Artificial Intelligence (AI) in Retail: A Comprehensive Guide

Retailers are betting big on the future of artificial intelligence (AI), with 92% investing in the technology. Using AI in retail isn’t new — 59% of retailers use it to help store associates make product recommendations while 55% use digital assistants to help online shoppers.

But AI use is gaining momentum as the technology quickly continues to evolve, and retailers are already reaping the benefits. During the 2023 holiday season, $199 billion of sales were influenced by AI.

In this guide:

• What is retail AI?
• What are the benefits of using AI in retail?
• How businesses are using retail AI to improve customer experiences
• Get ready for more AI in retail

How are you using AI to create awesome retail experiences? Let’s look at some of the ways retailers are putting AI to work.

First things first: You probably know what AI is, but you might still have questions about generative AI and what it means for your business. Generative AI is artificial intelligence that, in response to questions or prompts, uses a wide range of data sources to create new content, including text, video, and images.

Retailers can use AI with their CRM data to generate recommendations and content for marketing, commerce, and service functions. They can also use it to automate tasks and streamline processes across the organization.

Using AI in retail can grow revenue and relationships. By automating data collection, analysis, and delivery, retail artificial intelligence solutions help you act on insights faster and more efficiently, while leveling up both the employee and customer experience. Here’s how.

AI can integrate and automate access to real-time customer data so employees can make informed decisions in the moment. When all departments use the same data, it’s easier to collaborate, and takes less time to act. Since every team member can see how a shopper interacts across marketing, commerce, and service — within applications and dashboards — they can quickly and seamlessly pick up where the last customer interaction left off, removing friction for both shoppers and employees.

With retail AI you can create detailed customer profiles that serve as strategic planning tools. They help you understand the customer journey at every touchpoint, so you can reach out to customers with relevant communications, targeted promotions, and efficient service. Using the profile data, AI can help you identify when a shopper’s engagement declines so you can reach out with offers that bring them back into the fold.

In addition to collecting and analyzing first-party data, AI can look at social media posts, shoppers’ product reviews, sales history, and market conditions to help in planning and forecasting. You can ask retail AI to recommend improvements to processes that will address customer pain points and improve the shopping experience.

Use it to determine how effective your marketing strategy is and ask it for guidance on messaging, send times, channels, and promotional offers to help reach business goals. Instead of guessing what you should do next, AI helps you make informed decisions based on data.

Wondering where to amp up your AI initiative? Use retail AI solutions to address pain points you’ve already identified within your organization. It’s a good idea to start with your shoppers: How can you make their retail experience easier and more pleasant? When you look at it from your customer’s point of view, you’ll see many opportunities to power up AI across all departments, including sales, marketing, service, operations, and commerce.

Merchandising planning ensures that retailers have the right product in the right place when it’s needed, in the correct quantity, and at the best price. AI can help retailers decide which products to carry and how much of each to order, with greater accuracy, taking into account market conditions, consumer trends, historic sales, and other relevant factors.

You can also simulate scenarios to see how things like promotions, price, and supply chain disruptions could impact demand. Best of all, AI allows collaboration across departments so sales, marketing, and operations teams can work together from the same plan, in real time. This helps retailers minimize stockouts, reduce overstock, and improve overall inventory efficiency.

AI helps marketing teams create personalized and targeted marketing messages faster and more efficiently. Already, 58% of retailers use generative AI to create assets for ads, emails, social media, and websites.

They’re also using the technology to write personalized marketing emails (56%), create personalized promotional offers (54%), and auto-generate personalized product descriptions (53%). By applying AI to customer profiles, shopping histories, service queries, and loyalty program data, marketers also can automate segments and map content journeys for unique audiences.

Making it easier for shoppers to find and buy what they want (or what they might like) is critical for improving conversion rates. AI can reduce friction from the shopping process with conversational site search so shoppers can use their natural language to find what they need. Or you can use AI-powered voice recognition so customers can talk to your site like they would a store associate. And, to optimize transactions, you can use AI to recommend and automate a dynamic pricing strategy, offer one-click checkout, and even set up automatic renewals for products they buy often.

Retail shrinkage, or inventory loss as a percentage of sales, is on the rise. In 2022, retailers lost $122.1 billion in shrink, with 65% of that loss due to external and employee theft. AI can help here, too.

AI can analyze surveillance footage in real time to detect suspicious behavior and alert in-store personnel to abnormal events. You can also use AI in retail to monitor transaction logs, inventory levels, and employee access, then be alerted to irregular activity such as multiple high-value transactions in a short period of time. AI assists with your radio frequency identification (RFID) efforts to track inventory in real time. And, if it detects discrepancies between actual and recorded inventory, it can alert you to possible external or internal theft.

Today, great customer service can make or break a retailer. Service plays a significant role in building shopper loyalty – 48% of customers say they’ve switched brands for better customer service. AI can help you increase the productivity of agents along with the satisfaction of shoppers. Use it to power chatbots and virtual assistants that understand natural language to better communicate with customers.

It can also power self-service options including initiating returns. AI can save agents time by drafting email and text responses in your brand voice. And, it can predict potential service issues based on call histories, so you can proactively address problems before they impact customers. Automating these tasks with AI frees up your live agents to handle more complex problems that require an empathetic touch.

AI can be a helpful tool for retailers looking to improve their efficiency while amping up the customer experience. To do it right, start by unifying all customer data across your organization, then find ways to add AI to existing workflows that will solve identified customer issues. Continue to test and tweak your use cases, and don’t forget to seek customer feedback on how you’re doing to ensure you meet both your operational goals and customer expectations.