How AI is closing the service gap in e-commerce

How AI closes the service gap in e-commerce

E-commerce has gained considerable ground over physical retail in recent years. For example, according to CBS, the turnover index of online stores in the third quarter of 2023 is 277.9 versus 173.3 in 2019. A growth of more than 60 percent. Physical non-food retail grew about 16.7 percent during the same period. The corona crisis definitely accelerated this trend, but even without a pandemic, e-commerce is an attractive alternative for many consumers who value convenience, speed and choice.

This article previously appeared on www.retailtrends.nl. Image: www.retailtrends.nl.

E-commerce remains a challenger to physical retail but it also has limitations. One of the biggest drawbacks is the lack of personal service and interaction that physical retail can provide. Truly touching your customer and leaving an unforgettable impression is priceless. Think genuine advice from a knowledgeable salesperson, trying on, feeling and experiencing a product and building a real relationship with your favorite store. That can increase customer satisfaction, loyalty and retention, and is virtually impossible to replicate in an online environment. In short, there is still a big gap in service levels between e-commerce and physical retail.

A possible solution to this is now being hard at work. And that solution has a name: artificial intelligence (AI). AI is a collective term for technologies that mimic human intelligence, such as machine learning, natural language processing, computer vision, speech recognition and chatbots. With the help of AI, e-commerce platforms can add more service to the online channel and improve the customer experience, thereby also competing with physical retail.

Examples of AI in e-commerce

There are countless ways AI can play a role within retail such as making internal processes more efficient, content creation, price analysis and inventory optimization. But that's for another time. In this blog, we discuss examples of how AI can add more service to the e-commerce channel, how it differs from the physical channel and why e-commerce is thus becoming an (even) more formidable competitor to the physical channel by making the customer journey even more "frictionless.

• Product recommendations

AI can analyze customer behavior, preferences and needs. This is done based on buying behavior and browsing history with the aim of making relevant and personalized product recommendations. This helps the customer to find the right products faster and easier, and increase the chances of conversion and cross-selling.

One of the best-known examples of an e-commerce platform using AI for product recommendations is Amazon. Of course, there are also retailers closer to home that use AI for this purpose such as bol or Coolblue. The challenge lies mainly in offering relevant products at the right time. For example, it makes little sense to keep coming up with new refrigerators based on browsing history when you just bought one. AI can help generate more logical and better product recommendations that reach beyond the initial buying need. The cross-sell opportunities are therefore enormous.

• Customer service

Personnel are scarce and good personnel even scarcer. This is true for both e-commerce and brick-and-mortar retailers. Good customer service is essential for an optimal customer experience. Nobody is happy with unanswered emails or WhatsApp messages, endless waiting on hold or hearing that customer service is closed and will be available again tomorrow from office hours. Certainly not when you do have 24/7 purchasing options.

AI can help and improve customer service through chatbots, which can automatically answer questions, solve problems, gather feedback, or place orders. Chatbots can speak to customers 24/7, reduce wait time, lower costs, and increase customer satisfaction. An example of an e-commerce platform that uses AI for customer service is Zalando, which has a chatbot called Zalon that helps customers choose outfits and styles. Or Billie the chatbot from bol that may blow out 15 (!) candles at the time of publication.

• Visual searches

You've seen an image of a product you want, but you can't quite put it into words. Either because the image does not contain product information (for example, coat is from brand X) or because you are just looking for an alternative. AI can let the customer search for products based on images, rather than text. This can inspire the customer, improve the search experience, and increase the relevance of search results. An example of an e-commerce platform that uses AI for visual searches is ASOS, which has a feature that allows customers to upload a photo of a garment they like, and find similar products on the website.

• Virtual fitting rooms

Online shopping is fast, efficient and often (but not always) inexpensive. It does have one major drawback: you don't know if the product will fit. That's why consumers often order multiple sizes of the same item. The living room then becomes the fitting room, resulting in a lot of returns. This is annoying for the customer (extra handling) but even more annoying for the retailer. After all, this way of ordering blurs the sales data (does an article sell very well or not?) and leads to a lot of extra costs. After all, an item that comes back has to be inspected, cleaned, repackaged and put back on sale. For large expensive items with a lot of profit margin, this might still matter. But for cheaper items, a return is almost immediately a loss.

AI can allow customers to try on, try on or test products virtually through augmented reality (AR) or virtual reality (VR). This can give the customer a better idea of how a product looks or works, reduce doubt, and reduce returns. An example within the shoe industry, for example, is vanHaren where you can use AR to virtually try on the shoe.

Differences from the physical channel

The above examples show that AI can add more service to the e-commerce channel, but how does this differ from the physical channel? There are a number of differences:

• Scalability
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AI can deliver service to a much larger number of customers without depending on the availability, capacity or quality of human workers. This means e-commerce platforms can consistently and efficiently provide service regardless of time, place or customer demand. And that is a stark contrast to physical stores that rely on physical staff, location and (opening) times.

• Personalization

AI can customize service to the individual customer, using data, algorithms and feedback. This means e-commerce platforms can provide service that matches the customer's unique wants, needs and interests, strengthening the customer relationship. This can often be done without the customer really realizing it and shows a contrast between the physical and digital worlds. By the time the sales associate in the store knows who you are and what your preferences are, you are quite a few store visits away. And only for as long as that sales associate is still working in your favorite store. AI never resigns itself.

• Innovation

AI can improve service through continuous learning, experimentation and optimization. This means that e-commerce platforms can offer service that keeps getting better, faster and smarter, increasingly exceeding customer expectations. Ideally, the consumer does not notice anything about this learning process other than that it keeps getting better. When the customer starts to perceive the AI service as a nuisance because it keeps making mistakes, the tooling is more likely to become a dissatisfier. But, of course, the same goes for salespeople who perform poorly.

• Competing with the physical channel

The above differences show that AI is an important asset for e-commerce platforms in competing with the physical channel. With AI, e-commerce platforms can create a frictionless customer journey where the customer experiences as few obstacles, inconveniences or frustrations as possible while becoming a USP for e-commerce platforms as it increases customer value, increases customer loyalty, and promotes customer retention.

A frictionless customer journey is important at a time when the customer has increasing power, choice and expectations. The customer not only wants a good product, but also good service. The customer not only wants a low price, but also high quality. The customer doesn't just want fast delivery, but sustainable impact. With AI, e-commerce platforms can better meet these demands, further winning over the customer.

Conclusion

With AI, e-commerce platforms can add more service to the online channel, improving the customer experience and increasing competition with brick-and-mortar retail. With AI, e-commerce platforms can create a frictionless customer journey with as few obstacles, inconveniences or frustrations as possible. And that is a USP for e-commerce platforms because it increases customer value, increases customer loyalty, and promotes customer retention.

So online continues to grow, but the physical store has certainly not been written off. The majority of retail sales are still made in physical stores. Physical retail still has benefits, such as the social, emotional and sensory aspects of shopping, that are not easily (or perhaps not at all) replaced by technology. So physical stores need to start making the social interaction within them and customer experiences even more important. In addition, physical retail can also use AI to improve service, for example through facial recognition, smart mirrors or robotic assistants. The future of retail is not a question of either-or, but of both-and. The retail sector will increasingly take a hybrid form in which online and physical retail are increasingly merging.