AI Transforms Competition For Customer Loyalty At The Holidays

One of the seismic changes AI has brought to the business world involves consumers’ relationships to brands. This new technology is not only helping businesses revolutionize their daily operations; it’s giving them unprecedented opportunities to reach new people.

The competition is fiercer than ever at this time of year, when shopping increases dramatically. This year, the National Retail Federation expects a new record, with nearly $1 trillion (between $980 billion and $989 billion) in total holiday spending. With all that money up for grabs, organizations will be clamoring for every purchase.

Whereas companies once counted on large numbers of “loyal” shoppers to show up and give their sales a holiday boost, that’s no longer such a safe bet. “Artificial intelligence (AI) makes it easier for customers to discover a wide array of alternatives and compare platforms, encouraging them to switch brands easily,” SAP Emarsys reported in its Customer Loyalty Index 2024 report. “Brands are also becoming savvier about using AI to build better, more personalized omnichannel experiences, allowing them to entice once loyal customers from their competitors.”

That said, customer loyalty is far from dead. The index tracks how many consumers describe themselves as being loyal to certain retailers. It found that the number peaked at 77% in 2022 and slipped to 67% in 2023. But it edged up to 69% this year. So there’s no question that businesses can build loyalty programs that work; the trick is that these programs must take on new forms. And just as AI can present challenges, it can also be a boon.

A recent study from three researchers — Dimple Patil, Nitin Liladhar Rane, and Jayesh Rane — explored how. For example, AI hyper-personalization can help deliver customers’ interactions that reflect their preferences, behaviors, and real-time contexts,” adapting based on “location, time, mood, and even inferred intent, unlike traditional personalization, which may recommend products based on past purchases,” they wrote. Also, generative AI “can detect holiday gift shopping and suggest relevant items, wrapping options, and exclusive deals.”

Similarly, a study from Radoslaw Wolniak, Kinga Stecula, and Baris Aydin noted that AI technologies allow businesses to “send targeted promotions that resonate with specific shopper demographics. This level of personalization fosters customer loyalty and increases the likelihood of repeat visits, ultimately driving sales.”

They also pointed out that dynamic pricing strategies “play an important role in managing promotional events and seasonal sales. For instance, during holiday seasons, grocery stores can implement temporary price reductions on festive products, attracting customers who may be looking to stock up. By analyzing real-time sales data, retailers can adjust these promotional prices to ensure they remain competitive and appealing to customers.”

Other offerings can also be impactful. A survey of U.S. shoppers this year found that 38% say the ability to earn larger discounts or free products would make them most likely to join a customer loyalty program, and about as many (37%) said free shipping for online purchases would win them over, according to Statista.

In my work with organizations across numerous sectors, I have found that delivering the best customer experiences (CX) is the most powerful way to build loyalty. Shoppers see purchasing a product as not just transactional, but as an experience in which a relationship can be established.

This is why it’s so important to ensure an omnichannel experience, in which a customer’s entire journey is brought into a single, unified whole. Any representative or AI-powered chatbot interacting with the customer should have immediate access to key insights about them — what they’ve bought in the past, what they may be looking for, what their pain points have been, which products or services have been most helpful to them, and more.

In fact, in the SAP Emarsys survey, more than half of consumers (52%) said they have switched away from a brand that they were previously loyal to because of a bad experience. But on the flip side, one in five said “creating memorable experiences” is a top factor improving customer loyalty.

There’s also another element not to be overlooked. Consumers don’t just want what’s best for them; most want what’s best for the world as well. That’s why a key part of building customer loyalty is showing people that your organization shares values with your customers. As Nextiva explained in a blog post, “Clearly communicate your company’s mission, vision, and values. Highlight how your business contributes positively to society or the environment. This builds and strengthens emotional connections, increasing customer loyalty.”

Adjusting a strategy to maximize customer loyalty in this era requires thought and consideration, but it’s more than worth the time and energy. With the right steps in place, an organization can hold onto their long term customers and win over more, sparking mutually beneficial relationships that last.