The holiday season is the most important time of the year for retailers, but experts are predicting a big slowdown in spending this year because of interest rates and inflation. Shoppers say they plan to spend 30% less this season, according to the 2023 Holiday Shopping Report. So, many retailers are turning to new artificial intelligence (AI) features to lure in shoppers with customized services and gifts to maximize revenue.
At the same time, Grinch lurks in the shadows – AI powered scams – which threaten to financially ruin retailers, put their customers at risk for identity theft, and tarnish the holiday spirit. The software company Red Maple can help stop the Grinch from stealing Christmas with its innovative, high-security solution called Clever Division. Below, we’ll tell you more about cyber security for businesses with Clever Division, the benefits of using AI in your business and what to watch out for.
AI Trends – Make Them Feel Special
One of the biggest trends in retail is the move toward hyper personalization. Consumers want a shopping experience tailored specifically to their needs and interests. AI makes it possible for retailers to provide that level of personalization at scale. For example, the clothing brand Stitch Fix relies on AI algorithms to select items for each customer’s unique style profile. This results in an 85% keep rate which is much higher than the industry average.
What to watch out for
AI runs on data, requiring retailers to gather more customer information to feed their algorithms. However, studies show that 60% of consumers have privacy concerns about how brands use their data. Retailers using AI could violate privacy laws or suffer backlash if customers feel their personal information is being misused or compromised. Using anonymized data, encryption, access controls and other security best practices is essential. Retailers should also be transparent with customers about what data they collect and how it will be used.
Other retailers are using AI features to provide personalized product recommendations and custom digital experiences. According to Accenture, 91% of consumers are more likely to shop with brands that recognize them, remember their preferences, and provide them with relevant offers and recommendations.
What to watch out for
While AI can provide highly-customized recommendations, it can also unintentionally lead consumers down the wrong path. For example, AI algorithms designed to maximize sales could recommend redundant purchases or items that don’t align with a shopper’s values. Retailers should be careful not to aggressively push recommendations solely aimed at driving more sales. The focus should be on guiding consumers to useful products that improve their lives. Setting limits on repetitive recommendations and capping daily promotion emails can help avoid badgering shoppers.
A Spotify recommendation algorithm continued bombarding a user who had recently lost their child with suggestions for cheerful holiday music. The unaware AI system created a painful experience.
The flood of data from online and in-store interactions allows retailers to understand a shopper’s behavior better than ever before. With AI, retailers can analyze this data to optimize every aspect of their marketing campaigns. AI features, like machine learning, gives retailers the ability to predict customer churn, identify high-value segments, and estimate response rates for campaigns. This enables more strategic decision making and higher marketing ROI. For example, Starbucks saw a 10% lift in incremental sales from offers powered by AI.
What to watch out for
If not developed responsibly, AI systems can lead to discriminatory and unethical outcomes. Retailers must ensure their AI algorithms are making objective decisions without inherent racial, gender or age biases. This requires rigorous testing and mitigation of unfair results. Left unchecked, AI tools could perpetuate exclusionary practices that prevent equal access and harm underrepresented groups.
AI is helping retailers smooth out supply chain operations, avoid out-of-stock situations and get the right products to the right place. Walmart’s intelligent inventory management system helps ensure popular holiday gifts are consistently in stock. By predicting demand and automatically reordering hot products, the AI system reduces the likelihood of disappointed customers missing out on must-have items.
Transportation and delivery costs are among the biggest supply chain expenses. AI-based route optimization systems can help retailers minimize delivery times and fuel spend. According to DHL, AI supply chain planning can reduce logistics costs by 10-40%. Amazon’s AI-powered store concept Amazon Go relies on computer vision and sensors to detect what products shoppers pick up or return to shelves. This provides convenience while eliminating checkout lines, without invading privacy by tracking individuals.
What to watch out for
AI systems can make mistakes or demonstrate biases that lead to problems. Retailers should have qualified humans monitoring AI results and conducting regular audits to catch issues early. Ethics boards can also help assess risks in how AI is deployed. While AI can enhance efficiency, human oversight is still critical.
Macy’s personalized promotions resulted in some minority shoppers receiving coupons for lower value than white shoppers due to biased AI algorithms. The company had to apologize and modify its AI to prevent discrimination.
Improved Customer Service
Providing quick, convenient customer service is crucial for retaining shoppers. Many retailers are now deploying AI chatbots and virtual assistants to augment human agents. When powered by natural language processing and machine learning, these bots can understand complex customer questions and provide helpful answers 24/7.
Home Depot’s in-house chatbot can field over 100,000 customer inquiries per week. While AI chatbots may not completely replace human agents, they are becoming an important first line of automated support.
What to watch out for
While AI chatbots can offer 24/7 automated support, they lack human judgment, empathy and problem-solving skills. Over-reliance on bots and robo advisors could result in unsatisfactory experiences during high stress holiday shopping. Retailers should be wary of removing the human touch completely and avoid use cases where AI cannot reasonably mimic human capabilities.
Lowes’ chatbots frustrated some customers by failing to understand complex customer service questions and providing repetitive or irrelevant answers during the busy holiday period. Over-reliance on AI left some problems unresolved.
AI algorithms have the ability to detect patterns and anomalies in transaction data, enabling retailers to identify fraudulent activities in real-time. This leads to a more secure shopping environment for customers and helps prevent losses due to fraudulent transactions. The retail store Target uses AI to detect fraud earlier, proactively stopping compromised accounts before customers become victims. This has reduced fraud by 50% protecting consumers during the busy holidays.
What to watch out for
While retailers can use AI to gain an edge over their competitors, cybercriminals are now using it to scam businesses and customers. This means businesses need to stay alert and invest in state-of-the-art security software to protect their data.
Clever Division by Red Maple is the most secure PCI platform on the market today. It prevents major financial loss and business disruption with a simple, fast and secure solution. Businesses don’t collect or store credit card numbers. Clever Division take over that job, safeguarding your customers’ credit card numbers by dividing them, locking them in separate vaults and replacing them with an encrypted token from your processor. That means if criminals were to use AI to hack into your business, they won’t find anything worth stealing because all of the data has been scrambled and rendered useless.
AI can offer many rewards for retailers, but they must keep in mind the bad guys are also using AI to try to put them out of business. That’s why we created Clever Division. It’s peace of mind that no matter how good the technology gets to hack into accounts, criminals won’t be able to use any data they find inside.
– Jennifer Robertson, General Manager of Red Maple.
Here are some of the biggest AI scams retailers need to watch out for:
Deepfake Voice Scams
Scammers can now deceive customers and business owners using AI deepfake voice technology. They impersonate a trusted person or create synthetic voices indistinguishable from the real person. In 2019, scammers impersonated the boss of a U.K. energy company with deepfake voice technology to scam it out of $243,000. A bank manager in Hong Kong was fooled by someone using voice-cloning technology into making hefty transfers in early 2020. At least eight seniors in Canada lost a combined $200,000 in 2022 in an apparent voice-cloning scam.
Phishing attacks have become more sophisticated with the help of AI. AI algorithms analyze vast amounts of personal data from multiple sources, allowing scammers to create highly believable phishing emails. These emails can target customers, urging them to divulge sensitive information or make fraudulent purchases. AI-driven phishing attacks increased by 220% from 2019 to 2020, according to the Anti-Phishing Working Group.
AI-powered bots can manipulate online prices during the holiday season, preying on the urgency and excitement of shoppers. A consumer may add an item to their cart, only to find the price has suddenly increased. Such tactics lead to a loss of trust and can affect retailers’ credibility.
Limited-stock, high-demand items are often the target of AI-driven bots. These bots buy up the coveted items in bulk and resell them at inflated prices on secondary platforms. This practice not only frustrates consumers but also damages the reputation of retailers. Scammers are also using AI to sell products or services that do not actually exist or perform as advertised. Consumers are lured into making purchases based on the promise of AI capabilities that aren’t delivered.
AI-driven scams generate false return requests, leading to financial losses and operational disruptions. The National Retail Federation reported that return fraud cost retailers an estimated $43.8 billion in 2020.
AI stands as a disruptive force to revolutionize the retail industry by boosting customer experiences and optimizing operations. However, retailers must be proactive and mitigate the risks associated with criminals exploiting AI. By bolstering security measures, purchasing software like Clever Division and educating consumers, the retail industry can embrace the benefits of AI while safeguarding customers from scams during the holiday season.
How can AI help my retail business this holiday season?
AI can provide personalized shopping recommendations, optimize inventory management, provide 24/7 customer support with AI-powered chatbots and prevent fraud, just to name a few benefits.
What should I be concerned about when I use AI for my retail business?
Retailers should be aware of several potential concerns when using AI including privacy risks from collecting and storing customer data, discriminatory suggestions and inaccurate, impersonal and intrusive customer service bots. Retailers should adopt AI strategically with a clear understanding of its impact and implications.
What if cybercriminals use AI to hack into my business database and steal business and customer data?
Scammers are already using AI to scam business owners out of millions of dollars. It’s critical that business owners are proactive and install software like Red Maple’s Clever Division, which is the most secure PCI platform on the market today.
What are the most popular ways scammers are targeting people with AI?
Cybercriminals are using AI to copy people’s voices and convince them to give them money, copying emails in phishing attacks that look more real than ever, and manipulate prices and stock, just to name a few scams.