Leveraging emerging technologies can help retailers make sense of data
As the dust settles on the disruption that was 2020, retailers are dedicating their efforts to regaining a sense of normalcy in the new year. With a shift to an increase—and perhaps outsize—role that eCommerce has taken in the new pandemic economy, brands are adjusting to the new normal, and catering their strategies to the avenues they see as a risk-averse way forward.
While less aggressive in terms of growth, expect to see a commitment to loyalty and retention on the part of retailers in 2021. In fact, a recent survey of CMOs found that 73% are going to be depending on current customers as opposed to growing new markets in the coming year. Luckily for retailers, we sit at a confluence of technological solutions—namely artificial intelligence and machine learning—that are perfectly suited for the moment, offering brands the opportunity to make the most of their data to foster these ongoing customer relationships.
The State of Brand Loyalty in 2021
Unfortunately, brands have done significant damage to customer loyalty over the past decade. It may sound a bit harsh, but by offering blanket discounts to wide swaths of their customer base, retailers have incentivized a race to the bottom at the expense of customer retention. With consumers conditioned to search for the best deal, products within specific categories have become irrelevant to many; instead of choosing a brand for any product-specific reason, price is the sole motivator. It’s difficult to rely on a customer to make a return purchase without those same deep discounts.
Recent trends, however, suggest this degradation of brand loyalty was reversing pre-pandemic. A study of 3,800 consumers revealed that in the month immediately preceding pandemic lockdown measures, brand loyalty had actually grown across multiple age groups year over year. Whether this same loyalty continued as retailers turned towards eCommerce as the pandemic began affecting shopping habits (and discount strategies) remains to be seen. The last year of a retail race to the bottom may have undone some of that good will.
The challenge for retailers in 2021 will be to reignite the loyalty that was building pre-pandemic. Whereas 2020 saw retailers doing the most to maximize sales, often at the expense of margins, 2021 should see smarter, more focused strategies that leverage customer data to make the most of their sales, not necessarily to make the most sales.
How AI and Machine Learning Can Impact Retail Strategies in 2021
Because it’s such a buzzy term these days, it may be beneficial to first demystify what we mean when we’re talking about “artificial intelligence”. This isn’t deploying androids on sales floors, rather, AI is the means through which retailers are able to make sense of customer data, and mobilize those insights to inform predictive analytics on future customer behavior.
The beauty of using AI to predict customer behavior is you divorce outmoded demographic data from the equation. Customer targeting models of the past often looked at stored information on who a customer was, and that data informed strategies on offers and promotions. The danger in this targeting model is it can be working off of out-of-date demographic information that can render offers irrelevant. Further, much of this demographic data was mined from third-party cookies, which are in the process of being phased out in the next year. By relying on this method of data mining, retailers put themselves behind the ball when projecting future strategies.
Leveraging AI doesn’t look at who a customer is, but rather what they do. This demographically agnostic data can base targeted campaigns on predictive analytics. If a customer exhibits X, Y, and Z buying habits, forecasting their behaviors becomes significantly more nuanced. Retailers are able to offer said customer the right promotion at the right time to maximize conversion.
This new approach to predictive customer data is also the engine that can drive loyalty and retention into the future. AI can be used to make sense of customer data, and deployed to predict any number of key metrics that can impact retention. Based on prior customer interactions with a brand, AI can predict churn, customer price sensitivity, which customers are likely one-and-done buyers, and more.
Further, by analyzing which customers are most likely to be return customers, retailers are better suited to tailor offerings to drive the desired actions to foster customer retention.
2021 is going to be a major inflection point for retailers. By leveraging modern tools in AI, they will be placed in the most advantageous position to follow through on, and make the most of, even the most conservative strategies in customer loyalty and retention.