AI in E-Commerce: How It’s Used, With Examples

Artificial Intelligence (AI) is proving to be a game-changing force in e-commerce. It’s transforming how businesses operate and interact with customers—offering unique insights into consumer behavior, helping automate tasks, and improving the shopping experience.

AI is doing this in a few ways:

• Analyzing customer behavior patterns to offer more personalized service and tailored recommendations
• Automating tasks to free time for employees and business owners
• Analyzing business data to offer new insights that help organizational leaders make decisions

This guide will go into more detail about using AI in e-commerce. We’ll discuss some of the applications available to e-commerce store owners and a few examples of AI today in these sections:

• The importance of AI in the e-commerce industry
• How is AI being used in e-commerce?
• Examples of AI in e-commerce

The importance of AI in the e-commerce industry

AI is playing an increasingly important role in the e-commerce industry, giving companies greater abilities to analyze data and offer a better customer experience. Here are some ways AI is making an impact today:

• Greater personalization. AI can analyze large amounts of customer data to provide insights into customers' preferences and the products they would enjoy.
• Enhanced customer service. AI uses chatbots and customer data to provide customers with faster access to support options and personalized help.
• Better inventory management. Organizations can efficiently manage inventory using AI to analyze data to forecast future demand and make decisions based on those insights.
• Improved fraud detection. Businesses can use AI algorithms to analyze financial data to identify typical patterns and anomalies, which may indicate fraudulent activities.
• Enhanced data analysis. Companies can use AI to analyze business data to gain actionable insights that help decision making and reduce risk—giving you a competitive edge.

Challenges of AI in e-commerce

While AI offers many advantages in an e-commerce business, it doesn’t come without drawbacks. Here are some risks to consider when using AI in business:

• Privacy and security. AI systems need a lot of data to operate, which can be a concern if you have sensitive data you don’t want to make accessible to third parties.
• Lack of human input. AI offers a lot of automation capabilities and can help manage customer concerns, but some individuals still prefer dealing with humans and don’t want to interact with AI.
• Ethical issues. AI is only as good as the information you use to train it, which means some AI systems can provide biased outputs.
• Adoption issues. AI can drastically change how an organization operates, which can present challenges when teaching employees how to use new systems and build efficiency.
• Accuracy problems. AI outputs may not always be accurate, so you must always examine the results to ensure you have the correct information.

How is AI being used in e-commerce?

As you can see, AI has many benefits when used in the right application. So, how are e-commerce retailers using AI in practice? Here are the most common use cases of AI in stores today.

Personalized product recommendations

AI is helping improve customer satisfaction by offering a way to personalize product recommendations. Through data analysis, AI applications look at the company's customer data—such as their purchase history and current store activity—and analyze their preferences. With that data, stores can offer personalized recommendations through email, product pages, and add-on recommendations.

For instance, an internal document from Amazon reveals that employees are experimenting with ChatGPT to develop ways to enhance the customer experience. One way of doing this is creating a ChatGPT-like search bar that helps shoppers compare products, with content generation in real time.

Innovative ideas like these will continue to create a personalized shopping experience for customers.

Chatbots for customer service

AI chatbots are virtual assistants capable of handling customer service using conversational AI. When a customer opens the chatbot on a webpage to start speaking with an agent, AI bots can use generative text to communicate in natural language to help customers with problems.

These tools give customers a better customer experience because there is no wait time for human support. Chatbots can immediately respond to customer queries, and if they can’t find an answer, they’ll escalate the issue, sending the customer to a human representative.

For instance, the Ada chatbot can create personalized customer experiences for customers by learning company data and generating support messages based on past behavior and current needs.

Visual search and image recognition

Advances in computer vision have led to new tools that help customers interact visually with online brands. AI solutions allow customers to find products based on other images, making shopping more convenient and helping with product discovery.

For instance, imagine someone shopping for clothes. Buying clothes online hasn’t always been easy—often, there are high return rates because of incorrect sizing and lack of discovery. New AI tools allow shoppers to try on clothes virtually to see how they look and get recommendations for products with similar designs.

AI technology can also help shoppers find products online. Applications like Google Lens allow shoppers to take pictures of items and get a product listing. This helps people find and purchase the product they’re interested in.

Demand forecasting and inventory optimization

Managing inventory has always been challenging for businesses. They need to minimize the cash they spend on inventory while ensuring they have enough stock to meet customer demand.

The data analysis abilities of AI help this problem. AI can analyze historical data and make predictions about future sales while also tracking vendor delivery performance These predictive models help online retailers determine how much inventory to order in the future and when to place the orders.

This proactive approach to inventory management will improve the overall efficiency of a company’s supply chain—leading to more profit and happier customers.

Fraud detection and prevention

AI helps online stores stay safe by helping identify fraud and stopping it from happening. With a reported 2.4 million fraud complaints in 2022, fraud is still common. Companies try to drive this number down by assessing financial transactions to identify anomalies that indicate fraud.

The problem is that doing this manually takes time and effort. AI helps fraud detection by analyzing large amounts of data to learn what regular financial activity looks like. Once a company trains an AI model on that data, it can use it to look for pending transactions that are out of the ordinary, indicating potential fraud, and preventing the transactions from being completed.

Dynamic pricing and revenue optimization

Dynamic pricing allows online businesses to adjust pricing based on current conditions automatically. This means looking at the current market conditions, inventory, competitor pricing, and other factors to calculate the price that will give the best chance of making sales and improving profit.

The data analysis performed by AI improves this process. Instead of manually adjusting the price of products yourself, you let AI handle the heavy lifting for you.

AI software can analyze large amounts of market data to determine the ideal price to sell your products. It does this in real time—leading to optimal profitability and improved store conversion rates.

Voice-enabled shopping

Voice assistants provide shoppers with a more personalized and efficient shopping experience. Instead of opening a smartphone or logging onto a computer, shoppers can talk to their smartphone, tell it the product they want, and let an AI find relevant products for them.

AI voice assistants can also help shoppers discover more about their product options. Assistants like Amazon Alexa, Google Assistant, and Apple’s Siri will help shoppers look through product reviews and learn more about each option—giving them enough information to make better purchasing decisions.

Personal voice assistants can also help consumers by keeping track of a user’s preferences. These preferences aren’t saved on e-commerce websites, but on the user’s device, where they can update their preferences.

Customer sentiment analysis

Sentiment analysis helps brands understand how customers react to their products and brand. It looks at information posted online on social media and other websites and tags messages into positive, negative, and neutral categories.

Going through this process manually is a lot of work—which is where AI helps.

AI can use natural language processing (NLP) to look at the meaning of text. It will look at each message posted about a product or brand and classify it. Companies can then assess the overall sentiment about their company to determine if people are happy with what they offer or if they have problems to address. Sentiment analysis can also identify customer complaints in a batch of messages to inform companies about potential developing problems.

Productivity gains from generative content creation

Generative AI applications have significantly helped businesses regarding productivity. These tools use machine learning algorithms to train on massive datasets. Once the generative AI model completes training, it receives user prompts and generates output based on what it anticipates a user wants.

For instance, text generation is a common task that takes a lot of time and is challenging for some to do. Generative AI tools allow users to generate text on demand based on prompts.

A good use of this type of AI tool is generating product descriptions. You can pass your product information to a tool like Shopify AI Descriptions and ask it to create a short description for your product. If you have a lot of product options, this can save a significant time.

Automating repetitive tasks

One of the most beneficial aspects of AI is its ability to help automate tasks. If you have repetitive work you can’t easily eliminate, you can use AI to automate those tasks and remove some of your workload.

AI can help handle many tasks—such as offering loyalty discounts to customers, providing customer support to people who need help, managing a sales pipeline, handling data entry,  optimizing campaigns with AI marketing, and other tasks.

The good thing about AI automation compared to traditional automation is that AI can learn based on the data you give it. Because of that, it can look for patterns and take the action it deems best instead of following a set routine given to it by programmers. This ability means AI automation tools have much more flexibility for e-commerce companies.

Examples of AI in e-commerce

AI is currently used in organizations of all sizes—from small businesses to large enterprises. Here are a few examples of companies using AI today to enhance the online shopping experience.

• Amazon. Amazon uses AI in many areas of its operations. It relies on AI programs to analyze customer data to recommend relevant products, offers chatbots for customer interactions, offers voice-enabled shopping using Amazon Alexa, and suggests more relevant search terms in the search bar.
• Alibaba. Alibaba created an AI system called the Recommendation System Framework (RSF) to optimize traffic flow and recommend relevant products to shoppers. The system analyzes behavior in real time and offers recommendations within seconds—offering shoppers the best products at the moment of the interaction.
• eBay. EBay uses AI to help shoppers and sellers use the platform more efficiently. It uses AI to help product classification by using text and image models to tag products for searching. These features help sellers quickly list products in the right section to ensure customers find what they need.
• Shopify. The Shopify e-commerce platform uses AI to empower its users to offer better store experiences and get more done on the back end. It offers a generative AI tool to help create product descriptions and several AI plug-ins that suggest personalized shopping recommendations to customers.
• Walmart. Walmart is using AI to experiment with new store concepts like the Intelligent Retail Lab (IRL), which uses real-time inventory analysis to determine what products are currently on the shelves and decide what restocks are needed at the store.
• Stitch Fix. Stitch Fix is an online clothing store that uses AI to help online shoppers look for clothing. It uses AI tools to analyze customer preferences and recommend clothing it believes the customer will enjoy. Customers get their own customized store instead of a general inventory for everyone.
• The North Face. The North Face used machine learning to create the Expert Personal Shopper (XPS) using IBM Watson. This AI solution greeted the shopper as a personal assistant to guide shoppers through the store, learn their preferences, and pick the perfect product for their needs.
• DRINKS. DRINKS is an AI platform that allows retailers to sell wine in their apps and eCommerce stores by connecting to their Application Programming Interface (API). It uses AI to analyze consumer preferences and recommends wine based on each customer’s preferences and circumstances.

Embrace AI with help from Upwork

AI for e-commerce sites is making a huge impact on the industry—from offering customers a more relevant product selection to back-end help to manage proper inventory levels. If you have data about your business, AI can analyze what you have and offer actionable recommendations.

And as time goes on and AI gets better, expect even more tools to come along while current tools get better. Read about how you can begin integrating AI into your e-commerce business to see the benefits for yourself.

If you’re an e-commerce brand and are ready to integrate AI into your business, browse Upwork’s Talent Marketplace to find AI engineers who can help.

If you’re an AI professional with something to offer businesses and you’re looking for new clients, browse the AI jobs on Upwork to find your next client.

Disclosure: Upwork is an OpenAI partner, giving OpenAI customers and other businesses direct access to trusted expert independent professionals experienced in working with OpenAI technologies.

Upwork does not control, operate, or sponsor the other tools or services discussed in this article, which are only provided as potential options. Each reader and company should take the time to adequately analyze and determine the tools or services that would best fit their specific needs and situation.