In popular discourse, there seems to be no limit to the potential applications of artificial intelligence, nor its impact on businesses. Generative AI is performing creative tasks and redefining customer service. Predictive AI is accelerating decision-making and adding new depth and accuracy to forecasting. In the grocery and retail sectors, discussions about AI tend to focus on how the technology can help retailers gauge demand, optimize stock location, and drive impulse buys.
We believe, however, that AI will have its most significant impact in the areas of retail personalization and loyalty. Already being utilized or experimented with by some of the world's largest retailers, including prominent supermarket chains, AI can create a more personal customer experience in multiple ways, including matching the right product or offer to the right customer and facilitating the one-to-one connections retailers have long sought. AI's ability to use historical data to project future outcomes and personalize experiences is giving rise to new services, interactive shopping experiences, greater customer engagement, and increased brand loyalty.
Despite its potential, grocers are just at the start of what AI and machine learning can offer. The possibilities are still emerging, with AI offering early adopters significant opportunities and strategic advantages. McKinsey believes the retail AI market is set for "explosive growth" and will increase by more than 30% annually from 2023 to 2032.
Hyper-personalized shopping experiences at scale? It's possible with AI
This growth will depend on the quality and quantity of data retailers can leverage with their AI tools. Fortunately, the customer data that grocers already have at their fingertips – including customer behavioral and spending patterns collected by a loyalty program — provides fertile ground for AI applications to flourish. The greater the depth of data, the closer a match is made between the grocer's understanding of each customer's needs, wants, and preferences (and potential future behavior), and the quicker AI systems can recommend appropriate inventory levels, generate a custom offer, or automatically deploy tailored communications.
This level of personalization will pay off, as all shoppers want to save money and be rewarded and communicated with in a relevant way. According to our Grocery's Great Loyalty Opportunity report, 60% of shoppers find personalized offers "very" or "extremely" important, and 84% say these offers save them money.
Personalized offers significantly boost engagement and sales as well. Australian supermarket Woolworths found customers are five times more likely to buy a product when marketing is personalized to them, according to AI and the Current State of Retail Marketing.
However, there is a disconnect between retailers and shoppers regarding how effectively they are delivering personalized offers. While 71% of retailers surveyed for our grocery report believe they excel in this area, only 34% of shoppers feel the same. Additional research by McKinsey found some loyalty programs are frustrating shoppers by not personalizing enough.
AI is helping to diminish this mismatch, enabling individually targeted, hyper-personalized offers to be created dynamically, in the moment, and served via the best channel for each customer. AI orchestrates this within easily set business rules, ensuring offers align with business KPIs and creating value for the brand and grocer while helping to eliminate generic rewards and engage with customers more effectively. Importantly, all this can be done at scale, a capability that was previously unattainable but necessary for grocers that need to offer personalized experiences to thousands or tens of thousands of individual customers, not just a few subsets of them.
Predictive AI's ability to leverage shopper data and learn from the outcome of its predictions goes beyond seeing current spending patterns to understanding the nuances of why a shopper has behaved in a certain way. It can predict what will make a customer change behavior as well. It can also identify a brand or product the customer hasn't bought and is likely to want to try, as well as craft an offer that is most likely to nudge them into making a purchase.
Gamified rewards drive AI-powered loyalty engagement
This AI-powered "nudge" is readily exemplified in gamification initiatives forward-looking grocers have integrated into their loyalty programs. Gamification enables grocers to elevate the experience of personalized loyalty further, prolonging engagement for shoppers and driving revenue growth by rewarding incremental changes in behavior. Campaigns run by European grocers Carrefour and Tesco attest to the powerful results of using AI analysis, decisioning, and predictive capabilities to operate these challenge-based loyalty campaigns.
In each case, Eagle Eye's machine learning and AI analyzed past behavior and purchasing patterns of individual customers and used that understanding to create custom Challenges with individual thresholds and rewards. These challenges nudge customers to carry out specific actions, namely consolidating spend to grow their share of wallet at these retailers, which drives incrementality for the retailer and generously rewards the customer.
The respective loyalty programs provide the necessary data and insights into individual customer behavior, while AI predicts the threshold limits to unlock rewards and the triggers in the form of actual offers. Gamification is the lever that creates engagement — and it does so consistently and effectively. Our grocery report found that two-thirds of shoppers globally would, or already do, participate in games or challenges set by a loyalty program or app.
These initiatives from Carrefour and Tesco are compelling examples of how personalization, loyalty and gamification can work together to generate value for customers, retailers and their suppliers, who are also reaping the rewards of participating in these campaigns. They highlight AI's ability to create tailored objectives for individual customers across the hundreds of thousands or even millions of loyalty program members who participate in a grocery loyalty initiative.
They are also great examples of how AI is helping grocers reach their goal of true, one-to-one engagement, increasing customer satisfaction and adding value for the business. Is your retail brand exploring AI applications, and if so, are you equally optimistic about its potential impacts as we are?