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Watson and the retailer’s dilemma

By Chuck Densinger, chuck.densinger@us.ibm.com & Mason Thelen mason.thelen@us.ibm.com

Question: Which computer system can provide retailers with unprecedented insight into how to serve their customers better?

Answer:
Watson.

It may sound like science fiction, but it is very real. Fresh off its victory on Jeopardy!, the IBM Watson system is quickly moving out of the world of games. The first application of the technology will be in healthcare, where Watson’s ability to analyze the meaning and context of human language and quickly process information to find precise answers will help physicians and nurses unlock important knowledge buried within huge volumes of information. It will offer answers they may not have considered to help validate their own ideas or hypotheses.

But merchants watching the “Jeopardy!” match have already started thinking about ways that Watson could address some of the most vexing problems in retailing today.

For example, the typical large retailer has many customers who regularly shop the store, website, mobile application or catalog. But still, the retailer doesn’t really know these customers or even have a basic understanding of their individual needs, tastes or what they might want to buy next. We’ve all had the experience of feeling like a stranger in a store where we spend a lot of money. This has consequences for everything from the store’s revenue to its brand.

Watson technology could be integrated into a retailer’s core systems, including databases, CRM, inventory and order management plus all customer interaction points. The system’s analytical capability could enable businesses to ask a virtually unlimited series of questions, instantaneously, about individual customers. Such as: “When should we next contact John Smith? What should this look and sound like? Through what mediums should he be contacted?” Watson could analyze all the data available in to the retailer on that customer -- purchases (and returns), favorite brands, online habits (if he identifies himself), and the type of customer he is (for example, a loyal customer … or only shops sales … or prefers shopping the web rather than the store).

It could integrate that data with massive amounts of product data and available solutions and come up with the right answer: “Tell John about the availability of a new product with a specific warranty plan and free installation. Give him this message in the evening as a notification on his iPad app, and offer pre-purchase with free delivery.”

In the same way, Watson could allow retail associates to interact more effectively with consumers by giving them real-time coaching about this customer -- turning him from a stranger to a recognized regular customer that is being engaged on his own terms and when he has a need.

Watson’s ability to interpret the meaning of new information is key. With even a small clue, such as a bit of browsing data from the website or mobile app, or where a customer spends time in the store, a retailer can make a much better determination of a customer’s mission. In this way, the action a retailer takes with a customer would more closely match what the customer wants or needs right now. This capability is what’s required to transform the billions of emails, text messages, social media interactions and digital coupons retailers are sending customers from spam to something useful and relevant – something worth reading, responding to and acting on.
Like another IBM innovation -- the Universal Product Code -- Watson represents a technological masterstroke that will change the way retailers do business. It has the potential to dramatically increase the insight into what individual shoppers want. That means happier customers -- and more successful merchants.

Chuck Densinger and Mason Thelen help lead the Advanced Customer Analytics practice in IBM's Global Business Services unit. Densinger can be reached at chuck.densinger@us.ibm.com. Thelen can be reached at mason.thelen@us.ibm.com.

© 2014