Artificial intelligence (AI) is no longer just the stuff of scary futuristic movies; it’s recently burst into the headlines and is suddenly just everywhere. Its impact on the job market, whether we trust things such as the integrity of news on social media, and ultimately whether humanity survives alongside it are unsettling things to worry about.

One certain thing — and something to crow about — is that e-commerce has been an early adopter in implementing and showing off the power of AI solutions for improving online customer satisfaction.

AI makes it easy for e-commerce sites to use collected data on customer behavior from various touchpoints to learn exactly which specific products shoppers want, make the right merchandising decisions put in place the right optimization, and ultimately provide a satisfying user experience.

From pandemic to online pandemonium

Since the start of the pandemic, online shopping in the U.S. has increased 55 percent, reaching $1.7 trillion. And now, even with the pandemic waning, this frenzied, data-science-fueled pace shows no signs of slowing down.

Gartner forecasted that in 2022, artificial intelligence (AI) software revenue worldwide would hit $62.5 billion, increasing 21.3% from 2021.

So the conventional wisdom is that any online retailer — even smaller e-commerce companies — serious about keeping competitors at bay must consider integrating AI technologies to upgrade their e-commerce website functionality.

How, exactly, are AI tools impacting e-commerce? A better question would be how AI systems are not. 

AI use cases in e-commerce

With e-commerce platforms, AI technology is now being used to:

• Observe and expertly analyze customer interactions and shopping patterns, then use that information to guide strategy
• Personalize online shopping experiences to delight and win over customers
• Make personalized product recommendations so enticing that people can’t resist pulling out their credit cards
• Upsell and cross-sell desirable items at the checkout stage, thereby increasing order values
• Provide great customer support from chatbots so there’s no need to wait on hold
• Succeed so well at all of the above that shoppers can’t wait to come back for more, thereby improving customer retention
• Improve conversions, ROI, brand awareness, and everything else needed to drive an e-commerce site’s success through the virtual roof

Ways AI impacts e-commerce

Here are a few ways artificial intelligence has flexed its muscle within the world of e-commerce.

1. Identifying optimal pricing

When you can accurately and consistently hit the pricing optimization sweet spot, profits go up. And with AI-powered software and the large datasets it can analyze, it’s infinitely easier to hit that moving target. AI-enabled dynamic pricing lets you change prices based on supply and demand. For instance, if a competitor’s site is running low on an item, you can be alerted and increase your prices in response.

2. Making site search smarter

AI-related advances in natural language processing (NLP), which is focused on the ways computers understand human language, have led to breakthroughs in search engine performance. With NLP, based on AI’s understanding of the query a shopper is entering or speaking, you can more confidently assess what they’re trying to find and proactively present the search results they want.

Additional AI-facilitated tactics are the addition of synonyms and missing words or phrases and the automatic correction of spelling errors.

Vectors are a new AI technology being used to improve search even further. As we’ve discovered at Algolia, accuracy can be improved dramatically by combining keyword search and vector search in a single query.

AI also makes customer queries easier to enter for people who prefer to speak or share images. With visual search, AI tools can process an image, such as a photo of an item seen worn on the street, and then suggest similar items.

In short, AI search is the next big thing. Minimizing searcher frustration through search personalization can give you an immediate competitive advantage.

3. Winning shoppers with personalization

In e-commerce, a shopping experience tailored to individuals’ preferences and customer needs is king. “Personalization, supported by data and analytics, is a powerful tool to strengthen the connection to the brand, win consumer loyalty, and draw customers into stores,” says McKinsey in a 2021 report. The firm also found that the majority of consumers expect personalized shopping experiences. However, just 15 percent of retailers had rolled out personalization across all their channels.

Ecommerce personalization has been a hot commodity for a while, but AI has put it on steroids. With AI, computers can capture and process huge amounts of customer data and provide insightful real-time analytics, allowing websites to act like trustworthy guides that suggest the right items and offer attractive discounts.

The result? Robust ecommerce sales. McKinsey concluded that companies utilizing personalization in the online shopping journey have profits 40 percent higher than online retailers less focused on personalization.

4. Making the right recommendations

One aspect of personalization, recommendations, is in a class of its own. E-commerce personalization in an online store goes considerably beyond what shoppers can expect to enjoy in a brick-and-mortar store. AI algorithms can retrieve actionable insights about shoppers —  such as how they’ve browsed and their purchase history — that allow accurate prediction of what they want and recommendations of the right item or similar products. And when a recommendation engine is right, a buy is likely.

5. Intuitively cross-selling and upselling

Which products would your shoppers be likely to add to their carts as they’re happily checking out?

Product recommendation technology is yet another e-commerce tool enhanced by artificial intelligence. You can use frequently bought-together data created by collaborative filtering to inform how you respond.

6. Automating customer support

When it comes to good customer service, chatbots and other types of virtual assistants make excellent online support reps. AI is involved in pretty much everything about a chatbot. Their functionality can leverage NLP to help them determine shoppers’ needs, and with applications of machine learning solutions, they can improve their knowledge over time to become even wiser digital butlers.

Chatbots have already been a godsend for e-commerce retailers and shoppers alike. They stay up late (24×7, being ever available for night-owl shoppers), don’t need to take coffee breaks, are inherently polite and don’t lose their cool, typically have many (if not all) of the answers a shopper seeks, and productively do the drudge work that can free up live agents to address the trickier issues. However, recent AI technology advances have meant chatbots are becoming more refined in their abilities, which has led to consumers warming to them even more.

According to Statista, a third of consumers consider chatbots “very effective” in handling questions. Another good sign: more consumers are willing to buy goods and services from chatbots, some of which can also offer them personalized promotions.

7. Streamlining inventory management

AI technology uses predictive analysis that’s much more sophisticated than anything achieved by referring to current stock levels and keeping a close eye on your supply chain. With the help of machine learning, a company can accurately determine how much inventory to order and how much to keep available. McKinsey notes that this level of forecasting can drastically reduce lost sales when inventory is out of stock.

Warehouse management also stands to be streamlined with AI, as bots can take on the thankless job of storing and retrieving stocked items.

8. Preventing online selling fraud

Worldwide, in 2021, online fraudulent activities cost e-commerce retailers $20 billion, according to Statista. The good news: AI can fight that problem in some advanced ways. It used to be that armies of employees had to painstakingly review transactions for anomalies. How machine-learning algorithms can engage in fraud detection, using complex rules to analyze millions of big-data points and instantly spot suspicious behavior, is impressive. For instance, a criminal trying to commit a fraudulent transaction might enter an incorrect shipping address — something a human would never be able to notice or respond to, much less in the amount of time an algorithm could flag it.

AI is also being employed to address another integrity-based e-commerce problem: people posting fake reviews.

9. Increasing conversion rates

Did you know that abandoned shopping carts interfere with conversion rates big time? AI can be used to improve your conversions and cut down on customer churn, letting you follow up when potential customers walk off the site and leave items still sitting in their cart. AI does this by collecting information about users and, when they leave the site empty-handed, reaching out to them, such as in an email reminding them that they have items in their cart.

10. Reducing manual labor

Aside from impacting what goes on at the technology levels in an e-commerce store, as with other industries, AI can take on mundane daily tasks and lower employee headcount. The phenomenon of human retail associates being displaced by bots and automation is unfortunate, to be sure, but when it comes to the bottom line, not many companies argue with the fact that AI is the superior hire.

11.Impact your revenue with AI search

The e-commerce world has become an extremely competitive place, thanks in part to the addition of 85,000 new online retailers as a result of COVID-19, which brought locked-down people online in droves, followed by their settling in as online shoppers are happy to keep reveling in the pleasures of digital shopping.

That sounds daunting, but while a majority of businesses have invested in AI technologies, only about 15% are deploying AI capabilities.

So if your retail site is getting lost in the tidal wave of e-commerce industry craziness, in terms of major decision-making, applications of artificial intelligence could be the life raft for your business before it goes crashing down.

If you want expert help sorting through the AI-aided possibilities for your unique e-commerce business search needs, connect with our team. More than 50% of retail professionals we surveyed said effective search has been a revenue driver for them, and we have an impressive record of helping retailers with AI-optimized e-commerce solutions.

We’d love to help you make over your customer experience and scale faster. Looking forward to hearing from you soon!