AI technologies have now firmly moved from research lab projects to engines that drive genuine business solutions, and with no limit of options available to businesses. These technologies are disrupting a variety of industries from retail, supply chain, advertising, and many more.
AI is able to bring scale and efficiency in solving business problems. There are, of course, hundreds of hungry startups to SMEs that have built a lean customer experience that challenges the industry titans and wins the hearts and minds of consumers. This is especially true for the retail industry, where smaller brands and businesses have leveraged AI and other cutting edge technologies to give a hard competitive edge to the industry behemoths such as Amazon and Walmart.
To understand deeper into how AI is affecting retailers with practical use cases and delivering solid results, we got together with some of the top retailers in the APAC and ANZ region to hear directly from them.
This session was organized as part of Magento Day, in association with Retail Global. [On-demand video link coming soon!]
Before we go into details, it’s extremely important to understand what AI actually is. As it often happens with newer technologies, in mainstream, AI is often treated as a buzzword, with business leaders not understanding the crux of what it is.
Very simply put, AI is a simulation of the human brain by machines. Within AI is the subset of Machine Learning or ML. ML enables systems to automatically learn from experiences, without being manually programmed to. In the business process, for example, merchandising, often a lot of time is spent on setting up and maintaining rules. If A happens, B should happen and the C record needs to be updated.
With a huge amount of data, AI can self-operate and self-optimize! This allows businesses to grow exponentially, magically!
In the last decade, there has clearly been a lot of growth and adoption of AI technologies in the retail sector. AI and other allied technologies are clearly not a fad, and are already here making a dent for themselves.
There are some key factors that can be attributed to being the core market drivers for this category. In the last couple of years, and a lot more during the last 7 months of the COVID-19 pandemic, there has been a massive shift to online commerce. Plus, the competition in the retail segment is huge. A simple combination of this pushed the market forward and has led to a faster adoption of AI technologies by retailers. Business leaders are trained to beat the competition, and that is exactly what AI enables. Retailers are using AI more and more each day to utilize available data to build scalable, personalized, and frictionless purchase journeys which continuously engage and delight their customers.
AI has always helped businesses, especially retailers to scale with limited operation resources. This allows brands to maintain a lean operational resources requirement and a clean customer experience.
If you look at the macro picture, having a digital-first strategy has become non-negotiable for most retailers. It has been proven multiple times, that having a digital presence is critical. How do you manage these increasingly complex systems on the business backend? This is where AI pitches in!
If you look at it from the consumer-facing view – consumers have become demanding. All eCommerce shoppers now expect the experience to be as brilliant as what they expect from the global giants like, the big daddy of eCommerce – Amazon.
If you look at average conversions from traffic to purchases, Amazon maintains an average conversion rate of 12%- 13%. On the other hand, if you look at the top 3,000 retailers in the US, they are only able to manage a meager conversion rate of 3%-4%.
Very evidently, there is a stark gap between customer experience, product discoverability, and personalization that is offered by Amazon as compared to other retailers. Retailers need to compensate for this, and fast – or they will be left behind the curve.
AI is the way to solve this issue of effective product discovery and site search.
AI has reached all aspects of the business – from catalog management, supply chain, customer acquisition and customer service, no aspect of business has been left untouched.
If you narrow down to the brass tacks, AI is often utilized by retailers in a two-pronged approach – Driving top-line sales, and protecting the bottom line.
Driving the top line happens through the hyper-personalization of recommendations and search results. The broadening of the product catalog is often key to this. When you measure and compare metrics like average session uplift, average order value, click conversion upon adoption of AI on a group of users v/s the same metrics from a control group with rule-based merchandising, the results are dramatically different and are always better for AI-driven solutions.
Protecting the bottom line is the other prong of the strategy. AI is used to maintain security and identify non-genuine user activity, safeguarding the bottom line.
For example, a loyal user of your brand might be traveling and might be trying to make an urgent purchase on your site, but is rejected by the system as suspicious activity. AI helps prevent this drop off by keeping a keen eye on on-site activity which affects the bottom line.
Right now, we are just scratching the surface with what AI can do for retailers. As of now, most AI are based only on data. Computerized recommendations are the next big thing that will gain importance in the coming years.
The basic crux of the matter is that AI or whatever technology you adopt should ease the customer journey. It should make the journey frictionless and primed to drive sales.
AI-driven site search is the primary engine of growth for any eCommerce store. (Read more on how AI is changing eCommerce) Search users convert 3x-5x more than the casual site visitors, simply as the intent to purchase is higher and hence, providing these customers with the exact product that they are looking for, clinches the deal and makes for a wonderful and seamless CX. It has often been clearly demonstrated that ROI from buying an AI-powered site search solution is 10x – 15x, with respect to revenue driven from search.
With a good AI-powered search solution, you get great product discoverability, reduced time to purchase, and an increased number of repeat users
Lo and behold, You have hit the holy trifecta! Your CLTV is now rocketing away to glory.
When you look at customer acquisition, AI is again highly relevant.
AI-powered solutions for customer acquisition rely heavily on customer data. Simply put, if an eCommerce store is doing a month business or $10,000+, an average ROAS of 10 can be expected, just by simply feeding data customer data and metrics like AOV, repeat orders, APV, and catalog popularity to the AI. This leads to better-performing ads.
If we look at the adoption of AI in retail across global geographies – the US takes the leads. In the US almost everyone has moved to the headless eCommerce model, with monolithic business solutions being less preferred.
More and more interests can be seen in the ANZ and APAC region with higher sensitivity and positive trends being observed for best-in-class AI solutions.
What really matters is that you choose tools and technologies that make sense for your business and revenue. There is no one-size fit-all solution and a careful analysis of available solutions with a focus on POC, trial runs based on metrics like session uplift, AOV, and discoverability need to be done before deploying any AI-based solution in your technology stack.
There will always be a hesitation to adopt new technologies by the organizations, and it should rightfully be there, but that should never hinder the spirit of agile experimentation that should be present in all business, not just retail.