It’s a precarious position for companies: the consumer is warier and more astute but also expects a bespoke experience – an experience constructed by information gathering that data and analytics tech tools make possible.

How do companies navigate this delicate balance between serving customers while also respecting their privacy? How should companies think about deploying the technology required to meet modern customer demands, while at the same time protecting the ‘human element’ that this same technology threatens? And most importantly, how can companies develop meaningful, individualized relationships with each of their customers, while leaning into the inevitability of digitization?

No More First Dates

The changes we are experiencing as a result of digitization are not happening in a vacuum. Consumer preferences, behaviors and expectations are transforming alongside these seismic technological shifts.

From a consumer perspective, the biggest change of all in the last decade has been the rise of social media, which has had impacts at the meta-level (no pun intended), especially in terms of building “crowd cultures.”² Consider just a few years ago when we didn’t share our lives with the world online. Now, we’re connected to so many people that we can’t possibly know and have deep relationships with each of them. The rise of social media has empowered consumers to share so much information about themselves online. That information is in the ether for brands to devour.

While this shift means there are a lot more ways to reach consumers, it also, crucially, means that there is an increased expectation on the part of the consumer that the more they put out there, the more brands should know and understand things about them. A Salesforce report even found that more than half of consumers expect every offer to be personalized.³

This relationship is akin to the mutuality of friendship: Consumers feel that because they’ve told brands about themselves, they expect brands to reciprocate. Customers who become frustrated after experiencing a series of negative interactions with a company, feels like a series of ‘bad first dates,’ where they ask you your name every time you meet.

These expectations aren’t entirely new. If you go to your favorite coffee shop every day, eventually your barista will likely know your name, order and other facts about you. Just a few years ago, that expectation existed in the online space if you’d engaged with a brand before. Now, with cookies, consumers feel brands should know them even without having previously having interacted. There is an absolute expectation that consumers must be recognized and treated accordingly. Relationships have to be even more personalized for repeat and high-value customers.

On the flip side, there is a deep expectation for transparency on the part of the company and being open about what they are doing. Consumers demand that companies protect data as brands race toward achieving trusted brand status, with a McKinsey survey finding 87% of respondents would not do business with a company if they had concerns about its security practices.⁴

Further, when it comes to selling to consumers in different markets in this global economy, behaviors, definitions of trust, relationships with brands and how consumers interact digitally are all very different depending on the region. If you’re uniquely selling to customers, expectations are different by market and brands must be super specific to these regional differences. For example, how we use customer data to personalize in the U.S. is extremely different from how we use data in Europe, where privacy concerns are much higher.

Consumers also hold underlying expectations around speed or urgency. In just two decades we’ve moved from being excited that we could order things online at all with 5-10-day shipping to expecting groceries delivered in 30 minutes. We can get the things we want, delivered where we want, when we want them (which is now).

These expectations can vary by generation. By way of example, if my parents, who are in their late 70s, want a product now, they expect to go to a shop to get it. If it’s not there, they accept that they won’t get it now. Meanwhile, my children expect that if something is online, it will come immediately. Consider the case of food delivery. In New York City, you can have anything you want, at any time, in 15 minutes or less. The digitally native younger generation has grown up with that.

Taking Things to the Next Level

More recently, we’re starting to see an even darker side of AI, including through chatbots. With the rise of ChatGPT, many tech companies are racing to see how they might leverage AI chatbots to build relationships. These results are highly mixed and often unnerving, including, in a now-famous example, when a Bing chatbot tried to convince a New York Times reporter that they were unhappy in their marriage.⁶

While these examples are alarming in their infancy, brands are also beginning the more positive migration from customers needing to take action to companies prompting action for customers. For example, wouldn’t it be amazing if you could keep things in stock all the time without thinking about it?

Retailers know patterns about what and how often we purchase items through AI, fridge magnets and cameras, digital assistants like Alexa, and even Roombas. Could Walmart, then, restock groceries for customers without the customers having to realize they are out of milk? Could retailers, through their customer datasets, drop off other recommended items in the home like baby clothes for new parents or the next book in a series for avid readers? Can brands get to a point where customers don’t have to think about their orders – they will just happen? The possibilities are exciting, but the caution goes back to this scary world where customers are being given a view developed to get them to do what brands want them to do. Eventually, the fight will be to be the one to control the customer data and drive the decisions customers make.

More recently, we’re starting to see an even darker side of AI, including through chatbots. With the rise of ChatGPT, many tech companies are racing to see how they might leverage AI chatbots to build relationships. These results are highly mixed and often unnerving, including, in a now-famous example, when a Bing chatbot tried to convince a New York Times reporter that they were unhappy in their marriage.⁶

While these examples are alarming in their infancy, brands are also beginning the more positive migration from customers needing to take action to companies prompting action for customers. For example, wouldn’t it be amazing if you could keep things in stock all the time without thinking about it?

Retailers know patterns about what and how often we purchase items through AI, fridge magnets and cameras, digital assistants like Alexa, and even Roombas. Could Walmart, then, restock groceries for customers without the customers having to realize they are out of milk? Could retailers, through their customer datasets, drop off other recommended items in the home like baby clothes for new parents or the next book in a series for avid readers? Can brands get to a point where customers don’t have to think about their orders – they will just happen? The possibilities are exciting, but the caution goes back to this scary world where customers are being given a view developed to get them to do what brands want them to do. Eventually, the fight will be to be the one to control the customer data and drive the decisions customers make.

How to Make Friends

Making “friends” with your customers means being a responsible brand. What would it take to be a leader of a responsible brand in this environment? Consumers demand absolute, radical transparency about what brands are doing with their information. They also recognize there are tradeoffs.

Brands must be clear to customers about how they will use customer information and articulate the benefits of giving more information.

For example, if you provide your email address, you will be able to receive personalized ads and recommendations, or we can save you time on your next visit. If you provide your zip code, we can offer in-store pickup. If you share your birthday, we can send you a discount code. Consumers can differentiate among the benefits and decide what they’re willing to share. And when brands stick to their word and lead their customers safely along that journey, it drives trust and enhances the relationship.

Sometimes we disaggregate the digital and physical world, but we shouldn’t do that as many of the lessons of the physical store are still relevant online. For example, it would be absurd to remove an item from the cart of a customer going through the Walmart checkout line in-store, so why would we let that same customer get to checkout online, only to remove an item at that stage in the journey?

New Rules of Engagement

With this shifting landscape, it’s a small wonder that regulators have taken steps to moderate the impact on consumers in this new space. This regulatory perspective is needed in terms of protecting data privacy. We’ve seen the unfortunate impact of what can happen by not having regulation (consider the case of Cambridge Analytica).⁷

To avoid serious breaches, there are natural areas companies must invest in when it comes to cybersecurity. These include making sure highly personal customer data is being housed and used securely and is not replicated unnecessarily across the organization. Cybersecurity might take significant investment, but it is table stakes for customers.

There will also be a call for retailers to temper the temptation to use ubiquitous information from customer devices. In this era of predictive behavior, how much information are digital assistants capturing? More than ever, brands must maintain trust in the eyes of their customers since things are going to move fast with how this information is used.

However, brands will also be facing a challenge of a different sort shortly, as changes with third-party data start to take effect. Companies will no longer be able to simply get customer data – they will have to ask for it. It also means advertisers will have to think of different ways and places to show up, which has already led to a massive increase in retail media businesses like we’re seeing at Amazon. Brands need to show up in places where customers will be (and where the first-party data exists). In some ways, friendship takes more effort, but the stakes remain high since every time a company lets a customer down, it’s a problem.

Of course, just because a company has lost consumers’ trust in the past doesn’t mean they’re gone forever. Many see social media companies in a trusted way now – or if consumers don’t trust them, there is enough stickiness to where they use these platforms every day. This trust has a generational bend at both ends of the spectrum. We see that younger generations tend to cancel quickly but may be willing to come back more promptly. Older generations might be less quick to rush to judgment but are harder to win back.

Building a Relationship to Last

With the dawn of the possibilities AI offers, companies are hurrying to figure out how to leverage these technologies to improve the customer experience while balancing customer privacy.

Up to this point, we’ve not had ways to evaluate companies’ risk profiles when it comes to their digitization efforts until something goes horribly wrong (like a data breach) and we see precipitous decline. From an investor perspective, we must demand that companies articulate the investments they’re making to shore up their security and marketing infrastructures and press to make sure companies are secure. We have to pressure test their digital practices in marketing, customer service and anywhere else they’re capturing or using customer data, because with all this information comes a responsibility to protect it.

From a brand perspective, companies must be cautious in this new world. The sky is the limit when it comes to AI, but companies must know their customers well enough to know where the line is. It goes back to friendship: If you want information from customers, ask for it and be transparent. Ask if they’re okay with your using their information in a certain way. And own your relationship with your customers.

Customers, like friends, have standards. They know what trust is, and it should not be compromised. In the next decade, the companies that will win will be the ones that can invest in and grow the customer experience – in particular through AI – while maintaining consumer confidence in their privacy. Long-term relationships will still be critical for brands to drive higher lifetime value, but achieving those relationships will mean a greater level of personalization than ever before.