‘Brands leveraging AI to personalise marketing at scale; may lead to consumer fatigue’

In a recent lecture for Harvard Business School (HBS), Professor Sunil Gupta spoke about creative ways in which one can leverage AI in marketing and business. His discussion framed around the traditional four P’s of marketing—product, price, promotion and place—highlighted how AI is not only enhancing marketing efforts but also raising important questions about the future of consumer engagement and advertising costs.

“AI has taken the world by storm,” Gupta began, noting, “Lots of people are adopting it, and I’m sure all of you have already tried it in some form or another.” He pointed to the growing investments in AI, noting that recent research by Goldman Sachs forecasts up to $200 billion in AI investments in the near future.

Gupta showcased how AI has been transforming product design, using a collaboration between Nike and French company Obvious Art as a prime example. Nike provided historical data on its Air Max sneakers to Obvious Art, who used generative AI to create a new, limited-edition design. “Once that shoe was launched in a limited edition, the whole inventory was sold out within 10 days,” Gupta said.

Gupta also performed a live demonstration, using ChatGPT to generate names and designs for a hypothetical beauty cream aimed at Gen Z. In real-time, AI tools created product names, packaging designs, and even a promotional jingle, by the song generation AI, Suno. “You can go through multiple iterations if you don’t like the first one,” he explained, emphasizing how this kind of creative speed is now available even to startups and small businesses.

When it comes to promotion, Gupta illustrated how brands are leveraging AI to personalize marketing at scale. Beauty giants like Olay and L’Oréal use AI-powered tools to recommend products based on facial recognition, and companies like Meta and Google use AI to automate ad budget allocation.

However, Gupta cautioned that while AI initially reduces marketing costs, it could lead to consumer fatigue. “As more companies start doing this, consumers will be bombarded with ads. Eventually, the cost of media will go up because the effectiveness of ads will go down,” he warned.

He cited Cadbury’s award-winning AI campaign featuring Shah Rukh Khan and Coca-Cola’s “Create Real Magic” campaign as a case study in AI-driven creativity. Consumers from around the world submitted over 120,000 AI-generated designs for the latter, with the top submissions displayed in Times Square. “Coke saw a 16,000% increase in brand engagement,” Gupta noted, underscoring AI’s potential for global outreach and engagement.

On pricing, Gupta delved into the mechanics of dynamic pricing, where AI algorithms continuously scan competitors' prices to adjust in real-time. While this may seem like a win for consumers, Gupta explained the hidden dangers, noting, “Research shows that as AI algorithms become more widespread, they may result in implicit price collusion.”

According to Gupta, companies like Amazon and Walmart, which constantly monitor each other’s prices, might inadvertently keep prices stable, removing any incentive to lower them. This could drive long-term price increases, prompting concerns over the need for government regulation.

AI’s role in distribution is also growing, particularly in reducing consumer pain points. Dr. Gupta described how retailers can use AI technologies to enhance the in-store shopping experience. “Imagine going to a hardware store and trying to find a specific valve for your faucet,” he said. “AI-powered image recognition could help you identify the product and direct you to the right shelf instantly.”

AI is also revolutionizing checkout processes. Gupta highlighted Amazon Go’s cashier-less stores, where facial recognition technology enables customers to pick up items and have their purchases automatically billed to their accounts. “Why do retailers make you wait to take your money?” he joked, stressing that AI offers simple solutions to long-standing frustrations.

With more retailers moving online, Gupta noted that retail media is becoming an increasingly important revenue source. Companies like Walmart and Amazon are using AI to optimize their advertising budgets, creating a lucrative new income stream. “Last year, Amazon made $47 billion on advertising alone,” Gupta revealed. “And that’s not even their main business.”

While AI offers unprecedented opportunities for creativity, personalization, and cost savings, Gupta warned that its long-term impact on the marketing industry could be mixed. In the short run, AI will improve marketing efficiency, but over time, companies may face rising media costs as consumer engagement diminishes due to ad overload.

Sunil Gupta is the Edward W. Carter Professor of Business Administration at HBS and teaches HBS Online’s Digital Marketing Strategy certificate course. His award-winning research examines digital technology’s impact on consumer behaviour and organisational strategy, and how businesses should transform amidst digital transformation and disruption.