Nowadays e-commerce and retail businesses use different techniques and channels to promote shops and goods. Most of them keep the focus on advertisement. In fact, relevant product recommendations can not only increase revenue but also can have positive effects on the user experience.

In this article we want to review product recommendation engines for e-commerce. How do they work work? What value can they bring to a business? How can recommendations boost sales and marketing? What filters can be used? It may be relevant not only for e-commerce business owners, but also for sales analysts, business analysts and marketing managers.

What is a product recommendation?

A product recommendation is a filtering system that tries to foresee and show the goods that a user may likely buy. Almost every person has seen such a recommendation while doing online shopping: when you view or add an item to your basket, you can see suggestions like "you may also like these products". Sometimes it can show inaccurate suggestions and become annoying for you. However, if it shows an appropriate item, it becomes a win-win situation where a client receives a needed product and a shop increases a revenue.

Product recommendations engine for E-commerce: how does it work and how to implement it

In offline shops, you may meet a shop-assistant who is responsible for the customer satisfaction and for the company's upsales. E-commerce businesses don't have the benefit of having a friendly sales manager to assist your client with each step of their shopping journey. In online stores this role is done by AI algorithms, that create recommendation systems for each client.

Recommender systems have become increasingly popular in the past few years. Nowadays they are implemented in various industries: filming, music streaming services, news platforms, bookstores and online libraries, research articles, and of course in E-commerce businesses. They can work as generators of playlists for video and music services like Netflix, YouTube or Spotify, product recommenders for services such as Amazon or AliExpress, or content recommenders for social media such as Facebook and Instagram. Mostly used in the digital domain, the majority of today's E-commerce websites like eBay, Amazon, Alibaba make use of their recommender systems for serving the customers better with the products they may need.

The recommender systems work in the following way:

• Collection of data (transactional, historical data of users, purchases etc.)
  
• Pre-processing the data
  
• Analyzing the data
  
• Filtering the data
  

In most cases for e-commerce businesses, product recommendations are made directly on the website while purchasing. Also, it can be done through email campaigns or on advertising banners. With advanced software, you can get more accurate predictions. As a result, the best e-commerce recommendation systems will have a significant impact on the conversion rate, sales flow and increase revenue.

What are the types of recommendation systems?

A product recommendation system is a software or a tool. Usually, it's based on various machine learning algorithms that are used to conduct the data filtering process. There are a few different types of recommendation systems. Let's review some of them:

• Collaborative filtering.
  ‍Collaborative filtering is based on the opinion that people who decided to make a purchase in the past will decide in the future, and that they will likely prefer similar kinds of items as they did in the past. The system generates recommendations using data about rating profiles for different users or goods.
  
  The collaborative filtering approach has lots of advantages. One of them is that it is capable of accurately recommending complex items such as movies without requiring an "understanding" of the item itself. Many algorithms have been used in measuring user similarity or item similarity in recommender systems.
  
  Further, there are several types of collaborative filtering algorithms:
  
  - User-User Collaborative Filtering
  - Item-Based Collaborative Filtering
  - Other simpler algorithms
  
  Although the collaborative filtering method is clear enough, there may be some problems while implementing it. For example, a cold start can be an issue. For a new user or item, there isn't enough historical data to make accurate recommendations. There may be an issue of a product cold start or user cold start. The user cold start problem occurs when new users enter a website or app for the first time and the system has no information about them or their preferences. In this case, the system fails to recommend anything. Similarly for new products, as they have no reviews, likes, clicks, or other interactions among users, so no recommendations can be made.
  
  One of the methods to deal with the issue is to recommend trending products to the new customer in the early stages. Here the selection can be narrowed down based on contextual information – their location, which site the visitor came from, a device used, etc. Behavioral information will be collected after a few clicks during that first visit, and start to build up from there.
  
  Another way to deal with the problem of the cold start is by using metadata about the new product when creating recommendations.
  

• Content-based filtering
  Content-based filtering is another approach for recommendation systems. This filtering method is based on a description of the product and information from the users' profile. Content-based system's algorithms recommend products that are similar to the ones that a user has interacted with some time ago. The main idea of this kind of system is that if you like some product you will also like a 'similar' product.
  
  To create a user profile, the system mostly focused on two types of information:
  
  1. A model of the user's preference.
  2. A history of the user's interaction with the recommender system.
  
  Content-based filtering has issues in serving, too. If the system is able to learn user preferences from users' actions regarding one content source, it will use them across other content types. The system has less value when it's limited to the recommended content of the same type that the user is already using. For example, recommending news articles based on browsing of news is useful, but would be much more useful when music, videos, products, discussions etc. from different services can be recommended based on news browsing. To overcome this, most content-based recommender systems now use some form of the hybrid system.
  

• Hybrid recommender systems.
  Nowadays most of the used recommender systems are hybrid. Hybrid recommender systems combine collaborative filtering, content-based filtering, and other approaches in different ways. You can make content-based and collaborative-based predictions separately and then combine them; add content-based capabilities to a collaborative-based approach, or just unify the approaches into one model.
  
  Hybrid methods usually can provide more accurate recommendations than simpler approaches. These methods can also be used to overcome some of the common problems in recommender systems such as the cold start.
  
  One of the best examples of using the hybrid recommender system is Netflix. Let's review how Netflix's recommendation engine works. Whenever you access their service, the recommendation system combines the following data to make better suggestions:
  
  - information about interactions with the service: viewing history, your ratings
  - information about other users with similar preferences
  - information about the titles, such as their genre, categories, actors, release year
  - information about the time of day user usually watch something
  - info about the devices used to watch films on Netflix
  - time that the user spends on watching something.
  

How does Amazon's recommendation system work?

Another successful usage of recommendation systems is shown by Amazon. 35% of the company's revenue is generated by the recommendation engine. There is information that the company uses to provide relevant recommendations to its customers:

• products from different categories that the client has been browsing
  
• products that were purchased by the user
  
• goods that are frequently bought together
  
• goods that similar to customers preferences
  
• goods bought by customers with similar preferences
  
• new versions of the viewed item
  
• best selling items
  

The most obvious benefit of using recommender systems is that your company can increase revenue without dramatical changes in advertisement expenses. Amazon is an inspiring example of it. Along with the revenue, you can increase the number of users and the level of their satisfaction.

How to implement a recommendation system

You need different kinds of data to create the best filtering systems and try different approaches. Recommendation systems can be easily implemented with relevant tools. If your company does not have enough storage or computation capacity to work with huge amounts of data from visitors and items in your online store, you can use cloud consider service providers.

If you're interested in implementing a product recommendation system, you can contact Datrics team. Our experts have an extensive experience in recommender systems implementation. With Datrics platform you can easily deal with analytics in different way. Platform allows user various integrations with custom visualization and accesses to API.

If you're interested in recommendation system implementation, contact our team to discuss further.