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Representative image (iStock)By Rajeshwari Krishnamurthy, Niharika Saxena and Radesh Rangarajan
AI is touted as the biggest disruptor yet, in the business scape. While it can certainly facilitate and enhance many marketing outcomes, can AI drive Brand Loyalty? After all, marketers spend billions to build customer loyalty towards brands, and it remains to be seen how effective can AI be , in this pursuit.
What is Brand Loyalty?
Brand loyalty is traditionally defined as a customer’s unwavering commitment to consistently repurchase or use a particular brand’s products or services, despite competitive pressures or alternative options.
This loyalty often stems from emotional attachment, trust in the brand’s values, or exceptional user experiences. In the past, brands nurtured this loyalty through consistent product quality, outstanding customer service, and personalized marketing.
However, the growth of online platforms and the integration of artificial intelligence (AI) have dramatically shifted the dynamics and platform of brand loyalty. Today customers interact with brands not just in physical stores but across various digital touchpoints including AI-driven action and interactions , that test the limits of brand loyalty. Where algorithms and machine learning models are leveraged to heighten customer engagement . But do these result in enhanced brand loyalty?
This article dives into the successes and failures of AI-driven strategies, in the context of brand loyalty. As AI reshapes the marketing landscape, understanding the balance between automation, personalization, and customer trust is crucial for marketers aiming to build lasting loyalty in the digital age.
How has loyalty got redefined in the digital era?
Before exploring AI’s role, it’s essential to understand how brand loyalty has been transformed in the digital era. Online brand loyalty goes beyond just repeat purchases; it encompasses how customers engage with brands across websites, social media platforms, and e-commerce channels. The vast amount of data generated through these platforms now enables brands to understand their customers at an unprecedented level. This shift to dominant online concurrent presence of both customer and company, has evolved and enhanced customer expectations and experience. While online, consumers now demand more personalized experiences, seamless digital interactions, and faster response times.
Can AI enhance customer loyalty?
The answer lies in personalization.
1. Personalization at Scale:
One of AI’s most impactful uses in driving brand loyalty is through personalized experiences. By analyzing vast amounts of data, AI can understand customer behavior, preferences, and purchasing history, allowing brands to deliver highly relevant messages. A McKinsey study found that brands excelling in personalization generate 40% more revenue than those that don’t. By offering tailored content, recommendations, and even pricing, AI can create a sense of personal connection between the customer and the brand, fostering loyalty.
Example- Netflix , Amazon and Youtube exemplify brands that leverage AI to enhance loyalty through personalized recommendations. Netflix’s AI-powered recommendation engine suggests movies and TV shows based on individual viewing habits, leading to higher customer retention rates. Similarly, Amazon uses machine learning to recommend products that align with customers’ browsing and purchase history, driving repeat purchases.
2. Predictive Customer Service:
AI-driven customer service, particularly through chatbots and virtual assistants, plays a pivotal role in creating positive brand experiences. These tools enable brands to provide immediate, 24/7 support, crucial in a fast- paced online environment. AI systems can predict customer issues based on historical interactions and even resolve problems before they arise.
Example- Google remembers what you searched last, and gently prods the next search. Starbucks’ “My Starbucks Barista” app integrates AI to allow customers to place orders via voice commands, providing a seamless and personalized experience. This innovation not only adds convenience but also reinforces customer loyalty by making the experience frictionless.
3. Loyalty Program Automation:
AI can enhance traditional loyalty programs by automating them, making it easier for customers to engage with and benefit from the program. Machine learning algorithms can analyze customer behavior and tailor rewards that are most likely to resonate with each individual. This dynamic personalization increases engagement with the loyalty program, ultimately reinforcing customer allegiance to the brand.
Example- Sephora’s Beauty Insider loyalty program leverages AI to offer personalized product recommendations and targeted offers to its members, increasing engagement and repeat business. Sephora’s AI- driven insights into customers’ beauty preferences allow the brand to provide relevant rewards that customers value, deepening loyalty.
4. Sentiment Analysis and Customer Feedback:
AI can analyze vast quantities of customer feedback, such as online reviews, social media comments, and survey responses, to gauge customer sentiment. Brands can use this data to refine their strategies, address pain points, and ensure that customer satisfaction remains high.
Example- Coca-Cola uses AI to analyze social media conversations to understand how customers feel about its products. By acting on these insights in real-time, Coca- Cola can quickly adjust marketing strategies or product offerings to better meet customer expectations and enhance loyalty.
When AI may falter in building Brand Loyalty
Despite AI’s significant potential in driving brand loyalty, there are instances where it can fall short. This typically occurs when brands prioritize automation over human connection, misuse data, or fail to integrate AI seamlessly with their broader marketing efforts.
Over-Automation Leading to a Lack of Human Touch:
While automation can enhance efficiency, it can also detract from the emotional bond that many customers seek with their favorite brands. AI-driven interactions can sometimes feel impersonal or robotic, leading to a diminished sense of connection. In sectors like luxury retail or hospitality, (high personal involvement) where the human touch is often a key differentiator, over-reliance on AI can backfire.
Example- Some customers of high-end fashion brands, like Gucci or Louis Vuitton, have expressed frustration with AI- driven customer service that lacks the personal warmth and attention to detail they expect from luxury brands. Standard responses, unavailability of sufficient question options to tick, can all lead to unfavourable comparisons with human touch.
Misuse of Data:
AI thrives on data, but when brands misuse customer data or fail to handle it responsibly, it can lead to a breach of trust. Privacy concerns are at the forefront for many consumers, and if AI-driven efforts come across as invasive such as overly personalized ads that seem to “know too much”—customers may feel uncomfortable, ultimately leading to distrust and loss of loyalty. This is especially true of the Highly Intelligent Discerning Customer, who could be put off by presumptuous pointing by Youtube or Netflix, restricting choices and consuming time.
Example- Facebook faced backlash after the Cambridge Analytica scandal, where data was misused for political campaigns. This incident led to a decline in user trust and loyalty, with many users abandoning the platform or reducing engagement.
Limitation in providing Consistent Value:
If AI-driven personalization is not backed by real value, it can come across as gimmicky or transient. For example, a brand may push products or services based on superficial data points that don’t fully reflect a customer’s needs, leading to frustration rather than loyalty. AI needs to be supported by genuine customer insights and a brand strategy that focuses on delivering long-term value, while being aware of limitations.
Example– AI can offer new platforms and make them attractive to engage with good old faithful brands such as Amazon, Kayak, Booking.com that can possibly offer better discounts and deals for products and services with time expiry. However the end brand loyalty would tend to remain with say Mont Blanc pen, Emirates and Indigo or Marriott respectively since only the original brand carries the guarantee. i.e . Other airlines may not match Indigo’s routes or time. Intuitive AI in original Brand companies can reinforce Brand Loyalty more easily than in platforms.
Conclusion
AI is revolutionizing how brands engage with their customers, offering unprecedented opportunities to drive loyalty through personalization, predictive services, and automated loyalty programs. However, AI is not a silver bullet. Lack of human touch is the primary pain point with AI. Enterprise Rent-a-car still scores well in California against giants Hertz and Avis, in part because of a smart combo of online and traditional offline. But they are beginning to go down the automated path (not giving Executives mobile number, only automated services during non-working hours etc). Customer grievance handling still needs human discretion, spot judgement and intervention. Till that is reached, this will remain an Achille’s heel.
Intelligent customers can also sense a hard sell in online marketing. This combined with lack of human interface can devalue brand relationships. Lower involvement brands, one-time usage ones or use-and-throw products and services are likely to see more experimentation with AI. Wherever there is higher personal connect with Brand and importance, online AI can be only supportive, and not be the primary loyalty builder.
For the High Involvement Product and Service Brands, specially Luxury , AI alone may not make a big dent yet. A Hybrid model with Human Interface combined with AI support is still the best bet for maximum customer happiness.
In sum- a caution
AI per se cannot expect to drive Brand Loyalty. It can engage, promote, reinforce and support. Brand Loyalty stems from first principles. Trust, Satisfaction and Certainty- these would arise from original tangible product or service and the organization’s philosophy and commitment. AI would still be a support function, possibly more and more important, with limits, for a while.
(The author are the professor (marketing), Great Lakes Institute of Management, Chennai; PGDM student, Great Lakes Institute of Management, Chennai and partner Plutus Maximus Advisory LLP.)
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- Published On Nov 4, 2024 at 08:17 AM IST
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