Using Artificial Intelligence in Retail: What Companies Should Consider

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Using Artificial Intelligence in Retail: What Companies Should Consider

The term artificial intelligence (“AI”) refers to a range of technologies that enable machines to perform tasks that typically require human intelligence, such as the ability to comprehend, act, and learn. The retail and consumer industries are in an ideal position to ...

April 6, 2023 - By Tania Williams, Paul Joukador

Using Artificial Intelligence in Retail: What Companies Should Consider

Image : Unsplash

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Using Artificial Intelligence in Retail: What Companies Should Consider

The term artificial intelligence (“AI”) refers to a range of technologies that enable machines to perform tasks that typically require human intelligence, such as the ability to comprehend, act, and learn. The retail and consumer industries are in an ideal position to capitalize on the benefits that AI can offer, with customers providing companies with vast amounts of information about themselves, their lives, their likes, and their shopping habits, data that AI can help to pull together – often from disparate sources – and analyze and interpret to a company’s advantage. 

Against this background, it is not surprising that retail and consumer brands have already embraced AI with many successful use cases, including: (1) improving demand forecasting; (2) increasing accuracy in inventory management; (3) automating CRM marketing activities; (4) customizing promotions and product recommendations; and (5) optimizing product placement. Through these sorts of applications, AI can assist companies in increasing profits by encouraging product sales, improving customer service, and strengthening customer loyalty. In addition, AI can lower costs through supply chain and operational improvements and optimization, and potentially support an organization’s sustainability and environmental objectives through better demand management and waste management.

In these difficult economic times, adopting AI to generate revenue and lower costs seems like an easy choice to make, but before launching into an AI project, it is important to weigh any potential risks from the intended use of AI. A handful of points to consider before adopting AI are as follows … 

Ethical Use of AI in Retail

AI is still on the cutting edge of technology, and the ethical use is a potential obstacle. AI ethics is a set of values, principles and techniques using generally accepted standards of “right and wrong” to guide moral conduct throughout each stage of the development and use of AI. They are intended to not only motivate morally acceptable practices but also to detail the duties and obligations necessary to produce ethical, fair and safe AI technologies. While this is a very broad topic, at a high level, one of the key concerns is that AI should only use fair algorithms and include ways of measuring and mitigating bias. Additionally, each step in the AI process should be transparent, justified, and lawful.

The clear driver for ensuring only ethical AI is deployed is to avoid harm. In a retail and consumer context, it will also be important for companies to maintain customer trust and to protect valuable brands and their reputations. Where AI directly interfaces with consumers, they will be very aware when something goes awry, for example, through inappropriate or insensitive product suggestions. Once broken, consumer trust is difficult to rebuild, so particular care should be undertaken when considering customer-facing AI in a retail context.

The Legislative Backdrop

Legislation will continue to struggle to keep pace with the rapid development and deployment of AI. In the United Kingdom, the government has been reluctant to consider any overarching AI-specific regulation. To date, they have, instead, allowed sector-specific regulators to consider the impact of AI in their respective sectors and whether additional regulation or guidance is required. So, one of the first things a company will need to do before implementing an AI solution is to check that the intended use of the AI in question does not fall foul of the legislative framework. And in the event that AI tech is being licensed or procured from a third party, companies are encouraged to allocate responsibility for legal and regulatory compliance with respect to the various AI components.

Bear in mind that the underlying driver of AI is data, much of which might also of course be personal data in the context of a business – such as customers’ personal details and financial information. Companies are urged to ensure that they have systems and processes in place to process all data (and in particular, personal data) lawfully and in accordance with any other relevant contracts. As a good starting point, the Information Commissioner’s Office in the UK has published an AI and data protection risk toolkit that lists the key considerations of the use of personal data in the context of AI, and steps to take to assist with compliance with data protection legislation. (For a more detailed look at the regulation of AI, you can find that here.)

What approach should you take to AI?

It is critical that companies do their homework on the vendor and the AI product they are considering. We have seen in the past a number of cases where AI has picked up data that was not specifically intended to be an input into the AI’s algorithm, which resulted in some unintended consequences for retail entities, such as variable pricing for different demographics. To address this, companies should:

– Ensure that they have a clear and agreed approach on data used to train the AI – this can be through controlling the data that is used or have a clear specification on the data that a supplier can use but in either case you will want to ensure as best you can that the data set is not biased itself, and doesn’t contains gaps that might produce unintended results;

– Make sure that suppliers are clear about (and you understand) the approach the relevant AI uses – so that you can explain what it does to your own customers and management; and 

– Consider how you can verify the data that has been used and what tools are available to confirm that the AI does what is intended and can identify any anomalous results. This might be through audit rights or verification tools provided by your supplier or right to have an independent review or using other third-party tools to make that assessment.

Companies are also advised to develop clear policies around AI and its appropriate use in your business – this can set out minimum requirements which any AI used by the organization must comply with. Of course, this will only work if you monitor these policies, and the AI in use, regularly to ensure that it is being used in the way that meets these requirements. As with any procurement, look at the areas of your business which might be impacted, or which might impact upon, your use of AI. For example: Will your insurance cover apply where AI is used? Will the AI be used with other software, and if so, do you have the appropriate rights and licenses to do so from relevant third-party software vendors? Is the use and/or commercial parameters of the other software still appropriate when being used with the AI given, amongst other things, automated processing?

One thing is for certain, AI can be a game-changer, but it does require more careful consideration on how it works than with traditional software products.

Tania Williams is a partner at RPC who advises both customers and suppliers on a broad range of technology-based transactions, with a particular focus on complex IT service, hardware and software procurement, large scale technology projects and outsourcing.

Paul Joukador is a leading partner in commercial, outsourcing and technology matters at RPC. He delivers pragmatic and strategic legal advice to complex matters to meet clients’ commercial goals.

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