If you’ve been on the internet too much, there’s no way you haven’t heard of AI or artificial intelligence. Why? From ChatGPT to chatbots to online shopping, almost all of our actions on the web are influenced by AI. AI has already become a staple technology used by people, businesses, and organizations to improve their daily lives. 

Voice AI, art AI, video AI, data AI—artificial intelligence is now used in all facets and industries of society from healthcare, finance, education, robotics, analytics, e-commerce, and many more. Generative AI, an arm of AI that can produce all kinds of content, is set to become a $1.3 trillion market by 2032, as reported by Bloomberg

In this article, we will discuss how AI has transformed the e-commerce industry as a whole, its role in improving the e-commerce experience for both sellers and customers and specific use cases for AI in the industry. 

The Role of AI in E-commerce

When the internet emerged and people started relying on the internet for everything–from communication to shopping–we knew that it was a matter of time when we could have everything we wanted at our doorstep at the click of a finger. E-commerce has made purchasing and selling more convenient for sellers and customers, because if you asked people 20 years ago if they could have Nike shoes outside their door in a matter of days, you’d probably get laughed at—no cap. 

E-commerce sales worldwide reached 5.7 trillion in 2022 and are expected to reach 8.1 trillion by 2026 according to Statista, with Chinese retail group Alibaba as the largest e-commerce retailer worldwide.

AI uses the following models of technology in particular to help e-commerce practices:

Natural Language Processing (NLP)

Think of NLP as an imitation of the way we speak and express ourselves. NLP helps mimic and understand human language, making computers understand language as humans do. Simply think about virtual assistants, chatbots, speech recognition, translation machines, text summarization, and the magic that happens when they produce human-like language.

In the context of e-commerce, NLP is used by companies to help analyze customer sentiment and feedback on online forums. For example, it picks out specific words and phrases a person uses when they’re interested in purchasing a certain product, helping AI make word suggestions when customers are using the search option on your website.

NLP also improves customer service, with AI systems efficiently handling customer interactions, sifting through words and phrases used by customers to produce a relevant and helpful answer to their concerns. 

Machine Learning (ML)

Machine learning is an important part of artificial intelligence because as people learn from patterns, AI can do the same using machine learning. Machine learning ‘mimics’ the way a human mind operates, our intelligence, behavior, and thought processes. Simply, it means that through machine learning, computer systems can act like humans without human intervention by feeding them data and algorithms.

The role of machine learning in e-commerce comes in various forms—from targeted advertising, smart search engines, pricing optimization, chatbots, and trend analysis, to logistics optimization—machine learning plays a crucial role in making sure that products are efficiently ordered and delivered from warehouse to doorstep.

Computer Vision

Computer vision is an arm of AI that allows computers to analyze images, videos, and all kinds of visual aids. While machine learning tries to mimic how a human thinks, computer vision mimics human eyes from the way it sees to the way it interprets what it sees.

An integral example of the use of computer vision in AI is through facial recognition. Because a computer has been fed data on what a person looks like, it will automatically recognize one’s facial features once faced with the system. 

In the world of e-commerce, computer vision helps with visual product searches, personalized product recommendations, virtual try-ons, and virtual warehouse inventory management.

Benefits of using AI in E-commerce

There are so many ways AI is integrated into e-commerce to provide the best services to customers and better sales strategies to businesses. Here are some e-commerce features you may have heard of that uses AI:

Personalized product recommendations

Using machine learning, AI in e-commerce can personalize product recommendations that are tailored to each customer for higher conversion rates and eventually higher sales. 

Using both machine learning and NLP, AI can generate product suggestions such as ‘People also viewed…’ or ‘Similar products are…’ or ‘People also bought…” as product recommendations to customers who are searching for a specific product to generate more sales. 

This is because e-commerce AI has been fed data on what customers buying a specific product have bought before, and are suggesting the same purchases to future customers. AI can also analyze your purchasing patterns and suggest products of the same style, color, or function as your current purchase.

With the help of AI, businesses also employ international SEO tactics to cater to a wider range of international audiences by optimizing websites tailored to their customer’s language and location, making the purchase process smoother. 

Using AI to personalize the shopping experience of customers helps make the sales funnel journey easier, generating higher conversions and increasing customer loyalty.

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AI-enabled dynamic pricing

Dynamic pricing is not new. It has existed for over 10 years and the technological advancement of AI has made dynamic pricing an easier technique for businesses to optimize revenue based on the trends of demand and supply.

Economics 101 has taught us the value of supply and demand, and dynamic pricing has leveraged this strongly. Take for example Ticketmaster who has implemented and embraced dynamic pricing (and has rather taken a massive hit for it). The concept is simple—the more in demand a product is, the higher the prices are for it (in this case, concert ticket prices)

In the world of e-commerce, AI dynamic pricing assesses products, market conditions, inventory level, and competitor’s prices to generate the most optimum price point. 

A perfect example is Amazon’s pricing model where products sold on their platform are updated on a ten-minute basis, making an average of 2.5 million product price changes a day. 

Insane, if you think about it, because this is not humanly possible and the emergence of AI technologies has allowed for this price optimization to benefit Amazon with a 25 percent revenue increase. 

Anthony Martin, Founder and CEO of Choice Mutual, emphasizes the cons that come with dynamic pricing. “While dynamic pricing greatly improves sales performances, it does not come without repercussions. Unstable prices due to dynamic pricing greatly affect customer experience and loyalty in the long run.”

Automate inventory management

The role of inventory management is highly underrated by many unknown businesses and organizations. Proper inventory management helps:

  • Maintain optimum stock levels to not have too much or too little
  • Manage seasonal items 
  • Prevent loss or theft
  • Supply items without delay and maintain rapport with customers
  • Improve financial statement revenues by managing beginning and ending inventory

According to Eric Mills, Owner of Lightning Card Collection, “Inventory management plays a crucial role in business operations and financial reporting, which is why automating inventory management—from warehouse to logistics—is an integral part of doing business.”

AI analyzes market trends, sales data, and economic conditions to forecast demand. It helps businesses prevent overstocking or understocking by analyzing huge amounts of data, keeping customers satisfied and loyal, and decreasing storage costs otherwise caused by overstocking.

In particular, AI-powered inventory management helps:

  • Create AI-based forecasting models to prevent overstock and understock
  • Use lead time, supplier data, demand patterns, and warehouse capacity to automate replenishment of inventory to keep inventory levels at optimal levels
  • Identify supplier reliability based on historical data 
  • Monitor inventory level across the supply chain, inventory condition, and location.
  • Flag defective products 
  • Perform repetitive tasks like lifting heavy packages with the help of robotics

Large e-commerce retailers like Amazon have developed AI technologies to help manage inventory, especially in identifying defective products before they are shipped. 

According to Amazon, lots of data are being fed into the system on what a ‘damaged’ product is supposed to look like so that the system will be able to recognize it, specifically using computer vision. Then, machine learning ‘helps’ decide whether the particular pattern a computer vision sees is classified as a damaged product. 

This synergy between machine learning and computer vision has made identifying damaged products three times more effective than manually doing it, according to Amazon.

Better customer service

Combining the powers of NLP, ML, and generative AI, businesses have leveraged the use of AI to efficiently communicate with their customers via AI chatbots. While customer service representatives still exist, virtual assistants and chatbots have changed the game, especially in addressing customer FAQs and repetitive concerns. 

AI chatbots can:

  • Help accept orders, address simple questions, and make personalized offers through access to a vast amount of data.
  • Provide 24/7 customer service that is not otherwise possible with human customer representatives (not without additional cost).
  • Collect customer data in terms of interest and reasons, to assess a product’s demand.
  • Make the checkout process easier for customers in terms of product details, updated shipping times and methods, and personalized recommendations.

Jerry Han, CMO at PrizeRebel, says, “While AI chatbots cannot replace human-to-human interaction, they certainly take a boatload of pressure and costs off businesses that would otherwise have to pay manpower to address simple customer concerns.”

Improved logistics and delivery

Human intervention is still at the core of operations in terms of logistics for e-commerce businesses. However, logistics is highly susceptible to risks, and using AI in risk management in the logistics process can tremendously help in making deliveries efficient. 

AI can help assess the occurrence of natural disasters, traffic conditions, and other possible disruptions to anticipate potential risks so that businesses can devise plans to mitigate or minimize the losses from these risks.

Will Ward, Founder of Freight Forwarder, explains how AI is the future for deliveries. “The ultimate goal for AI in the logistics and delivery chain is the use of automated, self-driving delivery vehicles. While the development of such is still not anywhere near, delivery robots in restaurants and stores are paving the way for the possibility of self-driving, man-less delivery vehicles. Not to mention the existence of delivery drones, like Amazon’s newest Prime Air drones—manless, automated delivery drones that can fly through diverse weather conditions—straight into our backyard.”

Wrapping up

The takeover of AI has made this technology not just a want, but a need for many e-commerce businesses. AI has proven itself to offer countless benefits—from personalization, optimal pricing, inventory management, customer service, and its potential to change the way delivery works.

AI is bulldozing its way to changing the world, not just through e-commerce, but in every aspect of our lives, and embracing AI is the only way businesses can stay on top of their game in terms of sales and service.

Brooke Webber is a passionate content writer with a love for storytelling. Brooke has 5  years of experience in crafting compelling narratives that resonate with audiences across industries. Total coffee addict. During her spare time, she immerses herself in literature.