Authored by Jon Huberman, CEO, Nogin. Nogin was a finalist in the Best SaaS Product for eCommerce / eShops category, and shortlisted in the Best SaaS Product for Small Businesses / SMEs category at the 2023 SaaS Awards.

Artificial Intelligence (AI) has become nearly ubiquitous in our daily lives, operating “behind the scenes” in ways we often don’t recognize or notice.

That said, its rapid adoption across industries makes understanding and harnessing its power all the more crucial. In eCommerce, leveraging AI for personalized direct-to-consumer (D2C) and business-to-business (B2B) experiences is quickly shifting from innovation to expectation. Brands that fail to adapt to this new standard may soon lose market share to competitors who embrace AI-powered solutions today.

Why personalization in eCommerce has become so important.

In the era of digital commerce, customers are often inundated with options and choices, making it extremely important for businesses to stand out. Personalization offers a powerful way to captivate consumers and enhance their overall shopping experience, especially when shopping online can often feel so overwhelming. In fact, statistics show that 71% of consumers expect personalized experiences, and 76% of shoppers become frustrated when personalization is lacking.

Personalization grabs consumer attention amidst the noise, and allows businesses to tailor product recommendations, content and promotions to meet customers’ specific preferences and behaviors. This not only saves customers time and effort but also fosters loyalty, as 78% of shoppers are more likely to repurchase from brands that offer personalization. Personalized campaigns also make it easier for companies to provide post-purchase experiences—for example, unboxing experiences—where customers can continue engaging with brands beyond the point of purchase.

The Role of AI in Personalization

AI serves as the cornerstone for achieving effective personalization at scale. And with the AI personalization market projected to reach $24 billion by 2027, it’s only going to become more important for retailers who are looking to stay ahead of the curve.

Machine learning algorithms, combined with vast amounts of data, enable AI systems to analyze customer behaviors, preferences and purchase history and then generate personalized recommendations and experiences. These types of personalized experiences are not only revolutionizing the eCommerce industry, but also lead to customer loyalty. AI-powered capabilities such as recommendation engines, dynamic pricing strategies and personalized content delivery empower businesses to understand and anticipate customer needs, leading to more accurate and impactful personalization.

“The increasing importance of personalization, coupled with the capabilities of AI, provides unparalleled opportunities to create tailored experiences that delight customers, boost engagement, and foster loyalty”

Strategies to Incorporate AI Into Personalization Efforts

  • AI-powered data collection and analysis: One of AI’s great strengths is its ability to swiftly and efficiently gather and analyze massive volumes of data. By using advanced algorithms, AI systems can extract insights from customer interactions, social media activity and online behavior, providing valuable information that will enhance personalized experiences. For example, AI can help encourage customers to complete a purchase through personalized exit intent—notifying them of how close they are to qualifying for free shipping and offering tailored product recommendations to help them get there, based on their order and browsing history. With the help of targeted exit intent strategies, retailers can re-engage up to 33% of users who would otherwise abandon their carts.
  • Customer segmentation using AI: AI algorithms help identify previously hidden patterns within customer data, enabling precise customer segmentation. This empowers businesses to tailor marketing strategies to make each shopper feel understood, while addressing their unique preferences. As one example, retailers can leverage AI to segment customers based on geographic location, customizing what products they see according to seasonal weather patterns—a strategy which can increase click-through rates by as much as 45%. With AI tools in place, data is also less likely to be left out of segmentation strategies, preventing lost sales.
  • AI-driven recommendation engines: AI algorithms are capable of producing remarkably tailored recommendations, using customer data such as past purchases, browsing history and demographics to help customers discover the right products or services for them. With AI, retailers can track not only the specific products a customer is interested in—the ones they click on and, ultimately, buy—but which sizes they select as well. That enables retailers to serve up personalized recommendations in the sizes customers are most likely to purchase, creating a more seamless shopping experience and boosting conversions by as much as 2x. As companies continue leveraging AI capabilities for personalization, its recommendations will only continue to be more accurate for customers.
  • Dynamic pricing and promotions using AI algorithms: Businesses can leverage AI to dynamically adjust pricing in real-time, analyzing variables including customer behavior, market trends and inventory levels to implement optimal pricing strategies. Dynamic pricing ensures that customers view prices calculated according to their willingness to pay and current market conditions, rather than being fixed at a set value. With this approach, businesses can avoid arbitrary pricing decisions, maximizing sales and enhancing their competitive advantage for the long term.

AI Challenges and Ethical Considerations

While AI offers immense potential for personalization, it’s essential to consider the ethical implications of AI, as well as potential privacy concerns associated with collecting and using consumer data.

Transparency is key to building trust with customers, and businesses should be mindful of intrusive practices. Respecting customer consent and offering options for adjusting personalization levels is crucial. In addition, human oversight—including regular monitoring, testing and audits—is necessary to identify and mitigate biases in AI algorithms, ensuring a more inclusive and equitable eCommerce experience for all consumers. These practices also pay off by creating a halo effect of loyalty and community with customers, who want to engage with ethical brands that do the right thing.

Harnessing AI for personalized D2C eCommerce is a powerful strategy for businesses aiming to stay ahead in a competitive and growing landscape. The increasing importance of personalization, coupled with the capabilities of AI, provides unparalleled opportunities to create tailored experiences that delight customers, boost engagement, and foster loyalty. Moreover, AI’s advanced predictive analysis and pattern recognition abilities can be leveraged to significantly improve conversion rates, guiding potential customers more effectively through the purchase funnel. These capabilities also enable businesses to suggest the right product at the right time, thereby boosting sales and enhancing customer satisfaction. Ultimately, embracing AI-powered personalization can not only propel businesses into the future of eCommerce but also drive substantial growth in conversion rates and sales, benefiting both consumers and the bottom line.

About Nogin

Nogin (Nasdaq: NOGN, NOGNW), the Intelligent Commerce company, offers a comprehensive end-to-end ecommerce solution, leveraging cutting-edge technology, robust infrastructure, and unparalleled industry expertise to empower global brands in today’s competitive market. Nogin’s Intelligent Commerce technology is a cloud-based ecommerce environment purpose-built for brands selling direct-to-consumer (D2C) and business-to-business (B2B). Nogin frees its customers to focus on their business while running as much or as little of the digital commerce infrastructure as they choose. Founded in 2010, Nogin optimizes the entire eCommerce lifecycle for a variety of brands, such as Giordano’s Pizza, bebe, Brookstone, Hurley, and Kenneth Cole, as well as several B2B brands and marketplaces. To learn more, visit www.nogin.com or follow us on LinkedIn and on X at @Nogincommerce.