OPINIONTechnology

Why AI is Necessary for Retail Survival

The four-stage journey to leveraging the ‘halo effect’
Daisy Intelligence
Photograph: Shutterstock

The retail food industry, especially the grocery category, is experiencing dramatic competition unlike any other time in recent history. Brick-and-mortar retailers are under intense pressure to compete with e-commerce channels. And, as the world continues to emerge from the COVID-19 pandemic, retailers will be doubly challenged to win back the customers they have lost and retain the customers they have.

It’s an undoubtedly challenging time in retail, and though this is a time of uncertainty, we can be sure of one thing: Artificial Intelligence (AI) is here, and to survive in the current environment, retailers must use it.

Leveraging the halo effect with automation and AI is crucial to all aspects of merchandise planning and is ultimately required to maximize potential, meet customer needs, and grow profits.

The Path to the Halo

The “Halo Effect” is caused by customer choices. Customers buy full meals, not items and this fact creates relationships between products. These relationships include associated sales, cannibalization and pantry loading or pull-forward. 

A customer who buys promoted ground beef might be thinking of making a pasta dinner and purchase pasta, tomato sauce, etc. (i.e., associated sales). They will not buy the items making up a hamburger meal (cannibalization) and they might buy and freeze a few weeks supply of ground beef (pantry loading).

Though retailers intuitively understand the halo effect, it is simply beyond human ability to consider all aspects of the halo effect for every SKU of every product across an entire store. AI technology is required to fully realize and understand this effect and to reap the benefits it provides.

Though implementing AI across an organization can be a challenging and daunting initiative, the path to autonomous can be broken down into a four-stage journey:

1. The first stage involves merchants and AI systems making plans in parallel. The merchants can compare their decisions to that of the AI, allowing them to understand what the AI is seeing that they aren’t able to. This builds trust in the system.

2. The second stage includes the AI augmenting merchandise plans before they are executed and providing alternative planning recommendations that will improve the merchants plans. Real financial results from enhanced plans build more confidence.

3. In the third stage, the AI takes on a larger role, creating merchandise plans that are reviewed by the merchants. It is at this stage that larger financial outcomes are observed, and further trust is created.

4. Finally, the AI operates autonomously with pre-programmed governance. The AI plans are automatically reviewed with alerts that arise if human oversight is required. It is at this stage where significant labor savings are observed.

Making the journey to autonomous will allow the halo effect to be fully realized by reducing labor (making a difficult job a little easier and freeing up retail executives to take on more strategic roles); meeting customer needs; bringing innovative products to market; and growing profits.

It’s no secret that the retail industry of today has undergone and will continue to experience significant change. To stay competitive and ensure survival in the retail space, AI is no longer a “nice to have,” but rather it is a must have.

Gary Saarenvirta is founder and CEO of the Toronto-based Daisy Intelligence. The former head of IBM Canada’s data mining and data warehousing practices, Saarenvirta is passionate about AI and its ability to transform how retailers grow their businesses and establish an edge in an increasingly challenging environment.

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