More Americans than ever recognize artificial intelligence (AI) and how to use it in day-to-day life. From a commerce perspective, 65% of Americans are familiar with AI chatbots for customer service while 64% recognize the use of AI in making relevant product recommendations.
Not only can AI make shopping easier, but it can also change buyer spending habits. Customers can find the products they need while retailers have easier inventory management.
As knowledge about AI tools increases among both customers and companies, adoption is expected to increase. Less than 5% of retailers aren't interested in using generative AI in retail. The other 95% either already use it or are considering it.
AI will have a direct impact on how people shop. Here are a few ways it will shift spending habits and affect both companies and customers.
1. Choices Based on AI-Powered Personalized Recommendations
Generative AI can provide personalized recommendations with ad copy that supports the desires of consumers. Tey Bannerman at McKinsey & Company uses the example of two consumers who are car shopping. If one customer cares more about how the interior feels while the other cares about engine power, AI can recommend different cars based on these needs. Generative AI tools can also create ad copy for each consumer.
Improving recommendations through AI is meant to increase conversions. Customers may find what they want faster and feel more confident in their purchases. These tools can be applied to all forms of shopping, from affordable impulse purchases to doom spending as a way to cope with stress.
2. Navigating Dynamic Pricing Models
Dynamic pricing occurs when companies change prices to stimulate demand. Experts say this has been around for decades, in the form of happy hours and early bird specials. However, AI takes this to the next level. Digital tools can change price points when demand is low or high, and even adjust prices on specific items.
In 2024, Wendy’s announced its dynamic pricing plans, along with Walmart, which says its digital tags can adjust prices every 10 seconds. While dynamic pricing can benefit companies by spurring growth, some watchdogs are concerned this could cause consumers to pay more than they expect. It also creates uncertainty as buyers don’t know how much goods will cost until they buy them.
3. Using Chatbots for Customer Service Needs
AI chatbots allow companies to talk to hundreds of customers at the same time. This speeds up resolution times so customers aren’t left waiting. While chatbots handle basic questions, customer service professionals can address more advanced concerns, further streamlining help desks.
As of 2023, only 19% of Americans say they have used ChatGPT, a well-known AI chatbot, for customer service; however, their outlook is optimistic. When asked why they used chatbots, 37% said they thought it would be fun, 36% wanted to save time, and 35% thought they would make the task easier or less stressful.
4. Easier Access to Products
AI tools have become essential for supply chain management. McKinsey & Company reported that generative AI had the biggest positive impact on revenue when applied to supply chains and inventory compared to other operational aspects.
AI tools can automatically order products when demand increases or inventory is low, preventing companies from missing out on sales due to out-of-stock items. They can also reduce ordering when sales are slow, preventing overspending.
These processes benefit companies, but they also help consumers. Shoppers are more likely to find the items they need because of better ordering and restocking practices.
5. Data Privacy Expectations
While AI can help shoppers in dozens of ways, consumers are increasingly concerned about how much these tools know. Companies need to strike a balance between providing personalized recommendations and invading privacy.
One survey by the International Association of Privacy Professionals (IAPP) found 68% of consumers are concerned about their online privacy. Many customers aren’t sure what data is collected and how companies use it.
Companies can win over consumers by explaining what data they collect and how they use it. They can also use AI tools to increase data security by using advanced systems to catch fraud, hackers, and other cybercriminals. Consumers are more likely to shop with brands they trust, and that includes having trust in how their data is used.
6. Concerns About AI Ethics
While AI is an invaluable tool to help companies and consumers, it is still an evolving form of technology. Industry leaders have raised some ethical concerns related to AI, some of which have been covered in this guide already. Here are a few common issues.
- Data privacy: Consumers want to know how much information AI tools are collecting and what they are doing with it.
- Potential for discrimination: AI tools are designed to recognize patterns. This could create hurdles where these systems are biased against certain groups of people.
- Autonomous decision-making: As AI takes on more decision-making roles, consumers want to know how the tools or companies can be held accountable for bad choices.
For a real-life example of automated decision-making, an AI chatbot agreed to sell a new Chevy Tahoe for $1. This caused a heated internet debate as to whether the company legally had to honor the sale.
7. Further Expansion of Digital Shopping
AI has the power to completely reshape how people shop. Technology experts have even branded the concept of everywhere stores, giving customers even more flexibility in where and how they shop.
This is a good and a bad thing. It’s good that people can access goods and services at their convenience through the power of AI, but it can also increase spending potentially leading to debt.
Digital tools are designed to remove the pain of paying, or the stress that comes with handing over cash or swiping a credit card. Instead, consumers make purchases with just a few clicks and are rewarded with celebratory confirmation pages. Experts worry that people are making purchases they otherwise wouldn’t because of this ease of consumption, thus increasing consumer debt.
Tips for Improving Shopping and Spending Habits for the AI Age
Consumers can benefit from AI in retail. They can enjoy improved customer service and easy access to goods in the AI age. However, they should also take steps to protect themselves and their finances. Here are a few ways to shop smartly in the modern digital era.
- Set a budget before you shop: Don’t let upselling algorithms or impulse buying recommendations cause you to overspend.
- Wait before buying: You might be surprised at how much money you save when you implement a 24-hour waiting period before making a purchase.
- Shop around to price compare: Finding items is easier than ever, so browse multiple stores to see if another website has better deals.
- Avoid letting websites save your credit cards: Not only is this a data risk, but it makes buying easier. Manually entering your credit card can trigger the pain of paying and make you reconsider.
Good money management habits can help you avoid temptation in an era when AI makes shopping easier than ever. You can always return to your digital cart if you decide you really want certain items.