Artificial
Intelligence
Opportunities in Retail
Today’s retail industry is far more fragmented
and competitive than ever. Multiple store
formats and an arsenal of digital tools are
making shoppers more educated about choices.
Digital channels also continue growing. This is
particularly true in grocery, where heavy hitters
like Amazon and Walmart continue to eat into
the market share of traditional chains.
The landscape has also become more diverse,
with a variety of household types and lifestyles
having very different needs than the mom-dad-
1
with-kids target that dominated generations
past. This is compounded by a burgeoning
ethnic population, with each group having a
distinct profile in every area from language and
food to shopping style and economic status.
Add to this revitalized inner cities, which are
attracting young Millennials in droves, and the
result is a seismic melting pot that never stands
still.
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Retailers and their suppliers need real-time, or images. AI uses predictive patterns to help
in-depth knowledge to attract diverse shoppers. understand desires, motivations and actions
But the advent of distinct devices, sensors, and across both physical and digital channels. This
machine-to-machine communications has made lets retailers and suppliers enhance many
data sets so large that timely manipulation, functions, such as executing more targeted and
management and analysis present significant personalized marketing campaigns and improve
logistical challenges for companies using on- trade promotion efforts. AI can also automate
hand data management tools or traditional forecasting of inventory needs, more accurately
data processing applications. Other entities predict out-of-stock incidences and ultimately
have incorrect or outdated legacy data. This help optimize supply chains.
is compounded by the difficulties many
companies face in recruiting the talent needed
to implement complex technology tools, analyze
the data and make effective recommendations.
Many successful high volume retailers and
consumer packaged goods (CPG) organizations
have turned to artificial intelligence (AI) to
navigate the muddle. At the simplest level, AI
machines or systems imitate human behavior in
intelligent ways that can augment productivity
and optimize business performance. AI
applications include machine learning, natural
language processing (NLP) and robotics.
AI allows retailers and manufacturers to gather
customer insights in an automated fashion and
predict next actions based on previous patterns

Types of Artificial Intelligence

With artificial intelligence (AI), machines mimic or replace intelligent human behavior, like problem
solving or learning. They “sense,” “comprehend” and “act” in accordance with the real world. In essence,
machines learn from experience and make recommendations, learning and improving over time.

AI applications fall under three key areas

Machine learning. Machines automatically analyze large amounts of data and “learn”
using rule-based algorithms that identify patterns and trends. As an example, this could
mean combining 100,000+ data points from 75 million customers regarding shopping
patterns and other habits.

Natural language processing (NLP). NLP is a machine’s ability to understand, analyze

and generate human speech. A computer listens to a natural language spoken (or written)
by a person, understands its meaning and responds by generating natural language to
communicate back (as opposed to a computer language like Java or SQL). NLP can allow
retailers to request detailed information about a specific store, product, shipping method
or other topic without touching a PC.

Robotics. Involves full-scale automation of tasks traditionally performed by humans.

Warehouse picking and packing, for example, can be performed by robots.

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AI’s Growth
Machine learning first became a scientific
discipline in the late 1990s. But it did not
seriously take off until the 2000s. Growth was
fueled by access to huge amounts of real time
Big Data and the emergence of algorithms
that make sense of that data for productive
output. AI is continuing to grow, touching more
industries and functions every day.
To date, much AI retail activity has revolved
around machine learning in e-commerce,
particularly for search analysis, product
recommendations, promotions and analyzing
consumer sentiments. Amazon is regarded
as a pioneer here, and it is widely estimated
that 25% of its sales are generated through
recommendation-based product views and
previous purchases. Today, Amazon is even
marketing its easy-to-use, highly scalable search
and other machine learning technologies to
outside parties.
Other e-commerce companies have used search
and recommendation tools for some time. But
 etail and consumer goods
R planogram and product levels.
are among the top five
industries in which AI is
being applied1.
in recent years, e-commerce has reached new
heights by using machine learning to make
functions more comprehensive and specific.
User choices and information can be cross-
referenced in numerous ways. Customers can
locate merchandise faster, more products
are sold per transaction and there are fewer
abandoned carts.
Now, retailers and suppliers are applying AI to
areas outside e-commerce. Demand forecasting
that incorporates machine learning, for
example, allows online and offline retailers to
generate more precise forecasts than traditional
time series approaches. Machine learning also
facilitates warehouse management by helping to
alleviate the over- and understocking scenarios
that can erode a retailer’s bottom line. When
applied to trade promotions management,
AI could help suppliers improve timing,
tracking and other aspects of retail marketing
investments.
NLP is also making inroads by providing
conversational answers in areas including
category management through deep analytics,
data mining and visualization at department,

 2017, the global AI

In
market was estimated at
$2.4 billion. It is expected to
grow at a CAGR of 50% to
over $59 billion by 20252.

 4% of CIOs plan to invest

6
significantly in cognitive or
AI technologies over the
next two years3.

 y 2030, AI will drive

B
Global GDP gains of
$15.7 trillion (14% higher)
through productivity
and personalization
improvements4.

1
PWC 2017 data 3
 eloitte’s 2016 Global CIO survey
D
2
Statista 4
PWC 2017 data

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Top AI Applications in Retail
AI is gaining an important place in retail with
growth expected to reach $40 billion by 2025,
up from an estimated $6.46 billion today. It is
being driven by an increase in customer-centric
initiatives, more social media advertising and
heightened demand for virtual assistants5.
Among retailers, 16% already use some form
of AI, while 20% plan to add it over the next
12 months; another 18% hope to implement it
more than a year from now6. Following are the
leading AI, machine learning and NLP application
areas in retail.
AI in Personalized Marketing
Retailers typically use marketing automation
software or campaign management solutions
to target customers. Applied to CRM data, tools
divide customers into groups according to
shopping behavior, demographics, preferences
or other criteria.
The problem is that rules are chosen based on
the marketer’s human assumptions and leave
significant room for error. The process also
leaves out potentially useful criteria, and it can
be hard to segment customers who do not
correspond to pre-designated buckets. Since
information is historic, shopping behavior,
income and other factors are prone to change.
Machine learning examines a full set of data,
identifies patterns and organizes it into
“clusters” of similar data. Assumptions and
stereotypes about what is important are
bypassed. Rather, information is determined
by the analysis. Trends and connections are
established that might have been overlooked
Usage of AI in personalized marketing
25%
35%
Social sentiment analysis
5
ReportsnReports 7
RIS News, “Closing Big Gaps in Personalization,” October 2017
6
mediapost.com, October 9, 2017 8
Harvard Business Review
by analyzing individual pieces of data
simultaneously, and information can be used to
send highly personalized offers to customers.
But retailers believe personalization still
has a way to go, even though 39% say it is
extremely important7. Most retailers (54%)
gave themselves a low rating for executing
personalization strategies at an omnichannel
level, with just 4% rating themselves as high
overall. The biggest hurdle, said 69%, is lack of
appropriate technologies, followed by managing
across channels (47%).
Analyzing store point-of-sale and e-commerce
transaction history became the standard for
classifying and targeting consumer groups.
Now, advances in Big Data and AI are giving rise
to highly personalized campaigns and other
initiatives without major human intervention.
These engagement tools factor in customer
purchase history, browsing behavior, social
media activity and overall channel engagement.
The biggest difference is that today’s initiatives
target people on an individualized basis, and
with AI, retailers can do this at scale.
Personalization can
grow revenue 5% to
15% and increase
efficiency of marketing
spending by up to 30%8.
18%
28%
Currently use
Plan to use in next
12 to 24 months
Elastic personalized search
Source: 2018 EIQ Retail Innovation Survey
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AI in Trade Promotions Management
In promoting products, CPG companies have
historically made substantial investments with
retailers to boost revenue and/or increase
market share. Today, trade spending represents
more than 15% of CPG companies’ total
revenue9 and continues to grow. Consequently,
spending volume has increased dramatically,
and trade promotions have become more
complex and harder to manage.
What is more, it currently takes the average
business user four weeks to understand if a
trade promotion was effective10. Yet 72% of
promotions fail to break even11, and many new
products fail.
Improve promotion precision with NLP
By layering on NLP, consumer goods
companies can facilitate experimentation
with trade promotions criteria. They can
verbally ask, for example, how results
could differ if a promotion is run in
July versus August. The answer is
immediate and does not require
using a PC or running massive
calculations. And they avoid
expensive risks.
Given the time and money invested in Research
& Development, this feedback can go a long
way when it comes to trade funds marketing,
determining actionable price points,
tweaking items and recognizing
market voids that could be filled
by new products. And it can yield
results faster and at a lower cost.
Usage of AI in trade promotions management
37%
27%
Pricing optimization
9
 rade Promotions
T 10
 onsumer Goods Technology,
C 11
Management “Tech Trends 2017: Redefining
Association, 2017 Trade Promotion”
5
According to the Trade Promotions Management
Association’s website, the industry has been
reluctant to adopt new technologies. Roughly
60% of companies still use manual processes
and spreadsheet applications or proprietary
software. Thus they lack real-time, accurate and
meaningful insights for planning, managing and
optimizing trade promotions.
AI and analytics can provide promotion-related
insights and guidance to channel managers,
category/brand managers and financial teams to
help allocate trade fund dollars more wisely and
alleviate margin erosion.
NLP also recognizes natural, written language.
Using sentiment analysis, it can determine
whether consumer reactions to products are
positive, negative or neutral. Given the hordes
of posts consumers make daily on social
media, blogs, e-commerce sites
and other platforms (including CPG
companies’ own social media sites),
manufacturers have a wealth of
information to draw from.
MarketsandMarkets.com predicts
the NLP market will roughly double,
reaching $16 billion by 2021 at a
CAGR of 16.1%12.
30%
32%
Currently use
Plan to use in next
12 to 24 months
Promotion optimization
Source: 2018 EIQ Retail Innovation Survey
 ielsen price/
N 12
“ Natural Language Processing Market by Type
promotion Technologies by Deployment Type, Vertical &
survey, 2017 by Region - Global Forecast to 2021,” July 2017
AI in the Supply Chain
Machine learning has an important place in also be facing a multitude of challenges related
the supply chain, particularly when it comes to to warehouse and DC management. In order
demand forecasting. With traditional planning to ensure successful execution, companies
methods, demand forecasts are not always need to take an end-to-end view of the supply
accurate. This leads to out of stocks, overstocks chain, managing the relevant trade-offs and
and products being returned to vendors. It also synchronizing planning and logistics to drive
creates unhappy customers and makes retailers value. Adoption of machine learning in mapping
unable to attain financial goals. varied demand patterns and scenarios for more
Machine learning helps forecast inventory, effective inventory optimization and channel
demand and supply in that predictions are allocation could become an important step in
not based solely on historic data. Rather, the timely replenishment and efficient logistics.
technology predicts what will sell, driving
enhanced forecasts based on real-time data
using demographics, weather, performance of
similar items and even online reviews and social
media. Predictions can be made by store, SKU,
size, color and other criteria.
Machine learning even helps identify and
correct data errors and risks in the supply
chain, elevates insights from the Internet of
Things devices in the field and plans logistics.
This optimizes delivery of merchandise while
balancing supply and demand, making human
analysis unnecessary.
Issues stemming from inventory management
or, more broadly, supply chain planning can
have a profound effect on logistics operations.
For example, a retail company that is developing
an omnichannel strategy struggles to manage
the complex trade-offs between demand
forecasting, inventory orders, channel allocation
and logistics costs and capacities as it tries to
respond to customer demand. Retailers may

Usage of AI in supply chain management

33% 52% 41%

31% 22% 24%

Currently use

Plan to use in next

Demand forecasting Inventory planning Replenishment 12 to 24 months

Source: 2018 EIQ Retail Innovation Survey

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AI in Assortment Planning
Historically, planning a retail assortment This is particularly valuable for retailers. They
involved looking at the previous year’s sales data can determine how the same or similar items
to see what performed well and what did not, are performing elsewhere, give them a ranking
then factoring in new fads and trends to come and decide if they want to order them, how
up with the right mix. The result would be a many to order, how long to feature certain
combination of brand new items that followed items, what stores to offer them in and other
the latest fad, a few timeless perennials and criteria.
some of last year’s mix for those customers who As a measurement tool, online reviews are
were not quite ready for a change. particularly valuable. Unlike a focus group
The problem is, the consumer population and or other study, they voluntarily come from
its tastes and habits are a constantly moving individuals who have actually purchased
target. The teens who shopped this retailer last a product. And consumers take them very
year may have gone off to college. Or, if the seriously:
target was working professionals, changes in the
job market may have impacted their spending
habits. Whatever the reason, historic data talks
about yesterday’s customers. If two similar products
have the same rating,
AI-influenced algorithms can predict the most
shoppers will purchase the
relevant items to add to a retailer’s inventory by one with more reviews13.
analyzing the product assortments of competing
retailers and brands, then comparing those 97% of shoppers say
products to the demographics and shopping reviews influence their
history of that retailer’s customers—in real- buying decisions; 92%
time. Some tools can even predict the ebb and hesitate to buy anything
flow for each particular product over the next if no customer has
30 days, including demand changes by both reviewed it14.
percentage and item count.
Machine learning can also be used to 73% of shoppers say
“read” customer reviews on social media or written reviews impress
them more than star or
e-commerce sites. A machine learning algorithm
number ratings15.
can be taught to categorize posts or look for text
patterns, and AI can even detect foul language
and fraudulent reviews.

Usage of AI in assortment planning

47% 46%
21% 26%

Currently use

Plan to use in next

Merchandise management Customer/consumer insights 12 to 24 months

Source: 2018 EIQ Retail Innovation Survey

13
 sychological Science study,
P 14
 an & Fuel Digital
F 15
Deloitte
August 21, 2017 Marketing Group

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Conclusion
AI is still in its infancy. By 2020, however, 85% of
customer interactions will be managed by AI16.
Thanks to Amazon and other cutting-edge
retailers, AI has already made major inroads in
e-commerce, particularly when it comes to more
pinpointed product recommendations. This
online personalization trend will only intensify
as e-commerce continues to grow, customers
become even smarter and more demanding and
AI applications like visual search and NLP digital
assistants become more widely understood and
applied.
In some other areas mentioned in this report,
AI has a long way to go in terms of uniform
and consistent adoption. But with the cost
of bringing products to market and the high
failure rates, retail and CPG companies in
particular have much to gain by applying the
technology to trade promotions management
and personalized marketing. AI is also gaining
ground in assortment planning, supply chain
management and product development where
an endless loop of forecasting continually
adjusts inventory levels. This alleviates
inconsistent inventory buys, overstocking,
understocking and consequent margin erosion.
It also creates happy, loyal customers who keep
returning due to more relevant assortments and
new products, thus ultimately driving overall
shopper satisfaction.

Symphony RetailAI is the leading global EnsembleIQ is a premier business

provider of Artificial Intelligence-enabled
decision platforms, solutions and customer-
centric insights that drive validated growth
for retailers and CPG manufacturers, from
customer intelligence to personalized
marketing, and merchandising and category
management, to supply chain and retail
operations.
More at www.symphonyretailai.com
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16
Gartner