Factors including artificial intelligence (AI), returns, and customer loyalty will serve as competitive differentiators in the 2023 holiday season.
Chain Store Age recently sat down with Rob Garf, VP and GM of retail, Salesforce, to get his thoughts on the top technology and strategy trends impacting holiday performance this year. Highlights of the conversation follow.
How will predictive and generative AI affect holiday shopping this season?
We define then the holiday season as November and December. Over this period, Salesforce is anticipating $194 billion of online sales being influenced globally by AI.
It’s important to note that a vast majority of these sales will be influenced by predictive AI, a technology that's been in place for some time and is pretty mature. A lot of it will be from predictive AI-based product recommendations.
However, we are starting to see early signs of generative AI playing a role in holiday sales. Salesforce has one retail customer that has seen a 10 to 20% increase of click-through when emails are generated through AI, with human input.
In addition, Gucci has created what it calls ‘draft replies’ for its customer service agents. If a customer types in a question via chat, the agent will get it with an AI-generated draft reply and according to Gucci, this helps them in three different areas.
First, it helps customer service agents scale so they can take on more volume Second, the responses are on brand. And third, agents can become advisors and sell more items instead of just answer customer questions.
What role will returns play in the 2023 holiday season?
Returns pose the risk of being a quadruple whammy for retailers because they first have to ship the product out, and then also pay for the return. Then they need to restock the product and resell it, which costs money.
Over the course of the pandemic, retailers got liberal with their returns policies because shoppers didn't have the benefit of going into the store and trying something on. They became very liberal to encourage people to buy more than they thought they needed in order to get the right item and return the rest.
Also, we saw something interesting during the 2022 holiday season, which was some of the lowest discount rates occurring in the first two weeks of November. If consumers bought something during that time and they saw that there was a better deal during Cyber Week, they returned it.
We then saw some of the highest return rates during Cyber Week, which is not a week you would typically expect that. Now, many retailers are pulling back their returns policies. According to Salesforce research, 88% of retailers are revising their returns policy. We performed some deep research in this area and lookd at the 1,000 top e-commerce sites by revenue globally and categorized them into two buckets.
One bucket was for retailers that made their returns experience clear, easy and reasonable. Retailers that didn't do all three of those things were in bucket two. We found retailers that didn't do those three things had a much higher abandon rate and a much lower retention rate.
How do you see ‘discount chicken’ (retailers and customers waiting each other out for the best holiday discounts) affecting holiday promotional strategies?
The only years that retailers won the game of ‘discount chicken’ were 2020 and 2021. And that was because of product availability in 2020. Consumers were worried that the product wouldn't get to their doorstep in time for the holiday because of last mile delivery issues.
Because of this, retailers had the upper hand and didn't have to discount heavily in 2021. Salesforce saw some of the lowest discount rates we ever tracked in the 10 years of our shopping index and our holiday campaigns.
Retailer thought this new behavior would stick in 2022, and they were wrong. They offered lackluster deals during the first couple of weeks of November, and we saw very soft sales and then they had to make it up with really significant deals leading up to and through Cyber Week.
This year, retailers are trying to stay ahead of the savvy shopper. Retailers are almost taking away the sense of urgency and providing more visibility into their promotional calendar. This way, retailers make the customer confident not only to buy products early, but to delay the purchase.
Why do loyal customers drive the best growth?
Roughly 75% of consumers tried a new brand during the last couple of years. At the same time, customer acquisition costs are soaring. You have this dynamic where people are switching brands and it's costing a lot of money to acquire them.
It becomes difficult to maintain your margins when you're continually acquiring new customers. I'm hearing more about the concept of the profitable customer. Looking at profitable customers is almost only possible through the lens of loyalty and the mechanism of a loyalty program.
What can retailers do to ensure that the post-holiday period is also successful?
In January, we see another surge of shopping with people both returning and buying products, as well as redeeming gift cards. Customers will also have a lot of questions.
I see two areas retailers should focus on for the post-holiday period. One is scaling service and putting data intelligence in the hands of customer service agents so they are empowered to serve the consumer and do it efficiently and at scale.
The second is store operations, because we'll see a flood of traffic in the physical store for people returning, exchanging, or buying products after Jan. 1.
Salesforce research shows that 74% of the time a store associate spends is not at the checkout. Instead, they are doing things like setting up new displays and caps restocking merchandise, providing customer service, dealing with returns, and even becoming fulfillment experts in terms of picking and packing and shipping.
In most cases, associates are not scheduled, incentivized, or given the tools they need for that 74% of time. As we see an influx of post-holiday store traffic, it's critical to give associates the time and space the tools and the incentives to really finish out the season strong.