Forward-thinking retailers are already harnessing artificial intelligence to help them sustain and grow their margins in the face of economic uncertainty, environmental pressures and geopolitical instability.
Retailers must develop a more strategic and integrated approach to their AI capabilities, focusing on two key levers of business value generation: revenue growth and cost reduction. However, the key is to build data foundations first.
Building Data Foundations
Retailers should create data models that connect the entire business value chain, whether sourcing and buying goods or moving and selling them. In turn, that means drawing together all the company’s data with information from partners and suppliers to create a united data set that covers the whole company’s operations.
This first step is far from simple. While some companies decided many years ago to become data-driven, others have not been using it deliberately or intentionally, even though they’ve been collecting data for years. A 2023 survey of US Chief Data Officers and Chief Data and Analytics Officers found that just 23.9% of companies characterize themselves as data-driven, and only 20.6% say that they have developed a data culture within their organizations.
Using AI to Grow Revenue
Beyond the need for secure data foundations, there are two other key areas of experimentation for retailers looking to take advantage of AI: revenue growth and cost reduction. Concerning the former, innovative retailers are already using AI to support dynamic pricing, personalization and retail media optimization to grow revenues.
UK grocery chains Morrisons and ASDA are currently trialing dynamic pricing to respond more dynamically to changing market conditions. Morrisons experimented with dynamic pricing by introducing electronic shelf labels (ESLs) in a small number of stores during 2023. ASDA also completed an ESL trial on 25,000 products.
Leveraging AI to Reduce Costs
Using AI to analyze data can result in cost savings throughout the organization, enabling retailers to act rapidly on inefficiencies and identify areas of potential improvement. In marketing, for example, a truly omnichannel approach using AI will allow marketers to understand the effect of changing their budget allocations on overall results, leading to increased effectiveness or greater efficiency.
The Ultimate Aim – Holistic Optimization
Critical success factors for implementing data and AI in retail include a robust data infrastructure and investment in revenue growth and cost reduction. Adding to this list is expertise in data science and AI, as well as a culture that fosters innovation and experimentation.
In the end, carefully implemented AI solutions will lead to efficiencies across all main drivers of business value, from personnel and procurement to customer acquisition and pricing, culminating in the ultimate goal of an intelligent enterprise optimized as a whole rather than as a series of disparate parts.
Conclusion
The key to realizing AI’s full potential is to build data foundations first. This requires a strategic and integrated approach to AI capabilities, focusing on revenue growth and cost reduction. By leveraging AI to support dynamic pricing, personalization, and retail media optimization, retailers can grow revenues. Additionally, AI can help reduce costs by analyzing data and identifying areas of potential improvement.
FAQs
Q: What are the key areas of experimentation for retailers looking to take advantage of AI?
A: Revenue growth and cost reduction.
Q: How can AI support dynamic pricing, personalization, and retail media optimization?
A: AI can support dynamic pricing by analyzing data and responding to changing market conditions, personalization by providing targeted offers and promotions, and retail media optimization by optimizing campaigns in real-time.
Q: What are the critical success factors for implementing data and AI in retail?
A: A robust data infrastructure, investment in revenue growth and cost reduction, expertise in data science and AI, and a culture that fosters innovation and experimentation.
Q: What is the ultimate aim of implementing AI in retail?
A: The ultimate aim is to create a holistic optimized enterprise, where AI solutions lead to efficiencies across all main drivers of business value.
