The Age of the Algorithm: What it means to retailers and how to respond
For the last few years, regardless of the industry we look at, the notion that we moved to the Age of the Consumer, is indisputable. Nowhere has the disruption been more evident than in retailing, with consumers empowered by online tools and mobile devices to shop in any way they want. As we know, retailers have been adapting to this sea-change for many years.
Whilst this change was enabled by ubiquitous connectivity, we’re now starting to see another change to the landscape that is enabled by something else – that of real-time data coupled with artificial intelligence (AI) and automation. These technologies are not new – banks have used high-frequency trading systems for years to buy and sell shares at optimum prices in milliseconds, for example – but they have not been available at low-cost to consumers until very recently. Many retailers have been hugely successful in harnessing data to understand customers and build new models of value exchange using loyalty programmes. But arguably, these approaches still place the balance of power in the hands of the retailer, something that consumers are increasingly resisting.
Customers are blocking retailers already
How are they resisting? Apart from the obvious signs of consumers holding more than one loyalty card[1], likely for the same category, we are seeing consumers use technology to gatekeep from those who want to promote and sell. It started years ago with spam filters on email and more recently with adblockers, with research[2] showing that up to 40% of mobile users now install them on their browsers, cutting off another channel of communication for retailers.
Of course, you can still promote to consumers if you have them use your app but consumers tend not to use apps for shopping and the trend is moving towards virtual personal assistants like Siri, Alexa and Cortana being the new apps that broker interactions with services. Is it so far-fetched to see consumers instruct a bot to shield them from irrelevant promos from retailers? Furthermore, is there any point in promoting to people when it’s the bots that have the power? Imagine if your retail bot chats directly to consumers’ personal bots, and not consumers themselves, most of the time?
Message me about clothes that my favourite celebs are posting on Instagram, that are discounted by more than 40%.
Margin erosion at an industrial scale isn’t inevitable
Instead of fearing another cycle of race-to-the-bottom discounting, consider whether this change opens new opportunities to aggregate customer preferences in a different way. Perhaps it can help to define new service models, deliver a better-targeted product mix and optimise promotions with personalised pricing? Once customers have their preferences defined by their assistants, there will be new insights that can be used to personalise experiences, which can be an effective response to discounting.
Of course, not all consumers select retailers solely on features and price – even if they do, inspirational experience still counts and will be more important as transactional processes become friction-free. Importantly, retailers will need to differentiate in different ways if the purchase process tends to zero effort as assistants become more common. For this reason, the disruption brought by personal assistants is still to come. If Alexa or Cortana can search for the product that’s best for a customer, across all retailers, the direct interaction with the retailer at point-of-purchase becomes obsolete. And as a retailer, you need to start segmenting your market by bot preferences, which may not necessarily be defined by actual human behaviours but by AI-created needs.
Engage your customers’ assistants to redefine convenience
When we’re able to a build wider ecosystem that is coupled with artificial intelligence, a more transformative customer experience can quickly be realised. In the not-too-distant future, the personal assistants will be trusted to make decisions for customers – and inform retailers to auto-fulfil when the moment is right – call it machine-buying, if you like.
Send me five outfit choices that I’ll like, by next Wednesday, for a party I’m going to at the end of the month.
This might sound like science fiction but the components to build it are available now. When it comes to experimenting, retailers can start to publish APIs for the retail operation for these personal assistants – and not just for opening hours – perhaps also try real-time stock availability, review ratings, pricing, location and appointment booking – and let anyone use them. In time, someone will build a “skill” on the existing ecosystems, even if you don’t.
No-one underestimates the leap of faith needed to do this – why would you expose data that might place you at a disadvantage? It’s likely that customers already know if stock availability and pricing are routinely sub-par and the focus should be to improve that rather than hide it. Experimenting early builds mindshare of your brand with consumers on these new platforms.
Next, find ways to make sense of how customers use these services and you’ll build insights you didn’t expect. Join this to other data sources like weather, big events, even traffic. Maybe that will allow you to optimise pricing and availability based on predicted real-time events.
Age of the Algorithm = Age of the Consumer, Redefined
Fundamentally, this new form of convenience and real-time trading delivered by assistants is just an evolution of consumers’ desire for shopping on their terms, so perhaps we haven’t seen the end of the Age of the Consumer after all. It is just being rebooted. It took years for retailers to adjust to the last wave, a luxury that’s unlikely to be available this time around.
At Microsoft Services, we help organisations to reimagine new ways of using technology in meaningful ways, taking our customers through a design-led process that helps to imagine the future, clearly aligned to business value, and deliver visualisations and prototypes to bring them to life with users.
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[1] British consumers love owning loyalty cards... but not using them, Campaign, http://www.campaignlive.co.uk/article/british-consumers-love-owning-loyalty-cards-not-using/1417821 [2] 2017 Adblock Report, Pagefair, https://pagefair.com/blog/2017/adblockreport/
