The transformative potential of artificial intelligence (AI) in the consumer sector is evolving from theory to action. AI is poised to be a defining force for companies in the coming decade. For investors, understanding which companies are effectively leveraging AI will be key to identifying future winners in this sector.
AI has many potential applications in the consumer space in particular; transforming internal processes, unlocking operational efficiencies via automation and large-scale intelligent data processing, and accelerating R&D, product design and marketing.
An evolving consumer landscape
This new phase of AI implementation comes at a time when the conventional pillars of competitive advantage are shifting from the traditional focus on manufacturing and procurement towards priorities such as data processing and decision making. And it’s here that AI can play a critical role in years to come.
To remain competitive, companies must rethink their business models and operational processes. By investing in AI for product design and data analytics, firms can better identify rapidly changing consumer trends and improve supply chain efficiencies. This holistic overhaul will not only reduce supply chain bottlenecks – made more fragile by the pandemic's impact – but also enhance forecasting accuracy and inventory management.
AI data processing and other advanced technologies such as machine learning, 3D printing and robots can also significantly improve the efficiency of consumer staples in a wide range of applications, from manufacturing to procurement. To achieve this, companies will need to partner with AI start-ups to leverage their specialist expertise and benefit from their more agile business models.
The result could be a more nimble, adaptable consumer landscape, with a more integrated and responsive supply chain infrastructure.
AI is getting personal
The potential of AI goes beyond operational efficiencies—it fundamentally changes how companies interact with consumers. Automation of routine tasks allows employees to focus on higher-value activities, potentially driving conversion rates through localized and personalized marketing.
This shift means companies can bring products to market more rapidly, aligning communications and offerings to the specific preferences of individual consumers.
AI also unlocks innovation by processing vast consumer data from social media, e-commerce platforms, and wearable devices, revealing insights into rapidly evolving preferences. Companies that can harness these insights to tailor products will hold a strategic advantage in an increasingly competitive market. Investors should watch for firms that prioritize personalization as a core strategy, as this could translate into sustainable growth.
Putting AI into action
Many consumer companies are hard at work expanding and implementing a wide range of AI initiatives. In April, Estée Lauder and Microsoft announced the creation of a new AI Innovation Lab, leveraging Microsoft’s powerful GenAI tool, Azure Open AI Service, and Estee Lauder’s vast trove of customer data to facilitate faster, more effective product innovation.
Meanwhile L’Oréal has been helping consumers cut through the noise of overwhelming product options with their GenAI powered ‘Beauty Genius’ tool, offering personalized diagnostics and product recommendations through consumers’ mobile devices. This has already delivered higher conversion rates and is part of a growing shift towards a more personalized consumer experience.
Leading consumer companies are also embarking on a shift away from traditional mass marketing techniques to a more granular, 1-to-1 marketing model that leverages AI to deliver enhanced consumer management. This is an area that companies currently find challenging, and AI adoption is still at relatively low levels. However, current projects are in the works that are extremely encouraging.
UK furniture retailer Dunelm is harnessing AI to innovate a more personalized approach to marketing; testing the delivery of personalized recommendations and optimizing email delivery times based on customer engagement signals, while using GenAI to create more personalized landing pages.
Temple and Webster, Australia’s leading online furniture retailer, has seen investment in AI result in higher conversion rates and increased customer satisfaction. The efficiencies created have allowed them to redeploy support functions into revenue generating roles.
Even convenience stores are getting in on the AI trend. Traditionally technology laggards, they are embracing AI as a key tool for reducing friction via enhanced employee training; and improving the customer experience using techniques such as gamification to capture a greater market share.
These are just a few examples of how GenAI can be employed to drive efficiencies across global ecommerce channels and the early results are very promising.
The RBC Global Equity Research team authored “RBC Imagine™: A cross-sector view of GenAI,” published on June 27, 2024. For more information about the full report, please contact your RBC representative.
