Generative AI in eCommerce – Potential and Pitfalls

A successful eCommerce business doesn’t require to be big and complex. It simply needs to leverage the right tools to ease customs journeys and prepare for future innovations.

The best thing artificial intelligence has done for businesses is allow them to offer personalized, interactive retail experiences while driving intelligent automation across different fronts. Thanks to Gen AI, ‘eCommerce’ is on the cusp of this major transformation. It enhances every aspect of the industry, including inventory management, optimizing product delivery, and beyond. 

But it is easier said than done. Especially if you are an eCommerce business owner who is too afraid to test their processes, the likelihood of falling into technology pitfalls and being left behind is higher. 

This blog post explores how eCommerce giants leverage the power of Generative AI to transform their operations and multiply their profits and how you can do it without risking your business outcomes.

The Growing Impact of Generative AI in eCommerce

The impact of Generative AI on eCommerce is undeniable. Research reveals that the market cap of generative AI solutions in eCommerce is expected to reach around  $3,519.84 million by 2034. Custom AI algorithms can be implemented to modify various facets of online retail operations. 

Generative AI in eCommerce will make customer interaction more engaging, dynamize marketing content in new ways, and customize products down to the level of preference. The following are two primary models of Generative AI models changing eCommerce:

• Pre-trained GenAI Models possess advanced cognitive and content-generation capabilities. They help automate product categorization, enhance the functionalities of visual search, and even create detailed product descriptions.
• Generative Adversarial Networks (GANs) continue, using two competing neural networks to derive synthetic data from real data. A notable example is VIRTON-GANs (Virtual Try-On GANs). These GANs let customers visualize how clothes would look on virtual mannequins in real-time, providing a highly personalized shopping experience.

Here’s the great impact of Gen AI in eCommerce: 

• AI chatbots and virtual try-ons provide a level of personalization and convenience previously unseen in eCommerce. Juniper research projects that chatbot transactions in eCommerce could surpass $112 billion by 2024 because they now assist throughout the entire customer journey.
• Ascend2 and Research Partners state that content management automation has risen from 22% in recent years. Generative AI automates content creation, pricing, and inventory management to improve operational accuracy and responsiveness.
• AI models analyze extensive data to detect anomalies and prevent fraudulent activities with advanced detection strategies. By 2025, AI-based fraud detection systems will save eCommerce businesses $10 billion annually.
• A McKinsey study found that adopting AI for pricing strategies can lead to a 2-5% revenue increase. Additionally, AI-driven inventory management has been shown to reduce stockouts by up to 50% and improve inventory turnover by 20-30 for the best possible revenue outcomes.

How is Gen AI Transforming Online Retail?

Think of a shopping experience where AI-powered chatbots answer queries and suggest products based on individual preferences and online activity. The integration of visual search and virtual try-ons further enhances this experience. They allow customers to find exactly what they’re looking for with minimal effort and even try on products virtually before making a purchase. 

Today, the question is not just about how GenAI will do it. Is it more about what GenAI brings to the table for businesses? The following are the most promising benefits that eCom businesses have reported after implementing GenAI into their daily operations:

Improved Customer Experiences

• Personalized Chatbots for Customer Support

AI examines the data containing all the information about one’s surfing habits, previous purchases, and liking for this or that to generate customized product recommendations. This would enhance customer ties and satisfaction. Online cloth retailers like H&M are incorporating a chatbot powered with Generative AI to offer customized customer service.

They are training and educating these chatbots on the brand’s product catalog, customer service history, and brand voice, which helps the retailer resolve customer inquiries and deliver a more engaging customer experience.

• Personalized Product Search & Recommendations

GenAI instruments create personal product descriptions and recommendations that follow trends and user behavior to improve customers’ shopping experiences. Wayfair, a home goods eCommerce site, uses GenAI to create personal product descriptions and recommendations. This leads to higher conversion rates as customers discover products that match their requirements.

Visual Search and Virtual Try-On

• Visual Search

AI-powered photo search engines facilitate customers in finding products using images for easier product discovery. Similarly, IKEA integrates generative AI-based visual search inside its online eCommerce store.

Customers can upload photos of rooms or furniture they like, and the AI system scans through the company inventory to match visually similar products, thereby easily discovering new items for the customer.

• Virtual Try-On

Generative AI can mimic real-life virtual try-ons by modeling the user’s body measurements. Nike is the most symbolic online fashion brand, so the company gives it a go with this new technology by offering a virtual try-on with their clothes.

Using their body measurements, the AI system makes 3D models of customers, reducing the chance of returns and giving customers a more confident and assured shopping experience.

Operational Enhancements

• Product Description Generation

Generative AI augments sellers’ creative capabilities by creating compelling product narratives and descriptions, enhancing appeal, and driving conversions. Etsy, an artisanal goods eCommerce platform, uses Generative AI to create unique, persuasive product descriptions.

The AI system analyzes each product’s characteristics, backstories, and target customer profiles. This helps the retailer differentiate their offerings and drive higher conversions.

• Tailored Communication Strategies

This cutting-edge technology allows the customization of marketing collateral for diverse consumer segments, amplifying campaign efficacy. German athletic apparel and footwear giant Adidas uses GenAI to personalize its marketing campaigns.

The AI segments by sporting preference, also considering purchase history and demographic data. Then, it sends customized e-mail content with corresponding promotional offers and product recommendations. This level of personalization will lead to increased customer engagement and loyalty.

Data-Centric Decision Making

• Inventory Optimization: Generative AI will simplify inventory management and supply chain operations through predictive analytics. One such online electronics retailer is Amazon, which uses this AI tech in demand forecasting and optimizing its inventory management. This facilitates the retailer’s adjustment of the inventory level, avoiding stock-outs and having the correct products in stock to meet customers’ requirements.
• Advanced security protocols: This advanced technology enhances fraud detection, scanning huge datasets for unusual patterns and potentially fraudulent transactions. As reported by one of the largest online payment gateways, PayPal, Generative AI is enabling fraud detection. This allows the retailer to proactively reduce the risks of monetary loss and safeguard customer information.
• Pricing Mechanisms: Dynamic pricing in real-time, relative to market dynamics and consumer behavior, assures the quickest reaction time to market movements. Applying Generative AI in product pricing, online clothing retailer Zanaldo dynamically adjusts prices as a function of changing market conditions and customer behavior to recommend real-time price changes that keep the retailer competitive and ensure profitability maximization.

Challenges and Pitfalls of AI in eCommerce 

Like any other emerging technology, AI comes with its pros and cons. Integrating GenAI in online retail processes has its own set of challenges that eCommerce giants must consider:

• Data Privacy and Security

For a small or medium eCommerce business, this might not be a huge issue. But when you are dealing with millions of customers’ data, working with Generative AI models becomes a challenge in itself. 

It is difficult to handle and store large amounts of sensitive customer data while ensuring compliance with data privacy regulations like GDPR and CCPA. Yet, it is crucial to maintain customer trust by protecting this data from cyber threats and data breaches.

Solution: eCommerce giants need to implement robust encryption, regular security audits, and transparent data policies to handle customer data more seamlessly and securely. 

Global brands like Amazon have invested heavily in data security, with features like AWS Key Management Service and AWS CloudHSM. This helps customers secure their data. They also have a dedicated “Amazon Security Hub” to comprehensively view a customer’s security state across their AWS environments.

• Intense Competition

Statistically, Doofinder says there are approximately 14 million eCommerce sites in the US alone. eCcommerce is now a really aggressive market, with a surge in online shopping post-pandemic. So, it’s hard to stay ahead of the curve in this busy market with many small businesses and startups.

Consumer expectations are changing day in and day out, and the competition is increasing even more. It will be necessary for businesses to seek something more than the ‘right product’ in order to be competitive and thrive.

Solution: Businesses can overcome this by standing out by emphasizing your unique value propositions, investing in innovation, and delivering exceptional customer experiences. 

Alibaba’s “New Retail” strategy combines online and offline shopping experiences, keeping the company ahead of the competition. Alibaba has given its customers a more engaging and much more personal shopping experience through the incorporation of generative AI for personalized product recommendations and virtual try-on features.

• Supply Chain Disruptions

eCommerce businesses run the risk of having their supply lines disrupted by disaster or geopolitical upheaval. This can delay order fulfillment, creating stockouts and unhappy customers.

Solution: Order fulfillment and eCommerce shipping via various vendors may help during odd times. Likewise, Walmart has made massive investments in its supply chain and logistics operations.

It further capitalizes on generative AI in demand forecasting and inventory level optimization. This helps the firm cushion itself against the effects of the supply chain break and keep its products available to its customers.

• Counterfeit Products

Countering piracy and protecting brand integrity by detecting counterfeit goods sold on unauthorized websites can be a daunting task. Counterfeit goods erode customer trust and can lead to legal and financial consequences.

Solution: The key is to ensure your trademark is rock-solid, use AI-powered systems to detect counterfeits, and have super strict processes for verifying sellers. eBay has also struggled with this issue, so it started a Brand Registry program to help brands protect their IP. It also uses AI to find and remove fake products and works closely with law enforcement to crack down on counterfeit sellers.

• Algorithmic Bias

The use of Generative AI in eCommerce can introduce various forms of algorithmic bias, such as gender, racial, or socioeconomic biases. The AI biases can manifest differently by ensuring AI-driven recommendations and decisions.

Solution: You can overcome algorithmic biases by early auditing AI systems, diversifying data sets, and implementing ethical AI guidelines. Shopify, as a leading eCommerce application, has to face these issues as well. However, it conducts regular audits of its algorithms to detect and address biases. The company incorporates ethical AI principles into the development of its products. 

How Cubix Can Help “GenAI-fy” Your eCommerce Operations

As GenAI solutions shape the future of online shopping, businesses look for reliable AI development partners to integrate AI into their systems to enhance customer experiences, streamline supply chain processes, and boost overall efficiency. 

This is where Cubix enters the chat. With 15+ years of experience in cutting-edge technologies and having developed Machine Learning solutions, we are a go-to technology partner for some of the leading names worldwide.

Wonder how we understand your unique business needs and help you make the most of Gen AI capabilities? Here are the key steps on how Cubix can help you integrate generative AI into your eCommerce apps and platforms and achieve a symbiotic future with AI.

• Define Objectives & Use Cases

The first step is to clearly outline your objectives for implementing generative AI. What do you hope to achieve? Is it increased sales, improved customer satisfaction, or more efficient inventory management? Identifying specific use cases is crucial. 

Once we understand your vision and goals, our experts suggest the most suitable generative AI models to enhance product recommendations, automate content generation, and optimize your supply chain. 

• Data Collection & Preparation

The collection of updated and accurate data is an utmost priority for training your generative AI model. This involves collecting information on customer behavior, product details, and past sales figures. Our experts at Cubix specialize in preparing your data for optimal results, ensuring that it is properly cleaned, normalized, and ready for training.

• Choose the Right Generative AI Model

Selecting the right generative AI model is critical. Depending on your specific use cases, models like GPT (Generative Pre-trained Transformer), VAE (Variational Autoencoder), or other advanced algorithms might be suitable. Each model presents unique characteristics and capabilities. 

Our experts at Cubix provide comprehensive guidance in navigating this complex terrain, considering crucial factors and resource allocation. This tailored approach ensures the selected model aligns perfectly with your specific eCommerce objectives and operational constraints.

• Training the Model

Training the selected generative AI model on your prepared dataset is a complex process that requires substantial computational resources. At Cubix, we possess the advanced infrastructure and specialized knowledge to execute this complex task efficiently. 

Our team is optimizing the model’s parameters to align precisely with your eCommerce ecosystem’s unique requirements and target outcomes. This rigorous training process is instrumental in realizing the full potential of AI integration within your eCommerce operations.

• Integrate with eCommerce Systems

Integration is a critical phase where the trained generative AI model is incorporated into your existing eCommerce systems. Cubix ensures seamless integration, working with APIs or custom solutions to guarantee compatibility with your technology stack and platforms. This integration allows for smooth operation and immediate impact on your business processes.

• Monitor and Evaluate

Continuous monitoring and evaluation are essential once the generative AI model is live. Cubix provides ongoing support to assess the model’s performance against key performance indicators such as conversion rates, customer satisfaction, and revenue. 

Based on this feedback, we make necessary adjustments to optimize the model’s effectiveness and ensure it meets evolving business needs. The idea is to create a Gen AI-powered system that doesn’t show anomalies regardless of the size/bandwidth of traffic observed. 

• Ensure Data Security & Compliance

Data security and compliance are paramount, especially when dealing with sensitive customer information of your millions of users. Cubix implements robust measures to protect your data and ensure compliance with relevant regulations. This commitment to security safeguards your business and builds trust with your customers.

• Scale and Iterate

After successful implementation, the next step is to scale the generative AI solution to cover more aspects of your eCommerce operations. Cubix supports you in this growth, continuously iterating and improving the model based on new data and changing business requirements. This iterative process ensures that your AI solutions remain cutting-edge and effective.

Ready to Revolutionize Your Retail Ventures? 

Every dollar counts in the eCommerce industry. That is the reason we are obsessed with ROI at Cubix and don’t believe in one-size-fits-all solutions. We help eCommerce leaders leverage the power of next-generation AI to transform their businesses with our eCommerce app development services for the limitless future ahead.

Our eCommerce solutions are designed to deliver tangible results to your bottom line and provide detailed analytics and continuous optimization. Our proven AI-driven solutions have helped various eCommerce businesses like yours increase conversion rates, reduce customer service costs, and boost average order values through personalized recommendations. 

Ready to “GenAI-fy” your eCommerce operations? Partner with us and stay ahead in the competitive market.