Exploring the role of AI in retail and e-commerce

Shoppers may not realize it, but AI is already ingrained in the retail and e-commerce landscape. Chatbots routinely handle return requests, and recommendation algorithms nudge customers into adding one more item to their cart before checkout.

But under the surface, there’s a much larger revolution underway. AI is helping retailers create hyper-personalized store experiences, gain ground in the fight against fraud, and predict demand with pinpoint accuracy.

Let’s take a closer look at several less obvious ways AI reshapes retail.

Inventory management is a perennial headache for brick-and-mortar retailers and e-commerce businesses alike. Too much stock ties up capital and risks obsolescence, while too little leads to missed sales and frustrated customers.

Retail demand is notoriously difficult to predict. Trends can come and go in an instant in the social media age, forcing sellers to scramble to keep up or risk being left with shelves full of unwanted products.

Two factors are changing this equation: an abundance of data, and AI in retail tools that can leverage that data to better predict demand.

Instead of basing forecasts on historical sales, AI algorithms can take a wider range of variables into account. Past sales are still considered, but emerging market trends, seasonality, and even seemingly unrelated data like weather forecasts or social media buzz are also used to predict where demand will be tomorrow.

But AI can do more than just bolster forecasts. Algorithms can adjust stock levels based on real-time demand, ensuring that the right products are in the right place at the right time.

The benefits extend to the warehouse, too. AI can dynamically optimize warehouse layouts for efficient picking and packing and even automate reordering processes to prevent stockouts.

Retailers and e-commerce companies routinely leave money on the table through suboptimal pricing. Savvy customers can predict sales patterns and delay purchases until prices drop, while others might be willing to pay more than the sticker price.

As with inventory optimization, striking the right balance between competitive pricing and profit maximization is all about anticipation.

AI can be a huge help in dialing in your prices. It considers all relevant information — consumer behavior, demand, and competitor pricing — to set prices that hit the sweet spot between attracting customers and maximizing revenue.

And with cutting-edge AI in retail tools, you don’t have to wait until the end of the day to adjust your pricing. It can be done dynamically as conditions change.

Imagine an electronics store where the price of the latest smartphone subtly adjusts throughout the day to reflect current demand and competitor prices. Or a fashion e-commerce platform offering personalized discounts on items a user has viewed multiple times, enticing them to complete a purchase.

This type of granular pricing is quickly becoming the norm. Retailers will need to adapt or risk falling behind.

Theft is part of the price of admission to the retail game. Some shrinkage will always be present, but that doesn’t mean it can’t be mitigated.

E-commerce stores are mainly concerned with stolen credit card information and fake returns. For brick-and-mortar retailers, the focus is more on stolen items.

Unfortunately, traditional fraud detection methods are no match for sophisticated cybercriminals. Tech-savvy operators easily sidestep static rules and manual checks.

AI-powered fraud protection provides a much more robust defense against cybercrime. These programs sift through mountains of data, identifying subtle patterns and anomalies that humans might easily miss. They’re also able to work around the clock, leveraging advanced machine learning algorithms that evolve and adapt as new threats emerge.

For instance, an AI tool might detect a suspicious online purchase from an unusual location and flag it for further investigation. It can then add this fraud incident to a growing dataset, which it can use to discern patterns of behavior that tend to lead to fraud.

Retailers can use this knowledge to stay one step ahead of criminals by proactively reinforcing their security measures.

Shoppers have a near-infinite amount of options to choose from online. Some customers like having ultimate optionality, but many others find it leads to decision fatigue. What they want is to have the perfect product served up to them.

Mike Barkemeyer, Director of MarTech & Analytics Technologies at Lumenalta, explains that “recommendation algorithms have been around for a while, but they’re pretty rudimentary. If you just bought a sofa, a coffee table might be recommended since they’re both in the furniture category. Not bad, but AI can do better.”

AI-powered customer personalization engines delve deep into customer data, analyzing browsing history, purchase patterns, and even demographic information to curate a shopping experience that feels tailor-made for each individual.

You’re not guessing what a customer might like — you’re inferring it based on their unique style, preferences, and aspirations. That’s why, according to Forbes, “64% of business owners believe AI will improve customer relationships…[and] increase productivity for their organizations.”

Individual recommendations are changing the online shopping experience as we know it. Instead of scrolling through endless options, it’s becoming an iterative process — users can tell the AI engine which recommendations they like and which they don’t, and it will adjust accordingly. Each time they visit, they’re getting an experience that’s more attuned to their preferences than it was yesterday.

In the long run, AI will permeate the entire customer journey. Generic junk mail will be replaced by personalized emails that speak directly to your interests. Even search results will become finely tuned, surfacing the most relevant products based on your individual preferences.

Embracing AI is table stakes for competing in the retail space. As the technology gets better, it will unlock future possibilities we can’t imagine right now. Many executives are eager to harness the power of AI in their operations but aren’t sure exactly how to do so.

The right partner can make all the difference. Whether you’re looking to optimize inventory management, implement dynamic pricing, or enhance fraud detection, our team of AI specialists is here to help. They know retail and e-commerce inside and out and can help you design custom solutions according to your needs.