Unless Retailers Do This, They Could Lose 50% of Consumers' Holiday Spend

Sam Walton said, “the secret to retail is giving the customer what they want.” But for all the money invested in brand and promotional campaigns, 50 percent of holiday spending is undecided or totally unplanned prior to purchase. That’s a pretty startling figure when you think about it. What can retailers do to capture a greater share of what’s up for grabs?

In Sam’s day, a merchant walked up to a customer, got to know them a little, and found a way to satisfy their needs. However, 10 percent to 15 percent of all holiday shopping is now done online, and it’s growing by nearly 20 percent each year. If consumers don’t even know what they want yet, and they’re increasingly not even walking into stores, what hope do retailers have of helping them from behind the screen?

A pretty good one, as it turns out. The much-cited estimation is that 35 percent of Amazon.com's online purchases come directly from platform recommendations. This suggests that online holiday shopping recommendations can be a critical component to help retailers avoid losing half of consumers' holiday spending. Here’s how.

1. Get to know your customers better.

You may not be able to walk up and have a chat in cyberspace, but you can do some things to get to know your customers better. Well-known techniques such as building broad customer personas based on past shopping history are important, but you should never pigeonhole your customers into simplified caricatures.

Instead, treat them as “market segments of one” by incorporating information such as significance of seasonality based on prior holiday shopping patterns, responses to past recommendations, price sensitivity, and, of course, the rest of the household they’re likely to be shopping for.

2. Understand what your products are really about.

How well do you know your products? For many retailers, a deep well of product data remains untapped. Brand, category, sub-category, price, description, specifications, warranty, call-outs, shipping information, and customer reviews can all advise the kind of recommendations your customer will most appreciate.

Each retail SKU already belongs in an “ontology” of its own that offers rich insights into customer needs. If you’re not currently leveraging this product data, you're missing a critical piece of the puzzle.

3. Make a few highly personalized recommendations.

Once you've learned about each shopper and understand the implied characteristics of products, you can use artificial intelligence (AI) techniques like natural language processing (NLP) and machine learning (ML) to help you leverage this data into actionable insights about your customers’ holiday shopping preferences and intent.

For example, imagine that you know from checkout history that a particular shopper has recently purchased Barbie toys targeted towards 4-6-year-old girls, and Star Wars toys for 8-12-year-old boys. When that shopper searches for construction toys, you can offer the age-appropriate Star Wars- and Barbie-themed Lego sets that are on sale this week.

Likewise, if a shopper who frequently purchases gluten-free items has ginger, cinnamon, butter and baking soda in their cart the week before Christmas, you can recommend gluten-free flour and molasses from a gluten-free gingerbread cake recipe.

Keep in mind also “the paradox of choice.” It's always better to recommend the one to three items that you believe are the most relevant than to overwhelm a shopper with a ton of choices to scroll through.

Let’s face it, e-commerce is now a juggernaut force in the retail industry, and holiday shopping remains the critical factor in retail profitability. Getting the product recommendation game right isn’t just about topping up revenue from shoppers’ indecision; soon, it could easily be about staying in the game altogether.

Spencer Price is CEO and co-founder of Halla, an AI company focused on personalized recommendations for online grocers. Halla is the only software company that dynamically profiles human taste to help people make better food decisions.