How AI improves customer loyalty through personalization

Darko Marjanovic | 06. 03. 2023.

How AI improves customer loyalty through personalization

In today’s highly competitive business environment, companies must do everything to build and maintain customer loyalty. 

One of the most effective ways to achieve this is through personalization – which leverages customer data and technology to deliver unique, tailored experiences to each customer. 

Moreover, Artificial Intelligence (AI) has emerged as the key tool in helping companies achieve this, enabling them to gain deeper insights into customer behavior and preferences to deliver highly targeted experiences that improve customer engagement and loyalty.

Stay tuned as we:

  • Define and understand customer loyalty, 
  • Find out why personalization is important for customer loyalty, and 
  • Explain how AI can improve your personalization efforts.

Understanding customer loyalty

Customer loyalty, a cornerstone of business success, is defined as the constant commitment and preference that customers express toward your brand or company. 

It’s probably the most important metric that reflects the strength of the relationship between your business and your customers. 

What’s interesting is that this loyalty goes beyond mere transactional interactions – it stands for an emotional connection and a sense of trust that customers develop over time. 

Several key factors contribute to better customer loyalty. 

First and foremost, the quality of your products and services plays a pivotal role in shaping customer perceptions and fostering loyalty. Consistently delivering products and services that meet or exceed customer expectations allows you to establish a strong foundation to build upon.  

Secondly, customer experience (every interaction a customer has with your brand) significantly influences their loyalty. Continuous positive experiences, from initial interaction to post-purchase support, create a sense of value and satisfaction that encourages customers to keep coming back for more. 

Finally, personalization has become a key differentiator in today’s crowded marketplace. Personalization can take many forms, from targeted email campaigns and product recommendations to personalized offers and promotions, and has been shown to drive customer engagement, satisfaction, and loyalty.

Let’s explore the importance of personalization a bit further. 

Why is personalization important for customer loyalty?

According to a McKinsey report, 76% of consumers say they’re more likely to purchase from brands that invest in personalization. 

Moreover, about 71% of consumers expect businesses to deliver personalized interactions. And 76% aren’t happy when this doesn’t happen.

But when done properly, AI-powered personalization helps you foster a stronger emotional connection with your customers. Making your customers feel understood, valued, and catered to on an individual level increases the chances of them developing a sense of loyalty and attachment to your brand. 

Here’s how some world-known brands did it. 

Examples of companies successfully using AI for personalization

A recent report by Twilio Segment revealed that about 92% of companies are using AI-driven personalization to provide personalized customer experiences and drive growth. 

Among others, companies relying on personalization include Amazon, Netflix, and Spotify. 

Amazon | Product recommendations

As a multinational technology company, Amazon operates a renowned online marketplace and subscription services. Their personalization strategy stands out for streamlining product discovery through personalized recommendations. 

This is where deep learning helps Amazon keep delivering personalized products to its customers. The platform analyzes which product(s) a customer is likely to buy next, based on the ones they viewed, bought, rated, and reviewed. Then it goes on to recommend the same to them while they’re there on the site or when they log in again. 

Netflix | Content suggestions

A leading on-demand streaming service, Netflix can pride itself on a vast collection of TV shows and movies accessible on various devices. Their AI-driven recommendation engine suggests content based on viewing history, continually improving accuracy. 

Additionally, Netflix is very fond of A/B testing – they perform about 250 A/B tests every year. These tests involve delivering different user experiences to about 100,000 users on average and observing reactions to changes. 

Thanks to this approach, the personalized experiences the platform keeps on delivering are based on data from these tests rather than personal opinions.

Spotify | Personalized playlists

A world-known music streaming platform, Spotify boasts a tremendous collection of songs, podcasts, and videos. According to recent data, the platform numbers about 515 million monthly active users across 178 countries. It also offers about 70 million tracks and 2.2 million podcasts.  

Moreover, Spotify’s Reinforcement Learning model tries to predict how satisfied its users are with their current experience. Then it tries to push them toward consuming more fulfilling content to make them happier with their service. 

In other words, Spotify is all about delivering a more sustainable, diverse, and fulfilling experience in the long run and not about satisfying their customer’s instant desires. 

How does AI help with personalization?

AI-powered personalization requires you to analyze a large amount of customer data and gain insights into customer behavior and preferences. 

Thanks to machine learning algorithms and natural language processing (NLP) technologies you can do not only that, but also understand which products, services, and experiences are most likely to appeal to each consumer.  

When you know that, you can deliver targeted messages, offers, and promotions that are most relevant to your customers’ needs.

Some of the data AI can analyze to provide a more personalized experience to your customers include: 

  • Purchase history, 
  • Browsing behavior, 
  • Search history, and 
  • Interactions with your website or mobile app. 

Based on this information, you can also identify areas for further improvement and take your personalization to the next level. 

The benefits of AI-powered personalization

For about 64% of organizations, personalization is a top business priority in 2023. 

Hopefully, your company is among them, too. If not, you should consider the benefits of embracing AI-powered personalization efforts for your business. 

Let’s do it now. 

Increased customer engagement 

According to Segment’s State of Personalization 2021 Report, more and more customers want a personalized and consistent customer experience across multiple channels, both physical and digital. 

At the root of better customer engagement is your ability to understand your customer’s needs and show them you can deliver whatever they need – a personalized experience. 

When you consistently show your customers that you care for them, you’ll enjoy their engagement and loyalty in the long run. 

And we all know what this stands for – a higher likelihood of repeat purchases.

Improved customer satisfaction

The 2021 Customer Data Platform Report found that companies that prioritize personalization see a 17% increase in customer satisfaction. 

Keeping your customers happy and satisfied should be your top priority. Here’s how to do that with the help of AI-powered personalization: 

  • More customized recommendations: By using machine learning algorithms to analyze customer data and behavior, companies can provide tailored recommendations that are more likely to resonate with individual customers.
  • Quicker and more efficient service: With chatbots and other AI-powered tools, you can provide fast and accurate service to customers, which can lead to higher levels of satisfaction.
  • Improved product and service offers: By analyzing customer data, you can gain insights into what customers want and need. You can use that data to inform the development of new products or services that better meet those needs.
  • More effective communication: Through AI-powered chatbots and other tools, you can communicate with customers in a more personalized and effective way, which can help build stronger relationships and increase satisfaction.

Thanks to AI-powered personalization, you can deliver unique, tailored experiences to each customer and keep your customers happy and loyal.  

Increased sales and revenue

One of the main reasons for including personalization is increasing conversions.

Personalization has proven to drive sales growth and increase revenue, as customers are more likely to make a purchase when they receive targeted, relevant offers and promotions.

In fact, about 90% of leading marketers say personalization significantly contributes to business profitability. 

Let’s take a look at more data about how personalization affects sales and revenue: 

  • According to the Next in Personalization 2021 Report, the better businesses use data to increase customer knowledge and intimacy, the higher their return. Personalization often results in a 10 to 15% increase in revenue. 
  • Businesses that rely on advanced personalization see a better return on investment – they get $20 for every $1 invested.  

Overall, coming up with a detailed personalization strategy for your business can significantly improve your sales and revenue in the long run. Are you ready to embrace it? 

Better customer understanding

With AI-powered personalization, you can gain a deeper understanding of your customers, which can be used to inform future business decisions and deliver even more effective and personalized experiences.

A 2022 Accenture survey found that 75% of consumers are more likely to buy from a retailer that offers a personalized experience, and that personalization can drive customer loyalty by up to 15%.

Working with diverse clients, Things Solver has witnessed the immense benefits of using personalization to better understand customers. 

For example, about 20% of consumers are the so-called “standard” consumers, just below the level of loyal customers. 

Let’s say that personalization manages to turn 15% of standard consumers into loyal consumers. For a client with 50k active customers, this would mean the following: 

  • 1.5k customers become more loyal, which translates to an additional purchase per month. 
  • If they spend about 30 euros on average, that means an annual increase in sales of 450k euros.

As you can see, embracing machine learning and AI to boost personalization is a great way to help your clients deliver better experiences to their customers and keep them close.

AI-powered personalization is essential for building customer loyalty 

Personalization is a critical tool in building customer loyalty and improving customer engagement, but AI is the key enabler in helping you achieve this. 

By using AI strategies to analyze customer data and deliver highly targeted experiences, you can build stronger relationships with your customers, increase customer satisfaction and loyalty, and drive sales growth. 

In an increasingly competitive business environment, companies that prioritize personalization and invest in AI technology are well-positioned to succeed in the long term.