PROJECT Consolidated v1 27june

Machine Learning in Ecommerce Applications
MANAGERIAL ECONOMICS PROJECT REPORT
Machine Learning in E commerce applications
Anshu Singh [1816057]

Atul Jha [1816018]
Charu Gupta [1816017]
Devender Singh [1816058]
Gaurav Baidyasen [1816006]
Manasi Sawant [1816053]
Rahul Pandey [1816043]
Shrinivas Sharma [1816054]
Group # 12 / PGPEM 2018

Contents
Abstract............................................................................................................................................... 2
INTRODUCTION................................................................................................................................ 2
Appendix .......................................................................................................................................... 26
Applications of machine learning in e-commerce industry ............................................. 3
a. CUSTOMER BEHAVIOR AND SEGMENTATION .......................................................................................................... 3
b. ASSORTMENT PLANNING AND MERCHANDISING ................................................................................................. 4
c. PROMOTION RECOMMENDATION ENGINE ............................................................................................................... 4
d. MOBILE ANALYTICS ............................................................................................................................................................. 7
e. PRODUCT DEVELOPMENT AND DESIGN ................................................................................................................. 10
f. MARKETING ANALYTICS ................................................................................................................................................. 10
g. SUPPLY CHAIN MANAGEMENT ..................................................................................................................................... 11
CASE STUDIES IN E-COMMERCE INDUSTRY .......................................................................... 12
h. MYNTRA- ASSORTMENT PLANNING ......................................................................................................................... 12
i. AMAZON- PRODUCT RECOMMENDER ...................................................................................................................... 15
j. ALIBABA SMART SUPPLY CHAIN (ASSC) ................................................................................................................. 17
k. HDFC - CONVERSATIONAL BANKING WITH CHATBOT ..................................................................................... 18
l. WALMART- GLOBAL CUSTOMER ACQUISTIONS .................................................................................................. 19
PARADIGM SHIFT IN E-COMMERCE ......................................................................................... 22
m. CUSTOMER TRAFFIC/CLICK RATE ............................................................................................................................. 22
n. CUSTOMER CHURN ANALYSIS ...................................................................................................................................... 24
IMPLICATIONS OF ECONOMIC CONDITIONS AND COMPETITION ................................. 26
CONCLUSION.................................................................................................................................... 26
GROUP # 12 PGPEM 2018 1

Abstract
The e-commerce industry has evolved over the past decade in multiple phases. Newer
technologies, advanced and cheaper computational power, data science, big data, machine
learning, big data and digital marketing have substantially contributed towards the growth
of e-commerce. Data growth has played an important role to understand customers in an
accurate and an efficient way. This has directed to a paradigm shift in the space of e-
commerce industry. Data is no more a by-product of the business model but it can be
considered as one of the key drivers to understand customer’s behaviour, returns on
promotion, customer acquisitions and customer retentions. Machine Learning can help e-
commerce retailers offer intelligence-powered shopping experiences to customers, increase
conversions & curtail cart abandonment. The average customer of today owns and uses at
least four devices – mobile, tablet, laptop, and a desktop/Laptops daily. Most of the
customers nowadays use their smartphones to make online purchases. This project would
be focussed on different areas of application ranging from assortment planning, marketing
analytics, pricing analytics, SMART supply chain management, promotion planning, product
development and design and so on. The project cover extensive application of machine
learning in Amazon, Myntra, Walmart and HDFC. The project would also focus on the
multiple experiments which are deployed in different e-commerce businesses and
functions. Lastly, the project would discuss about the impact of economic conditions and
competitor analysis in e-commerce domain.
INTRODUCTION
Technological enhancements have helped Data Science field and many industries to grow
faster and make decisions more rapid. The integration of technology, business and data
science has not only provided a path to solve complex business problems but also allowed
companies to take data-driven decisions. Machine Learning has proved to be a vital tool to
work on non-traditional problems such as handling/managing and generating insights from
unstructured data, customer analysis, marketing analytics, computer vision, image
processing, text mining and many more. Ecommerce industry has leveraged data science
and Machine Learning application across various functions and channels. There are multiple
fronts where ML and DS can be deployed in ecommerce industry.
Few areas of applications are –
 Customer Behaviour – Build Demand Planning metrics, Identify the price elasticity
for a commodity, Impact of cross- elasticity across different categories and segments
 Customer Segmentation - Attributes of a customer by revenues-

 Revenues -High valued customer, medium-valued and risk customers
 Product Category – Up-sell, cross-sell and Market basket Analysis(MBA*),
recommendations
 Supply Chain Management – Inventory Planning, Logistics optimization, Production

cost optimization,

 Promotional Planning – Build promotion recommendation engines, target

marketing(market mix modelling), Selection of promotions across categories,
Cannibalization
 Cost Optimization – Optimization of different costs as labour cost, inventory cost,

logistics cost and many more.
 Customer Acquisitions and Customer retention strategies- Marketing strategies,

customers traffic, no of visits, no of clicks, customer trajectory
Applications of machine learning in e-commerce industry
CUSTOMER BEHAVIOR AND SEGMENTATION
Companies today recognize that each customer comes with a varied background, values and
expectations. However, they need to make sense of these differences, figure out behavioral
patterns, cluster users in relevant buckets, and then use this information to attain marketing
goals. These are some ways in which consumer behaviour data can be used effectively:
1. Content and Experience Customization:

We can analyze parameters like location, demographics, consumption history of the
user and offer a very personalized experience across devices to the user. Personalizing
content helps customers to engage better with the brand. Brands dynamically serve
content that a customer may like thus reducing the time spent in discovering the
product and drive faster decisions. This boosts user satisfaction, reduces churn, thereby
increasing the LTV (Lifetime Value) of a customer.
2. Cross- sell, re-target, build loyalty:

Recommendations like ‘people who bought this, also viewed this’- help to cross-sell
products to customers. This information is also used to extend Offer Coupons, drive
Loyalty Schemes, and re-target old customers who haven’t engaged with the brand
lately.
3. Predict Future Trends:

Machine learning is used in e-commerce to predict future trends- like demand of an
item, Price Elasticity of an item or the Cross-Price elasticity of two items, especially
during the Sale Season to determine optimum price and quantity that needs to be
stocked in warehouses.
Thus, analysing data based on customer behaviour helps companies increase their ROI by
Faster customer acquisition, Customer retention and engagement, and reducing customer
Churn.

ASSORTMENT PLANNING AND MERCHANDISING
With unlimited product options available with each category, but with constraint of limited
inventory a retailer can maintain and arranging the products on website, Assortment
Planning & Merchandising becomes very crucial. Assortment planning is about picking the
right product and ordering in right quantity to match the market demand. Attracting the
right consumers and getting them to complete their purchases. This is where merchandising
comes in to save the day.
Customers generally do not like cluttered display of products. Also different types of
products demands different planning. It’s easy to spot the dogs in your assortment using
sales data, but it’s far from obvious what slow sellers should be replaced with, as a slow
seller you delete might be an important product to some of your best customers. Below
graph shows how Fashion assortment planning is different from basic assortment planning.
Fashion v/s Basic Product Planning [ref]
To address this deficiency, Machine Learning techniques can make assortment planning &
merchandising vastly more scientific. It is observed that most of the time customers don’t
buy products; they buy a bundle of attributes. For instance when you say you want to buy
TV, you think about screen size, resolution, price, LCD versus plasma, and brand, not just the
product TV. Machine Learning approach sales data and various attributes to forecast the
demand for potential new products. Armed with these data, retailers can test their hunches
more scientifically. [ref]
PROMOTION RECOMMENDATION ENGINE
Banking, Retail and e-commerce are some of the mature markets which have adopted
machine learning data science to grow their business. Ecommerce industry relies heavily on
machine learning to understand consumer behaviour, study competition, articulate
promotional strategies, deliver smart supply chain models.

This section is particularly focussed on interpreting promotion strategies in ecommerce

space. Some of the key areas of applications are –

Sales promotions are the most popular means to attract customers. There are many
methods to executive it – price promotions such as EDLP, BOGO, discounts and non-price
promotions such as vehicle promotions (aisle, sidekick and so on). Some of the key
algorithms as regressions techniques, clustering techniques and few advanced ML
techniques such as Neural Networks, Random Forest, and Support Vector Machines are
widely used for forecasting customer sales trends and segmenting them into high, medium
and risk buyers. It, in turn, increases the top line growth of a firm.
Consumer Buying Patterns and Segmentation- Micro targeting customers is an useful tool
to understand consumer buying patterns and consumer segments. It is related to
segmenting your audience lets your business offer the right promotions to the right
individuals. Customization speaks directly to consumers—signalling that you know exactly
what they need.
Classification algorithms such as K-Means Clustering, Decision Trees, Ensemble methods and
so on are widely used to solve segmentation problems.

Cross-sell and upsell are another opportunities to increase the top-line growth and a great
value addition to the customer. Buyers adore convenience, and they want to save time
shopping at one place. And it eliminates the hassle of sifting through multiple ecommerce
sites.
MOBILE ANALYTICS
While Smartphone sales are getting stagnant, but their penetration and their Share in
Ecommerce is increasing rapidly.
Global Smartphone
Shipments
2
Units Shipped
(in Billions)
1.5
1
0.5
0
2012 2013 2016 2017 2021
Year
Analysing customer behaviour on Mobile Platform helps e-commerce firms in enhancing

their Customer Experience, Sales etc.
Using ML Models firms can analyse and react to some of the events such as Context Based
Search, Login Independent - Multiple Personas etc., which will enhance its conversion ratio
and customer experience significantly.

Interaction with
eCommerce App
Search for a Product
GEO Fencing / Awareness Multiple Personas

Same Login ID
Identify the User

Is the Person in Based on Usage
Shopping Mall? Pattern <Not only
Login ID>
Display More
Display various Optimize the App Display Product
Research Related
Buying options Design based on Information Per
Information
<Ex: Various Price Preferences (Say – Preferences of
<Ex: Various Models
Options> Theme etc) Identified Persona
of Product>
Other Benefits of ML and Smartphones
Visual Search
Using Image Recognition Technologies and AI, e-commerce Vendors can provide Visual
Search, to the customers.
Product Description Summarization

Considering the small form factor of smart phone, Machine Learning has started playing a
significant role in displaying information per user preferences.

Emotions AI
Technology that recognize and decipher a person’s mood will help e-commerce since it can
satisfy their customer needs considering emotions as well in its decision making.
Augmented Reality
With advent of powerful mobile processors and technology to support Augmented Reality
(AR Mobile Headsets), in the future e-commerce website will start using AR to help
customer choose the product after trying it out virtually.

To summarize, Machine Learning is the heart of promotional recommendation engines.

Ecommerce industry has witnessed a significant shift in demand through the application of
Machine Learning Customer Acquisitions and Customer Retention Strategies are primarily
achieved through smart promotional strategies.
PRODUCT DEVELOPMENT AND DESIGN

The use of machine learning is not only restricted to collecting data and utilizing it for
servicing the customer. As the AI technology has improved multi-fold in recent time it has
influenced the way to transform the design process. Machine learning is being used by
varied industries such as architecture, web design, car design, and even in composing music.
For instance, an AI-based platform, Shimon, developed at the Georgia Institute of

Technology in the US, is already composing new music.
Several companies and start-ups have tried to automate the process of design in fashion
industry too. Some fashion brands are experimenting with IBM’s supercomputer Watson
and Google’s technology tools to create designs. StitchFix, an American online retailer, has a
tech platform called Hybrid Designs; Myntra has platform-Rapid that automates fashion
design using AI. Dozens of AI start-ups in fashion, including Stylumia, are attempting to do
what Myntra is doing and more.1
MARKETING ANALYTICS
Today Machine learning algorithms are employed extensively by companies for marketing
analytics. Ad-networks, Programmatic Ad space buying, advanced targeting on social media
platforms have evolved because of this.

Brands often use DMP (Data Management Platforms) to store, analyse and collect 1st and
3rd party information of user’s journey online. This information is then used to serve ads to
targeted users based on certain parameters (audience tracking) or re-target high intent
users with products that they have recently seen.
For example:
If you look at a certain item on Bluestone and then leave the website without purchasing
anything, the Google ad platform will pick your browsing history from Bluestone website
and show you these items on Google Ad spaces.
Google has created SEM algorithms that are able to manage your ad campaigns and place
bids automatically on your behalf. Once you define a set of goals, keywords, and type of
audience to target, the SEM algorithm will learn and optimize on it own, even pick best
performing creatives from a set of creatives.
These algorithms have changed the way brands market today and made it possible to have a
targeted and measured marketing communication.
SUPPLY CHAIN MANAGEMENT
Supply Chain management is the management of movement of goods/raw material from

suppliers/producers to consumers in form of finished goods involving several important
steps such as sourcing and procurement, demand planning and inventory management, and
logistics. In e-commerce, it is essential that movement of goods happen in time bound and
orderly fashion in both ways (B2C and C2B), hence the need of an efficient Supply Chain
Management.
Key activities of Supply Chain in e-commerce consist of following functions:
1. Supply Chain Replenishment: Integrated Production ,distribution and procurement

processes to increase replenishment and reduce inventories by synchronising Demand
and Supply
2. Demand Planning and Inventory Management: Integrated software to predict demand
and manage the inventories in network of warehouses
3. Logistics and Transportation: Optimal distribution system for transportation of goods
Key challenges in supply chain of e-commerce businesses include:

 Finding the right product to sell
 Predicting the demand for future
 Cost optimisation on inventory
 logistics to meet time bound delivery

Smart Supply Chain in e-commerce uses AI to help forecast product demand; prepare,
replenish and allocate inventory for optimal turnover; determine the right products to offer;
and smart logistics using AI to find the cost-effective delivery routes.
CASE STUDIES IN E-COMMERCE INDUSTRY
MYNTRA- ASSORTMENT PLANNING

Myntra has taken advance steps as compared to other in applying technology in fashion
design: it seems to have figured out a solid process. Broadly, there are three reasons why
Rapid is ahead of other similar efforts.
1- Myntra has lots and lots of sales and browsing data. The company has access to
customer data on Flipkart and Jabong as-well. These three platforms control roughly
70% of all online fashion sales in India, according to Myntra estimates.
2- Myntra has the cash to invest in AI technologies, such as GPUs, and attract top
engineers.
3- It has built expertise in the supply chain side of fashion and has close relationships
with suppliers and manufacturers because of its large private label business. Myntra
is able to convince suppliers to shrink the process from 180 days to less than 45 for
its fast- fashion products.
Many companies could achieve one or two aspects but few can combine all the three.
“What we’re doing is not just a technology solve or a supply chain solve,” said Rajesh
Narkar, vice-president of Myntra’s private labels business. “It’s about disrupting the way
brands are built. Today, we’ve reduced the (manufacturing) process to less than 45 days.
The idea is to do it even faster. We’re asking ourselves: if there’s customer intent to buy
something, can we serve it then?”
 How data gathering works for Myntra design creation :

When the Rapid team planned to develop the ideas of generating completely Machine
Learning driven designs, the team came across GANs (Generative Adversarial Networks). Ian
Goodfellow, a researcher at google, Invented GANs.

Source: http://fortune.com/ai-artificial-intelligence-deep-machine-learning/
Neural networks, which comprise connected transistors that replicate the structure of
neurons in the human brain, are a fixture in AI. GANs go further. They comprise two neural
networks. In Myntra’s case, for instance, one network comes up with the designs after being
fed data. The other network critically vets the designs and gives feedback to the first
network on where it’s going wrong. Through this interplay, the two neural networks are
trained to think like humans.

The Rapid team at Myntra trained and tweaked the GANs for more than a year, and kept
consulting with Goodgellow to make the best use of nascent technology. Finally in
September 2017 the team was ready with new designs to go live on the platform.
The designs were included in 2 private brands of Myntra, Moda Rapido and Here&Now.
These two brands together do a sales of 12-13 crore INR every month and are Myntra’s
most profitable brands, generating net margins that are around 10 percentage points higher
than the others.2
AMAZON- PRODUCT RECOMMENDER
When it comes to the e-commerce sales of U.S. retailers, Amazon Inc. dominates the list of
the top 10 companies — and is followed by Apple Inc., Wal-Mart Stores Inc. and Macy’s Inc.

Possible Reasons of Amazon’s success
Today shoppers don’t want to do all the legwork in the path-to-purchase. According to a
survey, 64% of respondents wanted retailers to provide smart recommendations or
suggestions based on prior purchases to aid in the buying decision.
[ref]
Apart from other reasons such as fastest on door delivery, largest catalogue, and amazing
customer service, secret key to Amazon’s growth is their hyper charged recommendation
engine (on-site recommendations, email recommendations, and recommendations with
Facebook Dynamic Product Ads ) and their constant implementation of machine learning in
every part of their business.
Amazon Onsite Recommendations features such as “Recommended for you”, “Frequently

Bought Together”, “Recently Viewed” has made browsing the site easy for customer by
putting products in front of you that you’re likely to click, learn more about and buy.
Amazon is not only targeting customers who are online and are on Amazon right now, but
only is targeting them when offline by recommending products offline via email. Highly
relevant emails are critical for improving your click-through rate, conversion and revenue
per email metrics.
If Amazon started sending disconnected emails, these emails would likely be marked as
spam or they’d just unsubscribe from future mailings.
The Recommendation email containing items frequently purchased together, with the aim
to get you to buy a product you were interested in a while back and cross-sell its

accessories in order to increase average order value and the amount of revenue they
generate from each customer.
Holistically, recommendation engine is an effective way of creating a personalized shopping

experience for each customer. It has helped Amazon increase average order value and the
amount of revenue generated from each customer.
ALIBABA SMART SUPPLY CHAIN (ASSC)

 Smart Supply Chain:
 Smart Logistics:

HDFC - CONVERSATIONAL BANKING WITH CHATBOT
A big new application of machine learning is in chatbots. Of late, e-commerce websites have
been applying chatbots, or software conversing with the user through auditory or textual
methods, to aid the customer find the product they seek, track order status, and to answer
other general queries. Customers get instant and accurate answers, without having to put
up with the difficulty of calling and waiting for a live agent attend their call at the customer
service.
HDFC Bank has joined hands with Niki.ai, the artificial intelligence firm to bring in
‘conversational banking’. In May this year, Ratan Tata and Roni Screwvala’s Unilazer
Ventures picked up stakes in Niki.ai.
This service allows bank customers to conveniently access their bank accounts through
chatbots that facilitate commerce and banking transactions without getting out of the chat
window. With over 71% of our transaction taking place on digital platforms, internet and
mobile are now core banking channel. [ref1][ref2][ref3][ref4]
Conclusion
Bot implementation for retailers is seeking to make the entire customer experience
seamless and relatable. Equipped with qualities ranging from intelligence to empathy, bots
are here to stay in the retail industry. What is left to be seen is how it matches the same
experience of an in-store purchase. Retailers will want to use bots to guide customers, such

as those searching for gift ideas. Brands can also gain from bots by offering storytelling,
product exploration, and other such marketing functions.
WALMART- GLOBAL CUSTOMER ACQUISTIONS
Walmart is on its way to transform into an e-commerce giant and this started back in
September 2016 when they bought jet.com to get into the competition with Amazon.com in
United States.
Since then Walmart has been on an acquisition spree and targeting e-commerce focused
retailers such as Moosejaw.com, Bonobos.com, Parcel.com and Flipkart.com

Jet.com
•Acquired by Walmart in September 2016 on subsiduary based model for 3.3 $ billions.
•March 2016- Bought Hayneedle.com ,online specialty store that emphasizes on indoor/outdoor home furnishings,
decor and other furnishings for commercial use
•December 2016- Bought shoes.com, online footwear retailer from Boston
•March 2017- Modcloth.com, American online retailer in indie and vintage-inspired women’s clothing
Moosejaw.com
•Acquired by Walmart on February 15th, 2017

•Its an online and B&M retail store focusing in outdoor recreation apparel and gear for camping, hiking, rock climbing
and snowboarding.
•brought along its partnerships with around 400 brands.
•“Activist organization” Patagonia Incorporation ,An American clothing firm that sells sustainable outdoor clothing
using down feathers and wool material.
•The North Face Incorporation (Another American outdoor product organization producing outwear and equipment for
campers, climbers, hikers, mountaineers, skiers, snowboarders and athletes and included various level of customers
such as college students , enthusiasts and professionals);
•Marmot (An outdoor clothing and sporting goods firm founded in 1974 as Marmot Mountain Works), and Arc'teryx
(Canadian outdoor clothing and sporting goods firm , founded in North Vancouver, British Columbia in 1989).
Bonobos.com
•Acquired by Walmart on June16th, 2017

•Its an e-commerce firm located in NYC which designs and sells men’s clothing .
Parcel.com
•Acquired by Walmart in September 2017.

•Parcel is one of a kind New York based delivery service (24/7) that uses routing algorithms to sort, load and deliver
package to customers.
•Parcel exposes the ‘Parcel API’ and its easy integration with RESTful API is quick and orders can be created in JSON and
send over using https protocol and the order window response by Parcel will be returned in form of JSON which can be
easily used and applied by the websites and application with minimal changes at their end.
•Parcel have their own employees based workforce and fleet of vehicles (mostly leased). The strategy is to use this
service to better the experience and to deliver and the regular goods and grocery (from both Walmart and jet.com) to
the customer on the same day or as per their convenience.
•Parcel has very unique design which allows them to offer their services generically to any website or application intend
to offer the delivery of their products in NYC.
Flipkart.com
•Acquired by Walmart in May 10th 2018, Flipkart is an Indian electronic commerce company based in Bengaluru, India
(with its subsidiaries Myntra.com and Jabong.com) for 16 billion dollars, making it the world’s biggest ecommerce deal.
•This is Walmart’s step towards beating Amazon in Asian markets by targeting Indian customers.
•Flipkart has already been working with Data Scientists on creating Machine Learning based models to optimize the
address classification and eliminating the fraudulent addresses, optimizing the logistics and delivery time of the
products.
•Flipkart uses eLoc (based on digital mapping and deep mapping technology) for solving last-mile logistics. With this
solution, they are able to resolve the inconsistencies and identify the correct address with 98% accuracy rate.
Figure 1: Timeline for e-commerce based acquisitions by Walmart

Shoe.com
Modcloth.com
Hayneedle.com
Jet.com
Parcel.com Moosejaw.com
Walmart.com
Myntra.com
Flipkart.com
Bonobos.com
Jabong.com
Figure 2: Walmart’s net of e-commerce acquisition
With all these e-commerce acquisitions, how is Walmart’s going to make sense of it all? The
answer is WalmartLabs. WalmartLabs is premier retail research lab where they are
uncovering various innovations on retail to revolutionize Walmart’s approach towards
digital commerce.
1. Platform developed around Performance Ad, displaying contextual and targeted
product advertisement to the customers, their teams are working with Data
Scientists and Researchers to develop prototypes, proof of concepts and implement
data models for improving monetization for Walmart and enhancing the online
shopping experience.
2. Walmart has huge inventories, retail warehouses and therefore they are rich in
customer data. Using ML algorithms they have developed model for logistics and
warehouse stocking which optimizes the process of stocking the goods and maintain
the inventories. They’ll be able to predict customer’s demand triggered by events
such as natural disasters (hurricane/ blizzards), elections or Christmas. Using these
algorithms they can stock the products expected to be in demand, maintain their
inventories and can meeting the expectations of the customers.
3. Product Matching in e-commerce applications using deep learning.
Deep neural networks and image recognition is used for identifying products from
their image and using the same logic, similar products can be identified and
suggested to customer pertaining to massive technological advancement. These

algorithms are also used in identifying the facial expressions and classifying the
mood/emotion.
These series of e-commerce acquisition has helped Walmart to grow in retail market. With
majority customer base as millennials, Walmart’s target is to compete with existing online
giants by creating an online ecosystem offering competitive prices for various range of
products and fast delivery /pickup services for customers. With their current financial
framework of strategic capital investment, operating discipline and efficient growth, their
goal is to spend money wisely, to invest in e-commerce, technology and increase revenue,
which will lead them to offer and sell the products at lowest prices to their customers
resulting in a win-win.
PARADIGM SHIFT IN E-COMMERCE

E-commerce industry has brought paradigm shift in the business community and the coming
times looks ever promising. The idea is to make the experience time-efficient, secure and
optimized for both producers and customers without compromising the quality. Creating
models, identifying trends using Machine Learning brings significant promise to the future
of e-commerce.
CUSTOMER TRAFFIC/CLICK RATE

We all get the marketing e-
mails/calls with a link
suggesting a product, which
could be new or created
around our
purchase/browsing history.
Based upon our requirement,
we take the action (click/not
click) and when the link is clicked, the response gets recorded. This scenario aids the e-
commerce firm to gather their customer click rate numbers, also abbreviated as CTR (Click
through ratio).

CTR
Click through ratio is the ratio of ‘total number of
customers who clicked the link’ to ‘total number of
impressions (people who saw the link, includes both
clicked and non-clicked)’and is a useful parameters in
identifying the products for customer considering
personalization and is also used to measure the success of
an advertisement campaign.
High CTR indicates relevancy and trend of the
product/subject under the lens although it’s not the sole
parameter to determine the success of a campaign.
CTR is a recursive process and proper keywords and
responses increases the accuracy of product
recommendation.
Figure 3: Click Through Ratio (CTR)
Abnormal percentage change in CTR explains a new phenomenon (addition of a new

variable in the demographics of the campaign or vice versa) and hence the change in
strategy as per the new output and meeting the requirements.
Customer Traffic Rate Customer Click Rate Conversion Ratio
• Total number of • Customer Click Rate is • Conversion ratio is the

customers who visited the ratio of ‘number percentage of total
the e-commerce of clicks” to ‘number number of actions
website at a particular of impressions” for a completed out of the
time. particular online total number of
• Customer traffic rate campaign. visitors on an e-
helps in analyzing the commerce website or
customer behavior, application.
effect of a promotion
or change in pattern
of inflow of customers
due to external
factors, affecting the
overall sales.

Figure 4: Comparison of Customer Traffic Rate, Customer Click Rate and Conversion Ratio
Customer traffic, Conversion Ratio and CTR are correlated and helps in collecting intelligent
information which can be used to create products as per the demand. Collected data is used
to develop training data for machine learning models and new patterns can be identified.
Better the training data, better classifier can be developed and hence the consistent
patterns leading to better predictions. These patterns could be next coming of age
phenomena which will help in creating/offering better products and ending the ones which
are not required anymore, the redundant ones.
CUSTOMER CHURN ANALYSIS
Customer Churn is defined as the number of customers who have left their current e-
commerce platform (unsubscribed from the e-mail list, deleted the mobile app) and moved
on looking for better/new platforms. In this age where offering are in form of SaaS, it’s very
crucial for an e-commerce platform to retain their customers as getting new customers can
be multiple times costly, compared to retaining the existing ones.
•Customer dissatisfaction, it could be related to a bad customer service ,

defective product, or unpleasant experience while doing online shopping.
•Transactions not going fine properly, multiple failures, all mode of payments
were not offered.
•Security of customer data was not taken care of. Spams and privacy issues
• Bad delivery/return Service, Customer's time/preferance not respected.

Figure5: Basic reasons of customer churn
The idea is to identify the need of the customer on a regular basis, meeting the expectations
and taking constant/ recursive feedback until the issue is resolved. This can be done by
better customer service, marketing campaign, or in some cases dispensations as well. For an
e-commerce platform, Customer Churn Analysis can be complex, although a subscription
based model eases the complexity for data scientist.
The number of inactive users can be identified and can be offered incentives to create
interest and hence the activity.
The users are active but not purchasing anything for a long time. Gift-
Vouchers/’crediting mobile wallets with amount’ can be offered in such scenarios
along with suggestion of personalized products.
Attempt to add new customers can be done using reference model, where the
mobile-wallet gets credited with the gift amount (for both referrer and new
customer) as soon as referred customer registers/subscribe.
24/7 Customer Service for the better experience in future, to implement the changes and
meeting the expectations. Using crowdsourcing for new ideas and identifying the trends.
Figure 6: Churn Analysis Application aspects and benefits.
In today’s fast-paced word, customers are impatient, impulsive and needs to be gratified. If
it’s too late and the customer has already made up their mind to move on, may result in an
increase in customer attrition rate. To be in good books, ‘customer vulnerability’ should be
taken care of by developing the platform adhering to local as well as global standards and
policies. Using ML, solutions can be automated as a part of business flow using ‘Churn
Analysis’ output.
Figure7: Template explaining basic building block of Churn Analysis.
Machine learning identifies the customer behavior and suggests about red-flags/good-
things about the product. Solutions can be created/modified after studying the attrition
specific patterns, and further development can be suggested based upon the richness of
data.

IMPLICATIONS OF ECONOMIC CONDITIONS AND COMPETITION
 ML advantage to producer , can be able to sell as per cust need

 Advantages in Supply
 Myntra – Reducing production

Competition ?
 Price discrimination & Game theory

CONCLUSION
Machine Learning in e-commerce has an impact at the microeconomic level of retail,
wholesale and labour market transactions which will have an enormous impact on the
performance of companies and the economic welfare of consumers and the labourer. This
gains in efficiency and economic benefits at the microeconomic level will affect the Macro
was well as the social economic behaviours of the society.
Appendix
Information economics
Machine Learning will help in reduction of the asymmetry information which will lead to
reduce in transaction cost especially on the information transaction cost as the cost of
actionable information currently used by consumer survey and other methods are costly
and are not able to provide the full picture of the need and demand of the society.
Individual /Consumer and market demand

Consumer preferences will be marked, and information will help to come to the right
preference of the consumer, which will reduce the time to shop/buy a product which will be
helpful for consumer to utilise the time in any other activity

Industry/ Producer
Machine Learning will help organization/companies to act accordingly to serve the
customers even they can come up with right signalling like warranty/guarantee if people are
not taking some brand or product. PA problem which arises due to asymmetry will be
reduced as organisation can set the right correct capacities and wages and incentive can set
accordingly
Government
Government will be able to form right policy for taxing so that the burden on the taxes falls
from most of the buyers as they will also have the required information so that government
can work on the right tax levels (VAT, GST etc.) and subsidies on the required items for the
common people overall there can be reduction of price control from government or concern
agency not to get too involved in policing than to form right policy framework.
MOBILE ANALYTICS Appendix:
Behavioural economics:
It will help industry to understand the pattern of the demand and the need of the people at
the right time and which will help industry to be better prepared for the future demand and
changes that are needed in their product portfolio
Consumer will also benefit as the demand for the product is delivered in time and which will
ultimately lead to reduction in cost and time to get on demand product.
Uncertainty and consumer behaviour
Consumers will not part way with the product /service if they are able to get that at the
right price else due to substitution effect demands my shift to other product which will be
counterproductive for the supplier/producer.
SUPPLY CHAIN MANAGEMENT Appendix:
Supply and demand

With the use of ML there can be reduction in the arbitrage in the market i.e. the assumption
of the perfectly competitive market could be closer to become a reality, Supply and demand
gap will be reduced as we will have right demand which we can provide to the suppliers /
produces so that there is no gap in the demand and supply which will help companies to run
the business at optimal level with winning strategy for long term survival and the right price
will result in economic equilibrium
Cost of production: Producer

Cost of production will come down if the right information is passed in the right time to the
producers which will help them to have supply /output with help of setting all their factors
of production in the right mix

As the demand will met with the predictive and other methods consumer will be happy to
get the required product in time and at the right price
Welfare economics:
Cost–benefit analysis can be performed better by the organization and it will lead to
forming a better policy framework by government based on the trending analysis with the
right set of information market failure will not occur which will reduce the burden on the
society, even to an extent externality like pollution can be reduce by right supply chain and
for reducing the market inefficiencies
Income:
Profit maximization for an organization /producer
Since the organisation will have the demand which is as per the consumer need they can
maximise their return by running as efficiently as per the demand
Labour Wage
Since the plant might be running efficiently there will not be too much discrimination in the
wages of the management and labour as the wages determined will be as per the market
demand Skills and Substitution effect on the employment will be reduced

References:
https://www.thestreet.com/story/14398943/1/walmart-not-one-dealmaking-says-ceo.html
https://economictimes.indiatimes.com/industry/services/retail/softbank-ceo-confirms-walmart-
flipkart-deal/articleshow/64093437.cms
http://www.therobinreport.com/walmart-jet-com-can-crush-amazon/
https://www.adweek.com/digital/walmarts-ecommerce-ceo-explains-why-its-many-acquisitions-
will-help-it-reach-millennials/
https://stories.flipkart.com/ai-ml-flipkart-indian-address/
https://www.fromparcel.com/developer/api/docs
https://medium.com/walmartlabs/product-matching-in-ecommerce-4f19b6aebaca
http://ilfstechnologies.com/wp-content/uploads/2018/01/customerchurn.png
https://gallery.azure.ai/Collection/Retail-Customer-Churn-Prediction-Template-1
https://towardsdatascience.com/churn-prediction-with-machine-learning-e6612cd5538f
https://insideretail.asia/2017/06/07/how-alibaba-uses-artificial-intelligence-to-change-the-way-we-
shop/
https://www.azoyagroup.com/blog/view/retail-tech-innovation-in-china-new-retail-smart-supply-
chain-ai/
http://wps.prenhall.com/bp_turban_ec_2012/207/53241/13629779.cw/content/index.html
https://www.digitalcommerce360.com/article/us-ecommerce-sales/
http://altitudelabs.com/blog/amazon-product-recommendation-engine/
https://www.martechadvisor.com/articles/customer-experience-2/recommendation-engines-how-
amazon-and-netflix-are-winning-the-personalization-battle/
https://blog.wiser.com/modern-guide-assortment-optimization/
https://www.nchannel.com/blog/ecommerce-merchandising-strategy/
https://www.cgsinc.com/blog/what-assortment-planning
https://www.digitalcommerce360.com/2017/08/09/e-commerce-grow-17-us-retail-sales-2022/
https://www.abetterlemonadestand.com/ecommerce-chatbots/
https://suyati.com/blog/chatbots-retail-marketing-future/
https://suyati.com/blog/hdfc-bank-introduces-chatbot-banking-niki-ai/
https://suyati.com/blog/machine-learning-helps-ecommerce-taxonomies/
https://www.abetterlemonadestand.com/ecommerce-chatbots/
http://www.parkeravery.com/pov_Fashion_vs_Basic_Assortment_Planning.html
https://www.smartrmail.com/blog/3-ways-to-achieve-amazon-like-sales-growth-with-product-
recommendations/
http://inspirationfeed.com/dynamic-content-the-secret-ingredient-for-email-marketing/impact-of-
recommendation-engine-on-amazon-and-netflix-3/
https://www.livemint.com/Companies/tchtq74FOkMM43szMIHh0M/At-Myntra-machines-tell-
designers-how-to-make-clothes.html
1.https://www.livemint.com/Companies/tchtq74FOkMM43szMIHh0M/At-Myntra-machines-tell-
2.https://www.livemint.com/Companies/tchtq74FOkMM43szMIHh0M/At-Myntra-machines-tell-
Books and Reports:

Gartner Studies: Market Guide for Digital Commerce Search, Published: 12 January 2017 ID:
G00311302
2017_Internet_Retailer_Top_500_Report

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Machine Learning in Ecommerce Applications

MANAGERIAL ECONOMICS PROJECT REPORT

Machine Learning in E commerce applications

Anshu Singh [1816057]

Group # 12 / PGPEM 2018

GROUP # 12 PGPEM 2018 1

Few areas of applications are –

 Customer Segmentation - Attributes of a customer by revenues-

 Supply Chain Management – Inventory Planning, Logistics optimization, Production

GROUP # 12 PGPEM 2018 2

 Promotional Planning – Build promotion recommendation engines, target

 Cost Optimization – Optimization of different costs as labour cost, inventory cost,

 Customer Acquisitions and Customer retention strategies- Marketing strategies,

Applications of machine learning in e-commerce industry

CUSTOMER BEHAVIOR AND SEGMENTATION

1. Content and Experience Customization:

2. Cross- sell, re-target, build loyalty:

3. Predict Future Trends:

GROUP # 12 PGPEM 2018 3

ASSORTMENT PLANNING AND MERCHANDISING

Fashion v/s Basic Product Planning [ref]

PROMOTION RECOMMENDATION ENGINE

GROUP # 12 PGPEM 2018 4

This section is particularly focussed on interpreting promotion strategies in ecommerce

GROUP # 12 PGPEM 2018 5

GROUP # 12 PGPEM 2018 6

Analysing customer behaviour on Mobile Platform helps e-commerce firms in enhancing

GROUP # 12 PGPEM 2018 7

Search for a Product

GEO Fencing / Awareness Multiple Personas

Identify the User

Other Benefits of ML and Smartphones

Product Description Summarization

GROUP # 12 PGPEM 2018 8

GROUP # 12 PGPEM 2018 9

To summarize, Machine Learning is the heart of promotional recommendation engines.

PRODUCT DEVELOPMENT AND DESIGN

For instance, an AI-based platform, Shimon, developed at the Georgia Institute of

GROUP # 12 PGPEM 2018 10

SUPPLY CHAIN MANAGEMENT

Supply Chain management is the management of movement of goods/raw material from

Key activities of Supply Chain in e-commerce consist of following functions:

1. Supply Chain Replenishment: Integrated Production ,distribution and procurement

Key challenges in supply chain of e-commerce businesses include:

GROUP # 12 PGPEM 2018 11

CASE STUDIES IN E-COMMERCE INDUSTRY

MYNTRA- ASSORTMENT PLANNING

 How data gathering works for Myntra design creation :

GROUP # 12 PGPEM 2018 12

GROUP # 12 PGPEM 2018 13

GROUP # 12 PGPEM 2018 14

AMAZON- PRODUCT RECOMMENDER

GROUP # 12 PGPEM 2018 15

Possible Reasons of Amazon’s success

Amazon Onsite Recommendations features such as “Recommended for you”, “Frequently

GROUP # 12 PGPEM 2018 16

Holistically, recommendation engine is an effective way of creating a personalized shopping

ALIBABA SMART SUPPLY CHAIN (ASSC)

GROUP # 12 PGPEM 2018 17

HDFC - CONVERSATIONAL BANKING WITH CHATBOT

GROUP # 12 PGPEM 2018 18

WALMART- GLOBAL CUSTOMER ACQUISTIONS

GROUP # 12 PGPEM 2018 19

•Acquired by Walmart on February 15th, 2017