Report Shows that Customer Loyalty is Increasingly Contingent on Personalization, Though Consumer Confidence in AI-Powered CX is Divided

Businesses worldwide are eagerly embracing the potential for artificial intelligence (AI) to provide personalized customer experiences, but customers remain cynical, according to the fourth annual State of Personalization Report from Twilio (NYSE: TWLO), the customer engagement platform that drives real-time, personalized experiences for today’s leading brands.

“Today’s consumers are savvier than ever, and their demand for real-time, personalized experiences is growing by the day. More than ever before, we’re hearing and seeing that customer loyalty hinges on effective personalization”

This year’s report underscores the value of an AI-driven personalization strategy for brands looking to both retain existing customers and acquire new ones, especially in today’s competitive market. Sixty-two percent of business leaders cite customer retention as a top benefit of personalization, while nearly 60% say personalization is an effective strategy for acquiring new customers. Consumers also increasingly confirm the value of personalization, with 56% saying they will become repeat buyers after a personalized experience, a 7% lift from last year’s report. These findings clearly point to a growing opportunity to build customer loyalty and lifetime value by engaging consumers with tailored experiences. During this time of uncertainty in the macro economic climate, businesses shouldn’t let potential ROI like this pass them by.

The report also shines a light on how a staggering amount of businesses are experimenting with AI to differentiate and drive business growth, but it also provides guidance on how to get this right, starting with the critical need to raise consumer confidence in the technology.

Stark disconnect in AI confidence

To power even more sophisticated real-time customer experiences, the vast majority of businesses are turning to AI to harness high volumes of real-time data and power their personalization efforts. According to the report, 92% of businesses are now using AI-driven personalization to drive business growth. However, a disconnect exists between this enthusiasm and the comfort level of consumers: only 41% of consumers are comfortable with companies using AI to personalize their experiences, and only half (51%) of consumers trust brands to keep their personal data secure and use it responsibly.

To effectively leverage intelligence technology in a way that strikes a balance with the current comfort level of consumers, businesses must first establish a baseline of trust about the data used to deliver that personalization.

“Today’s consumers are savvier than ever, and their demand for real-time, personalized experiences is growing by the day. More than ever before, we’re hearing and seeing that customer loyalty hinges on effective personalization,” says Katrina Wong, VP of Marketing at Twilio Segment. “While our report shows that businesses are racing to implement AI-powered personalization, and reaping benefits like boosting customer lifetime value as a result, it’s crucial they don’t overlook the importance of trust and transparency. Informed by real-time, first-party data that’s utilized thoughtfully and responsibly, AI has the potential to augment and enhance the toolkit of every marketer and CX professional in the industry, and to usher in a category of next generation, fine-tuned, customer experiences that drive sustainable growth.”

AI-driven personalization is only as good as its underlying dataset, and without robust data, customer experiences will likely miss the mark for consumers. It’s a real challenge: half of companies report that getting accurate data for personalization is a struggle, an increase of ten percentage points compared to 2022, and 31% of businesses cite poor quality data as a major obstacle in leveraging AI. Meanwhile, accuracy (47%), speed of real-time data (44%), and customer retention or repeat purchases (44%) were the top metrics of successful AI-driven personalization.

To improve AI results and personalization overall, companies need to invest in data quality, leveraging effective, real-time data management tools, and continuing to increase their use of first-party data.

The report also highlights how businesses such as Camping World and Toggle, a Farmers Insurance Group company, recognize the importance of preserving trust while continuing to improve personalization. Almost all of the companies surveyed (97%) are taking steps to address consumer privacy concerns, demonstrating a commitment to responsible data use. The most popular step is investing in better technology, such as Customer Data Platforms, to manage customer data.

Appetite for AI: Gen Z call for AI-infused experiences

One tremendous opportunity for AI-driven personalization is in engaging Gen Z consumers. Growing up with smartphones and tablets at their fingertips, this demographic of digital natives expect unparalleled digital experiences. Gen Z is an especially welcoming demographic for brands, as they are both more influenced by personalization and more willing to embrace AI. In fact, a third (34%) of Gen Z consumers already expect AI to be used in their experiences with brands.

For example, Gen Z consumers are much more likely to say that personalized experiences have influenced them to make a purchase than other generations:

• Gen Z – 72%
• Millennials – 66%
• Gen X – 57%
• Boomers – 42%

And, almost half (49%) of Gen Z consumers say they’re less likely to make a repeat purchase if an experience is not personalized.

Meanwhile, Gen Z consumers are much less likely to say that they are uncomfortable with AI being used to help brands personalize their experiences:

• Gen Z – 15%
• Millennials – 24%
• Gen X – 34%
• Boomers – 43%

Consumers today want to feel valued and understood, and personalization is a key tactic to achieve that. Businesses are clearly excited by the potential of AI to accelerate their ability to tailor experiences to the unique preferences and behaviors of each customer, but for this to be successful, brands will also need to get consumers on board. With consumer comfort levels lifted by AI that is thoughtfully and responsibility implemented, and informed by high quality data, brands will be able to create a deeper connection that translates into increased spending and brand loyalty.

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