personalization, AI, technology

Since the advent of the Internet, there has been a fundamental shift in power from institutions to individuals. We’ve seen it in the transition from push to pull, from broadband to narrowband and from mass to social media. While all of that is forcing change on companies, the retail market is facing its own particular challenges: the U.S. is over-stored, younger consumers aren’t shopping like the generations before them and Amazon has consistently disrupted the retail ecosystem.

In the last few years, industry reaction has been to double-down on traditional fundamentals, particularly cost-cutting. Unfortunately for retailers, those methods haven’t rescued anyone. A new attitude from marketers, therefore, is emerging. They’re becoming a bit braver, poking their heads up above the parapets and looking out into the future. They’re looking toward the next momentous step in the consumer evolution: personalization.

First, let’s define personalization: interacting with each individual, in each moment, wherever they are, based on everything known about them. There is a lot of focus on product-oriented personalization — for example, building the exact bicycle to my preferences. But those approaches are less universally applicable. At this moment in time, let’s consider interaction rather than product.

As a brand, why should you care about personalization? You should care because your customers care. A couple of years ago, I was talking with the chief marketing officer of an auto parts and accessories retailer. The company has a loyalty program, so they know each customer’s car make, model, year and mileage. She asked me, “Do you know how angry a Ford F-150 owner gets when we show him Chevy car seat covers?” Yes, I do.

I have the same reaction as a consumer because I’m tall and I have a very hard time buying clothes that fit. I’m extraordinarily loyal to the few brands that carry tall sizes and I am almost offended, and certainly put off, when I receive e-mails from those brands promoting products that they don’t carry tall sizes. That emotional reaction from consumers — “I thought you knew me! I thought you cared!” — is new. And it is powerful.

There is a natural tension between convenient and creepy — walk into a store and a sales associate I’ve never met greets me with “Hello Lucinda, welcome to our store,” and I’m likely to be put off. If you make me enter my information all over on your mobile app even though I buy online regularly, I’m going to be annoyed. There has been a significant change in consumer perception of experiences on the creepy-convenient continuum in the last five years. More and more customers want the convenience of retailers anticipating their needs — a fact well-documented by research studies.

For example, in a Swirl Networks study, 88 percent of consumers say they’re more likely to shop with retailers that deliver personalized and connected cross-channel experiences. A Marketo study reported that 78 percent of consumers will only engage offers if they have been personalized to their previous engagements with your brand. There is a clear financial payoff if you get it right; Boston Consulting Group recently reported that brands using technology and data to offer customers personalized experiences see revenue increase by six percent to 10 percent, two to three times faster than those that don’t.

Personalization is critical to convenience, too. The navigation on the web sites of those tall retailers I frequent should add a prominent tall link just for me when I visit the page. I should get emails when new tall styles arrive. Travel brands should know that when I’m booking an airport hotel I need business services and when I’m searching for hotels in Maui I want a spa. Those things make my life easier; let me get what I want done faster and easier. That kind of experience is fast becoming a cost of entry.

Deeper than convenience is relationship. One of the most powerful human needs is to be known, to be understood. We have relationships with companies, and want them to know us. When I walk into the coffee house near our office and the barista asks “decaffeinated latte with almond milk?” before I have time to order, I feel known and appreciated. When I call the customer service line of a brand I order from every few weeks and am given a hard time about a return, I feel hurt and angry.

The question for a retailer is, then, “What do I do?” Given the need for dramatic results with minimal available funds for investment, how on earth can a marketer today create individual experiences for your customers? The critical first step is to shift how you’re thinking. Traditionally marketers have sought the biggest audiences, trying to find the single approach that would satisfy the most customers. That is a necessary first step, but has a long-term effect: as you focus on the peak of the bell curve of your customers, you narrow your audience, and thereby constrain your own growth.

Previously, the next step was segmentation, through which you created lots of smaller audiences and optimized for them  according to categories such as new or returning, male or female, high or low and so on). Optimizing for each segment gives you lift, but as you slice up your customer base, the segments get smaller and smaller, so the lift from each additional cut gets smaller, while your costs rise as you add more work managing all those new segments. Eventually it’s just not worth it.

Personalization is not the process of slicing smaller and smaller bits until you have segments of one. That approach just doesn’t work in the real world because it is impossible to make a separate experience for each person. This doesn’t mean the quest for personalization is all lost, however. It just means that it needs to be thought about it a bit differently.

Take, for example, ice cream. If you want to give each of your million customers the perfect ice cream for them, you don’t need a million flavors of ice cream. Rather you have to be really good at knowing which ice cream flavor each customer prefers. If you’re segmenting, you’d set up a rule to give all kids strawberry, all women chocolate and all men vanilla because hypothetically 70 percent of kids prefer strawberry, 80 percent of women prefer chocolate and 55 percent of men prefer vanilla. This would please most of the people, but not all. What if instead you just gave every person the flavor they actually wanted? That’s personalization! You can’t do that with rules — but today, artificial intelligence enables you to do just that.

Today’s retailer climate is extremely challenging — there are fewer resources, more responsibility and customers are more demanding. The time is now to focus on personalized experiences to deepen relationships and drive ROI without increasing workload. What’s at stake? According to the previously mentioned Boston Consulting Group study, for the 15 percent of retail, health-care and financial services companies that get it right, personalization will push a revenue shift of $800 billion over the next five years. It’s time to get on board.

Lucinda Duncalfe is chief executive officer of Monetate. She has served on Monetate’s board for the past seven years and helped Monetate establish a multibillion dollar market for digital personalization.

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