The Guide to Artificial Intelligence (AI) in the Retail Industry

Artificial intelligence, or AI, offers a wide variety of benefits to the retail industry. AI in retail is already being used, and this guide will help you understand how artificial intelligence is impacting retailers and what the future might look like.

How Artificial Intelligence Can Benefit the Retail Industry

Artificial intelligence refers to the ability of machine learning programs to predict outcomes and act in ways that we would normally associate with human thought. This includes learning from experiences, solving problems, making decisions, and even responding to natural language.

AI can benefit the retail industry by optimizing everything from customer service and inventory management to product development and marketing. The benefits are endless, and the retailers that choose to invest in this technology early on will develop a competitive advantage that will set them apart and position them for success in the future.

The Impact of AI for Retailers

So, how is AI impacting retailers?

Let’s break down the impact of artificial intelligence in retail into the following categories: self-learning algorithms and making predictions.

Self-Learning Algorithms

 One of the biggest impacts that artificial intelligence has had on retail has to do with self-learning algorithms. Each one of these algorithms is used for things like recommending products to specific customers, processing large amounts of data, and learning from customer behavior to identify industry trends and movements.

The goal of these types of algorithms is to get better each time. For instance, it can analyze the way a customer behaves and pinpoint patterns that can be used to improve the next customer’s experience.

Think about it this way – companies in retail collect massive amounts of data on all of their customers, but human employees can’t look at everything collectively while analyzing it thoroughly enough to recommend something on the spot. But AI retail can!

Companies like StitchFix use self-learning algorithms to understand their customers’ lifestyle and fashion preferences so that they can make the best clothing suggestions possible. The AI program learns from what the client doesn’t keep and continues to tailor the suggestions each time until it figures out exactly what they’re looking for.

Ability to Predictions

 Artificial intelligence in retail also enhances the ability of businesses to make predictions. These predictions include everything from when a customer will churn to when they are most likely to make a purchase – and what they’re going to buy.

By using machine learning in retail to make predictions, businesses can put all the data they collect to use so that they can make data-driven decisions that will boost sales and improve the customer experience.

Companies like Amazon are using the prediction benefits of AI and retail to guess what fashion trends will be in next so that they can get ahead of it. Again, the applications could be endless if used properly!

Applications of Artificial Intelligence in Retail

Now that you understand the impact that artificial intelligence has in retail, let’s dive into some specific applications that are already being used today.

Virtual Assistants

 Virtual assistance and chatbots are perhaps the most common application of AI in retail. We’ve all been shopping online and had the chatbot pop up to see if we need any help or have any questions.

These virtual assistants help customers interact with the company’s website, allowing them to have a human conversation that would be very similar to what they would experience if they were shopping in a physical store.

They can do everything from encouraging a customer to make an additional purchase to personalizing the experience and improving their search capabilities.

For instance, smart assistance can use a natural conversation to gather more information about a customer so that they can better understand what they’re looking for. This will allow the chatbot to provide specific recommendations and suggestions that will meet their exact needs.

It also allows retailers to provide 24/7 customer service without having to maintain a large staff that works around the clock to answer client questions.

A great example of a retailer that has utilized this successfully is They used a virtual assistant that asked the customer for information about the person receiving the gift, and from there provides personal recommendations about what they might like. Within the first two months of using this system, almost 70% of their online orders were processed through this tool!

Personalized Recommendations

 Although we slightly touched on this above, the applications relating to personalized recommendations through the use of machine learning in retail are too expensive not to have its own category.

Artificial intelligence drives everything from the movie recommendations that Netflix gives us to the product suggestions generated on Amazon’s “things you may like” list. These brands are boosting their sales and enhancing the customer experience by learning what each of their customers prefers and providing suggestions that are in line with what they are interested in.

This ability to learn a customer’s likes and dislikes is essential for subscription platforms that need to keep customers engaged. If you understand what a user is looking for, it will be less likely that they will leave the platform and go to a competitor.

Another goal of personalized recommendations via AI for retail is to make things as easy as possible for the customer. They don’t even have to think about what to buy next because the recommendation engines are providing that information for them!

For example, North Face relies on artificial intelligence to recommend the best coat for a potential customer’s specific needs. The platform will ask them questions such as where they plan on wearing the coat and what they’re looking for so that they can choose a product from a pre-selected list of options.

Inventory Management

 The benefits of machine learning in retail are not always customer-facing. Machine learning algorithms can analyze expensive amounts of purchase data to predict your inventory needs in real-time.

These systems can even adjust inventory predictions based on seasons, day of the week, nearby events, and even social media data. By providing a daily dashboard over suggested inventory levels to a purchasing manager, they can make better strategic decisions that ensure your business is prepared for fluctuating demand.

Pricing Strategy Development

 As a retailer, you know that your pricing strategy is a critical element in running a profitable business. Artificial intelligence in retail can help you analyze key pricing variables so that you can create an automatic pricing strategy.

These sophisticated tools use real-time data so that your company can utilize a dynamic pricing system that will ensure maximum profitability.

This type of AI for retail can determine a customer’s willingness to pay based on their behavior. for example, the machine learning model can look at how much time they spend on each web page and which items they look at to determine what price point will make them most likely to buy.

If you use this with a machine learning model that understands seasonality, supply, and market demand, you can create a pricing system that will put you far ahead of your competitors.

What does the Future Look Like?

As you can see, artificial intelligence has many implications for the retail industry. There are endless applications, and the way that brands will utilize this technology in the future is only going to continue to improve.

Any amount of AI, whether it be a chatbot or a recommendation tool, significantly benefits a retailer and its customers. This means that companies will be more willing to continue to invest in artificial intelligence for retail so that they can continue to optimize their business processes and make better decisions.

Machine learning and retail is not just about crunching numbers and analyzing large amounts of data either. Good AI practices bring retailers and customers closer together by improving communication channels, so there is a better sense of understanding.

Customers appreciate when a retailer recognizes things that they don’t like and focus instead on marketing the products that they do. As this technology continues to improve, it will have a greater sense of natural interactions that mimic what you would experience when shopping in person.

In other words, the smarter these tools get, the more seamless the processes and interactions become. Eventually, the layer of technology between the customer and the brand will become less apparent and feel real and organic.

The future of AI in retail will be paved by large industry players like Google, Amazon, and other firms that are actively working to develop this technology. However, we expect small retailers to quickly adapt machine learning so that they can experience the same benefits as larger firms.

Artificial intelligence is changing the way that retailers do business. This technology allows them to use self-learning algorithms that improve the customer experience each time, as well as make predictions about customer behavior and preferences.

 At LogicPlum, we work with businesses to help them become more successful with their data and AI. Whether you want to implement a chatbot or a recommendation engine, we’re here to help!