortment and pricing.
For example, AI enables better search results and recommendations to optimize outcomes for shoppers and retailers by using the clues customers provide during their interaction behavior and searches throughout their life cycles. That’s much more effective than what often happens with basic search.
One retailer that had not yet adopted AI recently learned that the vast majority of its website visitors who searched for a Samsung refrigerator were presented with washing machine hoses as their third search result. AI prevents such problems by understanding users’ intentions and predispositions for various items.
AI Also Can Figure Retailer Margins and Profits Into the Equation
AI goes beyond just personalization and customer understanding. The technology can also be used to consider and act on the interests of the retailer in search results and the offers it presents to shoppers.
Imagine that a shopper wanted to buy a bottle of Tokaji for less than $50. A sommelier would probably understand this request immediately, but a website might not. AI could use its understanding of the searcher and context to identify the fact that Tokaji is a sweet Hungarian wine. An AI system could also leverage other clues — e.g., whether the customer was in the Old World or New World section of an online or physical wine store — to provide the shopper with the optimal results and recommendations.
The AI solution also could base its recommendation on factors related to the retailer’s margins. For example, it could see that one variety of Tokaji had a high incidence of returns. With that information, it would avoid recommending that variety to prevent the retailer from having to absorb extra restocking and shipping costs.
As this example illustrates, AI allows for better and more efficient customer service. It’s also a means through which retailers can optimize pricing and offer presentation — without sacrificing profit for the opportunity to drive revenue. Retailers that prepare now for the AI-take-all economy will be best positioned for success today and well into the future.
Brian McGlynn is vice president of commerce at Coveo.
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