AI in eCommerce: Benefits, Examples, Challenges and How is Artificial Intelligence in eCommerce Transforming the Industry? [2024]

By 2024, the global spending on AI in Ecommerce is projected to scale up to over $8 billion. While artificial intelligence (AI) is simplifying our daily lives, it's also coming up as a revolutionary technological boon for businesses, especially Ecommerce. 

Artificial intelligence is providing unique insights and overviews into customers overview thus changing the way Ecommerce businesses interact with customers. This, ultimately, helps Ecommerce businesses optimizing their operations and creating a more personalized experience for their customers. 

But how exactly is AI in Ecommerce doing all of this? What are the various ways AI in Ecommerce is transforming the industry? Are there any real-world use cases or success stories of integrating Artificial Intelligence in Ecommerce? Let's explore this together in this blog post.

How is AI in Ecommerce Transforming the Industry in 2024?

The AI in the Ecommerce market, as reported by MarketWatch, attained a valuation of USD 4.06 billion in the year 2020. AI in Ecommerce is revolutionizing the industry in multiple ways, offering businesses and consumers a more efficient, personalized, and convenient shopping experience. 

Online stores are using Ecommerce chatbots and conversational commerce for interacting with customers and visitors. Not just this, these conversations also help Ecommerce businesses in suggesting personalized recommendations for the customers.

Besides creating a hyper-personalized shopping experience, AI also comes up with features such as visual search, which allows customers to search for their favorite products online. This goes beyond text-based queries, thus allowing customers to browse a range of similar products. 

Moreover, AI chatbots and conversational AI agents are transforming customer service in Ecommerce. By attending to customers' queries 24*7, they assist customers in every step of their buying journey. 

This is just the beginning. Artificial Intelligence in Ecommerce also helps businesses in optimising their pricing depending on the customer's behaviour towards a particular product. It's an individualized and personalized approach that fosters brand loyalty. 

Furthermore, the introduction of AI in the supply chain helps in optimizing operations and improving efficiency and productivity. It allows supply chain managers to manage and optimize the inventory effectively. With predictive analytics and market trends, AI can easily monitor and forecast future trends, thus providing valuable insights.

Benefits of AI in Ecommerce

AI in Ecommerce has significantly optimized sales, which contributes to exponential revenue growth for many enterprises. Additionally, AI-based business strategies are generating around 15-20 percent additional revenue and are also improving customer service and shopping experiences. So, let's explore the major benefits of AI in the Ecommerce sector:

1. Pricing Optimization

Many times, a seller finds it really difficult to decide a suitable price for its products. However, using AI, this can be done in a jiffy. AI in Ecommerce can help in analyzing products’ demand, competitors' pricing strategies and many other things. This entire processing through AI is called Dynamic pricing. 

McKinsey and Company says that profits can be boosted by 3-5 percent through price optimization, and AI is capable of doing that efficiently. A seller can get an idea of which product needs a discount and which one can handle an increased price through an AI algorithm. In a nutshell, combining AI with human judgment creates a scope for commercial growth. 

2. Enhanced Customer Service

Using AI chatbots, a company can deliver convenient and 24/7 uninterrupted customer service. The advanced NLP-powered chatbots are capable of comprehending human intentions and emotions. By doing so, these AI chatbots can provide customers with personalized recommendations based on their field of interest. 

Artificial intelligence in Ecommerce can also record, analyze, and resolve customers’ issues when live support agents are offline. For example, by using AI-powered chatbots, Photobucket's resolution time has improved by 17 percent and first reply time by 14 percent. 

3. Sales and Demand Forecasting

If a company has multiple stores at a number of locations, it can use AI algorithms to analyze sales data and inventory levels to forecast what kind of demand is there at every store. This way, the company can replenish inventory of a store according to the demand it faces. 

AI forecasting further helps in predicting what amount of sales can be done with what kind of products with a particular type of customer. Companies use this data to plan their next designs and supply accordingly to compete in the market. 

4. Smart Logistics

Using AI in Ecommerce, one can easily optimize supply chains, which will help in averting any kind of risk. Also, by using AI and analytics, making forecasts becomes easier which in turn increases the chances of profit. According to McKinsey, AI has improved inventory levels by more than 34% and logistics costs by around 15%. A company can use AI analysis to plan its shipments through the optimized routes that make the entire process easier and simpler. 

On top of that, AI-based computer vision can easily separate the damaged parcels from the good ones. This computer vision can also help in labeling the inventories based on factors like dimensions, weight etc. Also, by using AI, shipment vehicles can identify faster routes to their destinations. 

5. Customer Segmentation

As AI can easily collect and incorporate vast amounts of data, it becomes easy for a company to categorize customers based on their individual choices, behaviors and feedback. The more a customer interacts with an AI-powered agent, the easier it becomes for the company to create refined and effective customer segments. 

Adding on, AI can easily wipe off duplicate and outdated data, which further ensures precise segmentation. AI can frequently update a customer's data to ensure that customers are categorized according to their most recent interests.

5 Examples of Companies Using AI in eCommerce

AI has become an indispensable core for businesses, and this becomes even more true in the case of E-commerce businesses. Almost 84% of Ecommerce sites are already actively using AI in their operations. Let's look into some big E-commerce giants who are taking advantage of AI.

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1. Amazon

Amazon is an e-commerce giant that is recommended by people around the globe. It attracts billions of monthly visitors to its site, thanks to AI. Amazon has integrated AI to provide smarter product recommendations and dedicated AI to enhance workflow, customer service, search relevancy, warehouse management, and more.

• Personalization: Amazon has huge customer data and an understanding the user intent. The AI in Amazon analyses the data and provides highly personalized product recommendations. The AI analyses your past purchases, items in the cart, most searched items, and a lot of other points to recommend the best product. 
• A10 Algorithm: It is easy to estimate the strength of Amazon's A10 Algorithm from the fact that almost 42% of customers click on a product to purchase whenever the algorithm shows a product after a search. This AI-backed algorithm not only understands the user intent but also closely analyses the product's demand and quality throughout the globe.

2. Walmart

There is no one as big as Walmart in the offline stores, however it has only 13% of its sales through its Ecommerce stores. AI is not new for Walmart, and they have already incorporated artificial Intelligence for inventory management and management of their stock in their store. However, according to Walmart their approach towards artificial Intelligence in Ecommerce stores is open and flexible. 

• AI-powered search tool: Even in the recent announcement of Walmart in 2024, they have mentioned about the launch of a generative AI-powered search tool that promises to improve product recommendations. 
• InHouse Replenishment: Walmart announced this AI feature, which will analyze the customer's purchases and buying behavior to automatically order products before the customer needs them again. For example, if a customer orders a baby diaper, the AI will analyze the usage time and ordering frequency and will place the next order before the customer needs the product again.

4. Home Depot

Home Depot is one of the leading home improvement tools and equipment Ecommerce stores. It's definitely because of product and customer service that Home Depot receives 233 million monthly visitors. They have smartly incorporated AI in their store to interact with customers and help them complete purchases. 

• ChatBot and Virtual Assistant: Home Depot has ChatBot assistance that helps customers with orders, purchases, returns, discounts, or anything else. It is available 24/7 and assists customers without a time boundary. 
• Visual Search: The customer can upload the image of the product, and their AI-powered search engine will analyse the image and show similar products in the search results. 

4. Sephora

Sephora is a Beauty and cosmetic retail brand that serves their global customers through its website. Their Ecommerce sites receive 60 million visitors per month and rule in the cosmetic industry with an annual revenue of $10 billion. In their remarkable success, artificial intelligence played a huge role. They automated and personalized their email and SMS marketing, and in addition to that, they have introduced augmented reality into their game.

• Augmented Reality: Sephora has partnered with Modiface to incorporate AR technology, which allows their customers to “try on” beauty products on their smartphones. This virtual trail of product gives customers assurance about how it will look on them. 
• Beauty Advisor ChatBots: Their virtual beauty advisor works similarly or even better than an offline retail store beauty advisor. The customer wants someone who can help them choose the right product, suggest improvements, but at the same time not overpower them and their choices.

5. Target

Target is a retail store available both in online and offline outlets. They have an annual revenue of $107 billion with 1.67% year-on-year growth. They have monthly visitors of 165 million on their online store. They have been using AI to increase the efficiency of their operations. 

• Product Demand and supply chain: Target receives a huge traffic during holiday seasons, and their AI analyzes the stocks and forecasts product demand. They make sure the customer doesn't experience a stock out, which may disappoint them. 
• Pricing Optimisation: Target is very cautious about the pricing of the product, as their customers consider pricing as one of the important factors for choosing them. They have AI-backed algorithms that decide how much and how often to lower the pricing of the products in order to clear out stocks. This approach provides dynamic personalization to the customer and also maintains an edge over the competition.

5 Challenges of AI in eCommerce in 2024

While the adoption of AI is constantly increasing in the Ecommerce industry, there are some challenges that still need to be addressed. Below listed are some common challenges of integrating AI in Ecommerce in 2024. 

1. Data Privacy and Security 

The Cost of a Data Breach Report 2023 published by IBM projects the overall cost to be over $USD 4.45 million. Furthermore, there has been an increase of 15% in the number of data breach cases since the past 3 years. 

The world of AI is heavily dependent on large sets of data. In the Ecommerce industry, AI collects user’s data (such as personal details on their preferences) to come up with more personalised recommendations for them. On the other hand, it also collects the business’s pillar information in order to align their services and products with the customer's needs. 

With the collection of data from both customers and companies, the cases of data breaches and concerns over data protection increase. The increase in cyber attacks and crimes further worsens the condition. 

2. Problems with Integration 

According to a survey by Deloitte, over 56% of businesses aren't able to integrate AI into their business successfully. Integrating AI into the existing Ecommerce business is not just about adding a new technology or software. 

It's a whole new integration to the entire data of your business which involves technical complexity. Furthermore, for a successful integration, businesses must focus on compatibility of the particular AI solution with the business's existing data structures and workflows.

3. High Initial Investment

Integrating and implementing AI in Ecommerce requires a high initial investment. Starting from building the AI infrastructure to working on it and maintaining it with the right talent is tough. Furthermore, these expensive solutions may not always yield a positive ROI (return on investment). 

4. Ethical Considerations 

Artificial Intelligence in Ecommerce raises ethical concerns about data privacy, algorithmic bias, and the potential for job displacement. Businesses need to adopt responsible AI practices that align with ethical guidelines and respect user privacy.

5. Human-AI Collaboration 

While AI can automate tasks and provide insights, it is important to recognize that human judgment and expertise are still essential in many aspects of Ecommerce. Businesses need to find a balance between AI automation and human intervention to create a seamless and effective customer experience.

Conclusion

There is no doubt that the adoption of AI in Ecommerce is constantly increasing. You can find chatbots to guide you on literally every Ecommerce website. Big Ecommerce giants have successfully tested the integration of Artificial Intelligence in Ecommerce thus giving a green signal for all other businesses to carry on with the trend. It's proving fruitful not just in improving customer experience and customer retention but also in improving operational efficiency and productivity. 

If you're looking forward to incorporating AI in Ecommerce in your business, then look no further than App0. App0 brings you an AI shopping concierge, which serves as a customer support representative for customers at your Ecommerce store. This AI concierge is a market expert well-trained to understand your business, customers and product portfolio and customers. Besides understanding and adapting just to your customers, it also learns your business processes, integrating them to boost customer acquisition and retention marketing. 

The best part is that your customers can literally start their conversation anywhere- from text, SMS, web chat, or directly from the website. Integrating seamlessly, our AI concierge can handle all types of customer requests right, from offering personalized product recommendations to queries related to order management and post-sales support. 

Here's why leading Ecommerce giants trust App0 when it comes to conversational commerce. With App0, you can guide your customers to order their favorite products anytime, hassle-free, with just a simple text—no downloads, accounts, or logins required! Moreover, it also has a chat-driven Seamless Checkout feature, which facilitates checkout for customers without having them exit the conversation thread. Getting started is a breeze; connect your data for tailored AI training. Let App0 transform your business by improving your customer service—request a demo now and witness the impact firsthand!

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