Modern Retail: Artificial intelligence in customer loyalty

In recent years, the “commercialization” of AI, advances in computing power and the constantly growing amount of available data have led to artificial intelligence becoming a key driver in digital retail. AI is opening up completely new potential, particularly in the areas of prediction and personalization, enabling retailers not only to engage customers more intensively, but also to truly retain them in the long term.

• Personalization of content and offers: The topic of “personalization” has been on retailers' minds for years as an essential centerpiece of successful, goal-oriented customer loyalty strategies. Driven by today's customer expectations of individual approach and treatment, the challenge for retailers is to meet these expectations in the best possible way - and this is where AI comes into play by analysing and linking customer data (e.g. customer preferences, purchase history, demographics) and generating personalized product recommendations and offers.

• Predicting customer behavior & needs: Another jumping off point that ultimately plays into the goal of personalization, but still needs to be explicitly highlighted, is the “prediction of customer behavior and needs”. Prediction means the ability to predict the future behavior and needs of customers based on analyzed data volumes.

As already evident, there are numerous AI applications for the future of customer loyalty. Below, we outline five of them:

1. AI-powered Customer Service:
   Virtual assistants and AI-based chatbots are revolutionizing customer service. These tools enable automated and efficient 24/7 handling of first-level support requests—such as order tracking or product recommendations—and are an effective way to address the most common customer inquiries directly. They are particularly valuable for customer loyalty, as efficient, fast, and personalized handling of customer concerns leads to higher satisfaction, especially compared to the time spent waiting on hold during a phone call.

2. Dynamic Loyalty Programs:
   Almost every retailer has some form of loyalty program. Some use systems like Payback for customer retention, while others have built entirely their own loyalty programs, which they continue to focus on and expand. With the help of AI algorithms, personalization can transform loyalty programs from rigid, points-based systems into platforms offering rewards, promotions, and discounts tailored to the target audience. This significantly increases the relevance of the loyalty program for customers, which, in turn, boosts active usage and engagement.

3. Recommendations for Alternatives & Add-ons:
   In the grocery retail sector, it often happens that certain products are out of stock. To minimize customer frustration, AI algorithms can suggest alternative products that match customers' preferences. This opportunity can also be used to highlight complementary items that would enhance their current purchase or meet their needs. This not only strengthens customer satisfaction but also provides retailers with the added benefit of further cross-selling or upselling.

4. Predictive Analytics for Customer Churn:
   Customer churn poses a significant threat to companies. AI can help by identifying customers with a high probability of leaving even before it happens. By analyzing purchase patterns, customer interactions, and engagement, early warning signs can be detected, enabling companies to offer targeted measures, such as special promotions, to re-engage the customer and rebuild loyalty.

5. Proactive Customer Engagement and Personalized Pricing:
   As previously mentioned, AI is a powerful enabler for predicting customer behavior and taking action early, proactively reaching out to the target audience. Personalized notifications, offers, or dynamic pricing can be directed to individual customers before they even become active. For example, a customer can be reminded at the AI-determined optimal time to reorder a product they have previously purchased regularly. This can be combined with an exclusive discount to further increase attractiveness. Dynamic pricing can play an important role here, as it adds another element to a tailored customer experience and further strengthens customer satisfaction. This creates a closer relationship with the brand, as customers feel the company understands their personal needs and desires.

In addition to the fact that AI offers a number of opportunities, it also brings with it a few challenges - the most prominent of which is the issue of data protection.For example, in order to implement the application examples mentioned above, AI systems require a large amount of customer data.

It is precisely this essential requirement that creates an area of tension that should not be underestimated, as companies want to offer customized content on the one hand, but are also obliged to ensure compliance with data protection guidelines and customer privacy on the other.

Accordingly, companies must not only deliver personalized offers, but also reconcile them with responsible and transparent handling of customer data. Companies that successfully and sustainably manage to effectively integrate the various potentials of artificial intelligence into their loyalty programs and customer retention strategies while ensuring data and privacy protection have the best prerequisites for retaining their customers in the long term, even in increasingly competitive times.

In summary, it is clear to see: The future of customer loyalty is at least AI-supported, if not AI-driven, and is an important, strategic success factor for competitiveness in modern retail.

Are you looking for a customized approach for your customer loyalty? Our diva-e experts will be happy to support you in evaluating your individual requirements and finding the right solution for your company.