How Tesco is using AI to gain customer insight

UK retailers are increasingly using big data, predictive analytics and machine learning to gain insight into customer shopping and buying behaviour. With this insight, they are able to sell more products and better meet the needs of their customers in a quickly changing retail environment.

Over 60% of UK millennials say they appreciate retailers who use artificial intelligence (AI) to offer them products that are more interesting. And Gartner estimates that by 2020, more than three-quarters of retail customer interactions will be handled by AI agents.

In the rush to offer e-commerce convenience, prices fell fast and retailers lost the ability to differentiate brands based on value. Big data and machine learning helps them regain control by showing how customers actually shop and buy, so they can adapt selling efforts to customer need and expectations.

Retailers are beginning to tap into the reams of data they generate every day and use that information to better structure their sales and distribution network.

>See also: A shopping machine: AI and the future of retail

For example, Tesco has always been a leader in using data to track customer buying behaviour and has a strong online presence. Now they are leveraging the power of big data, analytics and the Internet of Things. They plan to improve their use of data in order to deal with constantly changing customer buying patterns and to battle growing competition.

Many of their ideas are forged in the Tesco Labs, where researchers determine which new technologies will help the grocery giant fight competitors such as Amazon, which has highly refined data strategies. Tesco Labs tests multiple projects simultaneously and has evaluated a number of technologies in such wide-ranging disciplines as mobile apps, the connected home, and augmented and virtual reality.

It’s a time of creative research for the company as it finds ways to evaluate the myriad data technologies and approaches available to it, seeking the optimal techniques that will keep it ahead in the future. For instance, it is closely monitoring buying behaviour, such as how many people shop in a store, how often those same people return and what leads up to the purchase of various products. Tesco wants to find out what buying behaviours take place before individual products are purchased and which products are purchased together.

The company uses cutting-edge data manipulation technology like Hadoop, which harnesses distributed storage and processing of huge data sets to analyse millions of data points quickly. By centralising the Hadoop framework, company managers can draw insights from the data no matter where the store location is around the world. It is accessible to any division when they need it. The company is in the process of combining their legacy systems with newer technology to get the most of both worlds.

Another UK retailer embracing big data is Paperchase, a high-quality stationery vendor using analytics to understand customer buying patterns. The company relies on the information to make better strategy decisions and improve customer engagement.

The coffee shop chain Honest Café offers healthy, organic food and drink items from self- service kiosks. It is deploying analytics software to see more clearly how customers use their service and to get a better idea of customer demographics.

Scotland-based Clear Returns uses special software to help retailers cut down on “wear and return” shoppers who bring items back after using them, never intending to keep them. This fraud costs retailers billions of dollars in lost business — many write it off as the cost of doing business in a hyper-competitive market.

Clear Returns’ SaaS model integrates predictive analytics with retailers existing systems to analyse the distribution of every item sold in an effort to understand return patterns and behaviour. By getting a clearer picture of why and how product returns take place, Clear Returns gives its clients the ability to focus on high-value customers, helping them bring down the rate of returns and better optimise their product selection.

>See also: Retail: the next big industry impacted by AI

The largest home shopping company in the UK, Shop Direct, uses big data and AI to create a better, more personalised customer experience, especially on mobile devices. Company leaders told Retail Week magazine they believe AI will change the face of retail, whether retailers are ready for it or not.

As an example of customer communication, Shop Direct uses AI to determine how often and through which channels it should communicate with customers. The company can also figure out early on why and when a customer will stop shopping with it and take preventive measures to keep the customer in the fold. As a result, Shop Direct’s conversion rate is 4%, well above the average retail conversion rate of 2.8 percent. Future plans include expanding its use of augmented and virtual reality.

Big data will also prove valuable in the wake of Brexit. As retailers shift their strategy and try to better differentiate themselves from competitors, the access to big data and analytics will play a big role. Data insight for retailers will be critical to deal with challenges such as increased labour costs and changes in trade policies.

In today’s retail climate, which is influenced both by shifting consumer behaviour at the retail level, as well as the rapid rise of e-commerce, retailers must continue to stay on the cutting edge of technological change. By combining their current expertise with the emerging power of big data, predictive analytics and machine learning, they will thrive in the coming years.

Sourced from Jennifer Roubaud, UK and Ireland country manager, Dataiku

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...