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Artificial Intelligence in E-Commerce and Retail: Potential and Challenges

Updated: Mar 31

This decade has been a decade of emerging technologies. High-tech technologies like AI, ML, Deep Learning etc. have taken the world by storm and are now, establishing a domination in almost every sphere of life! AI is certainly the pick of this bunch! In this article, we shall discuss about the potential of Artificial Intelligence to transform the E-commerce and Retail sector and the challenges it will need to overcome. So, lets begin with E-Commerce!


What is E-Commerce?

Electronic Commerce, commonly known as E-Commerce, is the buying and selling of goods and services on the internet or the online media. Businesses associated with an e-commerce presence use an online platform to conduct both online sales and marketing.





THE GROWTH OF E-COMMERCE

Various researches show that the e-commerce sector has achieved a remarkable growth in the past two decades. An incredible average CAGR of 25% between 2000-2014 in beauty and clothing product lines is a clear indication on the growing consumer demand for this sector over the past few years. And guess what, the trend isn’t over yet! According to the new growth projections of e-commerce, revenues will exceed $638 billion in the US alone by 2022.

This huge growth in E-commerce has brought about a lot of change in the pre-existing retail sector. Large retailers are forced to sell online. Majority of the new jobs created have been in the e-commerce sector, not in retail.


This whole rise in the e-commerce sector can be well-characterized by the following points-:

  • E-commerce is helping small businesses to sell directly to customers.

  • B2B companies have started offering B2C- like online ordering experiences.

  • There has been a tremendous rise in e-commerce marketplaces.

  • Social media is helping consumers to easily share the products online.


What is A.I. and How can it dominate E-Commerce sector?

We must all have read about AI but what it is and how does it exactly relate to E-commerce? Let’s begin:

Artificial Intelligence may be defined as a technology that incorporates human intelligence in machines, giving them the potential of thinking or performing certain tasks which usually can’t be completed without the assistance of human intelligence. Visual perception or speech recognition can be possible examples of such tasks.


AI is a very trending topic in this competitive world. It is today, offering business solutions to small and large enterprises by helping them in improving user experience and increasing brand awareness. Not only this, but it’s also helping start-ups and new manufacturers to set a new example in the industry.


Artificial Intelligence is improving the shopping experience-

Artificial Intelligence has begun strengthening its hold in this sector transmuting the business models of many brands and organizations. By analyzing data and identifying the patterns of consumer experience, AI is helping the big companies create user-personalized experience and grow their marketing standards.Let us see through various points how AI is establishing itself in the e-commerce industry-:


Ways through which Artificial Intelligence has dominated the world of e-commerce-


  • Visual Search Engine

E-commerce companies have started with the use of Artificial Intelligence in the form of visual search engines and helping the user by allowing them to search for what they want to.

It has been proved in various researches that visual representation of products is more appealing to the customers because through this, customers can view the size, dimension, design, colour, etc. of the product before ordering it. And it will also help improving the brand image of the product.


  • · Provides personal recommendations

Artificial Intelligence is using texts, emails in order to provide product recommendations to their customers. It also helps in tracking the user behavior on the internet. AI performs in a way that the search engines and social media display images and ads of the product which interests the customer.

Be it Amazon using the data of past purchases of its customers or Netflix using customers’ history for recommendations, AI is rapidly establishing itself among tech-giants.


  • · Use of Artificial Intelligence in lead generation and sales

Artificial Intelligence extracts the data of customers and track their purchasing pattern. By reducing the burden and ensuring that tasks be done swiftly, AI has helped various brand to generate leads and sales at an increasing rate.

  • · Services at Low Cost

Artificial Intelligence is providing its services at a very low and affordable rates, which makes the daily targets easy and improves the experience of customers.

Chatbots are the software which act as a medium of interaction between customer and service provider. Their working involves, resolving queries and questions of the customers at that moment or in real time. Chatbot is basically a customer-centric approach.

  • · Helps in e-commerce marketing

Artificial Intelligence improves the value for money of processes and assist marketing of various brands and enterprises. It provides for an marketing of products on various social media platforms like- Facebook or search engines like Google and Bing.

Artificial Intelligence solutions helps in minimizing the CPC and provides you with an optimal utilization of your marketing budget


Still not convinced about the utility of AI? Lets give you an example of one of the biggest e-commerce giants Amazon and how it is using Artificial Intelligence to provide better customer-experience and drive more profits.

How Amazon uses Artificial Intelligence?



Amazon is using machine learning to drive product recommendations and for that they are using a combination of Collaborative Filtering and Next-in-Sequence models in order to make predictions on goods and services required by the customer


Amazon is using Artificial Intelligence in logistics also in the form of re-routing, improving delivery time or making adjustments for efficiency. Amazon is also planning to manufacture drones for delivery of parcels to the doorsteps of the customer, and AI shall be integral for this too.


Major Challenges faced by E-Commerce industry

E-commerce industry may be growing at a rapid rate but there do exist certain challenges it has to overcome and here, we shall see what are these challenges and can this “intelligent technology” help them in solving these challenges!


  • To create customer-centric search

Every business needs to think in a way customer do and so the search keywords need to designed in such a way.

Many businesses are using the NLP(Natural Language Processing) to narrow down their keyword search and make it more customer-centric.

  • · Target potential customers

According to a research, 33% of the leads are not followed up by the sales team which means the interested buyers fall due to the lack of communication.

AI is helping in this case also. Its designing special offers which are delivered to the interested buyers to maintain engagement with them.


  • · Implement virtual assistants

The development in virtual assistants are deep-rooted in NLP and machines capacity to interpret and analyse what people are saying.

Amazon’s virtual assistant Alexa, has emerged as one of prominent voices in e-commerce industry and is successfully growing.


  • · Improve recommendations for customers

Using Artificial Intelligence brands can efficiently and effectively predict customer behavior and can offer helpful recommendations to the customers.

For ex- Starbucks recently launched “My Starbucks Barista”, which utilizes Artificial Intelligence to provide more personalized recommendations.

That’s it for e-commerce. We discussed on the various applications of AI in this sector through examples of industry giants which are utilizing AI to drive their profits. We also talked about the challenges E-commerce sector has to overcome, and how AI can be used to combat these. Now we shall move to a discussion about AI in another shopping sector, that is AI for retail!


What is Retail?

A retail is the business which includes the sale of goods to the public in comparatively small quantity for end consumption rather than resale.



Examples of Retailing includes- Wal-Mart and Target. Online retailers include- Amazon, Netflix, eBay, etc.


How Artificial Intelligence is powering the retail experience?

AI has become vital element in digitalisation of any retail store in order to personalize the customer experience and creation of more B2C services. AI bridges the gap between virtual and physical sales channels.


Digitally connected retail stores facilitate unique customer experience and maintain their competitiveness over the time. Be it big retailers or small, it is a proven fact that incorporating AI and other technologies into their day-to-day practices result in increased-productivity and efficiency.


Some examples of using Artificial Intelligence for Retail Stores

Artificial Intelligence has completely changed the traditional stores and has taken it to next level in terms of user- personalization and increased efficiency. Here are some examples of how AI is transforming retail sectors


  • Walgreens uses artificial intelligence to track Flu Spread

The flu has to be treated properly and people can take action to save their families, if they have the right information. Therefore, Walgreens uses the data from various prescriptions of anti-viral to more than 8000 locations and help customers know that how bad the flu is. Walgreens also stock more inventory related to flu products in those infected regions.


  • Sephora makes it easy to find Makeup

An individual can find the perfect shade makeup in Sephora store, and there is no need to apply a sample on the face. This is possible only because of their Color IQ, which scans a customer face and on its own provides recommendations according to the skin tone of the customer. Similarly, Lip IQ has the same role in providing lipsticks.


  • Taco Bell helps customers order tacos on the go

A person doesn’t have to wait, if he/she want tacos urgently. Taco Bell was the first restaurant to incorporate AI in food ordering. Tacobot works with Slack in order to communicate with customers and take orders.


Challenges faced by Retail Industry

But the journey of AI in retail sector isn’t going to be very smooth either. There are some challenges it needs to overcome. Lets discuss them one by one-:

l Problems in data-analytics


The biggest problem with the retail sector is that, the data which is available is too vague to translated directly into machine learning. Another problem comes with the algorithms, many of the employees in Retail Analytics do not understand the problem completely and give vague solutions.


New working practices

With the advancement in technology and AI practices, we can see more likely changes in the work environment. The current trends see the increase of robots, while mental work is still performed by humans. Retailers have to reconsider both the staffing and technology to keep up with the competition.


Costs of new software

Developing customized software’s into the retail business can be more costly and companies may have a need to hire specialist for maintaining those systems. This means there is a requirement for finances and resources for a transition to an AI enabled retail sector.


WHAT EXPERTS SAY ABOUT AI IN RETAIL AND E-COMMERCE

We have seen about the various opportunities and problems associated with AI in retail and e-commerce. Here we shall have a look at the opinions of various industry experts on how AI is transforming the retail and e-commerce sector and which characteristics do they believe is making AI such a dominating technology in this field. -:


  1. According to Frank Beard, Convenience Store and Retail Analyst, Gas Buddy: “AI has opened a world of possibilities for physical retail. The next few years will see continued enhancements to both customer experience and operations, especially with developments in checkout-free technology.”

  2. According to Andrew Scarbrough, Co-Founder, COO, PriceWaiter:AI in image recognition is now here to stay in eCommerce, and it blows away bar-code scanning, which seemed like the future just a few years ago. It reminds us of the rapid digitization of DVDs to Blu-rays to where at each stage people thought we might be done, at least for a while.”

  3. According to Daniel Druker, CMO, Instart: “AI is revolutionizing the retail industry by making it cost-effective to deliver a completely personalized, immersive and optimized experience for every individual consumer at massive scale.”

  4. According to Chris Miglino, Co-Founder, CEO, Srax: “AI’s biggest benefit to retailers will be the analysis of all the wealth of data they have and creating actionable insights from that data. AI is giving them the opportunity to act on the data.

Conclusion


We all know AI is our future and like all other sectors, the retail and e-commerce sector will also not remain untouched from it. But what’s important is to embrace the challenges associated with it and solve them to make this transition into an AI enabled retail smooth.


Contact us to be on the forefront of innovations coming to disrupt the Retail sector and embrace the upcoming industry shift.

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