Retailers are facing many headwinds as we approach year end. While a potentially damaging dockworker strike was temporarily averted, barring a permanent resolution it will resume on Jan. 15. And while third-quarter retail sales beat out Wall Street forecasts and holiday sales look promising, there is still looming uncertainty. Will falling interest rates continue to spur spending beyond anticipated levels? Will supply chains hold up? Moreover, the threat of tariffs looms large, potentially increasing costs for retailers and consumers.
To navigate these challenges and stand out in 2025, brands recognize that they must provide personalized customer experiences through a deep understanding of their customers. This, in turn, requires brands to listen to customer signals; are there changed behaviors, new patterns of engagement, unusual activity? Responding to these signals with a personalized experience demonstrates to the customer that the brand isn’t simply paying lip service to CX, but actually prioritizes one-to-one marketing.
As we head into 2025, we expect retail marketers to focus on delivering a personalized customer experience (CX), yet with a lot of variability in how to best accomplish their CX goals. Here, are three predictions for what we see in store for retail marketers in 2025:
1. Retailers close in on 1:1 personalization
1:1 personalization is critical for success in 2025. Personalization at scale enables companies to thrive, driving higher satisfaction rates, boosting conversion rates, and reducing sales and marketing costs.
Many retailers today are at the outset of their personalization journeys. They have consolidated their customer data and built a single customer view. This enables them to deliver personalized product recommendations and drive higher loyalty program engagement through personalized rewards and incentives. Or to suggest complementary products to customers based on a customer’s purchases or interests. Many have also started to optimize ad targeting with audience suppressions.
Yet basic personalization, while effective, has some limitations that become exposed when up against economic headwinds. An extended dockworker’s strike that wreaks havoc on supply chains, for instance, would make it more complicated to offer real-time product recommendations – such as in parallel with an abandoned shopping cart. The retailer would need real-time insight into data from multiple systems. And if consumer behaviors suddenly change due to an economic slowdown, a hyper-personalized experience must reflect any real-time change. Perhaps the customer will have a lower average monthly spend, which should then influence how a brand decides which products to recommend.
Successful retailers understand that the better they are set up to drive personalization – e.g., fewer data silos, dynamic segmentation, real-time omnichannel engagement – the better they will meet the challenges of an unsettled economy.
The best are closing in on 1:1 marketing through omnichannel personalization in which the retailer seamlessly integrates personalized experiences across every touchpoint, including website, mobile app, social media and in-store experiences.
Real-time personalization is also becoming a reality, where retailers personalize content or recommendations in real time based on user interactions or external factors such as location and time of day.
The most advanced retailers are also harnessing the power of AI to provide personalized experiences in the context of individual customer journeys. For instance, they’re using sophisticated models that continuously learn and adapt to deliver more personalized targeting and more accurate customer insights and next best actions. The longer a retailer retains a customer, the more sophisticated personalization becomes based on a deepening understanding of the customer.
Retailers that embrace 1:1 personalization will be best prepared to cope with any headwinds, whether related to economic uncertainty or unanticipated changes in customer behaviors.
2. Data readiness will become a top priority
Personalization is not possible without a deep understanding of the customer based on high quality data. Retailers know that inferior data produces inferior results – and introduces friction into a customer journey.
No one knows which new retail trend will spread like wildfire like the curbside pickup phenomenon, but every retailer wants to be ready when it hits. Meeting customer expectations for a superior customer experience requires a complete and accurate view of the customer.
To get that view, more and more retailers will prioritize automated data quality and identity resolution. We will see less tolerance for having to build and execute marketing campaigns based on old or inaccurate data. Meeting a customer with a compelling marketing moment in the context of the customer journey – up to and including real time – requires a unified customer profile that accurately represents a customer or household. Armed with a comprehensive and current understanding of their customers, retailers can confidently and creatively craft 1:1 marketing that is timely and relevant, delivered through the customer’s preferred channel.
Retailers will feel the data quality imperative even more when it comes to AI applications, like predictive modeling or AI-enabled chatbots. Nothing reflects the consequences of bad data more than AI. There are many recent example of chatbots misfiring, because they were trained on incomplete or outdated data – or worse, given vague directives like “make the customer happy.” And while these rogue decisions might amuse social media, they cost companies money, trust, and goodwill.
Let’s be clear: AI isn’t magic. It’s only as good as the data feeding it. Smart brands will start to think about AI trust and understand that AI-enriched information depends greatly on the underlying data.
3. Retailers will double down on customer retention
Retailers that accomplish #1, #2 will be better prepared to increase customer retention, which was a key priority in 2024 and which will remain so in the new year, especially with so much market uncertainty. In the Deloitte 2024 Retail Industry Outlook, retail executives identified the strengthening of loyalty programs as the top growth opportunity, knowing that trusted companies outperform their peers up to 4X, and that customers who trust a retail brand are 88 percent more likely to make repeat purchases.
Everyone is familiar with the well-worn statistic that it is 5X more costly to acquire a new customer than it is to retain an existing customer. Retention becomes even more vital in an era of economic uncertainty, where customers will move to a competitor to either chase a cost savings or in response to a poor experience. If customers tighten their purse strings, acquisition becomes more than just a cost concern, with retailers then having to compete for a slice of a smaller pie.
In practice, personalized CX drives retention. For example, the Deloitte study shows that retailers largely fail to meet customer expectations for a modern, personalized CX. Why? Because they lack a single customer view, and because they have siloed data. Curbside pickup was cited as a prime example of a modern CX that most retailers fail to execute without introducing friction into the customer journey.
A successful curbside pickup process increases retention because it demonstrates that the brand knows everything about the customer and uses that knowledge to deliver a hyper-personalized CX. Perhaps the retailer, knowing the customer is in route to pick up a product, sends an SMS to offer a discount on a complementary item that it knows the customer may need and – importantly – has not already purchased.
Or consider how a retailer might respond to a supply chain interruption. Perhaps the brand knows that a product that a customer buys regularly – e.g., a monthly dog food subscription – is going to be off the shelves and unavailable online. With an updated, trustworthy single customer view, the brand can take any number of steps to placate the customer – sending an email in advance that alerts the customer of a pending shortfall, offering a discount on a similar item, etc.
To guard against churn, successful retailers will take their retention strategy beyond the basics and execute personalization better than their competitors. That means taking steps to continue to refine personalization capabilities, which comes down to having the most complete and accurate single customer view.
Retailers may face some unexpected adversity in the coming year but putting personalization center stage means they can be ready for whatever change is on the horizon.
