Online shopping has been designed to feel effortless, shrinking the space between a search and a purchase to a series of lightning-quick clicks.
And, though you may not think of it, behind those clicks are sophisticated algorithms. Many of the most successful online stores have integrated machine learning into their functionality for targeted marketing, intuitive customer service, inventory management, shipping logistics, and more.
There’s a new era of machine learning in ecommerce, and here’s everything you need to know about it.
Table of contents
What is machine learning?
Machine learning is a type of artificial intelligence (AI) that involves training computers to learn from data, identify patterns, and make decisions without the need for additional programming. Machine learning algorithms use historical data and past behavior to adjust their output.
Ways to use machine learning in ecommerce
- Price optimization
- Forecasting
- Inventory management
- Customer experience
- Product recommendations
- Site search
- Customer churn
- Fraud detection and prevention
- Marketing campaigns
- Delivery routes
There are numerous business benefits to implementing machine learning in ecommerce strategies. Whether you use the technology to understand your customers better to increase personalization or to optimize operational processes, machine learning can transform vast amounts of data into actionable insights.
Here’s how major ecommerce platforms and small businesses alike implement machine learning solutions:
1. Price optimization
Online businesses that employ dynamic pricing (also known as surge pricing or time-based pricing) use machine learning systems to make real-time pricing adjustments according to customer behavior, competitor offerings, and inventory supply.
For example, a jewelry ecommerce business can use machine learning to test different pricing strategies for its line of trendy earrings. The software will then learn from the sales figures and refine pricing models to maximize profitability. So, as the earring trend peaks, the prices increase; as the trend tapers off, the earrings will go on sale accordingly.
2. Forecasting
The power of predictive analytics gives machine learning models the upper hand when applied to forecasting. Since these models excel at spotting complex patterns in large amounts of data, they can anticipate and forecast outcomes with more accuracy than traditional methods.
Say you want to better predict your company’s revenue slope. First, you’d input all existing sales and past revenue data into a machine-learning algorithm. After processing the data and identifying errors, the algorithm would create a model based on the patterns it finds. This model then applies external factors like market trends or supply chain data to forecast the most likely outcome. Over time, the model refines its approach based on how close its predictions are to the actual outcomes.
3. Inventory management
Managing inventory effectively requires anticipating buyer trends and managing warehouse space. Machine learning can harness large amounts of customer data to inform your inventory management decisions and predict trends so disruptions in the supply chain are minimized.
Many businesses already use some kind of inventory management software, but applying machine learning to your strategy is about scope and granularity. If you’ve expanded into the global market, for example, these models are better equipped to digest the increased complexity of data, from forecasting customer demand across diverse populations to navigating global shipping requirements.
4. Customer experience
Using chatbots and virtual assistants to streamline customer interactions is one of the most common ways to integrate machine learning into your customer experience. While few things can replace the attention of a human customer service rep, chatbots powered by natural language processing learn from each interaction, allowing them to respond with more contextual complexity, which increases customer satisfaction.
Machine learning tools can even help human reps by summarizing vast amounts of customer feedback, reviews, and interactions. By identifying a recurring frustration with the lock on a waterproof phone case, for instance, machine learning can clue customer service reps in on the problem and set them up for success.
5. Product recommendations
Recommendation engines powered by machine learning can be a critical revenue generator for ecommerce platforms and online stores. By using content-based filtering to analyze a customer's purchase history, or collaborative filtering, which uses the purchases and preferences of buyers with similar behavioral patterns to inform its recommendations, these systems upsell customers more successfully, increasing the average order value.
Shopify’s Merlin platform is a seamless way to upsell your customers and improve the overall shopping experience with targeted product recommendations and more.
6. Site search
Standard site search can be hit or miss; unless your customers key in the exact words or phrasing in a product description, the search results may or may not surface what they’re looking for.
Smart search, powered by machine learning, allows for a broader understanding of keywords or phrases, so even if your customer half-articulates what they want, there’s a higher chance of discovery—and conversion. Some retailers have even incorporated visual search—a site’s ability to respond to uploaded photos of a desired product with similar offerings—to reflect a change in how many shoppers discover or search for products online.
7. Customer churn
Customer churn is the rate at which customers stop using your product or service over a set period—a percentage you ideally keep as close to zero as possible.It’s expensive to acquire new customers, but by researching customer data and user behavior, you can learn where most users drop out of the shopping experience and how to fix that point in the journey.
Incorporate machine learning into your customer retention strategy to understand when existing customers may need additional incentives to stick around. For example, you may find that a percentage of customers fail to return to your ecommerce store after interacting with customer service. This insight can help you identify opportunities to improve the customer service experience.
8. Fraud detection and prevention
Most ecommerce fraud can be spotted by a break in a pattern, like a rapidly increasing number of transactions on a single credit card. Many ecommerce businesses use machine learning to spot unusual disruptions in payment data and increase the security of their customer transactions.
9. Marketing campaigns
Machine learning algorithms excel at customization, which makes them perfectly suited to tasks like customer segmentation based on demographic data, purchase history, and search engine history. Machine learning allows for fine-tuned targeting, which betters your chances of high customer engagement and conversion.
You can use this nuanced understanding of your target audiences to influence your marketing message, tailoring your content to get the most out of your marketing expenses.
10. Delivery routes
Machine learning solutions built for order fulfillment and product distribution make it easier for online retailers to plan more efficient delivery routes by analyzing influencing factors like traffic patterns, driver performance, and even the weather.
Machine learning in ecommerce FAQ
What is the difference between machine learning and AI?
Machine learning is a subfield of artificial intelligence. Machine learning models are trained to continuously learn and adapt from both historical data and new inputs, using natural language processing (NLP) and reinforcement learning to improve with each new interaction.
Can you use machine learning and AI together?
Since machine learning is a subset of the field of artificial intelligence, yes. Depending on your business needs, you may employ non-machine learning, AI-powered tools to streamline repetitive tasks, like meeting transcription or document summarization, in tandem with more dynamic machine learning solutions.
Does Shopify offer machine learning?
Yes. In 2022, Shopify unveiled Merlin, a machine learning platform built on Ray, an open-source framework. Merlin allows ecommerce companies to weave machine learning into various applications throughout their internal and external business strategy. Internally, this includes revenue prediction and fraud protection, while external-facing use cases include product categorization and recommendation engines.
How can machine learning improve ecommerce sales?
Ecommerce machine learning solutions can increase sales by optimizing product recommendations informed by past buying behavior and predictive analytics. Machine learning can also improve customer experiences by creating personalized marketing and shopping experiences and optimizing order fulfillment, resulting in more repeat business and referrals.
