How AI Will Smarten Up Retail

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How AI Will Smarten Up Retail

By Michael Forhez - 12/05/2017

In this thought piece (originally posted last month on The Wall Street Journal's website), Oracle's Michael Forhez explains why retailers will need to embrace artificial intelligence to thrive in the emerging "phygital" world.

“Artificial intelligence is going to change everything, everything, 180 degrees … There is no way to beat the machines, so you’d better bone up on what makes them tick.” Mark Cuban, owner of the NBA’s Dallas Mavericks

I don’t own a basketball team, but having served the consumer markets for some 30 years, I’d say that Cuban is dead on.

The principal challenge facing retailers is how to use the technology now available to move beyond merely surviving to actually thriving. One glance at the news is enough to recognize the urgency. Most retailers are stuck and, at best, making relatively incremental process changes to their existing business models. It won’t do, at least not if you’re aiming for a championship.

The smartest players already know this and are working on creating a more perfect shopping experience that goes well beyond the age-old mantra of “stack it high, watch it fly.” By fusing the inferences of consumer sentiment with that of big data, retailers are employing data scientists and modern ethnographers to help them deliver on shoppers’ ultimate desires for bespoke products and highly personalized services in a more targeted, effective, seamless and authentic manner. And the enabler of that fusion is artificial intelligence.

To serve shoppers better than any competitor existing now or launching in the future, retailers are going to have to look more deeply into who we are, not just as consumers but as human beings, including what we believe in, what we aspire to and what we desire. Retailers are going to have to ask themselves as well, “What is my purpose beyond selling as much as I can, for as much as I can make?” As we are seeing, those who can’t answer this question and who can’t, as a consequence, establish a deeper connection with their customers, will disappear.

Understand this: Consumers, by their everyday choices, have effectively already begun dismantling the existing retail industry, brick by brick. Retailers shuttered 3,700 physical stores in the first half of 2017 alone, illustrating why public equity markets are valuing those companies based on digital and other newly critical competencies, not real estate. The retailers most likely to survive are the ones who have, or are planning to take, steps to become more digitally and consumer-centric businesses. Using AI as part of their technology backbone, the most adaptive companies are now combining the digital and physical realms into a hybrid we call the “phygital.”

How do we transition to phygital? The answers will come from shoppers themselves, who are driving the next evolution, with smart and nimble retailers listening more carefully while adapting more quickly. That kind of capability can only come from AI, which as noted computer scientist and innovator Sebastian Thrun has argued, “is almost a humanities discipline. It’s really an attempt to understand human intelligence and human cognition.”

“Consumers, by their everyday choices, have effectively already begun dismantling the existing retail industry, brick by brick.”

AI can also help connect a related subset of technologies, including the ubiquitous Internet of Things (IoT), augmented reality (AR) and image recognition (IR). Retailers now have the tools that will make possible a range of more exciting and meaningfully personalized consumer experiences than ever before:

—IoT will understand and transmit which products or services need to be merchandised, offered and sold, and when.

—AR will allow shoppers to visualize how a new couch might look in their new home, without leaving their living room.

—IR will let a smart device be shown a head of romaine lettuce and add it to a consumer’s shopping list.

—AI is, in effect, a consumer-specific, immersive intelligence that senses and responds to personalized sets of wants or needs. At its essence, AI is a form of human interaction without humans interacting. This isn’t saying humans serving other humans won’t be part of the equation, but that they will be better supported and free to add value in ways more supportive of an improved customer experience.

These technologies, provisioned with real-time access to consumer/customer-specific information, will enrich and broaden the types of data that can be analyzed with ever-greater sophistication, resulting in deeper insights about need states and how to serve them. This holistic, data-intense, deep-learning approach is what will make the new phygital age possible.

With 300 million advanced smartphones, neural networks built into them, expected to ship this year, AI is now poised to live — quite literally — with the so-called “hyperconnected” consumer. By 2020, an astounding 85% of customer interactions will be managed using AI, according to Gartner. Forrester’s "Global State of Artificial Intelligence Online Survey" indicates that business user investment in AI has tripled in 2017 compared to 2016.

New and emerging technologies will continue to bend the curve of commerce at the speed of thought. But it’s up to retailers themselves to accelerate their commitment to constant experimentation, adaptation and adoption if they want to be a part of the breathtaking future that is only now coming into focus. Because those they serve and who matter most — their customers — are already doing just that.

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