Retailers are bullish on AI's growing track record of transforming marketing and customer service performance, but this enthusiasm may be too optimistic.
According to BDO's 2024 Retail CFO Outlook Study, released in February, more than half (55%) of retailers have already formalized policies regarding the internal use of generated AI, and a similar number (45%) have We have already built our own generative AI platform.
Retailers are wasting no time in advancing their AI generation initiatives. But they may be rushing a little too quickly, overlooking some legitimate concerns about the unrecognized risks that lie ahead.
Only 12% of retail CFOs cited AI bias as their biggest risk. Meanwhile, nearly half (45%) of today's retailers are already using AI to optimize their pricing strategies. As retailers are forced to raise prices, using AI to time discounts and promotions will be critical to securing sales.
Kirstie Tiernan, national data and AI practice leader at BDO, believes there are two main reasons why this is happening in generative AI.
- The simple use cases it offers are driving demand.
- Employees are increasingly willing to use and experiment with generative AI.
“Early adopters in every industry want to take advantage of this. So, at some point, rather than banning new technology completely, organizations come up with policies around its use and parameters that empower employees.” ,” she told E-Commerce Times.
The conflict between creativity and predictive analytics
Although Tiernan considers both goals to be important, he emphasizes that creating greater value and differentiation in a competitive market is the main driver of marketing strategy. The emergence of the creative capabilities of generative AI presents endless opportunities for retailers, but it is being done without a comprehensive assessment of the associated risks.
Retailers face constant pressure to innovate, adapt and personalize their products to meet changing customer tastes and expectations. Tiernan explained that Generative AI allows retailers to create new and novel products, services, and experiences that appeal to customers and increase loyalty.
“Generative AI is one of the preferred AI methods for retailers because it can help them,” she said. “Generative AI can also be used to improve operations and increase efficiency, such as by applying it to vendor contract reviews.”
For example, retailers can leverage customer data and apply it to generative AI to develop highly customized marketing content that is more likely to resonate with segmented audiences. AI can also help retailers design new product collections, create realistic product images, and generate personalized recommendations based on customer data.
According to BDO's CFO research, retailers are caught in a pricing “game of chicken” that will almost certainly continue. Retail CFOs plan to keep raising prices while consumers seek sales and discounts.
CFO plans continued price increases
Toward the end of last year, it became clear that consumers were winning this game, with many retailers offering deeper discounts than ever before the holiday season. Now, retailers are trying to reverse those discounts, adding to the ongoing pricing impasse.
BDO pointed out that there is a lack of actionable data in the supply chain. The main problem here is inadequate predictive analysis. Retailers are unable to act quickly enough on data, which limits their ability to make predictive decisions with confidence, let alone real-time decisions.
To solve this supply chain dilemma, retail CFOs are turning to advanced technologies such as scenario modeling and predictive AI. To that end, 59% plan to leverage customer data analytics to better predict, adjust, and manage demand and inform inventory decisions.
“What has really struck me this year is how retailers are going all-in on technology and AI in different areas and for different reasons,” Tiernan said.
An intentional approach to AI adoption
How retailers implement AI matters. You need to do it carefully and strategically. Rushing in isn't the best idea.
“With intentional adoption, retailers can enable data, technology, and employees to work together to deliver meaningful value,” Tiernan advised.
She offers structured, comprehensive solutions to help you achieve realistic goals, accelerate maturity, and incrementally integrate AI to improve various aspects of your business without making all-or-nothing commitments upfront. We have outlined a five-step process.
This approach starts with education and then identifies and prioritizes potential AI applications. The third step establishes a strong foundation by ensuring data governance, security, and privacy. The fourth step focuses on change management. The final step requires continually reviewing, refining, and iterating your AI implementation.
Creativity and analytical solutions
To overcome today's supply chain hurdles, the BDO report recommends retailers consider four key strategies:
- Leverage scenario modeling software
- Re-evaluate the skillsets needed for supply chain roles
- Prioritize ESG (Environmental, Social, Governance) reporting compliance
- Proactively manage disruptions when switching suppliers
We asked Tiernan to discuss these recommendations and the retail industry's growing optimism about increasing its reliance on generative AI to compensate for supply chain deficiencies. He said retailers are optimistic about artificial intelligence because it provides a competitive edge in a rapidly changing and difficult market.
E-Commerce Times: Why is the retail industry optimistic about artificial intelligence?
Kirsty Tiernan: This allows retailers to unlock the potential of years of accumulated data to improve customer experience, optimize inventory management, reduce costs, and increase revenue. You can gain insights into customer behavior, preferences, and needs and use them to create highly personalized recommendations, offers, and promotions.
AI can also help retailers predict demand, automate replenishment, and prevent stockouts and overstocks.
What role can AI play in the retail back office?
Tiernan: AI can completely transform finance functions by automating tasks such as invoice processing, fraud detection, and risk management, freeing up time and resources for more strategic activities. It can also enhance collaboration and communication between different departments such as marketing, sales, and operations by providing data-driven insights and recommendations to improve efficiency and customer satisfaction.
Which strategy is better: using gen AI as a customer-facing tool or limiting its use to employee-facing tools?
Tiernan: Retailers are increasingly deploying customer-facing genAI applications to improve personalization, customer service, and operational efficiency. Many customers are willing to share their data in exchange for convenience. Still, retailers need to find the right balance between increasing convenience and maintaining consumer trust through transparency, ethical use of AI, and demonstrating clear benefits to consumers. there is.
Beyond using AI to time discounts and promotions, how can retailers optimize their pricing strategies?
Tiernan: By analyzing vast amounts of data, AI can provide valuable insights into customer preferences, purchasing patterns, and price sensitivities. This is more than just a timing discount. AI can dynamically adjust prices in real-time based on factors such as demand, inventory levels, and competitor pricing.
AI can also provide personalized prices based on customer shopping behavior and price elasticity.
Through predictive analytics, retailers can leverage AI to strategically predict future demand trends and set prices to maximize profits and market share.
What are the risks for retailers and marketers using AI?
Tiernan: It is essential for retail marketers to monitor the generation of offensive, inaccurate, or biased content. Retailers need to carefully consider the data inputs they use and adjust the output of the generative AI to align content and messaging with their brand values without violating data privacy regulations and laws.
