Jean-Paul Agon, the chairman and former CEO of L'Oréal, once said, "eCommerce isn't the cherry on the cake, it's the new cake."

The simple statement encompasses the retail sector's essence and cements the fact that eCommerce is no longer a supplement to physical stores.

Technological advancements, availability of high-speed internet, and shift in consumer demand have made businesses think outside their brick-and-mortar establishment and go online. However, simply setting up shop online and shipping items for free isn't enough anymore.

The competition is fierce with over 26.5 million eCommerce sites globally and around 14 million in the US. Retailers must be proactive and treat eCommerce as a core part of their business model to capture a slice of America's 273.5 million online buyer market.

The easiest way companies can have their cake and eat it is to embrace emerging technologies like artificial intelligence (AI) in eCommerce. This will let them identify and address various pain points, such as logistic issues, inadequate customer service, and fraud, afflicting the sector. That's not all. 

AI in eCommerce helps online merchants:

  • Improve customer experiences
  • Recognize upcoming trends
  • Boost customer engagement
  • Analyze consumer behavior to offer bespoke results and services
  • Streamline operations

Considering the tangible and intangible benefits, over 60% of 400 retail respondents plan to invest more in their AI infrastructure over the coming months. Consequently, global eCommerce giants like Amazon and Alibaba use AI to stay ahead of the curve.

Are you wondering about AI's transformative impact on online shopping? This article will discuss how this disruptive technology can revolutionize eCommerce worldwide.

Arjun Ruparelia is the author of this article. He believes that: 'AI is no longer a buzzword. The technology is here to stay, transforming how eCommerce businesses operate and interact with customers.'

This article will highlight how AI disrupts eCommerce and why merchants should adopt this technology to gain a competitive edge. It'll also discuss the challenges associated with AI-powered solutions and the future of AI.

After understanding the role of AI in eCommerce, check out the following guides to learn about the importance of eCommerce for businesses and trends in Shopify development:

How AI in eCommerce is redefining personalization and customer experience

Online businesses can no longer get away by sending generic product recommendations and deals to all their consumers and praying they click with at least a small percentage of the base. They must keep up with eCommerce technology trends. This is where personalization comes in. 

When businesses show their customers they care about their preferences and aren't afraid to prioritize customer satisfaction, they benefit from higher customer engagement and better lead conversion rates. In fact, 49% of consumers mention that a personalized shopping experience will motivate them to buy again from a retailer. 

However, evaluating large amounts of data in real time is difficult for brands, making it challenging to reach their target audience at the discovery, evaluation, and initiation stages. AI in eCommerce can solve this problem and help brands offer bespoke experiences to all their consumers.

Although this sounds good in theory, how does AI analyze user data?

How do AI-powered recommendation engines analyze user data to offer personalized product suggestions?

AI-powered recommendation engines analyze consumer and product data to offer personalized suggestions that meet the required criteria.

To solve the first part of the puzzle, AI algorithms examine a consumer's personal, behavioral, transactional, and demographic data. They also examine a product's title, categories, and images. AI processes big data in real time to offer personalized recommendations.

Additionally, the recommendation engines stay up-to-date on the latest data to always offer relevant product suggestions. Plus, predictive analysis isn't a one-and-done deal. It's helpful in forecasting future purchase decisions, making it easier for eCommerce sites to suggest products confidently.

However, tailored product recommendations aren't enough to stand out, especially if a digital store wants to compete with international eCommerce corporations.

Using AI for targeted advertising

Targeted advertising and personalized marketing aren't for the faint of heart. Being hyper-focused on a customer group's preferences, behavior patterns, and specific interests is challenging on several levels. Not to mention the time, effort, and resources involved.

Leaning on AI solutions can solve these issues and allow brands to focus on reeling in customers. For instance, text to video AI solutions will help marketers convert any block of text (or document) into a video within minutes. 

Don't worry; the videos won't look robotic and leached of all human emotions. The goal is to establish a positive relationship with the target audience, not hit them with a generic video.

Brands can specify the target audience, pick an avatar that suits their brand style, dictate the tone of the message, define the length of the video, and select a language among the 130+ options available to customize communication with their audience.

Once the video is generated, a marketer can export it to popular social media channels like TikTok, Instagram, and YouTube without getting it edited professionally.

But what happens when customers hit a roadblock and need nuanced solutions to their queries? Businesses should let AI handle that, too.

The undeniable magic of AI-driven chatbots and virtual assistants

Since 54% of Americans like to share their queries with an eCommerce website in a text format, AI in eCommerce is essential for sites to offer all consumers a stellar online shopping experience.

AI-driven chatbots and virtual assistants use technologies like natural language processing (NLP) to interact meaningfully with humans. This lets them:

  • understand the context of the conversation,
  • discover the underlying emotions to nail down customer intention and
  • build a solid database to refer to for future interactions.

Even though bots are often relegated to offer a stellar post-purchase experience, they can be used throughout the lifecycle to ensure consumers can access a dedicated source whenever needed.

A good example is The North Face partnering with IBM Watson Assistant, an AI chatbot for businesses, to automate customer service and offer customers customized recommendations when shopping for outerwear online. It's a win-win!

The good news is such bots and assistants are competitively priced, provide customer support 24/7, and are instrumental in enhancing user experience.

How AI in eCommerce simplifies inventory management and supply chain optimization

Inventory management and supply chain optimization are two critical pain points all eCommerce businesses have to deal with.

To put this into perspective, an online store must hold sufficient inventory to satisfy consumer demands. After all, it doesn't want to display the 'out of stock' message too often or risk losing its hard-earned customers.

That sounds doable, right? However, things get complex because companies must have the right amount of inventory on hand.

Otherwise, a significant chunk of its working capital will be tied up in inventory. Add increasing warehouse expenses, spoiled old inventory, and changing consumer preferences to the mix, and the situation gets messy.

The bad news is inventory management and supply chain optimization go hand in hand. Poor inventory management and limited supply chain visibility will make it difficult for eCommerce stores to:

  • Process orders without delays,
  • Synchronize data to fulfill varied orders,
  • Effectively manage returns,
  • Maintain a delicate balance between supply and demand,
  • Accurately forecast demand, 
  • Monitor shipping costs and speed, and
  • Stay on top of logistical issues.

Worse, ineffective management increases operational costs significantly, lowering profit margins. Enter AI in eCommerce.

Using AI-powered tools to manage inventory

Adopting AI-powered tools will help eCommerce businesses overcome a significant challenge: accurately forecasting demand.

AI analyzes large datasets, including: 

  • Past sales, 
  • Customer preferences, 
  • Seasonal demands, 
  • Uncontrollable factors like weather, and 
  • International trends. 

This lets it recognize patterns, identify upcoming customer needs, and make predictive analyses. The actionable insights allow stores to be in charge of their inventory. This means they can sufficiently stock items that are flying off the shelves without tying up their money or paying more warehouse charges than necessary.

Additionally, having insights into the ebbs and flows of customer demand makes preparing for the upcoming seasons easier. For instance, the company might have to stock more products than usual during Black Friday and Cyber Monday sales to cater to increased customer demand.

Similarly, they can stop stocking items that aren't performing well and clear the excess inventory before it gets spoiled. Dynamic inventory planning will let eCommerce stores strike a balance between stockouts and overstocking and fulfill consumer demands promptly.

A store with a lean inventory will incur less carrying and wastage costs, effectively reducing supply chain costs by 5 to 10%. Consequently, a store will have more resources to scale the business. Stellar inventory management will also make stock replenishment easier and inform supply chain decisions.

How AI can optimize the supply chain and reduce costs

AI in eCommerce improves supply chain visibility. Currently, a only 2% of companies have supply chain visibility beyond their second-tier suppliers, which makes them unable to monitor deep-rooted issues. AI can streamline logistics, offering merchants an uninhibited view of their supply chain.

AI analysis will give stores insights into potential supply chain disruptions, like inclement weather conditions, preparing them in advance and giving them enough time to pivot their business strategies. Improved supply chain operations will boost customer satisfaction. 

Further, owning the supply chain lifecycle will allow eCommerce businesses to reduce costs and deliver faster without getting stuck in the nitty-gritty of last-mile delivery. But to do that seamlessly, they must integrate fuel management software for fleets.

This can be incredibly useful for companies to understand how drivers use fuel, avoid fuel theft issues, and compute the cost per mile for every vehicle on the road. Plus, companies benefit from customized reporting, real-time metrics, and shareable data.

How AI in eCommerce supports dynamic pricing and prevents fraudulent transactions

Although pricing is one of a business's most important aspects, most retailers rely on rudimentary tools like Microsoft Excel and follow a one-pricing-fits-all-types-of-consumers approach.

Admittedly, static pricing makes things easier for the retailer since the decision-makers don't have to pore over endless data and continuously change the pricing. However, following this strategy also leads to a loss of revenue.

To combat this, retailers must embrace AI in eCommerce to master dynamic pricing—tweak prices in real-time based on current market conditions, customer needs, and competitor pricing.

Moreover, the online retail sector is plagued with fraudulent activities and pricing opacity. AI can make these insurmountable problems manageable, too.

How AI influences dynamic pricing strategies

AI algorithms adjust prices for varied products by considering key factors like real-time supply and demand, consumer demography and behavior, competitor pricing, historical sales, seasonality, market trends, and inventory levels.

Practicing dynamic pricing strategies, eCommerce retailers can:

  • Become more competitive and attract more consumers,
  • Quickly respond to changing buyer sentiments,
  • Maximize profits to take advantage of increased demand and market trends,
  • Improve customer experience by offering personalized pricing,
  • Effectively manage inventory,
  • Enhance consumer loyalty, and
  • Channel trade spend effectiveness—offer suitable discounts and promotions to increase sales.

These advantages make dynamic pricing a solid strategy for merchants. For consumers, AI-based dynamic pricing algorithms support pricing transparency and ensure fair competition in the market. This prevents one retailer or company from dominating the market and forcing buyers to pay through the teeth.

How AI aids in fraud detection

The eCommerce sector is no stranger to fraud. Elaborate phishing schemes, synthetic identity fraud, account takeover fraud, expensive chargebacks, friendly fraud, auction fraud, and credit card fraud eat away at a retailer's profit. 

But with 60% of merchants opining there's been an increase in first-party fraud in the past year and the eCommerce sector estimated to have lost $48 billion in 2023 to fraud alone, retailers must take concrete action.

AI in eCommerce can analyze device information, location, consumer behavior, order history, and payment method to detect potential red flags and assign a risk score to each transaction in real time. 

Armed with anomaly detection and pattern recognition, retailers can fight against fraud and keep their hard-earned money safe.

How does AI in eCommerce promote visual search and image recognition?

Generally, eCommerce is an extremely visual sector. So, it stands to reason that businesses allow consumers the luxury of visual search. Basically, allowing potential buyers to search for items using images instead of text.

AI in eCommerce can help merchants offer visual search functionality to their consumers. Using image recognition technology, AI-driven algorithms decode images and identify objects based on texture, pattern, color, shape, and size.

But object identification is just one side of the coin. Machine learning algorithms also perform a database search to provide relevant suggestions.

Not only is the process quite entertaining in the front end, but this seemingly simple functionality has multiple advantages. For starters, visual search makes it easier for individuals to hunt down products they see online or in the real world and buy them immediately. 

Additionally, product categorization and tagging improve product discovery accuracy and make the process painless. This, in turn, enhances customer experience, reduces abandoned carts, and boosts sales and revenue. AI also enables retailers to retain customers through personalized recommendations.

That said, AI in eCommerce isn't limited to visual search and image recognition. Although a relatively new concept in the world of online shopping, advancements in AI have helped brands, especially in the fashion, home decor, and beauty niche, offer a virtual try-on experience.

This means that individuals can "try on" clothes, makeup, and accessories or imagine how a particular piece of furniture, table lamp, or fake planter would look in their home before buying them. Such immersive experiences improve the online shopping experience and amplify confidence in products ordered, reducing the risk of returns.

How AI in eCommerce enables voice-activated shopping

Over 142 million Americans (about half of the US's population) rely on voice assistants like Alexa. Not so surprisingly, around 25% of Amazon Echo users—Amazon's smart speaker brand—use the device as their AI-powered personal shopping assistant, highlighting the prevalence of voice commerce.

Voice commerce is akin to visual search, allowing individuals to purchase items and pay for services through voice commands. Although voice-activated shopping is a relatively new segment, the hands-free and convenient experience has already found a loyal base, and the credit goes to AI in eCommerce.

Voice-enabled commerce leverages AI and NLP to interpret voice commands by analyzing the spoken words, their context, and grammar. AI-enabled speech recognition simplifies product discovery and allows buyers to compare prices online, add a product to the cart or wishlist it, and make purchases.

Besides being incredibly convenient, voice-activated shopping broadens the customer base, allowing physically challenged individuals to buy products without external assistance. Plus, AI-powered voice assistants empower human-like and friendly interactions, making online shopping a breeze.

AI-powered voice assistants driving voice commerce

Nearly 27% of US consumers use voice assistants to buy items online, with 10% using these assistants to make weekly purchases. This raises the question: which AI-powered voice assistants are driving voice commerce?

Amazon's Alexa, Apple's Siri, and Google Assistant are some of the most popular voice assistants. But how do they stack against each other?

Amazon's Alexa 

Powered by generative AI, Alexa is Amazon's cloud-based voice assistant. eCommerce businesses can fuse their API or content with Alexa's LLM (large language model) to offer customers an immersive experience. 

  • Intuitive and user-friendly
  • Empowers voice commerce
  • Regular updates and improvements
  • Reliable customer support
  • Data privacy and security
  • Requires dependable internet connection
  • It can only be used on compatible devices

Price: It's free to use on compatible devices.

Apple's Siri 

Siri is Apple's "most private digital assistant," excelling at understanding human language and applying the rules of language semantics to better user experience over time.

  • Easy-to-use and activate
  • It understands multiple languages and dialects
  • Champions user data privacy
  • Adapts itself per user preferences
  • Needs internet connection
  • Runs into glitches
  • Dependence on Apple devices

Price: It's free to use on compatible devices.

Google Assistant 

Google Assistant is a ubiquitous voice assistant with advanced natural language understanding capabilities and gels well with all types of smart devices, including phones, tablets, watches, home devices, and cars.

  • Syncs between multiple platforms
  • It understands multiple languages and dialects
  • It can be used to buy products online
  • Keeps user data safe and private
  • It's dependent on a reliable internet connection
  • The voice assistant doesn't sound human

Price: It's free to use on compatible devices.

Although AI-powered voice assistants drive voice commerce, speech recognition remains a challenge. The more complex a request, the more difficult it is for the voice assistants to understand.

What is the future of AI in eCommerce?

AI is set to revolutionize the eCommerce segment and transform how individuals shop online. Along with machine learning, NLP, deep learning, and sentiment and predictive analysis, the technology is:

  • Fueling customized product recommendations,
  • Empowering visual search,
  • Boosting voice commerce,
  • Manage social media,
  • Solve customer queries,
  • Target potential customers with relevant recommendations,
  • Increasing inventory and supply chain visibility,
  • Supporting dynamic pricing and
  • Eliminating fraudsters.

The use cases of AI in eCommerce are limitless. However, they occasionally need manual guidance and intervention to refine their results and analysis.

Moreover, businesses must be aware of and try to eliminate the associated ethical considerations and risks, like data privacy, security, algorithmic bias, and opaque decision-making processes. This will assist them in forging genuine relationships with their consumers.

AI is rapidly transforming the eCommerce industry

AI in eCommerce is the future of online shopping. The technology is transforming the way businesses target consumers, personalize experiences, resolve customer queries, manage inventory, optimize supply chain, and price products. Consumers benefit from convenient options like visual search and voice commerce.

AI-powered solutions reduce operating expenses, increase productivity, and help businesses grow and expand. As technology advances, solutions will improve, especially those focused on generative AI.

Since AI is changing how online retailers interact with their customer base and fulfill their demands, eCommerce stores must embrace the technology with open arms to gain a competitive advantage or risk going out of business.

Arjun Ruparelia
Freelance Writer
An accountant turned writer, Arjun writes financial blog posts and research reports for clients across the globe, including Skale. Arjun has five years of financial writing experience across verticals. He is a CMA and CA (Intermediate) by qualification.

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The AI Revolution in eCommerce: How AI is Transforming Online Shopping