The idea is to collect and analyse quantities of information to understand consumer tastes, recommend products to people and personalise websites for customers. Otto’s work stands out because it is already automating business decisions that go beyond customer management. The most important is trying to lower returns of products, which cost the firm millions of euros a year.
Its conventional data analysis showed that customers were less likely to return merchandise if it arrived within two days. Anything longer spelled trouble: a customer might spot the product in a shop for one euro less and buy it, forcing Otto to forgo the sale and eat the shipping costs.
But customers also dislike multiple shipments; they prefer to receive everything at once. Since Otto sells merchandise from other brands, and does not stock those goods itself, it is hard to avoid one of the two evils: shipping delays until all the orders are ready for fulfilment, or lots of boxes arriving at different times.
The AI system has proved so reliable—it predicts with 90% accuracy what will be sold within 30 days—that Otto allows it automatically to purchase around 200,000 items a month from third-party brands with no human intervention.
Overall, the surplus stock that Otto must hold has declined by a fifth. The new AI system has reduced product returns by more than 2m items a year.