1. INTRODUCTION:

With the diffusion of digitalisation, E-Commerce has become a widely accepted and normalised way of business. The rise of digital literacy and introduction of 4G and 5G networks has been a catalyst to the growth of the E-Commerce industry. This has also led to an increase in global investors investing in Indian E-Commerce platforms. Government schemes and its involvement has also been a major factor attributing to the growth of the E-Commerce industry.

India’s E-Commerce markets is one of the fastest growing platforms in the world. The E-Commerce revenue is expected to have an increase of 36% (USD 39 billion in 2017 to USD 120 billion in 2023) (Panigrahi and Karuna, 2021). With a growth rate of 51 percent, India’s E-Commerce market is the fastest growing platform in the world (IBEF, 2023).

India’s increase and transformation into a cashless economy also provides tremendous opportunities and scope for the development of the market. According to the data from Bank of International Settlements (2018), India has the largest percentage of consumers with respect to increase in volume of cashless transactions (55%). The country also has a large number of investors with almost 13.338 million USD as of 2009. At present there are around 4757 recognised E-Commerce start-ups active in India, with trading in Electronics contributing to 48%, followed by apparels (29%), and home and furnishing (9%). Lari et.al (2022), Found that AI technologies has great impact on improving the efficiency of E-commerce businesses and these companies are increased their investments in AI technologies.

The market size of the e-commerce industry in India has been on the rise since 2014. It is predicted to rise constantly from 2018 valued at 21.9 billion US$ all the way up to 2030 valued at a massive 350 billion US$. COVID-19 has also been a major contributing factor to the growth of the E-commerce industry in India (statista.com, 2023). The mandatory lockdown and isolation have pushed consumers to prefer a no-contact method of buying. India has witnessed a spike in online purchasing as a reason of the mandated restrictions and the behaviour has prevailed (Nougarahiya et al., 2021).

Figure 1: E – Commerce purchase frequency change due to Corona virus outbreak 2020, by country.

Source:https://www.statista.com/study/71767/coronavirus-impact-on-the-global-retail-industry/

In the given Figure 1, we can see how frequently e-commerce purchase has changed as a result of the covid outbreak in India, Vietnam, China and Italy. It can be inferred that Vietnam had the most frequent changes (57%) followed by India (55%), China (50%) and changes being the least frequent in Italy (31%).

Artificial Intelligence is broadly outlined as the technology to make machines think and act like human beings. The concept of intelligent machines has existed for a long time, since the 1900’s. The evolution and beginning of Artificial Intelligence were marked by two significant persons: John MCarthy – who coined the term Artificial Intelligence and Alan Turing – The founder of the Turing Test. Ever since, AI has been an integral part of every person’s life. It has evolved to be a fundamental aspect of many imperative fields including medicine, economics, robotics, decision making in businesses, logistics, and human resources, engineering and architecture, and education (Russel and Norwig, 2015).

Figure 2: Representation of how organisations are using AI (2022)

Source: IBM Global AI Adoption Index 2022, https://www.ibm.com/downloads/cas/GVAGA3JP

From the Figure 2, it is clear that the most used application of AI in organisations is Automation and IT (33%), followed by Security and Threat Detection (29%) and Automation of Business Processes (28%) and the least used application being Virtual Assistants, Financial Planning, AI Monitoring and Governance, and Sensor Data Analysis. At present, the AI market is valued at over $136 billion. A joint study conducted by Microsoft and the Internet and Mobile Association of India (IAMAI) revealed that India’s artificial intelligence (AI) market is expected to witness a growth of 20% over the next five years – the second fastest rate globally behind only China. As a country that has extensively welcomed digitisation, India’s scope for Artificial Intelligence and Machine Learning are expected to grow beyond the generic fields of technology and medicine.

2. APPLICATIONS OF AI IN E-COMMERCE SECTOR:

1. Sentiment Analysis to understand consumer behaviour:

With the recent digitisation of everything, businesses have largely taken to the internet. This has also led to an abundance of data creation. Sentiment Analysis is a concept that uses Natural Language Processing, employed to take advantage of this data creation and help businesses to understand their customers. Also called as opinion mining (Vanaja and Bewal, 2018), this analysis is used to recognise the opinions – positive, negative, or neutral of the customer. It in turn helps the business to change factors that cause the most disapproval and make better business decisions (Marong et al., 2020).

2. Fraud detection:

There has been a significant increase in online modes of payments in correlation to the COVID-19 pandemic. This along with the attractive offers, discounts and cashbacks e-commerce websites provide with online transactions, security has become a big issue in e-commerce (Hasan and Rizvi, 2022). Artificial Intelligence is used in e-Commerce to detect and prevent fraud. Rule based algorithms and Machine Learning models are employed to detect fraudsters. According to a recent study (Rodrigues et al., 2022), customers that use credit cards as a mode of payment are more likely to be fraudsters. Artificial intelligence is used here to detect and prevent fraud by using credit score and customer’s past buying history data to analyse their buying patterns. And identify and avert fraud.

3. Personalisation:

With the increase in the habituality of digital technology, there has been an increase in e-commerce platforms as well. This has led to stiffer competition between businesses. Businesses now find themselves in a position to find new ways to retain customers. According to Adaji (2017), Personalisation strategies are found to be positively influential in creating a unique experience for customers and providing motivation for buying. One most prominent example of successful personalisation is Amazon. Amazon changes its content based on several means – previous searches, past purchases, reviews, and reports (Adaji and Vassileva, 2016). A snippet of how personalisation works based past searches and purchases in Amazon is given below in Figure 3.

Figure 3: Amazon recommendation based on past purchases and searches

Source: https://www.amazon.com/

4. Inventory Management and making stock predictions:

As per the Indian Brand Equity Foundation, India has the 8^th largest market for online shoppers (2021), and the market is expected to be worth USD 188 billion by 2025. With such a huge consumer base, managing inventory has become an imperative factor in accumulating profits and reducing costs. E-commerce giants use inventory management to maintain their stock according to their demand, and small and medium enterprises utilise it to increase and optimise their sales (Kumar et al., 2020). Artificial intelligence tools like Artificial Neural Network (ANN) and Decision Support System (DSS) are largely used to predict stock and manage inventory accordingly. Through AI, business owners are able to extensively track activities of their customers which in turn supports organisations to make informed decisions (Lingam, 2018).

5. Voice Assistance:

AI powered voice assistants have improved the competency and the simplicity of navigation in e-commerce platforms. These factors are also known to significantly influence customer satisfaction and in turn assist in customer retention (Kraus et al., 2019). According to a recent study, e-commerce giant Alibaba saw an increase in sales by 15.9% after adopting the voice assistant Genie (Sun et al., 2019). Genie was developed using Natural Language Processing tools, which are able to analyse the nuances of languages and optimally deliver dialogues by imitating human beings.

Figure 4: The number of voice assistant users in the US from 2022 to 2026

Source: https://www.insiderintelligence.com

Figure 4 shows a steady increase in the number of voice assistant users in the US from 2022 to 2026 and the percentage of population. Individuals who use voice assistants for at least once in a month on any device irrespective of age are considered.

6. Customer Relationship Management:

AI customer relationship management (CRM) is becoming increasingly popular in ecommerce as businesses seek to improve customer engagement and loyalty. One of the main advantages of AI-powered CRM is its ability to analyze large amounts of customer data to identify patterns and trends. This allows ecommerce businesses to gain insights into customer behavior and preferences, and to tailor their marketing and sales strategies accordingly. According to a study in Bangalore in 2019, incorporating Artificial Intelligence in Amazon resulted in customer retention, higher sales, and more traffic in the websites (Mishra and Mukherjee).

7. Demand forecasting:

Demand forecasting helps the business make better-informed supply decisions that estimate the total sales and revenue for a future period of time. The application of AI in this process makes it much easier compared to other manual processes. Regression analysis, neural networks, and machine learning algorithms are the modern-day AI-based approaches to forecasting demand. Machine learning algorithms such as support vector machines, decision trees, and random forests have become increasingly popular in demand forecasting (Aktepe et al., 2021).

8. Logistics:

In recent years, the incorporation of artificial intelligence (AI) in logistics and supply chain management (SCM) has grown in importance. AI has the ability to improve route optimization and inventory management improving the efficiency of logistics (Pardalos and Udenio, 2021). Natural language processing can also be used to analyse and enhance customer service feedback. AI has the potential to increase efficiency, lower expenses, and increase customer satisfaction. AI-enabled predictive maintenance, for example, can reduce machinery downtime, while autonomous vehicles can enhance delivery times and lower transportation costs.

9. Chatbots:

Chatbots are perhaps the most widely used form of Artificially Intelligence in e-commerce platforms. In recent times, chatbots have been widely accepted by users and many customers even prefer automated conversations over human interaction. As per a survey done by Tidio, 62% of users declared that they would use a chatbot whereas 38% preferred talking to a human assistant (Fokina, 2023).

Figure 5: Chatbot market share

Source: https://unibot.ai/blog/rynok-chatbotov-vyrastet-

na-31-s-2018-po-2024-god

Figure 5 shows the Chatbot Market share by 2024 is predicted to be 1.34 billion (Global). AI based chatbot market share is the highest at 53% and E-Commerce end-use share is at 35%. This global growth mainly due to increase in usage of chatbots for digital marketing and advertising especially in content marketing. Chatbots are known for assisting, engaging and effective interacting with customers for designing personalized marketing strategies. Apart from customer acceptance, chatbots are also immensely advantageous and profit generating for businesses.

a. Chatbots are able to comprehend customers' needs and automate customer service, successfully addressing their needs (Daughtery et al., 2019). AI powered chatbots are capable of working without expressing human emotions and frustrations (Lou et al., 2019). They have the advantage of being active 24/7, thus providing customers optimum customer service. Chatbots provide a more personalised experience for customers (Grewal et al., 2017), increasing customer satisfaction.

10. Image Recognition Through Visual Search:

Visual search is predominantly an application of artificial intelligence used in e-commerce (Dagan et al., 2021). Also called as “Visual Shopping” (Togashi and Sakai, 2020), it allows users to search for a product using an existing image from their devices. Comparing search by image to traditional text-based search has a number of possible benefits. As easy as uploading or taking a picture and starting a search, it can first be quick and straightforward. Second, it is linguistically indifferent, which is a benefit as internet shopping becomes more widespread (Dagan et al., 2023).

Alibaba, an e-commerce platform, stated that in 2017, their "search by image" application averaged over 17 million daily active users and attracted significant attention and recognition (Zhang et al., 2021). A representation of visual search in Alibaba is given in Figure 6.

Figure 6: Visual search in Alibaba

Source: https://www.alibaba.com/

3. CHALLENGES OF IMPLEMENTING AI IN E-COMMERCE:

i. Collaboration of human workforce and AI:

Although there is significant interest, corporate AI integration is still difficult. According to a recent survey, 85% of AI initiatives eventually fall short of their goals (Rayome, 2019).

ii. Availability of Data:

All artificial intelligence models consume a huge amount of data to function effectively (Borges, 2020). Therefore, without adequate data, AI cannot possibly make effective characterisation of patterns, make predictions or obtain insights. Though big e-commerce conglomerates like Alibaba and Amazon have abundant access to data, small and medium businesses do not have that access. This hinders the ability of small businesses to incorporate AI tools and enhances the gap of technological advancement between small businesses and established institutions.

iii. Ethical considerations:

AI algorithms can make decisions that may have ethical implications, such as determining pricing or product recommendations. Ecommerce businesses need to ensure that their AI systems are transparent and unbiased, and that they are not discriminating against certain groups of customers. Despite AI being increasingly accepted worldwide, there is a snowballing concern for privacy in online platforms, and positively influence attitude. These concerns make AI an unreliable tool and hinders their development for the future (Araujo and Casais, 2020).

4. CONCLUSION:

Artificial Intelligence has come a long way and is now a fundamental part of our lives. With globalisation and the amalgamation of AI in businesses, profit maximising opportunities along with customer satisfaction are at its peak. AI has the potential to further transform the e-commerce industry by fully automating customer interaction and bringing in more efficient and optimum logistic strategies. However, implementation of these models does not come without its challenges. Businesses must build trust with their customers and make their AI tools more transparent and available. Maintaining a trained and aware workforce is also equally imperative. This study focused on the applications of artificial intelligence in e-commerce in modern day, though there is scope for future development and more applications to emerge. The study also briefly discussed few use case scenarios of real time businesses that uses AI and the benefits. Subsequently, the paper also discussed the current problems of implementing AI that come with the transition stage we are currently in. In conclusion, Artificial Intelligence has ushered in a new era for the E-commerce sector, revolutionizing how businesses operate and engage with customers. Through advanced algorithms, data analysis, and machine learning, AI has empowered E-commerce platforms to personalize customer experiences, optimize marketing efforts, streamline supply chains, and enhance overall efficiency. This transformation is not just a technological evolution but a necessity for businesses aiming to thrive in the highly competitive online market.

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Received on 17.09.2023 Modified on 13.01.2024

Asian Journal of Management. 2024;15(2):205-210.

DOI: 10.52711/2321-5763.2024.00032