AI is Causing a Customer Experience Revolution
How organizations can use AI to improve customer satisfaction.
By Fraser Gray-Smith and Allison Hill
“Personal Financial Investments Inc.” is a fast-growing Artificial Intelligence (AI) powered fintech company. Founded in 2022, the company has a simple philosophy towards customer service: get to know your customers.
By understanding its customers on a personal level, its local brokers can better anticipate their customers’ needs and provide a higher level of service. That knowledge also develops trust between the advisor and the customer, which is particularly valuable when dealing with people’s financial futures.
There’s only one catch — “Personal Financial Investments” isn’t the name of the company. The company’s real name is Edward Jones Investments, founded in 1922 — not 2022. The fact that its strategy works just as well today as it did 100 years ago shows how we’ve come full circle — from personalized customer service to mass standardization back to personalized service.
The only difference is that, today, AI is powering the mass personalization.
A quick history of customer service
Prior to the 1920s, customer service was about personal connections. Business owners would often live within the communities where they worked. They knew their customers as friends and neighbors. Over the next several decades, there were large societal changes — The Great Depression, WWII — and the mass industrialization associated with those events changed the world economy significantly over the next 30 years.
These changes resulted in a shift in customer service philosophy. Instead of delivering personalized experiences, companies instead began to focus on providing consistent experiences across all their interactions. Mass standardization allowed corporations to streamline their operations, but at the cost of the ability to personalize.
In the last 10 years, an opposing trend has emerged. About 66% of customers expect companies to deliver personalized interactions. It’s no longer enough that customers receive the same experience every time they interact with an organization. They expect the company to remember their prior interactions, understand them as an individual, and provide relevant suggestions to help them. They’re also channel agnostic — they expect this personalization in store, online, and everything in-between.
The key question here is: How do corporations deliver mass personalization at scale across all customer interactions?
AI: The ultimate personalization engine
Luckily for these corporations, over the last 10 years, many new AI-driven customer experience tools have been developed. These tools remember previous interactions with customers and can provide personalized recommendations in future interactions. This often takes the form of direct interactions with the customer (via a chatbot, for example), or human-assisted interactions where a customer service representative interacts directly with a customer while consulting an AI system for recommendations on how best to help the customer.
A new, AI-powered digital experience for banking
There are many examples of stony-faced bank managers in pop culture. These stereotyped employees don’t care about the personal stories, situations, or circumstances of their would-be customers.
From sitcoms like Craig Robinson’s new show Killing It to dramas like the Marvel Universe’s The Falcon and the Winter Soldier, critical plot points hinge on characters facing an impenetrable wall of bureaucratic forms and the claims of the bank managers that they can’t do anything to help.
There’s some truth to these stereotypes as well. According to a recent J.D. Power study, only 44% of retail banking customers are satisfied with the level of customer service being provided.
Some banks have realized this trend and are using AI to improve customer service. For example, in 2019 Toronto Dominion (TD) Bank announced it was integrating AI into its retail banking app. Its goal was to deliver personalized, contextual advice to its customers without requiring them to fill out tedious forms or visit a physical branch.
When they started this initiative, TD’s customer satisfaction with their mobile app ranked fourth out of the six large banks in Canada. Since then, its ranking has risen to 2nd — barely behind the market leader.
There are financial benefits as well — academics have found that banks with higher customer satisfaction tend to generate higher returns. All of this evidence points to the idea that using AI to create personalized digital experiences can create better digital experiences, resulting in higher financial returns.
Fashionable design experience
In the classic novel Anne of Green Gables, Matthew wants to buy Anne a dress for Christmas. He’s bewildered by the choices at the general store and too embarrassed to ask for help. Instead, he next approaches his neighbor, the gossipy Mrs. Lynch, who promptly declares that she will use her own judgement and make it herself. She knows the colors that will look best on Anne, Anne’s personality, and her size, and she acknowledges Matthew’s final request for puff sleeves with a matter of fact, “I’ll make it up in the very latest fashion.”
Fashion startup Stitch Fix has realized the power of a stylish neighbor who understands personal tastes. Not only that, but it’s managed to replicate that experience using AI. New customers take a “style quiz” regarding their fashion preferences. That data then feeds into an algorithm which generates suggestions on what clothes would help their clients “look, feel and be their best selves.”
In June 2016, it expanded its algorithm with their in-house brand Hybrid Design, letting AI design new clothes to fit the specific customer rather than choosing from human-developed designs. This genetic algorithm combines different already-existing styles into new options. Human stylists review those results and iteratively adjust the generated designs based on their expertise, until a new design was ready to be sold. The results speak for themselves — many of the designs are now Stitch Fix’s highest selling products.
This AI-driven design has also uncovered potentially underserved markets to explore. According to Katrina Lake, then-CEO of Stitch Fix:
Customer loyalty: Everybody knows your name
In the theme song for the TV show Cheers, the lyrics state, “You want to go where everybody knows your name.” Throughout the series’ eleven seasons, the crowd in the bar shouts Norm’s name as he enters and Sam, the bartender, would immediately start pouring Norm’s beer, which would be sliding down the bar top right as he was settling into his usual stool. While fictional, Sam demonstrated how knowing his customer’s regular orders led to them choosing to visit his bar over any others.
In 2016, Starbucks started to overhaul their loyalty program with the goal of becoming the “most personalized brand in the world.” Unfortunately for its 18.9 million loyalty program members, it wasn’t feasible to train every barista in the world to be like Sam. As a result, Starbucks loyalty marketing team used AI to develop personalized offers and notifications based on each customer’s purchase history. When customers redeem their offers, the system displays information about the customer and order — allowing them to call the customer by name and begin making their favorite drink.
To their loyalty program members, it was like having a personal barista who knows what they like provide recommendations for bespoke drinks. This mass personalization was remarkably effective too, as revenue tripled from offers for Starbucks’ loyalty members.
Conclusion
These use cases only scratch the surface of what is possible when using AI for mass personalization. While the transformation can be difficult to achieve, companies such as Edward Jones, TD, StitchFix, and Starbucks have shown that the results are worth the effort. If you believe the demands for customer experience in your industry are changing too, now is the perfect time to start exploring AI
Slalom is a global consulting firm that helps people and organizations dream bigger, move faster, and build better tomorrows for all. Learn more and reach out today.
