The Future of Logistics and Marketing in an Artificial Intelligence-Governed World
Luis A. Soto and Sergio Biggemann
Introduction
In the quest of attracting and keeping satisfied customers, businesses rely heavily on marketing strategies and their execution puts logistics processes under significant strain. It is no news anymore that customers are becoming not only better informed thanks to the evolution of digital technology and availability of social media platforms accessible at any moment through smartphones and other means, but also their expectations of immediate response, product availability, service quality, and low price are constantly increasing. Consequently, marketers continuously figure out new strategies to increase service levels to protect their customers’ base. Seeming like a vicious circle, customers elevate their expectations even more, making logistics processes growingly complex.
The good news is that, in the same form that digital technology increased customers’ expectations, it has affected product life cycles and encouraged customers’ consumption. It also made possible the execution of new logistics processes that prior to the introduction of new technology were unthinkable. Due to digital technologies, marketers and logistics managers are able to better understand customers’ needs. Given that the level of knowledge that businesses have about customers has also increased significantly with the accessibility of information using smartphones.
Estimates on smartphones penetration indicate that 44 percent of the world population own one. As it is well known, most smartphones have a GPS incorporated, thus carrying a smartphone everywhere a person goes (like most people do) is equivalent to be broadcasting your geographical position 24/7. This allows marketers to know not only where their customers are, but in combination with other data collection instruments, such as digital means of payment, marketers also know what are they buying and when. If it were not sufficient, people’s interests are also captured through information of what Internet pages they visit and the kind of product they search for. Orwell’s 1984 imagination fell short compared with today’s reality (Orwell 1949). However, the list of occurrences related to the advances of digital technology goes further and includes: the Internet of things (IoT), Drones, conversational interfaces, engagement platforms, machine learning, and big data to mention a few. Each one impacts the logistics capabilities of businesses and has the potential to satisfy their customers’ constantly growing needs and demands.
Logistics is often perceived as the process capabilities displayed by a business to make demand meet supply and marketing. Driven by businesses strategies it creates value propositions for their target market. Being in the crossroad of marketing, logistics, and markets, a smart logistics and marketing ecosystem, it is often shaped by digital technology. See Figure 8.1 for illustration.
This chapter discusses how marketing and logistics have been in constant change and evolution driven by changes in digital technology. However, this model now faces an even more significant change due to the increased infusion of artificial intelligence (AI) in the system. The basis of logistics systems and its intersection with marketing is first discussed, followed by the technological occurrences and their effects in marketing logistics systems, and the infusion of AI in marketing logistics systems. The chapter concludes with viewpoints on the future of marketing logistics in an AI-governed world.
The Marketing Logistics System
The authors liberally mix logistics and supply chain management functions and refer to both only as logistics. However, it is acknowledged that sometimes there is confusion of what processes belong to what function. Context can be derived by drawing from the Council of Logistics Management definition of logistics: “the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements” (Wood 1998) and Lummus et al. (2001) view of supply chain management as inclusive of logistical flows, customer order management, and production process. Additionally, the marketing definition of the American Marketing Association is: “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (AMA 2013). From these definitions, it could be argued that the role of logistics is to support marketing value creation endeavors, a task that is achieved in fulfilling customers’ orders where the intersection between marketing and logistics is found. The processes under logistics management include inventory planning and management, procurement and supplier management, transportation, and warehouse. These all aim to maximize customer service while minimizing costs.
Marketing and logistics managers meet customers’ orders and work together in planning and controlling the flows of information, goods, and payments between parties in the logistics and marketing ecosystem. With the proliferation of digital technology, all these activities led to a smarter logistics and marketing ecosystem that better satisfied customer orders. With regard to the management of product, information, and payments flows, the most onerous is the flow of products. However, the three flows are intertwined. Unless proper information of delivery requirements becomes available, logistics processes cannot be instigated. For instance, unless the products reach the correct destination, payments cannot be collected. It is through payments that the system becomes viable. The effect of digital technology in these three flows has been fundamental in the development of marketing activities over the recent time.
Digital Technology
Digital technology facilitates the flows of products by making the flows of information and payments faster and more accurate. Information is especially important to achieving high levels of customer service. Information flows start with demand, through which logistics managers plan inventory levels. The greater the accuracy in forecasting demand, the lower the inventory levels. However, the greater the marketing activity, the more difficult it has been traditionally to reduce demand forecast errors. A typical business response is to increase inventory levels. This leads to higher inventory carrying costs in order to secure high customer service levels and to reduce cost of lost sales. Therefore, the tension between cost minimization and customer service maximization is permanent. However, advances in digital technology improved information availability that has not only reduced the tension, but also allowed businesses to increase customer service while reducing inventory management costs. In the digitalization of businesses interaction, the Internet has been the main driver for improvement, but also stands as the main challenge that marketing logistics has confronted.
The most visible effect of the Internet has been the development of e-commerce. Its adoption was so spectacular that, in the early days, businesses embarked in e-commerce ventures without the adequate logistics capabilities to fulfill the orders of their newly acquired customers. In 2000, the dot.com bubble finally burst causing significant losses in several markets. However, it was also the enabler of more affordable Internet access for both customers and businesses. For the first time, businesses had access to unlimited worldwide markets, while customers could buy anything from anywhere in the world. It required some time to pass until the capabilities for physical delivery were put in place, but eventually this has become the new business reality. Unlimited markets, despite its attractiveness, create significant challenges for logistics operators. They are the party responsible for delivering the goods in the right place at the right time at a minimum cost. Their activities include: coordinating customer orders with inventory availability, either at the firms’ own warehouses or at suppliers’ warehouses, engaging transportation services for delivery, sharing relevant customer information, and collecting the payments on time. Efficient logistics operations could only be achieved by creating a processes capable of understanding the behavior of each actor in the system and managing its information efficiently. Traditional systems have been incapable of achieving this goal; however, digital technology has proven to be of great utility. Among the digitally enabled processes are the following: electronics means of payment, electronic data interchange (EDI), radio-frequency identification (RFID), smart devices with GPS capabilities, beacons, drones, IoT, conversational interfaces, engagement platforms, and machine learning systems. Some of the previous are purely digital technology enabled processes. Others are the first signs of AI applied to marketing logistics.
Electronics Means of Payment and Data Interchange
Processes of payments and data interchange are combined in this section because they are more or less contemporary and had produced similar effects to the supply chain, in regard to reducing errors of information and payment exchange. Both offer positive influence in time reduction and customer service levels. Data transfer errors could mean delays in placing orders as well as in receiving payments. In the past, EDI was only accessible to large organizations. Today buyers from all types of organizations including individuals can place their purchase orders by selecting items directly from sellers’ databases, minimizing re-typing mistakes. Electronic exchange of both information and payments affects all processes in the supply chain, from customers to the firm and vice versa, and from the firm to their suppliers of goods, of services, and transportation. Digital technology made it possible for firms to create visibility on demand to anyone they select within their supply chain. Payments are immediately available and are less expensive to process, allowing for smaller and more frequent orders to be placed, thus reducing inventory levels while increasing customer service levels.
Radio-Frequency Identification (RFID)
The use of bar codes was a great advancement for the logistics industry. It significantly reduced errors in warehousing processes. When RFID became available for application in most industries, the expected advantages were exciting. With RFID, in its most sophisticated form, it is possible for a two-way conversation between the tag and the receiver. Thus it allows for a close monitoring of the geographical position of the goods alongside the supply chain. RFID does not only reduce registering errors, but also highlights the process where opportunities for improvement lie. For instance, RFID can register information about delays of goods in a particular warehouse, such as at customs or at the transportation company. The adoption of RFID has been so significant that some suppliers like Walmart, for instance, do not buy from suppliers that cannot deliver RFID-tagged goods.
Smart Devices With GPS Capabilities
The previous advances in digital technology affected fundamentally the supply side. However, consumers’ massive use of smart devices coupled with peoples’ obsession to share their lives on social media has affected the side of demand providing logistics and marketing managers with information of incredible value. It is now possible to know not only where customers are, almost all the time, but what kind of products or services grabbed their attention, either by looking at the pages they visit on the Internet or just by following their comments on social media. Marketers have reacted to this very rich information by placing customized advertising on social media (e.g., on Facebook walls), with the expectation to match customers’ needs and wants with value offerings. However, as GPS has limitations on geographical position accuracy, it does not work properly if people are indoors. For instance, in a shopping mall, the immediacy of marketing communication is not perfect, thus more suitable positioning devices need to be developed.
Beacons
Beacons are small, low-cost pieces of software with Bluetooth communication capabilities that solve the problems of GPS communication indoors. Beacons could be used to prompt customers’ action in the precise moment that they are passing close to an offering marketers aim to grab their attention toward. A beacon is capable of figuring out where a customer is standing with great precision. Thus marketers are able to send a notification in the very precise moment that a person is passing by the front door of a store, for instance, and invite the customer to visit a particular aisle where a product is on sale, or to grab the attention of customers toward new arrivals and so on. The only requirement is that the customer downloads an App on her phone. The software that controls promotions is rather simple to use and marketers can experiment with different offerings to gain consumers’ preference.
Mixed Reality
Mixed reality, sometimes referred to as hybrid reality, is the merging of real and virtual worlds to produce new environments and visualizations where physical and digital objects co-exist and interact in real time. Mixed reality takes place not only in the physical world or the virtual world, but is a mix of reality and virtual reality, encompassing both augmented reality and augmented virtuality via immersive technology.
One of the most amazing features of digital technology is the ability to use and interconnect extensive databases. Through mixed reality it is possible to overlap a number of layers of information that increase the quality of the communication means. For instance, a billboard in the past only had the ability to display a picture with very little text on it. Today it could become alive if viewed through the lenses of a smartphone. To illustrate, if the billboard were a picture of a car, the potential customer could almost experience the sensations of traveling in the car thanks to augmented reality technology. A 3D hologram announcing the presentation of a band could make the band start playing on a miniature stage and see the performers as 3D holograms and the viewer will connect his phone to the hologram to access information of the venue, pricing, and even to buy tickets for the concert. Moreover, the device will recognize the user and make suggestions or show customized content (Soto 2017). This way, marketing managers have the ability to convert passive communication offerings into vivid experiences for customers while increasing the effectiveness of the advertising by generating the sale.
Drones and Self-Driving Delivery Vehicles
With better information and, eventually, more appropriate communication strategies, customers become more motivated to purchase. However, their levels of tolerance regarding delivery time and failure also decreased. Thus, on the one hand advances in digital technology improved marketers’ ability to attract customers, but on the other hand customers now expect higher levels of service. Marketers and logistics managers are very aware of the inefficiencies of transportation particularly at the last mile, with significant numbers of small vans delivering small parcels to end consumers with increased possibilities of being late and deliver to the wrong address. Last mile delivery is also very expensive, compared to the costs of consolidated shipping. Then, under the leadership of Amazon.com drones and self-driving delivery vehicles became a potential solution to the problem, with the expectation of lesser human intervention and therefore increased accuracy and immediacy. Drones are capable of flying distances long enough to replace couriers and autonomous cars can deliver inside towns. Although drones and autonomous cars will not be a complete substitute, their use increases the ability for logistics managers to fulfill delivery promises more efficiently.
The Internet of Things
IoT is the name given to a myriad of electronic artifacts connected to one another on the Internet. IoT is a powerful marketing tool as it collects information from customers’ activities in several points at the moment of occurrence while allowing for interaction between people and products, making offerings go beyond traditional capabilities of products, and creating greater value for customers. The usefulness of IoT for marketing logistics managers is undeniable. However, one of its caveats is that the amount of data generated becomes excessive for the use of traditional data management tools, requiring not only increased computational power but also very sophisticated methods of data analysis.
In sum, digital technology has advanced businesses in a multitude of ways : abilities to react to customers’ needs more efficiently, to understand customers’ behavior better, to increase the efficiency of communication strategies by delivering the right message at the right moment, by increasing the vividness of the offering by putting together several layers of information, by facilitating the purchasing processes of customers, and by improving delivery processes, all in a world of interconnected people and products. However, digital technology has also increased customers’ expectations of great service levels, made the world look smaller, and started data proliferation that common individuals using traditional tools cannot make sense of. Thus, the digital revolution opened the doors for further development of AI in order to take advantage of the immense amount of information available and the new customers’ ability to interact with business directly.
Conversational interfaces, engagement platforms, big data, and machine learning systems are not only processes enabled by digital technology, but are the foundation of an intelligence platform.
Machine Learning
Machine learning is an application of AI that builds algorithmic systems based on previous data trends, models, and patterns that it has learned from. With this data, machine learning simulates the human decision-making process by using predictive analysis.
Experts believe that machine learning will continue to grow across all market spaces, acquiring an even larger presence within applications, digital assistants, and AI as a whole, including the drone and self-driving cars territory.
Artificial Intelligence
According to the latest Gartner research, by 2020, 85 percent of customer interactions will be managed by AI. Researchers predict AI will outperform humans in many activities in the next 10 years, such as translating languages (by 2024), writing high-school essays (by 2026), driving a truck (by 2027), working in retail (by 2031), writing a bestselling book (by 2049), and working as a surgeon (by 2053). The respondents believe there is a 50 percent chance of AI outperforming humans in all tasks in 45 years and of automating all human jobs in 120 years (Grace et al. 2017).
Artificial intelligence (AI) expands at a very fast pace; dynamics or developments in one sector or technology can influence another. Opportunities for multidisciplinary collaboration or risk mitigation are coalescing. The very definition of digital transformation is evolving. As of today, there is rapid development in algorithmic news stories, autonomous robotics, product recommendations, processing patient data, virtual assistants with voice recognition and far beyond, such that AI is slowly infusing all manner of industry, society, and life. Moreover, blockchain 1 will allow to share and use the AI technology in a secure and trusted way through “smart contracts.” 2 In the future, AI will be integrated to marketing and logistics creating not only smart sales channels, but also customer support channels.
The Future: The Smart Logistics and Marketing Ecosystem
The future of marketing and logistics goes hand to hand with: location-based services, cloud computing, big data, mobile devices, IoT, robotics, autonomous vehicles, drones and smart carts, smart agents, machine learning algorithms, conversational interfaces, and engagement platforms. All these are creating a disruptive environment where all the magic is starting to work. Things, places, devices, smartphones, and business will all be smart agents in this new paradigm. Location intelligence, machine learning, IoT, and big data become the basis for the allocation of goods and contextual marketing in an AI-governed world.
The Smart Marketing Logistics Framework
The logistics and marketing ecosystem illustrated in Figure 8.1 becomes the smart logistics and marketing ecosystem when AI is merged with existing processes and products. In this new scenario, a framework will emerge that holds all processes of interaction driven by multiple actors that include marketers, logistics managers, suppliers of products and services, and overall customers, all operating in a highly connected interdependent network.
Figure 8.1 The smart logistics and marketing ecosystem
The smart marketing logistics framework, see Figure 8.2, runs applications for sales, marketing, customer service, operations, legal, finance, human resource, information technology (IT), supply chain, merchandising, logistics, and research and development (R&D). Marketing and logistics will become an integrated system to fulfill customer needs and make JIT a reality to improve factories and suppliers.
Figure 8.2 The smart marketing logistics framework
Foundations
The framework is a mesh of intelligent connected products as a result of AI (machine learning), cognitive IoT (big data, vision, and language), and blockchain (compliance and security) integration running in a smart cloud infrastructure. The key to this world are the smartphones with blockchain-based identity management system capable of securely exchanging information with smart devices (Newton 2017).
The Framework
The framework runs in the cloud and uses blockchain as a basis for security and trust, and the smartphones are the agents empowered by blockchain’s digital ID systems. It is built on a stack of smart technologies and interactions like a mesh or engagement graph.
The components of the smart marketing logistics framework include: (1) proximity marketing, where elements are contextual virtual advertisments/geolocation/bots, Virtual Promoter, two-way marketing engagement, smart indoor navigation, contextual proximity marketing, (2) cognitive IoT and big data, where elements are smart agents—smart things/houses/buildings/points of information, smart things as sales agents, smart assets, autonomous vehicles, smart wallets, (3) channel B2B, where elements are blockchain digital ID, smart displays as trainers, smart logistics—JIT and right place for goods and services, engagement graphs B2B, (4) channel B2C, where elements are blockchain digital ID, virtual stores, smart products, autonomous self-driven kiosk, smart wallets in smartphones, and (5) machine learning, where elements are data from IoT devices, data from people, data from patterns, data from actual interactions, language processing, and vision processing.
Based on the framework, there is a new ecosystem: the smart logistics and marketing ecosystem (see Figure 8.1), where all the transactions are governed by AI. The marketing process and logistic act as one system driven by a holistic approach like humans do. Marketing decisions are based on machine learning algorithms that process location, profiles, supply chain data, human behavior, visual and textual analysis. The security and trust is in a blockchain network.
The warehouses as well as point of sales are managed by smart agents and robotics. Inside the stores most are smart devices capable of assisting the customers and marketing itself. Smart carts engaged with smartphones will be acting as virtual shoppers. The warehouses manage a fleet of autonomous vehicles and drones for the last mile.
The appliances are connected and interact with the suppliers to buy or request support and are capable of making suggestions to the users for new products or promotions.
Conclusion
AI might not be very new in the computer science arena. However, it is causing massive changes to the business environment, particularly in the intersection between marketing, logistics, and markets—where customers are found. AI has found fertile grounds in marketing logistics due to the strong infusion of digital technology to processes and devices that affected the flows of information, payments, and products. It also impacts customers’ behavior, with the subsequent effect of creating enormous amounts of data, with analysis beyond the capabilities of individuals using conventional data management knowledge. AI disrupted the environment by challenging the validity of existing processes, and by creating new forms of interaction between customers and suppliers, where many tasks otherwise performed by humans were overtaken by machines. The future seems to be on the one hand somber, as humans appear to be made redundant. However, it could on the other hand be promising when human intelligence and abilities are devoted to more complex tasks beyond the abilities of AI that only the human brains are capable to deal with, thus allowing AI to govern marketing and logistics system ultimately for the benefit of human beings.
References
American Marketing Asociation 2013. “Marketing Definition.” Retrieved from https://.ama.org/AboutAMA/Pages/Definition-of-Marketing.aspx
Grace, K., J. Salvatier, A. Dafoe, B. Zhang, and O. Evans. 2017. “When Will AI Exceed Human Performance?” Evidence from AI Experts.
Lummus, R.R., D.W. Krumwiede, and R.J. Vokurka. 2001. “The Relationship of Logistics to Supply Chain Management: Developing a Common Industry Definition.” Industrial Management & Data Systems 101, no. 8, pp. 426–32.
Newton, P. 2017. “What Blockchain Means for the Sharing Economy.” https://hbr.org/2017/03/what-blockchain-means-for-the-sharing-economy
Orwell, G. 1949. Nineteen Eighty-Four. New York, NY: Harcourt Brace.
Soto, L.A. 2017. “Tips Promotions, Smart Holograms, Dacorp SRL.” http://tipspromotion.com
Wood, D.F. 1998. “Logistics.” https://.britannica.com/topic/logisticsbusiness#ref528537
1 Blockchain is a technology that holds information on a shared and continually reconciled database.
2Smart contract is an agreement that is linked into the code of a platform, so it automatically executes when the terms have been met, virtually eliminating counterparty risks and the need for middlemen.