AI Will Power The Next Wave Of Retail

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Traditional business models, exemplified by Amazon and other large online retailers and marketplaces, are changing the way customers shop and their expectations of customer interactions. AI and the advent of powerful mobile computing devices are among the big drivers of this change. Ian Wong, a partner in IBM's digital strategy business discussed this revolution with me.

"The consumer is driving everything. When I think back to the last ten years, essentially we have more compute power and technology in the hands of the customer rather than the retailer," he said. "The relationship was asymmetrical with the retailer having all the knowledge about price, availability the merchandise - they controlled the message. Consumers were spoon-fed what to take".

But the advent of smartphones and increased connectivity as well as the increased mobility of Australians - while all this was happening in technology there was a boom in the number of Australians travelling overseas and being exposed to what was available and pricing in other markets - resulted in far more empowered consumers.

During this time, Australia was also in the throes of the mining boom and our dollar was in a very strong position with our currency having unprecedented buying power.

All these things came together to create a completely new retail world where the asymmetrical relationship between the retailer and customer was turned 180 degrees, and buyers expected a lot more bang for their buck.

"It completely changed the way Australians shopped," said Wong.

When the dollar faded back to a lower level Australian retailers had an opportunity to look at what happened. Wong said this gave Australian retailers an opportunity to reflect and update their back-office systems so they could offer better online services. However, while retailers caught up, Wong said Australian customers continued to march forward and want more.

"What made us happy last year is no longer enough this year," he said.

That signalled what Wong called the "first wave" of change in retail. Australian retailers shifted from offering a subset of their product catalogue online to a broader offering. But things stayed like that - until now.

The next wave, says, Wong is "natural language engagement". This is where AI will permeate the way customers interact with retailers.

Devices like the Google's Home Assistant, Amazon's Echo, and Apple's HomePod bring natural language AI into the home. This creates an always-on, pervasive and ubiquitous presence in the home that makes it easy for customers to engage with retailers.

"We have a consumerisation of AI in the house. It's going to be happening in a big way and consumers are going to pull retailers there," according to Wong.

On the other side, Wong is seeing retailers experimenting with AI, using IBM's Watson platform. One example is the work being done by UBank, which is employing Watson to power conversations between potential home loan customers and the bank. 'RoboChat' can answer queries relating to about 40 different topics. So, while it's not yet ready to pass the Turing Test, it's a step along the way to showing retailers how they can automate and respond to customers faster than through traditional means. Wong said US office supply retailer Staples has initiated a similar program in the United States.

The idea is to create an "any touchpoint consumer experience", said Wong. This will drive the next stage of evolution in retail. Retailers will have a far more complete picture of what customers want as they will consolidate the data from all those touchpoints.

"That's what is the holy grail - a cognitive shopping experience where there is a continuous dialog between the shopper and the brand or store," said Wong. "They know you and personalise the experience all the way".

Part of what retailers are starting to see, said Wong, is that change is constant. While many retailers grew up in an era where business model change happened once every generation, changes happen far more frequently. The era of gathering lots of changes and updating systems and processes in one monolithic bundle are behind us said Wong. Instead, they are releasing more updates more frequently - much like how Facebook updates their apps weekly - with incremental changes that aren't as jarring to customers or retail personnel.

"We're starting to see retailers build agile development and innovation hubs within their organisation. We're starting to see department stores build innovation capability with experimentation with a view of design thinking where the customer is at the centre. But it's new, and there are years of legacy to overcome".

One of the issues, says Wong, is the new asymmetry has put sales associates and other retail employees on the back foot. Now that customers are in a more powerful position, sales staff don't are finding their jobs are getting harder. But Wong says AI can be employed in stores to support the evolving roles of sales personnel.

"Then we will have sustainable improvement in customer experience. Otherwise, we'll have a great veneer with antiquated back-end processes. What will happen is we may have a great sales experience if you're digital only. But if you have digital/physical experience it may start well with the AI and mobile but end poorly in the store".

This is leading retailers to look at ways to make the employee experience better through AI and automation. For example, automation can deal manage simple orders with people focussing their efforts on more complex orders. This is important. As transactional volume increase, it will be important to ensure people are no overwhelmed. This is where the next improvement will come said Wong.

So, what are Wong's tips for taking advantage of all these changes?

  1. Design thinking: put the customer at the centre and think about what a great experience will look like
  2. Act like a start-up: learn about being lean and agile and work out what sorts of experiments you need to run to get to the customer experience you want
  3. DevOps: get everything on the cloud or hybrid to the cloud so you can move at that pace
  4. Experiment with AI and big data: look for how to best use your data
  5. IoT: Smartphones, home AI and other devices give you lots of data that can support design thinking


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