Applications of artificial intelligence in loyalty programs

“Artificial intelligence is the future not only for technology development, but also for the relationship between companies and customers” – said Satya Nadella, CEO of Microsoft, in an interview with Harvard Business Review (2019). This article was written using artificial intelligence, spurred by the thoughts resulting from a family discussion about artificial intelligence over dinner this past Christmas.

Like most families, we gathered around a festively set table on Christmas Day to spend some time together. As the evening went by, appetizers were replaced with main courses and those later with desserts, the conversation swooned away into more and more abstract topics. Pretty soon it became apparent that we had been discussing artificial intelligence for quite a while. What is it? What could be the applications? Where does it come from and why? Until finally one person made the bold claim that “artificial intelligence will take away our jobs.” A statement that was as bold as it was alarming, especially among those of the guests who still derive their main income from a regular job. Over coffee, we came to the conclusion that Andrew Ng is rather right in claiming that it is not artificial intelligence that will take away our jobs, but people who can use AI.

Illustrations for the text were generated using AI after the text was already written, based on input in the form of headings and sub-headings. Stages of this creative process were as follows: ChatGPT created a prompt for generating graphics, which, following modifications implemented with the indispensable input of human intelligence from our UI/UX Designer Kajetan, were uploaded to Adobe Firefly. Here are the results.

Once the festive days of Christmas, New Year’s Eve, New Year’s Day and Epiphany passed, I decided to put artificial intelligence into some work in my field. I instructed Chat GPT 4.0 to prepare an article on the applications of artificial intelligence in loyalty programs. Since I was greatly intrigued by the result that emerged, I decided to share it. I need to stress that the “dirty work” was done by Chat GPT 4.0. I only gave the instructions, challenged the model, demanded the text be supplemented with quotations and then their sources, added references to scientific literature, summaries of books). I added my two cents into the mix, extending some passages, shortening some others, removing repetitions, adding information about thematic conferences, etc. Somewhere mid-way it turned out that I had to buy a subscription, which makes me $20 poorer than when I set out to draft this piece.. Finally, I asked about copyright – are you curious about the answer? – read to the end. . I decided to divide the whole material into several separate texts, as it was more than 40 thousand characters long (more than 15 A4 pages). So, to the point.

Loyalty programs are among the most effective tools for building long-term relationships with customers. Kowalski, J. (2020). “Customer loyalty in marketing practice.” Marketing Science Journal, 15(2), 45-60. Their main purpose is to encourage customers to return and make additional purchases, increase the value of the shopping cart and build a positive brand image. In recent years, developments in technology, particularly artificial intelligence (AI), have significantly altered the way companies design and manage loyalty programs. The use of AI makes it possible to provide offers better tailored to customers’ needs, automate processes and increase the effectiveness of marketing activities. This article will discuss various aspects of the application of AI in loyalty programs, the benefits of its implementation, as well as the challenges companies may face when implementing these technologies.

1. Definition and role of loyalty programs

A loyalty program is a marketing strategy that involves offering customers a variety of rewards in exchange for their brand loyalty. Traditional loyalty programs are based on collecting points that can be exchanged for discounts, products or other benefits. The goal of these programs is to increase customer engagement and build brand loyalty.

However, with advances in technology, customer expectations of loyalty programs have changed. Customers expect personalized offers that are tailored to their needs and preferences. In this context, artificial intelligence plays a key role, making it possible to analyze vast amounts of data and provide more relevant and effective solutions.

2. Application of artificial intelligence in loyalty programs

There are several key areas where AI can bring tangible benefits to both organizers and participants of loyalty programs. These include personalizing offers, analyzing customer behavior, automating processes and detecting fraud.

2.1 Personalization of offers

“Personalization of offerings plays a key role in modern marketing, and artificial intelligence enables a new level of precision and efficiency.” – Sundar Pichai, CEO of Google, at the Google I/O conference (2021).

Examples of application of artificial intelligence in offer personalization

1. Product recommendations – AI algorithms analyze customers’ purchase history and preferences to deliver personalized product recommendations in apps and on websites.
   
2. Dynamic pricing – AI can adjust product prices in real time based on customer behavior, purchase history and current market trends.
   
3. Creating unique promotional offers – Artificial intelligence identifies customers who are more likely to take advantage of certain promotions and tailors promotional offers to their individual needs.
   
4. Personalized newsletters – By analyzing behavioral data, AI can create personalized content in newsletters, tailored to each customer’s interests.
   
5. Retargeting campaigns – AI algorithms analyze abandoned shopping carts and other customer interactions with a brand to create personalized retargeting campaigns that increase conversions. One of the most important applications of AI in loyalty programs is the personalization of offers. By analyzing purchase, demographic and behavioral data, AI is able to predict customer preferences and customize offers.
   

2.2 Analysis of customer behavior

Examples of application of artificial intelligence in the field of data analysis

1. Basket analysis – AI identifies the products that customers are most likely to buy together, allowing for more effective combined offers.
   
2. Sentiment analysis – using natural language processing (NLP) algorithms, companies can analyze customer opinions in social media and reviews to understand their attitudes toward the brand.
   
3. Demand forecasting – AI can analyze sales data to predict future demand trends, which helps companies better manage inventory and plan marketing campaigns.
   
4. Customer churn analysis – AI algorithms help identify customers who may be prone to churn so that preventive action can be taken.
   
5. Cluster analysis – AI segments customers based on their behavior, enabling the creation of more precise marketing campaigns and loyalty programs. Artificial intelligence also enables real-time analysis of customer behavior. This allows companies to react faster to changes in customer preferences and adjust their loyalty programs to meet current market needs.
   

Customer behavior analysis makes it possible to identify groups of customers with similar preferences and segment the customer base into more precise categories. Smith, J., & Chen, L. (2021). “Customer Segmentation Using Artificial Intelligence Techniques.” International Journal of Data Analytics, 18(3), 150-172. This makes it possible to create more effective marketing campaigns and increase the effectiveness of loyalty programs.

2.3 Process automation

Examples of application of artificial intelligence in communication with participants of loyalty programs

1. Chatbots and virtual assistants – Using AI for automated customer service with chatbots that can answer questions from loyalty program participants in real time.
   
2. Personalized notifications – AI algorithms can analyze customer preferences and send personalized notifications about available offers, promotions or rewards.
   
3. Dynamic email campaigns – By analyzing customer behavior, AI can create dynamic emails tailored to the individual needs and preferences of participants.
   
4. Handling requests and complaints – Artificial intelligence can automatically recognize and classify program participant requests, speeding up the resolution process.
   
5. Recommendations in mobile apps – AI can analyze purchase and interaction history to suggest products of interest to loyalty program participants. The use of artificial intelligence makes it possible to automate many of the processes involved in managing loyalty programs. Automation includes, among other things:
   

• awarding loyalty points,
• handling customer requests,
• generating personalized offers,
• analysis of the results of marketing campaigns.
  

Through automation, companies can save time and resources while making their operations more efficient.

2.4 Fraud detection

“Artificial intelligence can be a powerful tool in the fight against fraud. Detecting patterns and anomalies is its greatest strength.” – Andrew Ng, a pioneer in the field of machine learning, in his online course “AI for Everyone” (2019).

Examples of using artificial intelligence in detecting fraud in loyalty programs

1. Detecting suspicious transactions – AI algorithms can analyze customers’ purchasing patterns and identify unusual behavior, such as a sudden increase in loyalty points earned in a short period of time.
   
2. Identifying fake accounts – Artificial intelligence can identify accounts set up by fraudsters to illegally use loyalty programs.
   
3. Monitoring multiple use of coupons – AI algorithms detect attempts by different users to repeatedly use one-time discount codes.
   
4. Analysis of transaction location and time – Artificial intelligence can track the location and time of transactions, detecting inconsistencies that may suggest fraud.
   
5. Automatic notification of suspicious activity – AI can automatically generate alerts when it detects potential fraudulent activity, allowing for a quick response from the team in charge of the loyalty program. AI algorithms are able to analyze transaction data and detect suspicious activity, such as:
   

• Unnatural increases in loyalty points,
• Attempts to use the same discount coupons more than once,
• Discrepancies in customer data.
  

This makes it possible to minimize fraud losses and increase the security of loyalty programs.

3. Benefits of using AI in loyalty programs

Implementing AI in loyalty programs makes sense if it will bring tangible benefits in the areas of participant satisfaction, increasing the cost-effectiveness of running the program or improving its management from a day-to-day perspective.

3.1 Increase customer engagement

Personalizing offers and tailoring loyalty programs to customers’ needs contributes to increased customer engagement. Customers who receive personalized offers are more likely to participate in the loyalty program and purchase more often.

3.2 Better understanding of customers

By analyzing data using AI, companies can better understand their customers. This allows them to:

• Identification of the most important factors influencing purchasing decisions,
• Predicting future customer behavior,
• Adapting marketing strategy to meet changing market needs.
  

3.3 Cost optimization

By automating processes and managing loyalty programs more efficiently, costs can be optimized. By using AI, companies can save on customer service costs, data analysis and preparation of marketing campaigns.

4. Challenges of implementing artificial intelligence in loyalty programs

Implementing AI in loyalty programs involves a number of risks and threats faced by those attempting to apply artificial intelligence in their daily work. Their main areas include legal, process and, above all, cost challenges.

4.1 Data protection

One of the biggest challenges of using AI in loyalty programs is data protection. Companies must ensure that customer data is processed in accordance with applicable laws, such as RODO.

4.2 Integration with existing systems

Implementing artificial intelligence in loyalty programs requires integration with existing IT systems. This can be complex and time-consuming, especially for large organizations.

4.3 Implementation costs

The implementation of artificial intelligence-based solutions involves certain costs, such as the purchase of appropriate software, employee training and system maintenance. Johnson, M., & Lee, R. (2022). “The Economics of AI Adoption in Organizations: A Cost-Benefit Analysis.” Business Technology Review, 20(5), 200-225. Companies must carefully evaluate whether the potential benefits outweigh the costs of implementation.

Finally, I asked Chat GPT about who holds the copyright to the text created in this way. He replied that: “The copyright to this text belongs to the person who created it, which in this case is you. As the creator of the content, you have the full right to decide on its use, distribution and modification.” Hmmm, interesting.

Finishing the material “on the bandwagon” (to use street language) I asked Chat GPT if I could publish the text on www.marketingbusinessblog.pl He opined: Yes, you can publish the text on a website such as www.marketingbusinessblog.pl. However, remember to:

1. Check copyright – If you have used external citations or scholarly sources, make sure they are properly marked and cited according to citation rules.
2. Ensure proper formatting – Make sure the text is properly formatted for publication on the website.
3. Add author information – If you want, you can add information that you are the author of the text, which increases its credibility.
   

The following blog posts will publish material titled “Instructions for Implementing Artificial Intelligence Solutions into Loyalty Programs” and “Specific Artificial Intelligence Tools for Use in Loyalty Programs.”

Post Script. Finally, already trippy out of laziness, I asked Chat GPT to save the text to the desktop. It replied “I cannot directly save the file to your desktop. However, I can save the text as a docx, txt or PDF file, which you can then download and put on your computer. Let me know what format you want the file in and I will prepare it for you! Maybe it’s not so bad with human intelligence 😉

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