MARKETING TRENDS
Personalization and Consumer Engagement for CX Conversion and AI Use
Dr. Luis De La Cruz
June 2023
Personalization is tailoring an experience in a communication based on information a company has learned about a prospect or customer revealing a context intended to match consumers’ identifiable preferences.
According to a recent McKinsey survey (Arora, Ensslen, Fiedler, Liu, Robinson, Stein, Schuller, 2021) when consumers were asked to define personalization; consumers associated it with positive experiences that made them feel special. Such association leads to Personalization Marketing, which represents an opportunity for companies to benefit from those warm, fuzzy feelings. Personalization has become a buzzword in the world of marketing and technology with many companies claiming that it is the key to increased user engagement and retention (Arora et al., 2021).
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Bottom Line Benefits
The goal of personalization is to create a more relevant and enjoyable experience for the user. A McKinsey research findings affirm that Personalization Marketing can reduce customer acquisition costs by as much as 50 percent, lift revenues by 5 to 15 percent, and increase marketing ROI by 10 to 30 percent. The use of Personalization has been found to improve performance and provide better customer outcomes. Research findings also showed personalized experiences lead to customer loyalty and business gross sales outcomes (Arora et al., 2021). Personalization can be applied to a wide range of industries, including e-commerce, media and entertainment, and customer service.
Personalization Marketing could be persuasive when customer engagement is the targeted outcome because personalization can increase the conversion rate by making the user experience (CX) more relevant and enjoyable, which can lead to increased engagement and loyalty (Raitaluoto, 2023). The diversity of personalization types reaches a wide range of industries, including e-commerce, media and entertainment, and customer service and for that technology plays a pivotal role. To gain rich data from contextual, behavioral, demographics, collaborative, and predictive personalization types; e-commerce media vehicles and digital tools are essential.
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Personalization Digital Tools
Consider sourcing from cookies and tracking technologies, A/B testing, machine learning algorithms, and personalized messaging across customer segments. For instance, for the digital merchandising of products, Amazon is a company that has effectively used personalization to drive user engagement and retention. The company uses a variety of personalization techniques, such as recommending products based on the user's past purchases, and search history, and customizing the layout and content of the website based on the user's behavior. In the case of music, Spotify is a music streaming service that has successfully used personalization to drive user engagement and retention. The service uses machine learning algorithms to recommend music to users based on their listening history and preferences. This personalized recommendation system has helped to keep users engaged and coming back for more content (Raitaluoto, 2023).
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In terms of segmentation, defining Buyer personas help improve your product’s or service’s value proposition and improve customer engagement in different ways. When you take the time to create buyer personas, you have more chances to increase profits and customer retention. However, there is no way to create buyer personas if first, you haven’t engaged with your customers.
A buyer persona is a fictional character created to represent a user type that might use your product or service but also is the person that will consume your marketing messages and an augmented buyer persona is that who defines a profile of a specific customer. It is comprised of all the interrelated information you gather about your customer. Once you have this person’s buyer persona and you take into account the data you gathered in close to real-time, you can create a truly personalized customer experience for that person.
Customer Engagement (CE) vs. CX
Customer engagement (CE) and customer experience (CX) are not the same. CX has to do with how your customers perceive their interactions with your company. These interactions have a direct impact on CE or customer engagement.
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For example, according to Think with Google, travel consumers are exposed to more than 38,000 micro-moments during 60 days. For travel brands, this means you have to earn (and re-earn) each person's consideration in every micro-moment they experience. This represents a lot of opportunities to deliver memorable moments helping customers to be more engaged with your brand, product, or service. Similarly, there are a lot of opportunities to deliver the wrong experience. In other words, a negative customer experience can ruin any organization’s customer engagement effort.
Customer engagement is the emotional relationship between a customer and your business. This relationship is driven by customer’s values, which are inherent in each customer context. Content marketers and brand managers often forget what contextual engagement means. Customer engagement requires an approach based on personalization. This marketing approach emphasizes the importance of delivering a memorable customer experience or CX that aligns mutually beneficial interests, thus making meaning for lasting brand relationships and hence brand engagement.
The latter is the process of forming an emotional or rational attachment between a consumer and a brand, this is a marketing function that uses communication techniques to increase the perceived value of a product line or a brand and extensions over time. The ultimate goal is to earn trust and voluntary consumer data access. Customers would allow organizations to host and manage customer data in order to receive clear value out of the transaction. Data acquisition requires a certain level of trust, not only by law but also by what customers expect would be the use of their personal data.
Personalization Metrics
Measuring the effectiveness of personalization is crucial for understanding the impact of personalization on user engagement and retention, there are several key metrics that can be used to measure the effectiveness of personalization for increasing the metrics expected values (Raitaluoto, 2023) including:
Conversion rate: The conversion rate is the percentage of users who complete a desired action, such as making a purchase or signing up for a service.
CLV (customer lifetime value) is a measure of the total value that a customer is expected to generate over the course of their relationship with a company.
NPS (net promoter score) is a measure of loyalty and satisfaction, with higher scores indicating a higher likelihood of customer recommendation.
For the opposite effect: The Churn Rate is the percentage of customers who stop using a product or service over a given period of time. Personalization can decrease the churn rate by creating a more relevant and enjoyable experience for users, which can increase loyalty and reduce the likelihood of users switching to a different product or service.
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AI: The future of Personalization
Data collection and analysis techniques will make personalization processes more sophisticated and effective to meet the needs and preferences of individual users. One major trend in the future of personalization is the use of AI and machine learning to analyze and predict user behavior. Another trend is the improving use of personalization in the Internet of Things (IoT), where connected devices can collect data about the user's environment and behavior and use this information to provide personalized experiences (Raitaluoto, 2023).
These technologies have the potential to enable more personalized and dynamic experiences for users, such as personalized recommendations that change in real-time based on the user's actions and interactions.
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AI capabilities will continuously learn from any new data that brands create, leading to ongoing improvements to brands’ CX operations and exceptional CX. Generative AI turned into a major talking point in 2023 with OpenAI’s release of ChatGPT. Generative AI refers to a class of artificial intelligence techniques that are used to generate new content, such as text, images or audio (Raitaluoto, 2023).
Some specific ways AI enhances CX: Generative AI can analyze customer data and provide tailored recommendations and solutions, resulting in a personalized consumer experience. For example, generative AI can look at a customer’s purchase history to let the customer know of other products that they might be interested in. In terms of ROI, Generative AI can be used to help pinpoint brand-specific actions to elevate CX operations, uncovering automation opportunities and driving results. However, Generative AI alone is not enough for brands to see results when it comes to CX (Cooper, 2023).
Brands wishing to unlock the benefits of generative AI should combine it with specialized AI for CX. A staggering 67% of marketers who use AI say it speeds up the content creation process, enabling them to write faster, research quicker, and hit "Publish" in a fraction of the time (Rodrigue, 2023).
Concluding Comments
We hope this article provides a solid overview of the key benefits of Personalization Marketing and the role of AI across consumer engagement, conversion, and retention, specifically in a competitive marketing realm. Multiple sources have contributed to concisely compile a guiding outline of relevant techniques and tools that can be used to personalize products, services, and experiences for individual users, and the several key metrics that can be used to measure the effectiveness of personalization in terms of engagement, conversion and retention. However, there are ethical implications for the personalization process to ensure that it is implemented in a responsible and transparent manner. Particularly, when personalization implicates privacy, transparency, fairness, and control affecting users’ data applications.
Please, share your views on this subject for the benefits of readers and follow up. Your comments are welcome and greatly appreciated!
References
Arora, N., Ensslen, D., Fiedler, L., Liu, W. W., Robinson, K., Stein, E., Schuller, G. (2021, November 12). The value of getting personalization right—or wrong—is multiplying. https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/the-value-of-getting-personalization-right-or-wrong-is-multiplying#/
Cooper, B. (2023, May 17). Here’s how AI is reshaping the future of digital CX. https://www.cmswire.com/customer-experience/heres-how-ai-is-reshaping-the-future-of-digital-cx/
Raitaluoto, T. (2023, May 11). The impact of personalization on user engagement and retention. https://www.markettailor.io/blog/impact-of-personalization-on-user-engagement-and-retention#:~:text=Personalization%20can%20increase%20the%20conversion,to%20increased%20engagement%20and%20loyalty.
Rodrigue, E. (2023, June 5). The top benefits of AI for marketers. https://blog.hubspot.com/marketing/benefits-of-ai