AI can be transformative but will only deliver a return on investment when harnessed with human intelligence, writes Brian Kalms

As customers head to the high streets and online to wrap up this year’s seasonal shopping, retail leaders could be forgiven for hoping for a gift from Santa themselves.

The double whammy of inflation and interest rate rises has tightened consumer belts by a notch or two, and this could persist well into 2024. A recent AlixPartners survey of intentions for the holiday period suggests pulling back on spending this year, with an overall shift to more pragmatic spending also likely in the 12 months that follow.

Additionally, the digital equivalents of a Christmas staple – cookies – will begin to crumble in 2024, as third-party cookies are phased out to aid the pursuit of greater consumer privacy online.

“They may not have real money to spend but these virtual consumers can help retailers anticipate market trends and responses to new products”

So, could it be AI instead that comes to the rescue, as industry players face the prospect of life without the critical audience data that cookies provide?

AI has exploded in the public consciousness this year with the mainstream hype surrounding generative AI (GenAI), in particular. But businesses have wrestled with the technology for years. Some have jumped in head first, while others wait and see to avoid expensive blind alleys.

There’s little doubt that it can be transformative for companies – areas such as contact centres, software development or content creation all present huge opportunities for speed, efficiency and effectiveness in customer service, tech innovation and marketing. In a world where digital blinkers are soon to be applied, could GenAI-enabled ’synthetic consumers’ shine a light on the consumer preferences of the future?

They may not have real money to spend but these virtual consumers, informed by real-world inputs, can help retailers anticipate market trends and responses to new products, pricing strategies or marketing messages. Like smart factories or ‘digital twins’, the information gathered from synthetic consumer behaviour modelling can be infused across other business areas including logistics and returns – both of which present persistent challenges for retailers.

The case for analogue intelligence

Behavioural economics professor Dan Ariely describes consumers as “predictably irrational”. Will synthetic consumers be able to close the gaps between existing data sets to find hidden patterns in this apparently irrational behaviour? Will all the answers become instantly, automatically, clear? For example, is the age of A/B testing in marketing behind us if we can immediately optimise messaging for individuals rather than customer segments?

The answer is: possibly. Unfortunately, AI is not the gloriously gift-wrapped silver bullet that retailers may wish for and it will require the other ‘AI’ – analogue intelligence, the human brain – to harness its full potential.

Real-world insights should not be cast aside – they’re real. There are inherent risks, too, from machine learning biases skewing representation demographically or regionally, to past customer behaviours informing future ones that may prove off-base in the increasingly disrupted world we live in.

The digital maturity of an organisation will be key. The synthetic customer is GenAI-focused and requires an advanced AI and analytics team working with high-quality, robust data to build effective models.

“AI will only deliver ROI with human intelligence effectively harnessing it”

For those less advanced in this field, a strong customer proposition, robust consumer insight and credible customer segmentation remain important foundations to enable a move into the realms of GenAI and its synthetic consumers.

Again, ‘traditional AI’ is not a step you can simply skip over to benefit from the next big advance in tech. And, of course, your customers – the lifeblood of retail revenue – must respond positively to any AI-driven actions you take and investments you make.

Back in reality, a mantra of ‘practical digital’ must be applied in response to cookies crumbling and consumer behaviours changing, guiding how you use any new tools to achieve practical and ultimately profitable business outcomes. AI – and digital technology at large – will only deliver ROI with human intelligence effectively harnessing it.

Another of our studies revealed that only 20% of retail executives think innovation is an important attribute in digital leaders. Given the bold moves their competitors will make in AI and other technology in 2024, perhaps this human characteristic is what should be topping retail leaders’ Christmas lists this year.