It is estimated that in 2017, over 1.66 billion people worldwide bought goods online. In the US alone, e-retail sales amounted to 2.3 trillion dollars, which according to experts, is projected to grow to 4.48 trillion USD by 2021.1 Online shopping is no longer the fragile bubble it was in the 1990s. It is a thriving industry that has become a way of life for most of us.
The one thing that has eluded online retailers over the years has been the inability to simulate the offline shopping experience, online. It was expected that big data would solve this problem, but it didn’t. It is only with recent advancements in Artificial Intelligence (AI) and Machine Learning (ML) that definite strides have been made to move online shopping on to greater milestones.
How AI Is Powering E-Tailing
From recommendations and personalization to chatbots, AI has transformed the way we shop online. According to Gartner, by 2020, 85% of interactions between customers and retailers will take place without human interaction.2 This is largely due to AI and how companies are using AI to streamline processes and make the customer-buying cycle faster, more transparent and personalized. Amazon’s Go is a prime example. After its initial success, the company is expected to open over 3000 cashier-less stores by 2021.3
Amazon is also an example of how online retailers are coping with the online/offline conundrum. The company, which is responsible for 49.1% of all online retail spends in the US,4 has blurred the lines between online and offline by creating a physical store that is closely integrated with its online store. At the end of the day though, many of Amazon’s innovations, as well as of the retailing industry as a whole—whether offline or online—are being driven by AI.
Two crucial factors have contributed to the enormous strides that AI has been capable of, in recent years. They are 1) computing power and 2) data. With the avalanche of data that we’ve seen online in the last few years, AI and ML have access to rich data sets that were previously unavailable. As a result, AI has been able to slice and dice data to uncover trends and patterns that were previously hidden.
Here are the areas where AI has made significant contributions to the online retail industry:
Making Recommendations to Simplify the Buying Process
In a physical store, customers can walk around and browse through racks of products before making a purchase. Customers may even try on clothes or shoes to see how it feels. They can also chat with shop assistants who, in turn, help them find what they want. In the online world, customers are often overwhelmed by the sheer inventory that exists. In a move to make shopping less stressful and more natural, retailers are using AI to record and review each customer interaction and make recommendations based on past purchases, search history and more.
These highly personalized recommendations are known to increase sales on each purchase and enhance overall customer satisfaction . Amazon has a robust recommendation engine and uses it throughout its store. It is estimated that the company has given over 70% of screen real estate to recommendations. Which is understandable because 33% of the retailer’s revenue comes from product recommendations.5
Bringing Product Catalogs Alive
Using AI and Augmented Reality (AR), retailers are able to bring their product catalogs to a customer’s living room, virtually, of course. Ikea Place, an AI and AR mobile app, helps customers select a product from over 2000 products in the Ikea catalog and use their phone camera to digitally place the product anywhere they want. According to Jesper Brodin, CEO of Ikea, "(What) we haven't been able to do before is to find easier ways to connect with people, so digital opens up massive opportunities for us".6
Enabling Visual Search
Though still in the early stages, AI's ability to help customer's search for products using images has had an enormous impact on customer satisfaction scores when it comes to online shopping. Traditional text-based search wasn’t enough when it came to helping shoppers find ‘that top’ that they liked. Launched in 2016, ‘Pinterest Lens’ enables members of the site to use their phone camera to point to any product and perform an image search using Pinterest’s large database of products.
Trunk Club, an apparel subscription service owned by Nordstrom, has increased Pinterest engagement by more than 100 percent in recent months by embedding artificial intelligence into its digital-images marketing. At West Elm, the furnishings brand has implemented AI with its Pinterest page to provide recommendations to shoppers.7
How does it work? AI uses image-detection to identify an object, and visual search to find objects that are similar. This technology is also used in Google Photos and similar products.
Online retailers are still experimenting with visual search, but it already has proven to be a magnet for successful customer interaction. Reports suggest that image and voice search may make up 50% of all searches by 2020.8 American luxury department store Neiman Marcus has experienced increased app usage and customer engagement after implementing visual search. Other retail brands that are successfully using visual search include Shoes.com, Nordstrom, and Urban Outfitters.
Delivering Personalized Always-on Service and Support
Personalized content and service are some of retailing’s many successes. Retailers are now using facial recognition and biometric scanners to identify customers in stores so they can deliver personalized discounts, offers, and products recommendations via text messages or app notifications. Real-time location information gives retailers the ability to ‘push’ deals to customers when they are in the vicinity of an outlet. Store assistants are also better prepared when they have background data, such as preferred brands, shopping history, return information and more, on the customers they meet in-store.
Online, AI-enabled virtual assistants offer recommendations and are available to answer questions as and when required. The need for 24/7 access to customer support, is critical in today’s ‘always-on’ world, and retailers use AI to be a customer’s first point of contact.
Allowing Conversational Commerce
According to reports, 1 out of 5 customers is willing to purchase goods from a chatbot, while 40% of consumers use chatbots to look for offers and deals.9
A report by Juniper Research stated that chatbots would save the customer service industry over USD 8 billion in operational costs by 2022.10 With a higher percentage of customers inclined to text rather than speak on the phone, chatbots or conversational commerce, have become the mainstay of the retail industry.
Outdoor retailer, The North Face, uses IBM’s AI, Watson, to help customers find the outfit they need. Watson asks customers a series of questions and recommends a perfect match based on the answers they provide.11 Uber and Burberry are also examples of brands that have successfully deployed chatbots to improve customer engagement.
Online shopping has come a long way since the first ever online transaction in the 1960s, which was IBM's online transaction processing (OLTP) that allowed the processing of financial transactions in real-time.12 Thanks to AI, online shopping today, is more intuitive, personalized and enjoyable. Tomorrow, AI may well design and custom-size the clothes that you will see on Amazon. The future is indeed powered by AI.
References:
https://www.statista.com/topics/871/online-shopping/
https://www.theverge.com/2018/9/19/17880530/amazon-go-cashier-less-stores-new-locations-2021
https://www.sentient.ai/ecommerce-recommendation-engine-profits/
https://apiumhub.com/tech-blog-barcelona/artificial-intelligence-ecommerce/
https://apiumhub.com/tech-blog-barcelona/artificial-intelligence-ecommerce/
