Artificial intelligence (AI) is a tool that is increasingly shaping the activities of retailers; although adoption is still in the early stages, 60% of retailers intend to boost their investment into AI over the next 18 months. The reasons for such significant investment are that AI has the ability to both overcome some of the most common challenges faced by retailers as well as improve overall operational efficiency.
With advancements in generative AI, many executives are now aggressively pursuing strategies that will enable them to automate much of their decision-making processes. Let’s delve into the three key ways AI is set to shape the retail landscape this year.
AI applications will continue to be the main profit lever
Over the past year, AI applications are increasingly becoming the primary profit lever for retailers by greatly improving decision quality while also reducing personal costs. Advanced machine learning algorithms give retailers the ability to analyze vast amounts of data, gaining insights that were previously difficult or even impossible to uncover manually.
For instance, AI can help retailers understand customer preferences, predict trends, and optimize prices as well as inventory management. Such capabilities make AI adoption paramount for both streamlining operations and ensuring that retailers’ offerings resonate with their target audience. By automating decision-making processes, AI enables retail professionals to focus on strategic initiatives that require human creativity and intuition, ultimately driving growth and profitability.
Retailers will outsource complex AI applications
A growing trend in 2024 will be the outsourcing of complex AI tasks to specialized providers. AI, and particularly generative AI, is incredibly complex, and developing AI capabilities is resource intensive. As such, retailers will benefit from leveraging the expertise of AI specialists to ensure they are making the best decisions for their business.
Outsourcing AI applications not only provides access to cutting-edge technology but also allows retailers to stay agile. Whether it’s implementing advanced recommendation engines or demand forecasting models, outsourcing ensures that retailers are tapping into the full potential of AI without the burden of developing and maintaining these systems in-house.
AI will be used to maximize ROI in pricing, marketing, and procurement decisions
AI applications are set to play a key role for retailers looking to optimize their return on investment in specific areas. In 2024, the main focus areas for AI implementation will include pricing strategies, performance marketing optimization, and procurement decisions. These three pillars represent significant aspects of retail where the majority of resources are allocated.
Predictive pricing, powered by AI algorithms, allows retailers to rapidly adjust prices based on various factors such as demand, competitor pricing, and inventory levels. By pinpointing the price elasticity of each of their products, retailers ensure pricing strategies are optimized for profitability while remaining competitive in the market.
AI-driven marketing solutions will continue to evolve; as of today, most use cases centre around creating personalized and targeted campaigns. However, AI is now being used to optimize the steering of marketing campaigns for maximum return on ad spend, predicting metrics such as purchase behaviors and customer lifetime value. Additionally, retailers are gaining the ability to sync their pricing and marketing activities, maximizing the impact of both budgets and enhancing overall profitability.
By analyzing historical data, market trends, and supplier performance, AI can assist retailers in making informed decisions about sourcing, inventory replenishment, and supply chain management. This ensures a streamlined procurement process, minimizing costs and maximizing the efficiency of the supply chain. European retailer Carrefour has already seen some success in this department.
2024 marks a pivotal moment for the retail industry, where AI is not just a tool but a key driver behind strategic decision-making. Using AI applications, retailers will be able to achieve improved efficiency, personalization, and profitability. The retail industry is clearly undergoing a major technology transformation, fueled by the rise in AI.