SKU’d Thoughts 20: What does artificial intelligence in retail and CPG look like?
Artificial intelligence (AI) is simply the theory of machines performing human-like tasks based on learning from experiences and adjusting to new inputs but it has become a loaded and sometimes intimidating term. That hasn’t stopped its rapid absorption into our everyday lives, from Gmail’s smart replies to virtual assistants like Siri and Alexa. For consumer industries like retail and CPG, AI presents an opportunity to deliver better, more relevant and more personalized experiences to consumers. Here are three use cases for AI in these two sectors.
Supply-Chain Management. Non-AI powered supply-chain management forecasting is based on prior outcomes which don’t take into account factors such as consumer attributes on the demand side, resulting in a certain level of inaccuracy. Forecasting with AI is based on greater contextual knowledge and the measurement of all the factors needed to improve demand forecasting accuracy. According to McKinsey & Co.’s AI report, it can “improve forecasting accuracy by 10 to 20 percent, which translates into a potential five percent reduction in inventory costs and revenue increases of two to three percent.”
Customer Engagement. AI can improve customer engagement by ensuring that interactions with customers add value to that particular customer. Through AI, retailers can make relevant purchase recommendations by leveraging customer data such as search history and special dates. Retailers will also be able to target ad spend to customers based on customer data that would yield a higher return on investment. The technology is also becoming a must-have in customer service interactions, where handling inquiries accurately and swiftly is a key metric. According to Gartner, up to 80% of customer service interactions are expected to be handled by AI by 2020.
Pricing. Personalization is a key differentiator in retail that has gone relatively untapped. Retailers offer similar pricing to all customers and this presents an opportunity to utilize AI to provide dynamic pricing. According to McKinsey & Co, customized pricing for customers can lead to 1–2% increase in incremental sales for brick-and-mortar retailers alone. The ability to offer a discount to a customer who has had an item in their online shopping cart for some time allows retailers to capture sales they would have otherwise lost.
As AI matures, it presents countless opportunities for retail and CPG sectors because of the power of personalization through relevant customer data. AI’s ability to position the right product, to the right consumer, at the right time and at the right price is one that will benefit not only customers but the retail and CPG sectors’ bottom line.
Cross posted on Medium