ThepivotalroleofAIinshapingthefutureofonlineretail

1 NOVEMBER 2023

Harnessing the power of artificial intelligence in e-commerce

By Arun Varughese and Yeshan Reddy

E-Commerce in South Africa has entered a goldilocks phase post COVID, with significant growth and interest from consumers, while retailers continue to invest in improving their online platform capabilities. The value and volume of e-commerce transactions in South Africa is expected to continue its strong growth trajectory.

Artificial Intelligence (AI) has emerged as a transformative force in e-commerce and has the potential to revolutionise the way businesses conduct online transactions, optimise customer experiences, and streamline operations.

There is more data being created per minute today than in any previous year. For example, Amazon shoppers spend c. USD443k per minute and US food delivery firm, Doordash generates USD76k in orders per minute, according to research from Bank of America. Using the data being generated by consumers will provide a key competitive advantage. AI algorithms can quickly process vast amounts of data, providing e-commerce businesses with valuable real-time insights. This data-driven decision-making enables rapid adjustments to marketing strategies, pricing, inventory management, and client support.

One of the most powerful applications of AI in e-commerce is its ability to offer personalised shopping experiences. By analysing user behavior, past purchases, and browsing history, AI algorithms can create tailored product recommendations that significantly increase conversion rates and customer satisfaction. Leading e-commerce giants like Amazon and Netflix have mastered the art of personalised recommendations, resulting in higher engagement and customer retention. Local retailers are increasingly using AI tools to identify patterns and provide insights into shopping habits and better service consumers. One example is the Checkers Sixty60 application, which analyses trends in spending and provides tailored discounts and specials to each user.

Alibaba, the world's leading e-commerce retailer, uses AI to facilitate facial recognition payments for consumers who agree to their images being processed. Takealot.com, South Africa's largest online retailer, launched a breakthrough campaign called Retail Therapy. Its unique selling point is the use of AI to power its chat commerce platform, which creates an engaging and interactive shopping experience. The retailer plans to continue utilising AI technology to enhance the Takealot.com online shopping experience.

Delivering targeted, personalised marketing and advertising messages can increase retention. Global consultancy McKinsey estimates that there’s a 10-15% uplift potential in revenue and retention from omnichannel personalisation strategies.

Another potential use case is for product pricing. AI-enabled dynamic pricing is a strategy of changing the product price based on supply and demand. With access to the right data, today’s tools can predict what to discount and when, dynamically calculating the minimum discount necessary for the sale. In terms of inventory management, AI can enable warehouse management with help from automated robots that can store or retrieve stock 24/7, along with immediate dispatching of items for online orders.

AI-driven chatbots and virtual assistants provide instant customer support, addressing queries and concerns around the clock. These conversational agents are equipped with natural language processing capabilities, allowing them to understand and respond to customer inquiries accurately and efficiently. Reducing response times and enhancing customer service strengthen customer relations. E-commerce businesses prefer technical assistance because as they are operational 24/7 and can handle simple customer requests efficiently.

The use cases, advantages, and benefits of AI in e-commerce demonstrate its pivotal role in shaping the future of online retail. As AI technologies continue to evolve, e-commerce companies that embrace and integrate these innovations are poised to thrive in an increasingly competitive market, reaping the rewards of customer loyalty, increased revenue, and sustained growth.

Varughese is Head of Technology, Media & Telecoms Advisory and Reddy Corporate Finance Transactor at RMB