Can a computer named Watson make retail smarter?

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Retail's BIG ShowIt was an all-star panel at this afternoon’s Retail’s BIG Show Super Session, but it was a computer who stole the show. In the session, Critical Developments in Retail Marketing: Understanding Consumers, Building Brands, Fortune‘s Geoffrey Colvin moderated a panel that included executives from IBM, Abercrombie & Fitch, Gilt Groupe and IBM’s Watson Technologies. Then, Watson itself claimed another victory in live game of Jeopardy.

Watson, the IBM computer who took on the very best Jeopardy contestants (and won), is a computer who gets us. Designed to respond to natural language, it isn’t easily stumped by slang, sarcasm, homophones or pretty much any other of our human quirks. But what does it have to do with retail? It turns out that we humans are creating lots and lots and lots of data at an accelerating rate. Not just data, big data.

Super Sesion at Retail's BIG Show

IBM's Watson challenges NRF SVP Vicki Cantrell and Fortune Editor-At-Large Geoffrey Colvin - and wins.

To put this data explosion in perspective, speaker Jon Iwata, SVP, Marketing and Communications at IBM, shared this stat: 90 percent of the world’s data was created in just the last two years.

Tweets, pictures, likes, videos, music. Today’s consumer is sharing a lot of information, and the majority of it isn’t coming from checking a box. Today’s retailers are challenged with capturing the wealth of “unstructured” data that exists beyond their nice and neat databases and using that data to make better decisions and personalize the shopping experience. But the data customers share online is messy. Our language is nuanced and easily misunderstood by other humans, much less computers. Iwata says that if we can listen, make sense of what’s being said, and find patters, retailers can not just react to but predict customer behavior.

Iwata pointed out that soon, good marketing and good retailing will feel like a service for the customer. This data boom is an opportunity for retailers to make more profitable, sustainable and effective decisions, or as they like to say around IBM – be smarter. And what’s fascinating is that customers don’t seem to mind giving out this info at all.

In a new report from IBM, a majority of consumers say they’re willing to share a lot of info in return for a personalized shopping experience, going beyond name and email and including GPS locations and lifestyle information. Customers actually want more information from retailers as long as its relevant.

Gilt Group is in the fortunate situation of having loads of data about each of its 5 million customers from the outset of the relationship. Registration is required to use the site and lets the company know who they are, who their friends are, what they browse, what their friends buy and on and on. With so much data, the retailer says they experiment on a daily basis with products and messaging.

“Customers are coming to expect that personalized experience. It’s not about everything. It’s about having the right stuff for the customers, information, services, supply and product. That’s what’s driving purchasing today online,” said Alexis Maybank, Founder and CMO, Gilt Groupe. “We look at key metrics, not just monthly or quarterly, but across a thousand points of our customer experience almost daily.”

The situation is different at Abercrombie & Fitch, a traditionally brick-and-mortar retailer. While the retailer still focuses on making sales in the store, it’s also highly engaged in social media because that’s where its customers are talking.

“When we got behind social media, the entire company got behind it. The stores, online, everything,” said Billy May, VP, eCommerce and Cross-Channel Marketing, Abercrombie & Fitch. “And it’s becoming increasingly complex. It’s not something you venture into halfheartedly,” he said.

Technology like Watson can actually understand our wacky, yet “natural” language and make sense of it. Dr. David Ferrucci explained that the reason why Watson’s Jeopoardy success was unprecedented is not because it had the answers in a table of data somewhere, but because it could figure out what we intended to ask it and decided how confident it was about the answer. “It’s about building technology that helps us understand that natural dialog,” Ferrucci said.

So how did Watson do in our live challenge? They didn’t have a chance at winning Jeopardy, but they left the session looking forward to the chance to make retail smarter.

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