eCommerce Product Categorization – Everything You Need to Know

eCommerce Product Categorization can break or make your online business, especially if you are selling diverse products! 

While a confusing product catalog makes customers flee, a strategic organization improves product discoverability and turns your large-scale catalog into a profit-driving machine. 

Many eCommerce companies now use AI tools (like machine learning) to automate effective product categorization. While manual categorization can drain valuable time, Product Taxonomy- a machine-assisted AI classification method optimizes your product structure for maximum sales impact. 

Let’s understand everything in detail in this article:

eCommerce Product Categorization in Simple Terms

eCommerce Product Categorization is a method of organizing an eCommerce store into easy-to-browse product categories. 

You can compare it with a physical store that has aisles for “Electronics,” “Clothing,” or “Home Decor.” Product classification helps customers quickly find what they’re looking for. 

It further enhances the shopping experience and boosts the conversion rate for eCommerce companies. In the next section, we will talk about how products are categorized on eCommerce.

e-Commerce Product Categorization and Taxonomy: A Strategic Framework

While eCommerce product categorization means sorting products into categories, Product Taxonomy is the “rulebook” for how intuitive categories are structured. 

More specifically, Taxonomy Product Categorization is the systematic assignment of items to hierarchical classes. 

Here’s why it matters:

Small online shops (e.g., an eCommerce site selling niche products like handmade soaps) don’t need complex product organization. 

On the other hand, Large retailers (e.g., Amazon or Walmart) must organize thousands of products logically in multiple categories. Here’s a product categorization example:

• Categories: “Men’s Shoes” > Subcategories: “Sneakers,” “Boots,” “Sandals.”
  

Large stores sell various eCommerce product types. Product hierarchy creates a large-scale text classification task that follows a tree structure with 3-5 levels of depth. 

Product taxonomy is the overarching structure that dictates the arrangement of different categories and subcategories. This ensures logical progression from broad to granular product range  (e.g., “Electronics > Smartphones > iPhone 15”). 

A well-organized product taxonomy includes:

Why is AI Product Categorization Important and How Does it Work?

Product taxonomy allows customers to have a more streamlined shopping experience that product pages alone can not deliver. Let’s take a quick look at how AI eCommerce product categorization makes a huge difference-

Targeted Searchability Improves User Experience

First of all, proper product categorization enables faceted search (filtering by price/brand) and semantic search (finding “athleisure” when typing “yoga pants”). 

It also optimizes your eCommerce platform for a user-centric design. Plus, it helps with search engine optimization as Google prioritizes sites with structured data markup (Schema.org) in category pages.

Retailers with Optimized Taxonomies See 30% Higher Add-To-Cart Rates.

AI product categorization powers PIM systems (Product Information Management) and AI-driven product recommendations. It also mirrors a buyer’s psychology models for better operational efficiency. 

For example, if customers click any product, the e-commerce site will also show related or similar products that may interest them (e.g., showing a Workout Gear for recommendation while the customer is viewing Athletic Apparel). 

In short, the future of e-commerce annotation simply belongs to multimodal AI that aims to boost the shopping experience of customers.

Product Categorization Improves Operational Scalability

For efficient Dynamic Tagging, AI eCommerce product categorization uses Natural Language Processing algorithms to auto-classify new products or SKUs (e.g., tagging “Air Fryers” under “Small Appliances”). It also cross-links the product catalogs by connecting related product pages. 

Clearly, Taxonomy Product Categorization is a core CX strategy, not just a backend task. It is the ultimate information architecture for an eCommerce business that drives discoverability, conversions, and operational scalability. 

Need help mapping your taxonomy dataset? Get Data annotation services for eCommerce from Annotation Box!

Steps to Categorize Products to Improve the Navigation of the eCommerce Store

Now that you have a fair idea of what eCommerce Product Categorization is, it’s time to categorize your products based on the rules so that your customers find whatever they are looking for without any confusion:

Gather All Product Info

Start by collecting key details like brand, size, material, color, and other important product attributes. If you’re missing detailed product information, ask your suppliers. 

For eCommerce product data classification, make use of the PIM system to centralize and analyze data. It automates tasks like organizing, updating, and managing product data. 

Create Product Categories That Make Sense for Customers

Take a moment to sketch out which Taxonomy structure would be best for your product organization section. Start by thinking like your customers. What would make it easy for them to browse and find what they need? Building a foundation for your product categories can get tricky if you have a large inventory. 

To keep things simple and user-friendly, follow these tips:

• Explore popular eCommerce sites to see how they structure their categories
  
• Don’t overdo it with hyper-specific categories (a huge number of categories can overwhelm shoppers)
• Test your store’s navigation yourself to see if your current layout makes sense.
• Use clear, straightforward names for product categories.

Use Keyword Research

Using keywords in your categories and descriptions can boost your Google product searchability by boosting discoverability beyond the e-store. 

Tools like Google Keyword Planner, Ahrefs, or SEMRush can help you pick the best keywords based on search trends. Place them naturally in both the product description and the product title. 

Organize Your Products Based on Customer Behavior

Using shopper behavior, like past purchases and browsing habits, to organize your product categories can significantly boost your revenue. 

Data from over 10,000 eCommerce stores shows that behavior-based eCommerce Product Categorization can increase sales by up to 10%. 

For example, you can create special categories like “Best Sellers” or“Top 10s”. 

Keep Evolving Your Categories

If you are thinking, “How can I make the categorization process more efficient?”, then regularly update your categories to reflect new trends and data. 

Why? Because your customers’ behavior changes over time. Also, add attributes (like color, size), add facets (like fabric type, cut, or style) and and values (Red, 8, etc.) to let customers filter results even more precisely. 

Also, creating a category tree makes it easier for customers to browse a large catalog. AI product categorization uses NLP to automate this at scale. 

Also, avoid clutter. While new products might need new categories, it’s okay to merge or remove old ones to keep navigation smooth.

Use Data De-Identification for Ethical Product Categorization

Data de-identification (the process of removing or obscuring personally identifiable information from datasets) plays a vital role in ethical product categorization, especially when using customer behavior data to optimize taxonomies. 

The benefits of data de-identification include smarter, privacy-compliant eCommerce product categorization. 

Example Workflow:

Raw Data → De-Identification → Behavior Analysis → Category Optimization  

Here’s how they intersect:

1. Protecting user data while deriving insights. (e.g., “Frequently Bought Together” or “Recommended for You” relies on user data like purchase history or browsing patterns.)

2. Ensuring AI-driven taxonomy tools adhere to GDPR, CCPA, and other privacy laws.

3. Maintaining trust through ethical data use. (Anonymizing user IDs before analysis. Aggregating data to identify trends without exposing individual behavior.)

Best Practices for eCommerce Product Categorization

• Geo-target categories: Advanced store localization or geo helps you hide or show products based on the customer’s location.
• Avoid “Other”: Don’t confuse customers with vague categories for products. Place products where they best fit and use keywords to support discoverability.
• Limit to one product category: Unless it’s a special collection (e.g., Best Sellers or Holiday Gifts), stick to one category per product.
• Make categories distinct: Don’t create duplicates like “Athletic Wear” and “Sportswear.” Pick one and stick with it.
• Stay on-brand, but stay clear: Make sure product names and descriptions are both easy to understand and aligned with your brand voice. Balance clarity and tone like ASOS product descriptions do.
• Add a quiz: Interactive content like branded product quizzes allows customers to find the right products.

Conclusion

Hopefully, everything you need to know about eCommerce Product Categorization is explained in this article in the simplest way possible. 

From the technicalities of Taxinomy eCommerce product data classification to steps to categorize products to best practices to follow- everything has been outlined so that you can launch your eCommerce business aiming for big-level success. 

If you need help with AI model training for effective classification, AnnotationBox offers an e-commerce categorization annotation service. Need value-driven Datasets? Contact us today to discuss your projects with our team of expert annotators and data labellers.