Generative AI: The Next Frontier of Productivity in E-Commerce

By Madhur Deep, an alumnus of McKinsey and Company

With the true potential of AI just beginning to unfold, technology is going to help e commerce firms achieve higher productivity and superior customer service.

With e-commerce startups and Unicorns facing pressure on profitability and fighting customer churn, creating operational efficiencies and delivering superior customer experience are among the top priorities for businesses in the industry. The use of AI and its deflationary effect can be extremely helpful in achieving both objectives. AI-integrated businesses can leverage system-wide data coupled with audio/text-based AI-enabled natural conversations to elevate their customer services to much higher levels. Generative AI can, further, revolutionise the tenets of engagements between the stakeholders in e-commerce; here’s an emerging set of applications:

1) Revolutionising Customer Support: Customer support is the very first area in the e-commerce industry that started applications of AI. Started with traditional chatbot models offering limited and somewhat clunky responses more aimed at reducing cost and not at improving customer experience. However, generative AI can offer significantly better results owing to LLM, deep learning methods, and more natural responses to customer queries. These apps analyse contextual conservations, generate natural responses, and use the most optimum one to handle customer queries efficiently. Some of the leading players in China are already able to resolve a very high number of customer requests using AI.

2) Product Catalogs: Different products from OpenAI have proved the power of content generation leveraging AI. Now there are different companies providing specialised capabilities for generating text, pictures, and videos for e-commerce needs. ‘AI-based text generation’, ‘Text to Picture’, and ‘Text to Video’ capabilities not only reduce the cost of catalog creation but also significantly accelerate the entire cycle. From writing persuasive descriptions to simplifying product onboarding, categorisation, and labeling, generative AI tools can take time and cost efficiencies to the next level. In addition, the use of AI-powered SEO tools can boost the visibility of businesses by empowering firms with strategies that can help them stay high on search results.

What’s more, the special ability of these programs also allows for real-time changes in the content, publishing platforms, and delivery medium which can help e-commerce firms to achieve wide coverage, impactful branding, and superior engagement with target customers. Owing to all these benefits, no wonder AI-powered product description writing tools such as Jasper.ai, Writesonic, and Frase.io among others are finding much favour with clients across the globe.

3) Personalisation Capability: Generative AI delivers dynamic and interactive content and helps e-commerce platforms personalise suggestions/recommendations to target customers based on their past search, shopping, and feedback history. Take the example of Personalize.AI, an AI-powered recommendation tool that helps e-commerce firms leverage customers’ data from past interactions, loyalty programs, and marketing campaigns to understand which content, products, experiences, and offers make the most sense to the target audiences.

The developers claim that the tool can unlock more than 25% growth in revenue which is quite a substantial gain. China’s e-commerce system is already quite ahead in this aspect. Unlike most other ecommerce businesses a very large part of GMV is already driven by ‘Recommendations’ and becoming akin to media consumption where recommendation drives higher consumption than ‘search’. An advanced form of Generative personalisation is the creation of a personalised catalog e.g., virtual try-on experiences for clothing and accessories allowing customers to see how a product would look on them before they buy it.

4) Crowd-sourcing Feedback: Generative AI can prove extremely helpful in ‘synthesising’ customers’ feedback across multiple platforms, channels, and marketplaces in the e-commerce sector. AI tools are equipped with feedback classification and clustering capabilities and grouping similar feedback together, it helps e-commerce firms to quickly share, analyse, and take action on issues of strategic interest. Generative AI tools can also perform sentiment analysis on the feedback adding further context to the feedback. By streamlining these information sources, firms can better control their product development and branding efforts while responding to consumers’ complaints in a quick and efficient manner.

5) AI-led product design: Generative AI can prove instrumental in helping the e-commerce industry realise the full potential of co-creation something referred to as C2M (customer to manufacturer), a process that allows customers to become part of the product/service creation process. C2B can help e-commerce platforms forge better relationships with brands while getting benefits like extra revenue or exclusivity. AI tools such as Visualhound can design unique apparel and merchandise based on the inputs that prospective buyers enter in the form of text prompts.

We are in the early days of Generative AI and the applications are immense. The technology has a transformative potential that has just begun to come to the fore. It is well-poised to unleash the next wave of productivity and in the process, can add up to $4.4 trillion dollars worth of value to the global economy (as per McKinsey Digital). Especially, the adoption of the technology in the e-commerce sector would reach $2.1 Bn by 2032 with a 14.9% CAGR between 2023 and 2032. Further, the integration of generative AI in e-commerce could lead to higher levels of automation, thereby liberating human resources for deliberating on more important issues of strategic importance. In sum, the era of generative AI is dawned upon us and it is just a matter of time before we find this technology becoming a mainstay of e-commerce across the value chain of the business ecosystem.