Predicting Profitability for Retail in 2024: The Key Differentiators
Navigate the evolving retail landscape with AI, personalization, and sustainable practices.
Unlock the secrets to retail success in 2024 with insights from Sven Denecken, SVP at SAP Industries & CX. Dive into the intersection of AI, personalization, and sustainability, shaping the future of retail.
Despite stubborn inflation and increased borrowing costs, US shoppers kicked off Cyber Week with a bang, defying some predictions that consumers would pull back on their holiday spending this year.
Will this strong start continue through the holiday season, or will shoppers continue to feel the squeeze of the rising cost of goods? Predictions on consumer spending throughout the holiday season are mixed, with Deloitte, the National Retail Federation, and PwC expecting consumers to potentially break spending records while others, like McKinsey & Co. and the Conference Board, give more cautious outlooks.
As shoppers expand their holiday shopping window and prioritize price as their primary motivation, the critical question becomes: how can retailers maintain profitability throughout this holiday season and into 2024?
Brands that will achieve profitable growth this holiday season and continue to thrive well into 2024 will focus on delivering intelligent, personalized customer experiences by:
Embracing Reliable, Responsible, and Relevant Artificial Intelligence
AI opportunities are limitless, and adopting new technologies is exploding. The market size of AI in retail alone is expected to grow from $7.3 billion this year to $29.45 billion in 2028. But are companies and consumers ready for it?
According to Gartner, 45% of more than 1,400 executive leaders reported they are piloting generative AI, and a significant amount of investment in generative AI is focused on marketing, customer service, and IT functions. Many business leaders believe the benefits of generative AI outweigh its risks, likely because even modest investments in specific AI-use cases can generate up to 6% more revenue.
But, many consumers don’t necessarily share the same excitement for generative AI technologies. While 77% of shoppers prefer brands that personalize customer experiences, according to SAP Emarsys, 63% want retailers to strike a better balance between collecting data and improving shopping experiences. However, data and AI are critical in delivering the personalized experiences consumers crave.
Despite this disconnect, embracing AI in 2024 will be critical for both. The most successful brands will need to educate consumers on the value of data and AI and deploy it in a reliable, responsible, and relevant way. Reliable means applying the right data to the right model to improve accuracy and generate more relevant content, deals, and products for customers. Responsible means prioritizing data privacy, cybersecurity, and personal data protection by adopting unified identity profiles, creating frictionless, omnichannel experiences, and using real-time AI security, fraud detection, and activation. Finally, relevant means AI is embedded across your business to ensure the insights it provides help prioritize the right customers and make the best decisions for your business.
AI is only as good as the data that powers it, so brands must ensure they aren’t relying on data pulled from one siloed system. To truly maximize the value of AI, it needs to draw data from connected systems, bridging operational and contextual data from across an entire organization, as well as third-party data. AI-powered insights drawn from this wealth of data make brands truly intelligent, giving a complete picture of their customers and organization so they can make better business decisions and deliver personalized customer experiences that differentiate the brand and build loyalty.
See More: Power of Connected, Personalized Immersive Experiences
Adopting a Customer-centric Mindset and Prioritizing Personalization
It’s no secret that winning repeat customers and building long-term loyalty is critical to business success. But as cash-strapped consumers have more options, longer shopping seasons, and prioritize getting the best deal, customer loyalty is in decline.
Only 66% of global consumers said they were loyal to a particular brand, a 10% decrease from 2022 and the lowest figure since the SAP Emarsys Customer Loyalty Index launched three years ago. On top of customer loyalty decreasing, customers also expect brands to do more to maintain their loyalty: 43% of respondents expected better prices as loyal customers, and 46% expected loyalty to be rewarded by exclusive offers.
But are companies delivering what shoppers demand when it comes to customer experience? Not entirely. Nearly 50% of US marketers thought they delivered an “excellent” customer experience, but less than 22% of consumers agreed, according to research from The Harris Poll.
Successful brands in 2024 will embrace customer centricity and provide amazing customer experiences by focusing on personalization across a customer’s entire journey and providing more value-adding experiences and tailored content like rewards, discounts, custom recommendations, and speedy checkouts. To accomplish this, brands must embrace data and use insights from across their entire enterprise to gain a deep understanding of their customers. A holistic view and alignment of operations, products, marketing, services, and sales will allow brands to target the right product to customers at the right time on the right channel. This level of personalization allows brands to create truly tailored experiences NOW and anticipate customer needs and desires in the future.
Differentiating with Sustainable Business Practices
In today’s hyper-competitive economic environment, brands must continue differentiating themselves. While most brands have sustainable aspirations, sustainable actions will be an increasingly important point of differentiation in 2024.
Approximately one-third (32%) of US consumers would switch from a brand they were loyal to because of its sustainability practices, according to a recent survey from SAP Emarsys. Gen Z and Millennial customers especially prefer sustainable products. They are 27% more likely to purchase a product from a brand when they believe it cares about its impact on the planet than older generations.
In 2024, organizations that grow profitably must ensure that brand and consumer values are deeply aligned – particularly regarding sustainability. That means embracing sustainable products and adopting a circular commerce business model that generates revenue from existing products through returns, extends customer lifetime value, and promotes more sustainable consumption.
Once again, brands will need to ensure they have the right technology to integrate into systems and processes. This integration will enable brands to discover insights that track actual carbon emissions across every department, product, and component that make up their full supply chain and provide the level of transparency customers demand.
Only time will tell how consumer spending will ultimately play out this holiday season, into next year but all signs point to profitability and personalization again taking center stage in 2024. While customer expectations and the economic climate will continue to shift rapidly, profitability won’t be elusive for the brands that align brand and customer values by truly embracing intelligence and personalization. By adopting and deploying AI (and the right data to power it!) in a reliable, relevant, and responsible way, as well as differentiating with transparent, sustainable business practices and adopting a customer-centric mindset, brands can ensure they stand out in a crowded field, creating unwavering brand loyalty that drives profitability despite continued economic uncertainty.
How can your brand leverage AI, personalize experiences, and adopt sustainable practices to thrive in 2024? Let us know on Facebook, X, and LinkedIn. We’d love to hear from you!
Image Source: Shutterstock
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