Artificial intelligence is a game-changer for the retail industry. Defined as technology that learns and emulates human intelligence, AI is revolutionizing the way retailers connect with customers on both a business and a cognitive level.
From automation to machine learning and beyond, AI is changing the way consumers make purchases and interact with retailers. It's also changing the way retailers run their businesses, make decisions, and innovate their stores and products.
A study by Gartner identifies AI as the top retail trend in 2017. The research firm also predicts that by 2020, 85 percent of customer interactions will be done not with humans, but with machines.
Here's how retailers are using AI today, and what to expect in the near future.
1. Predict customer behavior
More and more retailers are using AI to predict customer behavior. Predictive AI is an invaluable tool that allows retailers to organically drive sales without interfering with a customer's shopping experience. It analyzes customer behavior to better understand what they like, so retailers can give them personalized product recommendations. This is particularly beneficial in online and mobile shopping.
Predictive AI works by analyzing shoppers' browsed items, shopping carts, purchase histories, demographics and related data to show retailers what shoppers want. AI gathers the information and then predicts what customers will buy.
Recommended items are often displayed unobtrusively as suggested products during, before or after purchase. For instance, it can take the form of a small section labeled "You might also like …" that automatically features a pair of shoes matching a dress a customer has in her cart or accessories for a new electronics purchase.
Retailers also use predictive AI for marketing materials, such as carefully curating which products to display in advertising units and promote to email marketing segments.
2. Improved discovery
Sometimes, customers know exactly what they want but don't know how to search for it. Similar to Google's suggested search feature, AI helps customers discover products they are interested in. Customers can simply type in a few letters in an online store's search box, and it will automatically populate related and suggested items. AI uses previous consumer data combined with a store's inventory to guide customers to their desired purchases.
Retailers from all types of industries are already implementing improved discovery technology, so expect more to follow suit.
3. Visual search
AI is also revolutionizing search technology. In addition to simple text searches, AI will soon allow retailers to enable visual search, which uses image recognition to identify and find exact or similar products.
For instance, a budget-savvy customer at a brick-and-mortar store sees a pair of pants she likes but wishes to compare prices online. However, she doesn't know what those specific pants are called or where to start. Instead of wasting time manually searching for them, she can simply take a photo using her phone and upload it to a retailer's online store or mobile app. AI technology automatically searches for the item and quickly pulls it up on the customer's phone.
If the pants are not available, retailers can also enable similar searches. AI can recognize the color, cut and features of the pants to find similar items it thinks the customer may like. This way, retailers minimize the chances of losing a sale and gain a new customer.
4. Rise of the chatbots
Many retailers have implemented live chat in their websites to provide instant customer support. AI has taken live chat a step further with chatbots – computers that "think" and "talk" like a live customer service representative, without a human on the other end.
Chatbots use AI machine learning to conduct human interactions via auto-responses, questions, internal keyword searches and more to resolve customers' issues, recommend products and find what they are looking for.
Some retailers worry that chatbots remove the benefits of human interaction, but the benefit of chatbots is that it does not limit customers to talking with a machine. Chatbots can also be used to intelligently gather the right information from customers in order to forward them to the right department or representative so they receive the best customer support.
Expect more retailers to adopt chatbots, as it allows them to spend more time focusing on improving their products and growing their businesses without compromising the quality of customer support.
5. AI for product innovation
The past few years have seen a slew of startups and fashion retailers creatively use AI technology to innovate products and services.
Companies like Stitch Fix and Wantable use AI to act as virtual personal shoppers. Customers simply take a quick survey regarding their clothing preferences and measurements. Their algorithm then quickly identifies clothes, accessories and complete outfits customers will like in their monthly subscription box. Retailers can also use this data to design new items based on what customers like, a strategy that was widely successful for Stitch Fix's own line of T-shirts.
Similarly, retailers will soon be able use AI to create virtual fitting rooms. Using customers' preferences, age, gender, measurements and even facial recognition, AI can learn a customer's body type so they can "try on" clothes while shopping online. This way, customers can see what outfits will look like on them before making a decision to buy. Experts say such innovation will increase customer satisfaction and drastically reduce return rates and shipping costs.
Are retailers ready for AI?
Artificial intelligence is quickly becoming a significant player in the retail industry, and it will soon be a primary form of retail technology. While many retailers are ready to implement AI into their businesses, late adopters and those who choose to forgo AI risk getting left behind and losing out on a huge market of tech-savvy consumers.
The biggest challenges for retailers is cost and adapting to AI. The technology itself isn't cheap and requires training, new systems, changes in online store designs and, for many companies, additional IT staff.
Although AI is a relatively new technology, it is also rapidly changing and quickly advancing. This requires retailers to be more agile and flexible, while balancing strategic implementation plans and the ability to make quick decisions.