AI in retail: a vast array of opportunities

The future of e-commerce is being massively influenced by the use of artificial intelligence.

AI is optimizing the personal shopping experience of customers in online retail.
Note: This article was first published in June 2020 and last updated and expanded in September 2023. Image: © Gorodenkoff / Adobe Stock

Better personalization and customer service through AI in e-commerce

Personalized offers instead of endless product lists: especially in online retail, the challenge of meeting consumer expectations with regard to unique shopping experiences is growing. Recommendations and products ideally need to be adapted to the preferences and needs of customers, even before they themselves really know what they want.

This is precisely where new technologies such as AI in online retail come in, offering authentic and tailored experiences that are relevant to each individual customer. The benefit to online retailers: such improved usability and personalization, which also satisfy the exacting requirements of today’s consumers, strengthen customer retention and increase sales in the long term.

Machine learning algorithms for personalized offers and recommendations

Artificial intelligence in online shopping is generally based on complex machine learning algorithms that are trained using behavioral and transactional data in order to develop an understanding of customer needs. E-commerce companies can utilize the collected and processed data to recommend personalized products to every customer in real time and thus design an individual shopping experience. In essence, professional AI solutions in online retail create a customer journey that is tailored to every consumer’s interests and needs and goes way beyond merely buying a product.

Personalization offers numerous advantages to companies and can also improve aspects such as email marketing.

If you want to achieve the best open rate for your newsletters, you need to get the timing right, but that is often highly dependent on personal preference. Automated programs leverage artificial intelligence to determine when your (potential) customers are more likely to open a newsletter – your marketing emails can then be timed accordingly.

When AI in online retail plays on the Diderot effect

The Diderot effect is a term used in consumer research and describes a consumer’s potential compulsion to make additional purchases after buying an item in order to create a harmonious overall picture. For example, when someone buys a new jacket, it may trigger their dissatisfaction with items of clothing or accessories that they already own, such as their sneakers or cross-body bag. That then leads to subsequent impulse buying. In the context of in-store retail, utilizing the Diderot effect forms part of the standard repertoire of skilled sellers. In e-commerce, AI can play on this behavior through personalization and, by analyzing clicks, shopping carts, purchasing history, or search queries, can deliver suitable suggestions for additional purchases that make sense in the eyes of the user.

Personalization beyond mere product recommendations

Online retail personalization solutions that are based on AI are not limited to mere product recommendations; they are much more versatile. Whether menu navigation, newsletters, or editorial content – AI-driven systems can be used to optimize the personal shopping experience of customers on many levels, for example:

  • Personalized approaches using different welcome texts or product descriptions
  • Timing promotional material sent via email and similar channels in order to increase the open rate
  • An online shop navigation sequence that is adapted to demographic characteristics or the visit history
  • Product categorization
  • Analysis of customer reviews in order to better gear products and product suggestions to the target group
  • Dialogue-oriented online retail through the use of smart chatbots and voice-controlled services
  • Email marketing by tailoring relevant content to individual customers

Conversational commerce has made a particularly big leap forward in online retail in 2023 and is now being implemented in countless online shops and software products, thereby riding the wave of success of ChatGPT and the rival chatbot solutions launched by its competitors. Nearly every day, new programs are entering the market, promising to tap into the huge potential offered by AI in online retail. Automation in marketing plays an important role in this respect.

Visual search solutions are also incredibly popular with many e-commerce providers. Among other things, these allow consumers to take a photo of a certain outfit to find matching products in an online shop or at least get similar product suggestions. For several years now, industry giants including Zalando, Otto, and ASOS have been increasingly incorporating the principle of simplifying customers’ product searches through uploaded photos. And for good reason: according to OMD’s study “The Retail Revolution”, 67 percent of Germans have already utilized visual search options – and the trend is growing. Visual search therefore presents promising opportunities and offers enormous marketing potential, especially in the fashion, food, and cosmetics industries.

AI is gaining ground in online retail

The diverse possibilities offered by artificial intelligence in online shopping are already being used today in the innovative solutions of numerous companies. For example, Amazon’s digital shopping assistant “Virtual Try-On Shoes” utilizes augmented reality to let customers virtually try on shoes in their live environment. The software responds to the user’s movements and changes in their surroundings and merges the environment currently captured by their smartphone camera with the design of the virtually tested shoes. The app also has a share feature so that users can send pictures of their potential new shoes to friends – thereby retaining the social aspect of shopping that usually gets lost online. That optimizes the purchasing process and increases customer satisfaction.

Companies that haven’t yet embraced artificial intelligence need to start modernizing their processes now; otherwise, they’ll be outdone by the competition. Due to the versatile uses of AI in retail, we’re currently experiencing a revolution that is radically changing the industry and taking e-commerce to a new level.