NEW YORK - December 9, 2024— Today’s consumers are bombarded with ads across every channel, but many feel these messages miss the mark. A new study from Bain & Company finds 40% of consumers say the ads they see feel irrelevant. As the average cost per thousand impressions (CPM) for social media platforms rises 10-15% during the holidays, loads climb, and attention spans shrink, retailers face a high-stakes conundrum: How can they stand out to shoppers, improve customer experience, and still make every dollar count? The answer lies in AI-powered personalization.

During the holidays, personalization can help retailers deliver the “perfect gift at the right price,” with tailored, timely outreach and offers, giving retailers an edge by demonstrating an understanding of shoppers’ needs. Bain found that consumers agree. Nearly 45% of consumers don’t mind seeing sponsored ads if they’re relevant, and 40% say well done ads can be helpful to their shopping experience.  Over half of respondents say that generative AI-powered personalized recommendations will be valuable when shopping online.

“Personalization is enabling retailers to turn their intentions into real-time actions,” said Aaron Cheris, partner in Bain & Company’s Retail practice. “In the holiday season, stakes are higher than ever, with ad costs rising and consumers demanding more relevance from brands they engage with. Strategic use of generative AI allows retailers to move beyond a one-size-fits-all mindset and create tailored experiences that can resonate with individual customers. Leading retailers know it’s not just about increasing conversions, it’s about building customer loyalty that persists well beyond the holidays.”

AI: revolutionizing personalization

Today’s leaders in personalization are combining traditional AI with generative AI, which not only recognizes patterns in unstructured data but also analyzes complex data in real time to create content, such as text, images, and recommendations. It’s a dynamic alternative to traditional A/B testing, enabling scalable, adaptable personalization that gets smarter with each interaction.

With AI, retailers can create more granular (and accurate) customer segments with comprehensive data inputs, generate vast amounts of content quickly, test multiple hypotheses simultaneously, and use the responses to determine customer preferences on a one-to-one basis, informing future recommendations.

The benefits are real: Retailers experimenting with AI-powered targeted campaigns are seeing a 10% to 25% increase in return on ad spend.

AI is transforming personalization in game-changing ways:

• On-demand content creation: Generative AI is empowering marketing teams to develop variations of emails, graphics, and ads at unprecedented scale and speed. Bain fond that generative AI can slash content-creation time from weeks to hours and AI tools making this capability more accessible than ever.
• 360-degree customer insights: The technology is revolutionizing data synthesis, scaling the breadth, speed, and quality of processes like metadata tagging. It can also enrich customer profiles by uncovering preferences and intent from real-time behaviors such as browsing, purchase history, and social media activity.
• Real-time decision engines: Generative AI doesn’t just analyze data; it makes it actionable. With reinforcement learning-based decision engines, retailers can test ad variations with individual customers to identify the most engaging combinations of creative, messages, offers, as well as contextual parameters such as frequency, day of week, time of day, for each customer.

A “learn fast, scale faster" approach

The journey to meaningful AI integration starts with strategy and realizing that unlocking the true power of AI comes from their people. These leaders foster the right mindset, culture, and ways of working organization wide. Bain found that leading retailers embrace a “learn fast, scale faster” mindset, prioritizing high-impact use cases and early experimentation. Agile, cross-functional teams are key, bringing marketers, data scientists, and strategists together to deliver seamless, personalized customer journeys. Combined with senior leaders championing a ground-up and top-down shift, marketers will spend less time creating and monitoring campaigns and more time interpreting AI-generated campaign insights to shape bold, targeted strategies for the future.

Editor's Note: For more information or to arrange an interview, please contact: Katie Ware, Bain & Company, tel. +1 646 562 8107, email: katie.ware@bain.com.

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