5 Ways Retailers Are Using AI to Drive Growth, Loyalty and Efficiency
Not sure where to begin with AI? Consider these five essential use cases as starting points for transforming retail operations and customer experience with AI.
In today's highly competitive retail landscape, delivering an exceptional customer experience (CX) is not just a differentiator but crucial for driving growth and loyalty. However, the sheer volume of data available to retailers — point-of-sale, loyalty programs, in-store behaviors, mobility and location data, and more — can make it challenging to create truly personalized and contextual experiences at scale. This is where AI can be a game-changer.
AI-powered solutions, specifically those leveraging generative AI (GenAI), are enabling retailers to unlock the full potential of their data to provide more engaging customer journeys, automate content creation, offer real-time recommendations based on dynamic insights, and increase operational efficiencies.
In this article, we'll explore the top five AI use cases that are helping retailers stay ahead of the curve and deliver the best-in-class experiences that today's consumers demand.
Personalization
One of the most impactful ways retailers are leveraging AI is personalization. By analyzing real-time customer data — including purchase history, browsing behavior, preferences and more — AI-powered solutions can enable highly personalized product recommendations, seamless experiences across channels, and dynamic pricing that resonates with individual consumers. Research shows that fast-growing companies drive 40 percent more revenue from personalization than competitors growing at a slower pace.
By leveraging advanced machine learning (ML) algorithms, visual and voice search, and predictive models for customer lifetime value (CLV), retailers can identify patterns and insights that would be nearly impossible for humans to detect manually. This allows retailers to create a truly tailored shopping journey for each customer, offering products, content and offers that are most likely to capture their interest and drive conversions. Additionally, privacy-first AI solutions can help retailers ensure compliance with regulations and protect customer data.
An example is Canadian Tire's new shopping assistant, CeeTee, which helps customers select the right tires for their vehicles based on their specific needs and preferences and answers any questions they may have about their tires. CeeTee provides personalized recommendations, offers real-time local inventory information and guides customers through the purchasing process.
Customer support
Retailers are increasingly turning to AI-powered chatbots and virtual assistants to provide 24/7 customer service across web, mobile, social media and in-store channels; assist employees in quickly resolving customer issues; and even handle order processing.
By leveraging natural language processing (NLP) and ML, these AI-driven customer support solutions can understand the intent behind customer and employee inquiries and provide relevant, contextual responses. This not only enhances the CX but also helps streamline operations and improve the employee experience (EX) by getting workers the information they need when they need it.
Additionally, "emotion AI" — an emerging subset of AI that measures, understands and reacts to human emotions — is helping retailers make interactions more empathetic, boosting customer satisfaction and resolution rates while streamlining operations and enhancing EX.
For example, Walmart's AI-powered voice assistant app, Ask Sam, allows associates to quickly find information on product pricing, product locations, store sales and more to better serve customers.
Demand forecasting and inventory management
Accurate demand forecasting is a critical component of successful retail operations, especially as the industry continues to grapple with supply chain disruptions. It allows companies to optimize inventory levels, minimize stockouts and avoid excess inventory, leading to increased customer satisfaction and operational efficiency.
AI is proving to be a powerful tool in this regard, enabling retailers to analyze vast amounts of historical sales data, market trends and other relevant factors to predict future demand; make informed decisions about production, purchasing and distribution; and collaborate more effectively with suppliers. Leveraging computer vision, AI can also automate the process of stock counting and shelf management, ensuring that popular items are always in stock and reducing losses due to overstocking or understocking.
Home Depot's Sidekick app, for example, uses AI, ML and computer vision to manage inventory, notify staff when shelves need restocking and pinpoint their location. It also helps staff prioritize tasks by identifying high-priority areas.
Automation
Labor is one of the largest expenses for retailers. Together, AI and automation, specifically robotic process automation (RPA), can help simplify internal processes by taking over repetitive, labor-intensive tasks like routine data entry, invoice processing, payroll management, order reconciliation, inventory counting and scheduling. This can free employees to focus on more strategic activities, minimize errors, improve overall productivity and reduce operational costs.
Additionally, many major retailers are experimenting with combining AI, automation and robotics. Autonomous vehicles, drones and delivery robots are being tested to enhance last-mile delivery efficiency and reduce costs. We're also seeing AI-driven automation transform physical stores through smart shelves, automated checkout systems and self-service kiosks.
Amazon perfectly illustrates how AI and automation can enhance operational efficiency in warehouses. In 2023, the e-commerce giant implemented 750,000 robots throughout its warehouse network to assist with packaging, inventory movement and improving safety via QR code scanning. Amazon remains at the forefront of robotics innovations and continually drives advancements toward quicker shipping times.
As the retail industry continues to grapple with labor shortages and the need to do more with less, the adoption of AI-powered automation will only accelerate. Retailers that can effectively leverage these technologies to optimize their internal processes will be well-positioned to gain a competitive edge and deliver an exceptional CX.
Price and promotion optimization
Retailers have access to extensive historical sales data, competitor prices, SKU details and promotional efforts. Through AI analysis, they can dynamically modify prices and customize offers based on customer behavior and market trends.
Markdown optimization helps retailers determine the best timing and discount levels to reduce unsold goods, while price elasticity modeling predicts how price changes impact demand. This approach ensures maximum profitability while also delivering personalized offers that increase customer engagement and loyalty. Additionally, these AI-powered insights can inform broader strategic decisions, such as product assortment, marketing campaigns and inventory management.
For example, Kroger is using AI to examine customer data and deliver personalized digital coupons to customers for their frequently purchased products. They also use AI-powered dynamic pricing to adjust costs in real-time, increasing prices on popular items and decreasing them on low-demand items to enhance margins.
The ability to offer the right pricing and offers to the right customers at the right time is a critical differentiator for retailers, especially in the age of AI.
Conclusion
The five use cases explored in this article — personalization, customer support, demand forecasting, automation, and price and promotion optimization — represent some of the most impactful ways that retailers are leveraging AI to stay ahead of the curve. By harnessing the power of data and advanced analytics, these AI-driven capabilities are enabling retailers to optimize their operations, enhance customer engagement, and ultimately, drive sustainable growth.
The future of retail is undoubtedly AI-powered, and the retailers that embrace this reality will thrive in the years to come.
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