Generative AI is getting significant traction as traditional retailers start to adopt the technology to enhance productivity, efficiency and decision-making. Given its various applications, AI can be used across a range of industries, and large retailers across sectors are starting to pay closer attention to how it can considerably improve operations and provide long-term competitive and structural advantage. With retailers facing higher costs, supply chain issues and a need to constantly provide the best customer experience, here’s how artificial intelligence can concretely equip them for longer-term success:
AI can power optimal pricing strategies and inventory management
According to a recent study released by BCG in partnership with the World Retail Congress, the rising cost of goods is the number one challenge of retailers. When faced with this margin pressure, most of them will almost unanimously raise prices to bring their costs down. In fact, 55% of retail respondents around the world said that their business is raising prices, and 52% are negotiating with suppliers. These short-term tactics can damage a brand, especially at a time when shoppers are increasingly price-sensitive. Instead of using these levers, retailers can turn to AI to make more strategic pricing decisions. Here’s how: given its ability to analyze historic and in real-time data from multiple sources, AI tools and technology can help retailers develop dynamic pricing by reviewing defined variables such as inventory levels, demand, seasonality and competitor prices to adjust prices accordingly. Better, its algorithms can also define ideal pricing from a geographic and channel lens, making SKU-level pricing optimal at store level. It can also be used to simulate a category or product’s price elasticity through machine learning, helping forecast demand and define the best price points for products that will convert shoppers and maximize revenue or profit margins.
When it comes to supply chain challenges, AI is also an extremely efficient tool to tackle some of the main retailer and customer pain points. Take out-of-stocks for example. In the U.S, alone, they cost grocery retailers an estimate of $15 to 20$ billion a year in lost sales and have a negative impact on customer experience. When they result from miscalculations in item recording or demand forecasting, AI can drastically optimize inventory management to reduce the likelihood of this costly pain point. As explained by Tiffany Yeh, managing partner and director at BCG, “AI algorithms exceed human capacity as they are able to forecast demand using a multitude of input, and provide strong use cases in merchandising and inventory management.”
Forecasts can be leveraged for store-level merchandising and incorporate real-time stock information to provide efficient allocation and replenishment insights to store management and purchasing teams. They can also improve operations throughout the supply chain to capture, track and anticipate inventory flow, which reduces both the risk of out-of-stock due to logistical issues and the costs related to inefficient inventory management.
Generative AI can unlock new standards of personalized customer experience
Faced with declining customer spending and heightened competition, retailers have started to properly invest in designing new customer experiences to provide seamless, engaging interactions for shoppers to drive engagement and retention, with a key factor in mind: personalization. To achieve this goal, AI is probably the best tool to help capture and utilize customer data at scale and develop hyper-personalized omnichannel journeys for customers. Tech-driven businesses like Netflix
NFLX
AMZN
On the retail side, Carrefour is the first retailer to integrate OpenAI in its customer experience offering: the grocery retailer launched a chatbot based on ChatGPT that has been integrated to the e-commerce site and is live since June to help shoppers with their product selection, taking into account their budget and food intolerances, while also suggesting recipe ideas and complementary products. In addition, Carrefour is using generative-AI to improve its product pages to provide optimal information to shoppers and drive conversion. As shared by the retailer’s CEO Alexandre Bompard in a press release, the retailer is embracing and accelerating its use cases for AI: “Thanks to our digital and data culture, we have already turned a corner when it comes to artificial intelligence. Generative AI will enable us to enrich the customer experience and profoundly transform our working methods. Integrating OpenAI technologies into what we do is an amazing opportunity for Carrefour.”
By now, we would expect most companies of a certain size to have implemented AI in their operations, but the reality is that most retailers around the world are not yet using the technology as a key tool for their long-term business strategy. “Some companies are hesitant to incorporate AI due to the feeling they don’t have the capabilities, however most have expressed an interest for AI use cases,” says Yeh. Integrating the technology is indeed no small task and requires investment and commitment to reshaping business processes and building the tools and technology powered by AI, either through third-party providers or internally. Ultimately, retailers need to identify the main challenges they want to address and the most optimal use cases where AI will help extract considerable business value and secure long-term competitiveness. Ultimately, data might be gold, but knowing how to best leverage it is the holy grail.
Read the full article here