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03/31/2021

The consumer impact of AI-powered retail optimization

AI concept

It’s no secret that the digital era has caused retailers to completely rethink how they can meet the constantly shifting demands of the consumer. 

However, this new age has also created a tremendous amount of opportunity. And in most cases, artificial intelligence (AI) is the key that helps brands not only meet shoppers’ rising expectations, but also maintain a highly reliable supply chain and optimize other back-end business processes. 

While operational excellence is not a strategy in and of itself, retail optimization is proving to be a competitive differentiator for retailers in the current era. Simply put, retail brands that put AI to work achieve stronger performance outcomes, which have a positive impact on their bottom line. Look at Walmart for example. Last year, the retail giant increased second-quarter earnings by 2.8% by implementing AI and automated processes to improve the customer experience. 

One of the most important takeaways here is business decisions that improve capabilities at the operational level trickle down to the customer experience, even if the two of them seem to be separated. This is because today’s shoppers do not have any patience for out-of-stock items and product substitutions. They expect near-instant access to the products they like, and they demand a curated merchandising experience as well as personalized, relevant offers.

In order to succeed in today’s business environment, retailers need to realize that shopper experiences and back-end operational decisions are intertwined. At the same time, they need to understand how AI can automate and streamline operational processes that ultimately improve the overall customer experience. 

For example, consider a back-end process that is far removed from the customer experience, such as the supply chain of a major retailer. The number one priority is to ensure supply can meet consumer demand, so sales are not lost due to out-of-stock items. 

Remember what I said earlier about consumer expectations? If out-of-stock scenarios were to persist, retailers could face decreases in customer loyalty and become irrelevant very quickly. While inventory management may seem like an isolated back-office function, if it’s done poorly, and not managed in real-time through automation, it can have massive repercussions on the customer experience and in turn a company’s profits.

Shopper expectations are based on what retailers can consistently deliver. The obvious market leader in this space is Amazon. By allowing customers to order and receive products within one day—or sometimes even hours—through Amazon Prime, they’ve set the benchmark for customer expectations. But it’s important to remember that the promise of Prime all starts in the supply chain. 

Therefore, retailers need to work very hard to manage out-of-stock items. When they do this well, their customers are delighted. They can find the right product at the moment of decision. However, the flip side for retailers that do not do this well is they end up stocking in excess of demand, which can impact a business’s working capital. 

Even though the customer experience may not be impacted, these retailers will certainly feel it on their bottom line. By leveraging AI brands can equip themselves with the data and insights required to make better, more informed decisions about their inventory.  

At the most basic level, if a retailer is not managing inventory, assortment, or prices well, shoppers are likely to be disappointed when they attempt to make a purchase. On the back end this means ensuring supply can meet demand, knowing how to price products and figuring out what to promote. 

On the other side of the coin, it boils down to what information is presented to the customer. Brands today have more customer touchpoints than ever before. Digital experiences, loyalty programs and mobile apps are all table stakes for delivering the level of personalization consumers expect. 

That said, if the information be served up through those channels is inaccurate—meaning a product recommendation is not available, or an item that’s being promoted is out-of-stock—there can be a lasting, negative impact on the brand/consumer relationship. 

By understanding that the customer experience and operational processes are intrinsically linked and automating both the front and back ends of the business with AI technology, retailers can deliver much more consistent and nuanced experiences for their customers, which ultimately leads to better business outcomes. 

Rama Rao is co-founder and head of product & data, Hypersonix.