Generative AI in Retail: 5 Ways It's Transforming the Industry

Key Takeaways:

• Generative AI improves customer interactions through personalized experiences.
• AI-powered tools facilitate efficient inventory and supply chain management.
• Retail marketing is more targeted and effective with AI automation.
• Employee productivity is enhanced by AI-driven tools and insights.

Generative AI in Retail: 5 Ways It's Transforming the Industry

As the global marketplace has become larger, more accessible and more competitive, the role of AI transformation in retail has become more and more important. In particular, generative AI in retail is proving to be a game-changer in supporting better customer experiences, greater personalization, and more intuitive and automated marketing strategies. 

Generative AI models use large amounts of data to produce any type of content - text, audio, video or still images - based on the prompts and commands given by the user. The ability to produce high-quality content at scale, and far faster than humans would be able to, can therefore yield some major business efficiencies that can be instrumental in driving competitive advantage.

We’ve already explored the 12 practical steps to getting started with GenAI in more general terms. So in this blog, we’ll explore the five key ways in which it can support transformation in the retail industry specifically.

Key Benefits of Generative AI in Retail

First of all, it’s important to understand where Generative AI in retail is making the biggest difference. From our experience working with a range of retailers and their GenAI deployments, they’re making gains in three key areas:

Operational efficiency and cost reduction:

The ability to automate routine tasks and optimize inventory management can cut out waste and unnecessary cost. The ability to analyze the latest market trends and customer preferences can also help streamline and focus product discovery, without the need for physical trials or prototyping.

Improved customer loyalty and retention: 

Delivering personalized shopping experiences and recommendations to individual customers can support higher rates of customer satisfaction. At a time when long-term customer loyalty is harder than ever to maintain, this can be critical for driving strong and consistent long-term revenue.

Innovation in product development:

Understanding consumer trends faster, and with a higher degree of insight, can speed up and perfect the creation of new products and concepts. From clothing to electronics and everything in between, this helps retailers get in-demand, innovative goods into the marketplace before their competitors, giving them crucial first-mover advantage.

The Five Areas of Transformation

So how are these benefits manifesting themselves at a practical level for retail and consumer businesses like yours? Here are the five biggest areas of change:

 1. Enhancing Customer Experience

There are so many ways in which Generative AI in retail is enabling improved customer experience, and meeting the ever-rising demands of modern consumers. Virtual shopping assistants that help consumers navigate their way through the sales journey are now becoming commonplace, but GenAI is proving capable of so many other things in this area.

Among them are AI-powered shopping assistants that enable purchasing by chat, virtual try-on services for online fashion shopping, greater personalization throughout the customer journey with messaging focused on the individual, and even virtual reality mirrors in stores.

As an example of what’s possible, the online personal styling service Stitch Fix uses data and AI to find items that are most likely to suit customers, based on their previous purchase and fit data. This allows them to select clothes and ship them directly to customers, with full confidence that the purchaser will like the selections. Click on the banner to get a copy of free eBook:

2. Revolutionizing Marketing Strategies

Consumers want personalized content that appeals to their own preferences and desires, and that values their purchasing power. Generative AI supports this through a new level of insight into consumer behavior, and trend and sentiment analysis that allows marketing teams to make more informed and intuitive decisions, whilst lightening their workload at the same time.

As an example of what’s possible, IBM Watson AI is being increasingly used to generate personalized marketing campaigns, supported by granular automated content creation. Compared to accepted industry standards, some marketing teams have managed to increase click-through rates by as much as 2.5 times by using Watson.

3. Streamlining Inventory Management

Through synthesizing data, alongside historical sales information and market trends, Generative AI is already making a meaningful difference in accurately forecasting product demand. According to CapGemini, this technology is already improving demand forecast accuracy by up to 10%, and is helping retailers make more informed decisions around inventory and the supply chain.

Amazon has piloted a GenAI-powered shopping assistant called Rufus, demonstrating how GenAI is reinventing retail operations. While it’s primarily designed to enhance customer experience through personalized product descriptions and recommendations to customers based on previous purchases and browsing, it can also streamline back-office processes. The customer data it collects can be used to forecast likely demand for certain products in the future, inform stocking decisions well in advance and manage the supply chain more effectively. 

4. Optimizing Supply Chain Operations

Connected to the previous point, Generative AI can also be used to inform better decision-making around the logistics of the wider supply chains. 

For example, GenAI can pick up on variable factors like weather, traffic and order priority to change delivery schedules and routes in real time, optimizing the efficiency of the delivery process. AI insights are also proving invaluable in understanding where suppliers can make improvements, and iron out any third-party inefficiencies in the supply chain.

Both of these use cases come into their own when sudden disruption strikes, reducing any effect on customers and adding resilience throughout the product journey.

5. Automating Customer Service

Customer service that is time-consuming, inefficient or disorganized is one of the most common causes of customer dissatisfaction. Generative AI is combating these issues across a number of different channels, so that customers get resolutions quickly, easily and through the medium of their choice.

AI-powered customer service chatbots are excellent for resolving the most commonplace and relatively straightforward customer issues without any need for human intervention. And unlike human customer service teams, AI tools can work 24/7, meaning customers don’t have to wait until normal working hours for action to be taken.

The food provider Hello Fresh has found that its chatbot ‘Freddy’, which covers customer engagement and personalized marketing and offers, has been transformative; thanks to Generative AI, its customer service response times have been reduced by 76%.

In Summary: Time For First-Mover Advantage

More and more businesses are waking up to the potential of Generative AI. A KPMG survey has found that 65% of US executives feel that GenAI will have a high impact on their organizations within the next three to five years. However, that figure drops to 30% among consumer and retail businesses, meaning that there is real competitive advantage to be driven from getting on board with Generative AI in retail now.

Ready to get on board with the revolution of Generative AI in retail? Talk to the Ciklum team today and find out how our global team of AI experts can support your specific objectives.