What is personalization?

Personalization has emerged as a key strategy for businesses aiming to enhance customer experiences and drive engagement in today’s landscape. Gone are the days when simply including a customer's name in an email subject line was considered revolutionary. Today's consumers expect a much more sophisticated and tailored approach – one that offers them unique digital experiences that keep them engaged and loyal to the brand.

Personalization is all about understanding your customers on an individual level and tailoring your messaging, offers, and experiences to align with their specific wants, needs, and preferences. It's about creating a sense of connection and making customers feel heard, understood, and valued. From email marketing campaigns and social media interactions to retail catalogs and beyond, personalization allows brands to contextualize their content and interactions based on each visitor's unique profile and behavior.

Why is personalization important?

There are numerous compelling reasons why organizations should prioritize personalization in creating customer experiences. Let's explore two key factors that make personalization an essential component of any business today:

Your users expect it

In today's digital age, personalization has become the norm, and consumers have come to expect tailored experiences across various platforms and services. Think about popular streaming services like Spotify and Netflix – users have grown accustomed to receiving personalized playlists and content recommendations based on their listening and viewing habits. These personalized experiences not only save users time and effort but also enhance their overall satisfaction with the service.

The same principle applies to other industries and contexts. Consumers have grown accustomed to personalized experiences, and generic, one-size-fits-all approaches simply fall short in comparison. By failing to provide personalized experiences, brands risk losing customers to competitors who better understand and cater to their individual needs and preferences.

Personalization can drive revenue

Personalization taps into the emotional aspect of consumer behavior. By creating relevant and personalized experiences, brands can establish a deeper connection with their customers, fostering positive emotions and ultimately driving increased sales and customer loyalty, which in turn can lead to higher conversion rates and increased customer lifetime value. 

While personalization is often associated with enhancing the customer experience, it also has a direct impact on a company's bottom line. Research by McKinsey & Company has shown that personalization can reduce customer acquisition costs by as much as 50 percent, lift revenues by 5 to 15 percent, and increase marketing ROI by 10 to 30 percent. The research also showed that companies with faster growth rates derive a larger portion of their revenue from personalization efforts compared to their slower-growing counterparts.

What information can retailers use for personalization?

Personalization relies on gathering and leveraging various types of customer data. Here are some of the most common sources of information that retailers can utilize for personalization efforts:

• Demographic data: Customer segments can be created based on factors such as age, income, relationship status, gender, education level, and other personal characteristics. This information can help retailers identify trends within specific segments and tailor their messaging, product offerings, and merchandising strategies accordingly.
• Attitudinal data: This includes customer opinions, preferences, and feedback gathered through surveys, feedback forms, and other channels. This information can provide valuable insights into customers' perceptions of products or services, helping to identify where to focus search and advertising efforts.
• Behavioral data: By tracking customer behaviors throughout the sales journey, retailers can gain a deeper understanding of the motivations and decision-making processes behind purchases. This data can be leveraged to reduce cart abandonment rates, streamline the sales process, and encourage customers to explore complementary or related products.
• Interaction data: By monitoring how customers interact with a company's products, website, or employees, retailers can identify potential service gaps or areas for improvement. This information can be used to enhance the overall customer experience and foster stronger relationships with customers.
• Company data: This data includes information about a company's industry, location, size, and customer base. Using this data to create customer experiences can help them better target and pitch products or services to users and businesses most likely to make a purchase.

How can retailers customize the customer experience?

While most marketers recognize the importance of personalization, it is anticipated that in the coming years, personalization will transform the way companies approach marketing altogether. To prepare for this shift, retailers and brands should focus on the following key areas:

Create a customer data and analytics foundation

Building a strong foundation for customer data and analytics is essential for effective personalization. This includes implementing systems for pooling and analyzing data, developing algorithms to identify behavior patterns and customer propensities, and establishing analytical capabilities to feed this information into user-friendly dashboards.

By investing in these foundations, marketers can gain a deeper understanding of what their high-value customers are seeking on an ongoing basis. Additionally, it's crucial to break down data silos and ensure that customer data is centralized and accessible across departments. This enables employees to access key information and personalize interactions with customers more effectively.

Personalize in ways that are helpful for customers

Personalization should not be a one-size-fits-all approach; instead, it should be tailored to meet the specific needs and preferences of individual customers. Successful personalization starts with using data to understand your customers' behaviors, interests, and pain points.

From there, you can personalize the content, offers, and messaging that customers encounter at various touchpoints, such as:

• Advertising personalization: Use customer feedback and internal data to craft ads that resonate with prospects, keeping them engaged and increasing conversion rates.
• Website personalization: Tailor website content, including landing pages and value propositions, to speak directly to specific customer segments, boosting conversion rates and revenue.
• Search results personalization: Use customer search results to surface products that a customer is most likely to engage with and purchase.
• Upselling and cross-selling: Leverage customer data to recommend add-ons, upgrades, and complementary products that are most likely to be useful to individual customers during the shopping experience.

Protect customer privacy

Data privacy is a significant concern for many consumers, with 85% of customers stating that knowing a company's data privacy policies is important before making a purchase. As personalization efforts often involve collecting and analyzing customer data, it's crucial for companies to proactively manage privacy concerns.

This means demonstrating to customers that their data is being handled safely and ethically. Companies should adhere to relevant data privacy regulations, such as the General Data Protection Regulation (GDPR) in the European Union or the industry-specific privacy laws in the United States.

By prioritizing data security and transparency about data collection and usage practices, companies can build trust with their customers and maintain a positive reputation.

Avoid being creepy

While personalization aims to create a tailored and relevant experience for customers, there's a fine line between being helpful and being invasive or "creepy." Consumers expect brands to understand their needs and preferences, but they also value their privacy and personal space.

To strike the right balance, merchandising teams should listen intently to customer feedback and preferences, and use appropriate tactics to offer personalized experiences that feel natural and unobtrusive. For example, if data shows that a customer prefers gluten-free products, you could personalize website content to recommend gluten-free recipes or product recommendations, without delving too deeply into personal details or making assumptions.

By pairing personalization efforts with marketing automation and a deep understanding of customer expectations, brands can provide tailored experiences that enhance the customer journey without crossing the line into creepiness.

Examples of personalization

Amazon

Amazon has long been a pioneer in the realm of personalization, using sophisticated analytics to shape its approach. Over time, Amazon has expanded its personalization offerings to include recommendations for complementary products, bundled items, and personalized emails based on a customer's purchase history and browsing behavior.

One of Amazon's latest personalization initiatives is Amazon Prime Wardrobe, a personal shopping service exclusively for Prime members. Customers complete a style and fit preference survey, and a team of stylists provides personalized recommendations from a vast selection of brands and products.

Amazon's commitment to personalization has set a high bar in the industry, but smaller retailers are also finding innovative ways to personalize the customer experience.

Spotify

Spotify, the world's leading music streaming platform, has set a high bar for personalization in the digital entertainment industry. The company's personalization efforts are driven by its sophisticated algorithms and vast troves of user data.

One of Spotify's most iconic personalization features is its "Discover Weekly" playlist. Every Monday, each user receives a unique playlist tailored to their music preferences, introducing them to new artists and songs based on their listening history. This feature has become a fan favorite, as it helps users discover new music they are likely to enjoy without requiring them to actively search for it.

In addition to "Discover Weekly," Spotify offers a range of other personalized playlists, such as "Daily Mix," which combines a user's favorite tracks with new recommendations, and "Release Radar," which highlights new releases from artists the user follows or listens to frequently.

Spotify's personalization extends beyond playlists, too. The platform's home screen is tailored to each user, showcasing recommended albums, artists, and playlists based on their listening habits. This personalized approach makes it easier for users to find content that aligns with their tastes, enhancing their overall experience with the platform.

Moreover, Spotify's year-end "Wrapped" campaign has become a cultural phenomenon, providing each user with a personalized overview of their listening habits throughout the year. This feature not only offers a fun and shareable experience for users but also reinforces the value of Spotify's personalization capabilities.

By leveraging user data and machine learning algorithms, Spotify has created a highly personalized music streaming experience that keeps users engaged and loyal to the platform.

Nike

Nike, a leading athletic apparel and footwear company, has embraced personalization in both its digital and physical retail experiences. The company recently launched a 3D sneaker customization platform, allowing customers to design and visualize their unique footwear in real-time.

Nike's personalization efforts extend to its physical retail locations as well. The Nike flagship store in New York City offers an omnichannel shopping experience driven by the NikePlus loyalty program. Members receive personalized benefits, such as access to exclusive product assortments, reserved pickup lockers, and one-on-one appointments with Nike experts for personalized fitting and recommendations.

By leveraging personalization across multiple touchpoints, Nike creates a seamless and tailored experience for its customers, fostering loyalty and driving engagement.

Personalization vs. Customization

While personalization and customization may seem similar, there is a distinct difference between the two concepts. With personalization, the company modifies the experience based on customer data and behavior, without requiring any effort from the customer.

Customization, on the other hand, allows the customer to intentionally modify the experience themselves. For example, in an e-commerce setting, customization allows customers to filter and sort products based on their specific criteria, such as color, size, or price range. This is an intentional action taken by the customer to tailor the experience to their preferences.

Personalization, however, aims to deliver a similar tailored experience without requiring the customer to take any action. For instance, an e-commerce site could analyze a customer's browsing and purchase history and automatically display products that align with their demonstrated preferences at the top of the page, making it easier for them to find relevant items.

While both personalization and customization aim to provide a more relevant and tailored experience, the key difference lies in the level of customer effort required. Personalization happens automatically based on customer data, while customization requires the customer to actively adjust the experience to their liking.

AI in Personalization

Artificial intelligence (AI) is significantly transforming the landscape of personalization by adding a layer of sophistication and precision previously unattainable. Central to AI-driven personalization is the capability to analyze enormous datasets and derive actionable insights. This allows businesses to tailor their offerings with an unprecedented level of accuracy, aligning closely with individual customer preferences and behaviors. Utilizing machine learning algorithms and predictive analytics, AI facilitates the delivery of highly personalized experiences in real-time, greatly enhancing customer satisfaction and loyalty.

AI-driven personalization is evident through advanced product recommendations and customized marketing strategies. AI-powered recommendation engines explore a customer’s past purchases, browsing habits, and the behaviors of similar users to suggest products that are most likely to catch their interest. This not only enriches the shopping experience but also boosts conversion rates and customer retention. 

Tips on offering a personalized experience

In today's competitive business landscape, offering a truly compelling and personalized customer experience is no longer a luxury – it's a necessity for driving growth and fostering customer loyalty.

By leveraging customer data, investing in analytics foundations, and prioritizing privacy and personalization best practices, brands can create tailored experiences that resonate with their customers on an individual level.

To effectively incorporate a personalization program in your retail or brand store, consider the following steps:

Start with a targeted use case

Rather than overwhelming customers with an abundance of personalized content from the outset, it's advisable to introduce tailored content gradually, based on customer actions and preferences. This allows customers to become acclimated to the personalized experience without feeling overwhelmed or invaded.

Test and iterate before expanding

Continuously test and refine your AI-enhanced personalization strategies. Collect feedback from customers and analyze their responses to personalized content, making adjustments and improvements based on their behaviors and preferences.

Consider adding a human touch

While AI can help generate personalized recommendations and content, it's essential to maintain a human element in customer interactions. A personal touch can make the experience feel more genuine and foster a deeper connection with your brand. For example, while AI algorithms may suggest relevant product recommendations, having knowledgeable company representatives available to provide personalized advice and guidance can enhance the overall experience.

Remember, personalization is an ongoing journey, and as consumer expectations evolve, brands must continuously adapt and refine their approach. Embracing emerging technologies like AI while maintaining a human touch can help businesses stay ahead of the curve and deliver exceptional personalized experiences that keep customers engaged and loyal.