What is AI? Simply put it’s the growing ability of machines to do work that previously required human intelligence. Many futuristic movies and TV shows portray Artificial Intelligence (AI) as a singular force that threatens to displace people from their jobs, when in reality, the impact of AI is shaping up to be far more positive. Retail’s future with AI will be a combination of machine and human partnership – we are already seeing the automation of rote tasks and manual drudgery that often consumes the time of merchants, pricing analysts and in-stores associates.
Take this example from the 90s that demonstrates the power of combined machine and human intelligence - when Kasparov lost to IBMs Deep Blue, there was all this fear that the machines were going to displace humans. Interestingly enough, machines no longer play the best chess in the world. It’s not that the machines got dumber since the 90s. It’s that there is a new better form of chess, known as Freestyle Chess, where a human plus a machine, plus a panel of their peers to consult play together. This setup can beat a machine handily.
In the context of retail, machine learning is particularly relevant to merchandising because of the level of complexity a merchant needs to manage. It’s nearly impossible to be across every single detail, let alone optimize every detail. Buying desks turn over fairly frequently, the assortment complexity is significant, competition is rapidly changing and fragmenting across channels. Further, there are a myriad of operational challenges between sales forecast accuracy and shelf management to stay on top of. It is simply overwhelming for anyone to effectively manage all of these moving parts at once.
Machines, on the other hand, are incredibly good at processing large amounts of data and identifying patterns. We’re starting to see a shift in retailer software towards coaching-based user interfaces. These interfaces surface interesting and critical problems to a merchant’s desk to help them to focus on the areas where a human is uniquely well suited to make judgment calls. We’re also starting to see AI automate routine tasks to free up time and eliminate boring work. Enter the concept of a “coaching network”, a combination of human and machine interactions that empower superior decision-making, continuously, while also institutionalizing enterprise knowledge.
There are diverse applications for AI-powered technologies and one of the most high-value bets a retailer can pursue is the application of AI-powered intelligence to pricing and promotions management. McKinsey noted that sound pricing for key value categories (KVCs) and key value items (KVIs) is more relevant than ever in a world where digitally savvy customers can make instantaneous price comparisons and have access to a richer set of product information than ever before.
“The dynamics of the new digital retail era may tempt retailers to treat every item as a KVI and price it low to keep up with competitors and empowered customers,” the firm wrote. “We have seen this approach result in an unprofitable ‘race to the bottom’ as each competitor notches down its price to stay below the competition. Conversely, a dynamic, segmented approach to item-level pricing will allow retailers to optimize across multiple objectives (for example, margin, price perception, and market share) and across customer journeys.” Retailers can move beyond a one-size-fits-all approach to pricing for a few hundred KVIs to a process which enables the dynamic optimization of over 1,000 KVIs. This represents an order-of-magnitude increase in a retailer’s pricing capability.
Given this reality, delivering optimized pricing and promotions, continuously, is critical from the perspective of value capture as well as enabling dynamic and relevant shopping experiences for customers.
Eversight discusses the platforms that are delivering the future of pricing and promotions intelligence, agility, and efficiency to the shelf edge at the Exhibitor Big Ideas Session, Stage 6, EXPO Hall, Level 3 Tuesday, January 15 9:15am – 9:45am. To schedule a meeting with Eversight’s co-founders please reach out to [email protected]
