THE STATE OF RETAIL: AN AI REALITY CHECKExclusive report from Revionics in partnership with Retail Leader

The phrase “digital divide” arose dur-ing the early days of the internet to describe the gap between those with fast and reliable internet connections and those without. That gap has long since closed thanks to the widespread availability of broadband connections and a proliferation of mobile devices. However, a new divide has emerged and it affects retailers.

The existence of an “AI divide” among retailers is creating competitive disparities when it comes to the usage of data for optimal decision-making.

Although artificial intelligence is not a new concept in retail, there is wide variation in retailers’ understand-ing and usage of AI and their level of sophistication to create value. At one extreme are highly sophisticated early adopters and at the other are those with a limited understanding who’ve yet to embark on their AI journey.

This AI divide, along with the related opportunities and challenges, are revealed in The State of Retail: an AI Reality Check, a landmark survey of retailers commissioned by Revionics.

There has been tremendous hype around artificial intelligence in recent years. So much so that the AI acronym could just as easily be used to describe the angst and intimidation that exists among retailers. The most ad-vanced users of AI who are already realizing benefits have nagging concerns about the pace of change and whether they are mov-ing fast enough. Meanwhile, those who are earlier in their AI journey or have yet to begin are challenged by where and how to begin.

Regardless of a retailer’s sentiment concerning AI, The State of Retail: an AI Real-ity Check brings clarity to the issue of this transformational technology by:

• Exposing retailers’ understanding of AI.

• Assessing perceptions of AI’s ability to create value.

• Identifying adoption and where retailers are creating value today.

• Revealing which industry sectors are furthest along the AI adoption curve.

• Providing actionable information to help retailers chart their AI path forward.

The State of AI in Retail

Organizations Still Don’t Understand AIDoes Your Organization Have a Good Understanding of How AI Pricing Works?

YESJUST 20%NO

80%

WHAT IS AI PRICING?

AI pricing:

• Incorporates shoppers’ purchasing behavior.

• Contains guardrails of +/- price change amounts, but also has guardrails around min/max revenue and profit change.

• Assesses the invest-ment trade-offs on financials.

• Invests against competitive price changes that truly affect demand.

• Keeps pricing strategy for categories aligned.

Source: Revionics, State of Retail Pricing Study, July 2019

73% 50%Is AI Making the Difference?Adopt or Risk Falling Further Behind

of retailers with an optimistic outlook have started their AI Pricing Journey.

of retailers with a pessimistic outlook have no plans to purchase AI pricing.

Source: Revionics, State of Retail Pricing Study, July 2019

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Global Survey DemographicsIndustry

HOW WE KNOW WHAT RETAILERS THINK

Revionics surveyed 155 retailers in July 2019 to gauge their understand-ing of AI’s usages and benefits — both real and perceived. The executives who participated en-compass a range of AI practioners and senior executives at retailers with annual sales ranging from $300 million to more than $5 billion across all sectors of retail. This ex-pansive sampling provides a unique view of the state of AI in retail, especially as it relates to the use case of pricing.

Revenue

Seniority

Automotive

Electronics

Drug/Beauty

Convenience

Home Goods

Home Improvement

Apparel & Accessories

Grocery

Specialty

Manager or Sr. Manager

2.15%

70%

60%

50%

40%

30%

20%

10%

0%VP / Director /

Sr. DirectorAnalyst, specialist or other

individual contributor

4.26%

4.26%

6.36%

12.77%

12.77%

19.15%

19.15%

19.15%

21.57% 19.61%

58.82%

37.25%

39.22%13.73%

9.80%

>$5 Billion $1-5 Billion $700-999 Million $300-700 Million

Source: Revionics, State of Retail Pricing Study, July 2019

AI FOR ALL — NOT YETAI has quickly become ingrained in the retail vernacular, but its adoption among retailers is far from universal. In fact, taking a step back, the concept of AI at the enterprise level isn’t well-understood throughout the industry, es-pecially as it relates to pricing and promotion.

This lack of understanding, and by exten-sion the potential for value creation, can lead to AI adoption challenges. The research also shows how retailers’ views about the overall state of the industry and their prospects within it are shaped by AI understanding

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and investment expectations. For example, among those who reported their organi-zations have an optimistic view of retail, nearly three fourths reported they had be-gun their journey to leverage AI for pricing purposes. Conversely, roughly half of those who expressed a negative outlook for retail said their companies had no intention to invest in AI-driven pricing capabilities.

This disparity of outlooks speaks to the AI divide phenomenon revealed by the retail-ers’ survey responses.

New challenges abound in the vibrant retail industry. Shoppers continue to spend money; but where they spend it, how they spend and what they purchase continue to evolve. That’s the nature of the industry. But just as shopper behavior continues to evolve rapidly, so too do retailers’ techno-logical capabilities to analyze data, sense demand and make more precise strategic decisions that satisfy customers and gen-erate profit.

This is the promise of artificial intelli-gence and it is changing everything about retail and retail decision-making. Yet, a large divide exists between the AI haves and have-nots, with some companies leveraging advanced technologies and oth-ers still reliant on manual processes. This divide extends to perceptions of AI, plans for its usage and expectations of value that will be derived from usage. For example, 40% of surveyed retailers conceded it isn’t possible to mine data without AI while 70% who are already using AI are achieving measureable results.

When it comes to achieving results, three

key areas highlight the divide between those who use or plan to use AI and those who don’t have plans. Those who were surveyed were asked how AI helps retail-ers with their ability to align prices with customer preferences, understand the complexity of the competitive landscape and manage expense pressures. There were striking differences reported depend-ing on which side of the AI adoption and utilization curve a retailer fell.

The reason for the disparity in viewpoints on these key areas has everything to do with the following: AI pricing users and those on the path to using tend to gain awareness of the potential of AI as they gain familiarity and begin to exploit its full capabilities.

The low-hanging fruit with AI pricing is found in the sweet spot between customer demand and competitive prices where re-tailers can set prices consistent with their value proposition. Retailers don’t want to needlessly give away margin by pricing too low or hinder demand and potentially their brand image by pricing too high. AI pricing helps retailers make that call and it is

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AI Divide = Value Divide

40% 70%There is a Divide in Retail PricingAdopt or Risk Falling Further Behind

of retailers DON’T FEEL IT’S POSSIBLE to mine the vast amounts of data available today without AI.

of retailers using AI pricing are already RECEIVING MEASURABLE RESULTS.

A large divide exists

between the AI

haves and have-nots.

Source: Revionics, State of Retail Pricing Study, July 2019

recognized by those who already own or plan to invest in AI pricing solutions.

Another area where retailers feel AI pricing helps is with expense management. This use case was heightened dramatically due to the situation with tariffs which created new supply chain dynamics with huge impli-cations for pricing. With AI pricing solutions, the regular cost changes that are coming from suppliers can be absorbed or mitigated while opportunities to drive margin perfor-mance in other products in that classifica-tion are identified.

Another use case and reason for optimism among survey respondents is the ability to make in-season promotional adjustments. AI pricing can take existing market and customer data and identify those items in a category where price adjustments can be made and

category performance expectations reset.In addition, there are opportunities related

to short duration seasons where retailers are getting in and out of product categories or items quickly. AI pricing solutions closely monitor the performance; and, because they are prescriptive in nature, they can identify products that may be underperforming and recommend proactive actions such as taking earlier markdowns.

Not to be overlooked are the organization-al and transparency benefits of AI pricing. By consistently and effectively measuring the impact of pricing and promotion actions, and by surfacing the information with visu-alization capabilities, senior management and the merchandising organization are able to see the contribution the pricing organiza-tion is making.

Retailers don’t want

to needlessly give away margin by

pricing too low or hinder demand and

potentially their brand

image by pricing

too high.

Creating a Divide in ValueHow AI Pricing is Helping Retailers

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

82%

Help us adapt to the pace at which shoppers’ purchasing

preferences and habits fluctuate.

Help us against a growing range of competition.

Help us against rising costs.

48%

74%

38%

55%

14%

Own or plan AI pricing in next 6-12 months Do not plan

Source: Revionics, State of Retail Pricing Study, July 2019

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The State of Retail: an AI Reality Check re-vealed the existence of an AI divide on many levels. However, like the consumer internet previously, this gap is expected to narrow over time based on the sentiment of survey respondents. Retailers overwhelmingly believe (71%) that AI pricing helps them win against the competition, and a key way in which they win is by mitigating costs (53%).

Despite retailers positive views of AI pricing, survey results suggest that the pace at which the AI divide closes could be measured and will persist in some areas longer than others. For example, among the retailers surveyed, 57% said they had no plans to use AI-based pricing solutions. These companies fall into the laggard camp and will be disadvantaged relative to the 29% currently using or 14% who intend to use AI-based pricing solutions.

OPPORTUNITIES AND CHALLENGES Retail has always been an industry charac-terized by leaders and laggards, so it’s not surprising some companies have embraced the latest technologies while others have been slower to adopt new approaches to data-driven decision-making. This phe-

nomenon is evident across channels with research showing varying rates of adoption among industry verticals.

Regardless of where a company is on its AI journey, a fundamental issue all confront is whether to build or buy an AI solution. On this point there is a clear consensus; only 6% of retailers surveyed view the in-house develop-ment of AI pricing solutions as a viable option. The logic behind supporting the purchase of a solution is quite clear. Building a solution represents a significant challenge even taking into consideration the great democratization of AI technologies and availability of toolkits. An experienced IT team could build and train an AI solution, but doing so requires experi-mentation, learning and production.

Beyond that, there are issues related to maintenance, to ongoing innovation that ensures best-in-class capabilities, and to the storage and computer power required to oper-ate the solution. An often overlooked consid-eration with the build option is the importance of an easy and intuitive user interface that will drive usage at all levels of the organization.

Any one of these challenges is problematic; but taken collectively, it’s why in the build vs. buy debate there really is not contest.

Advantage – AIAdopt or Risk Falling Behind

The Path Forward with AI

71%

53%

believe AI pricing helps them win against the competition.

of those imple-menting AI Pricing report it is helping mitigate against rising costs.

29% 57%Currently using AI-based pricing solutions.

Have no plans to use AI-based pricing solutions.

Gaining the AI AdvantageHow AI Pricing is Helping Retailers

14%Plan to use AI Pricing in the next 6-12 months.

Source: Revionics, State of Retail Pricing Study, July 2019

Source: Revionics, State of Retail Pricing Study, July 2019

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Ultimately, AI pricing works because of the way shoppers shop — which is based on price. Countless studies document the importance of price, including a 2017 study Revionics and Forrester conducted that, again, validated that price is the number one factor determining where shoppers decide to make purchases.

What’s less obvious — and where AI pricing solutions play a huge role — is that most people don’t make purchases only at the low-est possible price. Only 17% of shoppers do so, according to the Revionics and Forrester re-

search. That means retailers only have to offer extremely competitive pricing on select items to entice shoppers. Once engaged, AI pricing helps retailers manage margin and expenses on other items to optimize profits.

AI is here and industry leaders who’ve adopted the technology to enhance pricing decisions and drive profitability are moving fast. Other retailers, moving at a more mea-sured pace or not at all, risk falling further behind as technology, and the value it cre-ates, marches onward.

Making the AI Move

Why AI Pricing?

factor when deciding where to shop.

Shop Around

#152%Across all

verticals PRICE is the

Receive promo-tions weekly or monthly that they would have paid full price for.

81%

They look for the price they are willing to pay.

AI Pricing Adoption by Industry Planning to use in next 12 months Already implemented

100%90%80%70%60% 50% 40% 30%20%10%

0%

Pet food

and supplies

Home

Improvement/D

IYHome

furnishings

Personal ca

re/

beautyAutomotiv

e

Groceries

Apparel/

accesso

ries

Convenience

Household

essentia

ls

Electronics

40%

0%

33%

22%

42%

16%

44%

22%

35%

35%

40%

37%

42%

38%

44%

38%

50%

36%

40%

50%

Source: Retail Success Requires Personalized, AI-Driven Pricing Strategies, A Forrester Consulting study commissioned by Revionics, August 2018

Source: *Understanding Retail Customers’ Pricing Expectations and Tolerances, and Demystifying Price and Promotion, May 2017 and September 2017 commissioned studies conducted by Forrester Consulting on behalf of Revionics.

AI is here, and industry

leaders who’ve adopted the technology to enhance

pricing decisions and drive

profitability are moving

fast.

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Predictive. Prescriptive. Profitable Retailing.

ABOUT REVIONICS: As a provider of SaaS-based pricing, promotion, markdown and space solutions, Revionics helps retailers in all segments across the world improve top-line sales, increase customer demand and optimize margins. Revionics’ customers gain a competitive edge and improve their value proposition while outmaneuvering competitor price aggressiveness.

Learn more at www.Revionics.com.