According to a recent report from Twilio Segment, businesses worldwide are embracing artificial intelligence (AI) to provide personalized customer experiences, with 92% of companies using AI-driven personalization to drive growth.

The fourth annual State of Personalization Report by the customer engagement platform revealed that while 62% of business leaders see customer retention as a top benefit of personalization, only 41% of consumers are comfortable with companies using AI to personalize their experiences.

The report highlights the significance of building customer loyalty through tailored experiences, including the use of high volumes of real-time data to fuel personalization efforts. Nearly 60% of business leaders considered this as an effective strategy for acquiring new customers.

“Experimentation with AI in business is at an all-time high, and customer engagement is no exception,” Katrina Wong, VP of marketing at Twilio Segment, told VentureBeat. “Consumer demands for personalization continue to skyrocket, and businesses see a massive opportunity for AI to help them meet those demands."

The report also found that a personalized experience would result in 56% of consumers becoming repeat buyers, showcasing a 7% increase from the previous year’s study.

However, a disconnect remains between business enthusiasm for AI and consumer confidence in the technology. The report shows that only 51% of consumers trust brands to keep their personal data secure and use it responsibly, highlighting the critical need for transparency around AI and data privacy.

“Confidence in AI is divided, and some consumer discomfort stems from a lack of trust in how brands use their data to power AI,” added Wong.

The report is based on two extensive surveys conducted by Method Communications in March 2023. The consumer survey targeted 3,001 adults who made an online purchase in the past six months, while the business survey targeted 500 managers and decision-makers at consumer-facing companies that offer online goods and services.

The surveys were conducted across a dozen countries, including the United States, the United Kingdom, Australia, and Japan.

Driving customer acquisition through personalization

Twilio Segment’s State of Personalization Report emphasizes the importance of engaging customers through customized experiences to establish brand loyalty. In addition, the report underscores the effectiveness of leveraging real-time data to power personalization efforts, with more than half (60%) of business leaders surveyed indicating that this is an effective way to acquire new customers.

The company stated that Norrøna, a prominent outdoor clothing brand in Scandinavia, was able to boost its ecommerce sales by a significant margin by using Twilio Segment and machine learning tools to create a cutting-edge recommendation engine. With the help of the engine, customers could easily find products suited to their preferences and purchase them in no time. As a result, Norrøna witnessed a 50% increase in conversions.

But the report also highlights a dichotomy in the trust of AI among conscious consumers. The survey found that confidence in AI usage is divided, with many having reservations about how brands utilize their data to power the technology. This lack of trust highlights the need for companies to be transparent about their data collection practices and give consumers greater control over their personal information.

“To build consumer trust in AI-driven personalization, businesses must first establish trust in the data used to deliver that personalization,” Wong told VentureBeat. “Companies need to invest in data quality, leveraging real-time data management tools and increase their use of first-party data."

The essence of data quality to enhance business processes

Data quality is key to the success of AI-driven personalization, according to the report. Half of the surveyed companies reported challenges in acquiring accurate data for personalization, a 10% increase from the 2022 report. The top metrics for successful AI-driven personalization included accuracy (47%), speed of real-time data (44%), and customer retention or repeat purchases (44%).

“AI is only as effective as the underlying data used. Like an electric vehicle that hasn’t been properly charged, personalization that hasn’t been powered by high quality, real-time data will only give you limited mileage,” Wong said.

The biggest issue, she said, is inaccuracy due to data not being updated in real time. For instance, a customer receiving a recommendation for an item they recently bought is an example of an interaction based on outdated information that results in a poor customer experience.

“First-party data is optimized for accuracy because it’s provided directly by the customer. By leveraging first-party data and tools such as a CDP, businesses can build customer data profiles that are accurate, comprehensive and updated in real time,” Wong explained.

Twilio Segment stated that businesses must establish trust with their customers by thoughtfully and responsibly leveraging real-time, first-party data to balance consumer comfort levels. Additionally, the report found that 97% of companies are now taking steps to address consumer privacy concerns, with investment in better technology to manage customer data being the most popular step.

“As consumers become increasingly conscious about the use of their personal data, businesses are starting to be more transparent about how they’re using customer data and are giving consumers more control through practices like consent management,” said Wong. “Investing in zero- or first-party data (data that consumers have consented to share) enables brands to leverage customer data without compromising user privacy."

Challenges in creating personalized brand experiences

An intriguing finding from the survey was that Gen Z has a high preference for AI-infused experiences, with 75% of surveyed Gen Zers reporting that they would stop using a brand if their experience isn’t personalized, compared to 66% for all consumers.

“To meet these high expectations without compromising privacy, brands must move away from third-party data and shift to zero- and first-party data strategies,” Wong said. “Powering AI with data that consumers have consented to share allows brands to deliver intelligent, personalized experiences that don’t risk their customers’ privacy."

Wong believes that businesses have the opportunity to collect first-party data every time they engage with a customer, but the challenge is in activating this data to improve customer experiences.

“CDPs were designed to help businesses not only build comprehensive, data-backed customer profiles, but activate those profiles in downstream marketing and communication tools. They also ensure data stays updated in real time, so businesses always have the latest information on customer needs and preferences,” she said. “Twilio Segment’s CDP helps businesses establish the foundation of data quality that is necessary for successful AI implementation. With Segment, teams can build complete, accurate customer profiles that can be activated for AI-driven personalization.”

Wong believes that having the right data infrastructure in place can greatly benefit companies in effectively implementing AI-driven personalization strategies while ensuring transparency, protecting consumer privacy and delivering value to customers.

“Before you even think about implementing AI in your customer experience, ensure you have the right data infrastructure in place that will set you up for success,” she said. “Once a plan and the right team are in place, the deployment process should follow these stages: readiness, discovery, planning, implementation and review. Then, with a CDP as your data foundation, you’ll be set up for AI-driven personalization success.”

LeackStat 2023