Retailers are optimistic about AI’s ability to transform marketing and customer service, but this optimism may be a bit over the top.
BDO’s 2024 Retail CFO Outlook Survey, released in Feburary, revealed that nearly half (45%) of retailers have formalized their policies for the internal use of generative AI. Nearly as many (55%) are also building a proprietary AI platform.
Retailers do not waste time pushing the agenda for gen AI. But they might be moving too fast, as they ignore some valid concerns regarding the unknown risks.
Only 12% retail CFOs cited AI bias as the top risk. Almost half of retailers today (45%) already use AI for pricing strategy optimization. AI can be used to optimize discounts and promotions as retailers are forced by law to raise prices.
Kirstie Ternan, national leader of data and AI practices at BDO. believes this is the case for two reasons:
- Demand is driven by the simple applications it offers.
- Employees are increasingly interested in using and experimenting with generative artificial intelligence.
Early adopters from every industry want it. “At some point, companies will have to set up policies and parameters for employees to be empowered by new technology, instead of banning it altogether,” she told E-Commerce Times.
Pitting creativity over forecasting analyses
Tiernan believes that both goals are important, but emphasizes the importance of generating more value and differentiation on a competitive marketplace. Retailers are presented with a plethora of new opportunities as generative AI develops its creative capabilities. However, this is happening without an assessment of all the risks.
Retailers are constantly under pressure to adapt and personalize offerings in order to meet the changing preferences and expectations of customers. Tiernan explained Generative AI allows retailers to create novel and innovative products, experiences, and services that appeal to consumers and increase their loyalty.
She explained that “Generative AI” is one of the most popular AI outlets among retailers, because it helps them. “They can use generative AI in order to improve their operations and create efficiency. For example, they could apply it to reviewing vendor contracts.”
Retailers can, for example, harness their data on customers and use it with generative AI in order to create highly targeted marketing content. This will increase the likelihood of reaching segmented audiences. AI can be used by retailers to design new collections of products, create realistic images for the products or make personalized recommendations based upon customer data.
BDO’s CFO Survey shows that retailers are caught in a “game of chicken” with regards to pricing. This will most likely continue. Retail CFOs are planning to raise prices as consumers continue to seek discounts and deals.
CFOs are planning to increase prices indefinitely
The holiday shopping season was approaching and many retailers were offering discounts that were steeper than before. Now retailers are trying their best to cut back on these discounts, which is fueling the ongoing pricing uncertainty.
Supply chains lack actionable data, noted BDO. Predictive analytics are not adequate. Retailers can’t act fast enough on the data to make accurate real-time decisions.
Retail CFOs are turning towards advanced technologies like scenario modeling and AI to solve this supply-chain dilemma. In order to do so, 59% of retail CFOs plan to use analytics to analyze customer data to better predict, manage and align demand.
Tiernan said, “What I find most interesting is the fact that retailers are investing heavily in technology and AI for different purposes and functions.”
Adoption of AI: A Deliberate Approach
It is important to consider how retailers will adopt AI. It is important that they do so carefully and strategically. The best way to avoid a rush is to plan carefully.
Tiernan says that by implementing their plans deliberately, retailers will be able to make data, technology, as well as employees work together to create value.
She presented a structured 5-step process that aims to help achieve realistic goals and foster maturity. It also integrates AI gradually to improve the different aspects of a business without committing to anything up front.
The first step is to educate, then identify and prioritize potential AI applications. The third step is to establish a solid base by ensuring privacy, data security, and governance. The fourth stage focuses on managing change. The final step is to continually revisit, refine, and iterate the AI implementations.
Analytical Solutions vs. Creativity
The BDO report suggests that retailers adopt four key tactics to overcome the supply chain challenges of today.
- Leverage scenario modeling software
- Reassessment of the skills required for supply chain roles
- Prioritize ESG reporting compliance
- Manage disruptions when changing suppliers.
Tiernan was asked to comment on these recommendations, and the growing optimism of the retail industry in relying more heavily on generative AI as a way to overcome supply chain deficiencies. She said that retailers are confident about artificial intelligence as it gives them a competitive edge on a market that is rapidly changing and becoming more challenging.
E-Commerce Times : What makes retail industry optimistic on artificial intelligence?
Kirstie Tiernan: Retailers can unlock the full potential of their data by using it to improve customer experience, optimize inventory, reduce costs and increase revenue. They can use this information to create hyper-personalized offers and promotions.
AI can help retailers predict demand, automate the replenishment process, and avoid stockouts or excessive inventory.
What role can AI have in the retail back office?
Tiernan: AI can be used to transform finance by automating tasks, such as fraud detection and risk assessment, and freeing time and resources. It can also improve communication and collaboration between departments such as sales, marketing, and operations by providing data driven insights and recommendations.
What is the best strategy: Using gen AI to serve customers or only using it for employees?
Tiernan: In order to enhance customer service, personalization and operational efficiency, retailers are increasingly using genAI-based applications. In exchange for convenience, many customers are willingly sharing their data. But retailers must still find the balance between greater consumer convenience and preserving trust by utilizing ethical AI and demonstrating benefits to consumers.
How else can retailers optimize their pricing strategies than by using AI?
Tiernan: AI can give valuable insights by analyzing large amounts of data. This includes buying patterns, customer preferences and price sensitivity. This goes beyond timing discounts. AI can adjust prices in real-time, based upon factors like demand, competitor pricing, and inventory levels.
AI can also offer personalized prices based on the shopping habits and price elasticities of customers.
Retailers are able to use AI and predictive analytics in order to predict future demand trends, set prices and maximize market share.
What are the risks of retailers and marketers implementing AI?
Tiernan: It will be essential for retail marketers to monitor the creation of offensive, biased, or incorrect content. Retailers need to carefully review the data they input and refine the AI outputs in order to align the content or messaging of the brand with its values, without violating any data privacy laws or regulations.
