Artificial Intelligence Goes Shopping

Reanna Reddi

June 14th, 2018

 

 

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Growing by about 15 percent year over year, e-commerce has rapidly transformed the retail industry in the past decade and now represents nearly 10 percent of all sales in the U.S. According to a Statista report on digital shopping, roughly 27 percent of all shoppers shop electronically on their laptop or mobile device every week. Driving that figure is the rapid rise of social media. The World Bank estimates that close to three-quarters of the world’s population – including much of the developing world – has access to a mobile phone engendering a continued growth of sales via handheld devices. Asia alone was responsible for 40% of global e-commerce sales in the first quarter of 2017, China making up just over 23% of those purchases. In the EU, 79% of enterprises use e-commerce methods with many receiving orders online ranging from 43% of companies in Portugal to 95% in Greece.

 

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Smartphones and other mobile technologies have given individuals an outlet to construct communities, explore individualities and enhance economies. These core facets of the industry have seen major growth since 2004 as a result of an increase in accessibility, trust and the expansion of technological devices. Many experts claim this consistent growth is due to the development of mobile-friendly websites, efficient payment websites, social media, and search engine optimization. Interestingly, social media has become a platform to create informal e-commerce marketplaces. Facebook’s new marketplace community, for example, supports 56% of Facebook’s 500 million active worldwide users (150 million in the US). This not only supports local vendors, but also individual attempts at sales. Traditional retailers, however, have a taller hurdle to clear. Only 11% of retailers consider social media to be their most effective acquisition tactic, mainly because retailers don’t view the space as an opportunity to create an experience for customers. Although social media encourages product reviews, many potential customers would still rather experience the product themselves before purchase. 

 

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Recent developments in artificial intelligence, mainly in machine learning, virtual reality, and augmented reality have dramatically altered the business landscape. Machine learning (ML) is based on the premise that systems can identify patterns and learn from data to make decisions about preferences without explicit programming and human intervention. Examples of machine learning include Apple’s Siri, Amazon’s Alexa and the Google Home Assistant. Sites such as Netflix also utilize machine learning to bring viewers a more personal selection of shows. Diving deeper into the technological space, there remains confusion about the difference between virtual reality and augmented reality. Though related, virtual reality (VR) uses closed visors or goggles to block out the exterior environment in order to heighten engagement with the virtual environment. An example of VR would be the feeling you were swimming with sharks while in your living room. Augmented reality (AR) takes our current reality and adds something to it. AR would give you the experience of seeing a shark popping out the door. Social media filters and the game, Pokémon Go are the best examples of augmented reality. The trivial uses of such technology only scratch the surface of this technology’s potential. Initially tackling the marketing, movie, and gaming industries, machine learning (ML), virtual reality (VR) and augmented reality (AR) are three recent developments that are now transforming e-commerce, even in international markets. 

 

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Machine learning and augmented reality have potential in the e-commerce industry by ensuring more efficient transactions and maximizing revenue. Machine learning solutions analyze shoppers’ specific purchasing habits, such as color preferences and budget, in order to prioritize product recommendations that will likely generate the most sales. Twiggle, a business that enables e-commerce search engines to think the way humans do, uses natural language processing to improve search results for online shoppers. Augmented reality helps to create a customer-centric shopping experience. For example, augmented reality will allow a customer to try a product at home before purchasing it online. According to Malik Usman, 70% of buyers are expected to become more loyal to brands incorporating AR into their shopping experience. Popular examples include IKEA Place, an AR app developed by IKEA in 2013 to help customers physically visualize a certain piece of furniture in their home. Another example includes the Patron Experience app, which gives you the opportunity to walk through the history and heritage of the Patron brand, shop online for drinks, and even interact with bartenders.

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Pinterest’s recent update enables users to select an item in any photograph online and then asks Pinterest to surface similar items using image recognition software.  Making the industry even more profitable, machine learning techniques are also beginning to utilize facial recognition software to enhance customers’ shopping experience during visits to brick and mortar stores. For example, if a customer spends a significant amount of time next to a specific product, the information will be stored for use upon their next visit. Louis Columbus of Forbes Magazine states that “machine learning is predicted to generate the most revenue and is attracting the most venture capital investment.” As artificial intelligence and machine learning develops, personalized offers will be displayed on customer’s screens based on their time in-store. Such personalized shopping gives retailers an outlet to reduce shoplifting, a costly drawback. According to Brian Hughes, CEO of Integrity Marketing & Consulting, retailers lose nearly $50 billion a year in the United States and about 400 billion yen in Japan due to shoplifting. With the use of artificial intelligence, one particular Japanese store reported a drop in shoplifting losses from 3.5 million yen per year to 2 million yen per year. These artificial intelligence developments will surely serve to dramatically increase profit margins.

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With every technological development, there is always fear jobs will be lost. However, artificial intelligence is a new factor of production that has the potential to introduce extensive and promising sources of growth. In 2016, Accenture published a study which stated that artificial intelligence could double annual economic growth rates by 2035 in the 12 developed economies studied. The impact of AI on the 12 economies could increase the world’s economic output by more than 50%. Consequently, this would engender a boost in labor productivity by approximately forty percent. E-commerce, ranking among the top 10 industries that artificial intelligence will impact, will see a proportionally significant increase in its revenue stream as a result. According to the study, on an international scale, Finland, Sweden, the Netherlands, Germany, and Austria could see their growth rates double whereas Japan can see its annual rate of gross value added growth to triple by 2035. Additionally, AI developments could increase gross value added in the US by $8.3 trillion and in the UK by $814 billion. Given the current trend of human right activists, this increase in GDP shows promising improvements for quality of life.

Disclosure:

Investing involves risk, including possible loss of principal. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Opinions reflect the market conditions when written.