With global artificial intelligence in the retail market projected to reach around USD 45.74 billion by 2032, the use of AI technology in the industry is definitely on the rise. Retail companies are more and more willing to dab into the power of machine learning and other new-tech solutions to enhance customer experience and gain better insight into what works and what does not. And whether they like it or not, these practices are slowly changing the retail industry. Let’s see how.
How Is AI Changing the Retail Industry?
We are living in the age of artificial intelligence. It’s following us everywhere we go, every time of the day. You wake up and check the news on the specifically curated web page that tracks your activity and delivers content that may catch your interest. You go to work, and the navigation apps take you precisely where you need to be while you’re ‘typing’ a message to your spouse through speech-to-text. You stop by the coffee house that’s supposed to have a special morning offer your phone notified you about. Whether that’s fascinating or a little scary, the list goes on and on.
The end of AI’s prevalence is nowhere in sight – in fact, the “Artificial Intelligence Market 2023” study by Grand View Research shows that the global AI market size is expected to grow 37% every year from 2023 to 2030. That means we may see a revolution coming in various industries, including retail companies, which already use AI technologies to streamline their supply chain, receive customer feedback, do inventory management, and implement predictive analytics. The retail industry is undergoing a change as we speak. From new machine learning-based marketing campaigns to the redefined customer persona, the breakthrough is not imminent; it’s here. And the retail world needs to prepare – or be ready to lose revenue.
AI Applications in Retail
Demand forecasting in retail is a crucial process that involves predicting customer demand for products or services. It relies on historical sales data, market trends, and various algorithms to estimate future demand accurately. Accurate demand forecasting helps retailers optimize inventory, reduce overstock and understock situations, as well as enhance overall supply chain efficiency, ultimately leading to improved profitability and customer satisfaction.
Inventory management in retail is the strategic process of overseeing and controlling a retailer’s stock of products. It involves maintaining optimal inventory levels to ensure products are available when customers demand them while also minimizing carrying costs. Effective inventory management helps retailers avoid overstocking or understocking, reduces storage expenses, and maximizes profitability.
Personalized recommendations by AI in retail leverage customer data to provide tailored product suggestions. These recommendations are based on a customer’s browsing history, purchase behavior, and preferences, enhancing the shopping experience and increasing the likelihood of making a purchase. AI algorithms continuously learn and adapt to individual customer preferences, ensuring that recommendations remain relevant and effective over time. This can easily boost customer engagement, which is always good for a brand – studies estimate that engaged customers represent an average 23% premium in share of wallet, profitability, revenue, and relationship growth compared to average customers.
Conversational AI in Retail
Conversational AI in retail refers to the use of artificial intelligence-powered chatbots and virtual assistants to engage with customers in natural, human-like conversations. These AI-driven systems can handle customer inquiries, provide product information, and even process orders, offering 24/7 support and improving the overall shopping experience. Conversational AI not only increases customer satisfaction but also frees up human staff to focus on more complex tasks, ultimately boosting efficiency and reducing operational costs for retailers.
Main benefits of Using AI in Retail
With all the possible AI applications, the retail industry has a real chance to improve upon its previous results and find innovative solutions to existing problems. Here are a couple of advantages that bringing artificial intelligence into the realm of retail can yield:
1. Boost in revenue
Personalized recommendations and better customer care can work as a great tool to increase sales and generally boost revenue. After all, the better the customer experience, the bigger chance the customer will want to invest in your brand. What’s more, artificial intelligence in retail can also help companies save money. In fact, “AI is believed to have the potential to help retailers save as much as $340 billion annually”.
2. Data-driven decisions
AI analyzes vast datasets to provide valuable insights, enabling retailers to make informed decisions about product offerings, pricing strategies, marketing campaigns, and more, leading to improved competitiveness and profitability.
3. Process automation
Artificial intelligence can help workers in the retail industry minimize the risk of human errors and reduce manual labor, which results in better cost and work optimization. Additionally, AI-powered chatbots and virtual assistants can automate customer support tasks, handling routine inquiries and freeing up human employees for more value-added activities.
4. Better supply chain management
Automated inventory management can easily reduce carrying costs and minimize stockouts or overstock situations, which ultimately boost the profitability of an enterprise. Need proof? It’s estimated that reducing supply chain costs from 9% to 4% can double profits – and companies who optimize their supply chain best can report as much as 40% in savings.
5. Loss Prevention and Security
AI-driven surveillance systems use computer vision to detect theft, monitor suspicious behavior, and enhance security in physical stores. This reduces shrinkage and helps maintain a safe shopping environment.
How Is AI Affecting Retail Customers?
With all these AI solutions already in use, the industry shift is starting to affect customers as well. A study by Gartner predicts that by the year 2036, retail clients will go through a three-step evolution – from a Bound Customer to an Autonomous Customer. What does it mean? Basically, the authors behind the study believe that in the future retail world, “AI-enabled machine customers,” who will have the potential and power to act as buyers, will be the new norm.
The new AI-powered customers will be “logical, rational,” and very demanding. They will be used to a multitude of choices and very easy access to information, including about the offers available on the market. To keep up with their needs, retailers will have to streamline their sales, marketing, and customer service strategies. Otherwise, they may miss out on a big investment opportunity, since – according to them – machine customers may one day represent a trillion-dollar market.