AI is the key to embracing a digital-first customer culture – but proceed with caution
While AI may still seem like science fiction to some, retail executives are paying more attention to it, and rightly so. A study by Accenture identified retail as one of the top 4 sectors to potentially benefit most from AI, stating that it could deliver a 59% boost to profitability across the wholesale and retail industry by 2035.
Although it only became a buzzword some five years ago, AI is being applied across multiple levels in retail operations. For now, one of its more popular uses is hyper-personalisation, because consumers want personalization, and they’ll go, or stay, where they get it. According to McKinsey's latest AI research, two-thirds of consumers say they’ll remain loyal to a company if it offers a personalised experience.
Similarly, a lack of recommendations can foster a lack of loyalty, with 3 in 4 consumers reporting that they’re frustrated when they don’t experience personalisation from a brand, and product recommendations generated by AI being responsible for 35% of Amazon purchases in recent years. Surprisingly, most retailers haven’t yet capitalised on this: in a survey of more than 100 brands and retailers, only 20 percent reported customising product recommendations based on a customer’s purchase history.
Looking ahead, it's clear that AI will be the driving force behind innovation and transformation: so much so, in fact, that McKinsey’s research estimates that by 2030, AI-powered technologies will deliver $13 trillion in additional economic output around the globe, and retail is no exception:
- AI will enable still more seamless and frictionless shopping experiences, blurring the lines between physical and digital retail spaces, to become truly ‘omnichannel’
- AI-driven chatbots and virtual assistants will continue to be an integral part of customer service, enhancing response times and problem resolution.
- AI will play an even bigger role in predicting trends, using predictive analytics to enable retailers to stock the right products and stay ahead of consumer demands.
Next stop: gen AI
Three-quarters of respondents to the McKinsey survey expect gen AI to cause significant or disruptive change in their industry in the next three years.
2023 has been dubbed the breakout year for generative AI (gen AI) – and its adoption is rapid: the McKinsey research found that less than a year after many of these tools debuted, one-third of survey respondents said their organizations were using gen AI regularly in at least one business function. Interestingly, leaders in its adoption say they deploy gen AI less for cost reduction – a top priority for other organisations – than to create entirely new businesses or sources of revenue.
But gen AI does come with risks: consumers are expressing hesitancy around gen AI, with a recent study of over 10,000 shoppers revealing only 20% "mostly" or "completely trust" AI during the shopping process. And with good reason: in 2022 alone, Amazon removed over 200 million suspicious customer reviews, and fake review identifier, The Transparency Company discovered over 100,000 businesses to be using fake reviews.
So how do retailers protect themselves and their valuable shoppers? Experts believe that it is good practice to ensure there is a high degree of transparency around when and where the technology is being used for the shopping experience. Almost half of consumers don’t feel confident in their abilities to detect gen AI's presence online, so providing labels and signals where it is being utilised can help quell doubts and build trust. It is also good practice to better protect consumer privacy by allowing shoppers to opt out of any personal data-sharing they’re not comfortable with.
AI is a game-changer for the retail industry and has immense potential to revolutionise how businesses operate, interact with customers, and drive sales. However, for now, AI is not perfect, so it’s advisable to proceed with caution and be well-informed about the pros and cons of embracing this powerful technology.