4 ways AI can boost the top line of fashion and luxury brands

A growing number of fashion and luxury brands are leveraging smart technologies and rich customer data to make better strategic business decisions.

Experts at Simon-Kucher & Partners share four examples of how brands can improve their best-in-class performance through the use of artificial intelligence and machine learning.

Strategy

AI-based trend forecasting and assortment optimization.
Shifts in consumer demand are creating opportunities for startups to gain a competitive advantage and disrupt the way established fashion and luxury brands do business. To keep pace, having the right assortment strategy is crucial. Brands need to ensure that their assortment strategies are continually reviewed and adapted. This is where AI plays a key role.

AI can be used to predict future market trends. This helps designers and marketers to take an evidence-based approach and hence reduce their reliance on instinct. Online shopping data such as search and filtering behavior can be analyzed to personalize users’ online customer experience. This is nothing new, but the wealth of online data may benefit other teams as well, leading to more informed future product design choices and broader assortment strategies.

Moreover, AI is not only proving valuable in the online marketplace, but is also gaining a foothold in physical retail. To better understand customer buying preferences, retailers are using AI to monitor customer buying behavior and customer response to in-store assortment. For example, by using sales and return data, businesses are able to optimize the presentation of their products in-store and help determine what items to store and / or promote in specific locations.

If done right, it can be a driving force in balancing supply (inventory) and demand (purchases), reducing the need for discounting and amortization of unsold inventory.

Marketing

Targeted marketing campaigns and customer loyalty programs.
Marketing functions must evolve with consumer expectations. Leading fashion and luxury brands are increasingly harnessing the power of customer-centric AI to deepen and personalize their relationships with their customers and drive broader growth initiatives.

Access to relevant data is essential to understanding your customers and leveraging AI to grow relationships. Major fashion and luxury brands collect data at every point of engagement with their customers, but also offer loyalty and rewards programs that provide a wealth of information on consumer preferences. Many fashion brands use data voluntarily shared through their loyalty programs to tailor online recommendations and communicate personalized suggestions to store staff on their mobile devices.

There are many ways to use AI for marketing purposes, but it’s increased customer engagement that will ultimately lead to improved customer lifetime value. The effective application of AI can help increase revenue and profit through higher conversion, lower acquisition costs, increased retention, and repeat purchases.

Price

Dynamic pricing and AI-powered promotions.
Pricing is one of the most important levers for revenue growth. Do it right and you will thrive. If you’re wrong, you risk permanently damaging your business. To get it right, it is important to exploit the new opportunities offered by digitization, to use the psychological aspects of pricing and, most importantly, to align pricing with willingness to pay.

Artificial intelligence and machine learning in particular can be used to dynamically and continuously adjust prices based on willingness to pay and help manage sales volumes. Amazon understood this early on and is a great example with prices changing every 10 minutes. Out-of-the-box or tailor-made solutions exist to help revenue management specialists monitor and adjust prices based on market demand and willingness to pay for changes.

In addition to product pricing, discounts and promotional strategies can be optimized using AI. By using data on purchasing behavior and historical promotion performance, businesses are able to tailor their future promotion strategies based on preferences and willingness to pay. AI enables companies to optimize the mechanics, frequency and depth of promotions, improve conversion rates, and minimize excess inventory at the end of a season.

Sales

Channel optimization.
Once a solid strategy is in place, marketing strategies are aligned, and prices are optimized, the focus should be on sales. A systematic approach to channel optimization and sales force management gives fashion and luxury companies a strategic advantage in the battle for revenue growth. AI can be used as a basis for today’s leaders to critically assess their sales organizations.

It is essential to implement a strong cross-channel approach that combines online and physical sales. For example, several fashion and luxury brands require their customers to register for an app, unlocking additional services and perks in the store. As such, data retrieved from digital channels such as apps and online stores can be used to improve offline sales volumes. But the application of this data goes beyond sales.

Online sales data can also be used to optimize inventory in physical stores and the information can be fed back into manufacturing systems to influence styles and quantities produced in the future.

In addition, the online sales channel has become even more important due to the Covid-19 crisis. Customer activation policies, which were previously only applied in physical stores, are now used online. For example, makeup and fashion stores are creating apps and tools for customers to try on products virtually. Innovative online technologies are helping to increase customer engagement and are advancing at a steady pace.

The authors of this overview are: Jos Eeland, Joep van den Nieuwenhof, Amelie Spaniol, Linda de Graaf and Roos Offerhaus. All five are members of Simon-Kucher & Partners in the Netherlands.