Part II: The Personalization Debate
[The following is part of a six article series on CRM by Ashley Friedlein, CEO of London-based e-consultancy.]
The Personalization Consortium defines personalization as "the use of technology and customer information to tailor electronic commerce interactions between a business and each individual customer." The purpose of personalization, they say, is to:Better serve the customer by anticipating needs
Make the interaction efficient and satisfying for both parties
Build a relationship that encourages the customer to return for subsequent purchases.
You might also add to that other business objectives such as improved customer retention, more effective marketing, greater customer insight, higher conversion rates, increased switching costs, higher order values and share of wallet, etc. Essentially, personalization promises to deliver on the core CRM objective of improved value to both customer and business.
On a larger level, personalization, enabled by technology, is about trying to recover the highly individualized levels of customer service apparent in the era of the village economy, while retaining the cost advantages delivered by the industrial revolution and the mass-market economy. And since today's customers prize service and their own time above all else (yet they also expect highly competitive pricing) technology-enabled personalization can make this possible.
The practice of personalization online has so far come up against the following realities:
Privacy, security and regulatory challenges: If you have ever had to deal with the complexities of data protection across multiple international jurisdictions you will appreciate just how complex (and expensive) this can be to get right.
Cost: Achieving real-time personalization is very expensive, often prohibitively so. Systems integration and maintaining accurate data alone are expensive mountains to climb.
Skills gap: There is minimal expertise in how to successfully implement personalization. (Most implementations of enterprise personalization platforms that I know of are actually being used for content management and not personalization--yet.)
Return on investment: In these troubled times any spending must show a clearly demonstrable ROI, and there hasn't yet been enough published proof that personalization actually delivers this. In fact, in some cases there is evidence that personalization actually destroys value, e.g. through losing customers whose preferences have been incorrectly inferred by a personalization engine.
It takes time for users to use personalization features: Very few site users leap into personalization right away. They first have to establish a relationship of trust and comfort with the site. It takes time to configure personalization features and time is precious, so uptake is by no means swift or guaranteed.
Multi-channel challenges: Achieving cross-channel, integrated personalization (which requires the "single customer view") is a very large systems, data and process integration job. Furthermore, different digital devices (mobile, TV, PC) have specific technology considerations (e.g. most mobiles do not support cookies and most interactive TV users do not have keyboards making text entry).
With so much distrust in the market about the value of personalization, is there any evidence to prove that it really works? My experience convinces me that, if done properly, it can be an extremely powerful driver of value for both customer and business. One interesting example of effective use of personalization is The average repeat buy rate for all customers is around 36 percent. But for customers who have been through Virgin Wines' CRM program, which is designed to increase loyalty and returns per customer, the repeat buy rate goes up to 50 percent on average. Additionally, the buy rate exceeds 70 percent for those customers who have used any of the personalization features.
HREF="http://www.virginwines.com" target="_blank">Virgin Wines, a UK-based e-tailer. Relevant features include a personalized homepage, access to an individual account, personal wine recommendations, ratings of wines and a private wine cellar where previous purchases are located. Aside from the value this provides each customer, it has benefited the business as follows:
Those customers that do have a personalized relationship with the site naturally upsell themselves over time. The more involved the customer and the longer she has been a customer, the higher her average spend over time. As levels of trust and personalized involvement grow, the higher the switching barriers and, correspondingly, the lower the churn rates.
Personalization allows Virgin Wines to selectively make offers to different customer segments. Some customers need tempting to make a (repeat) purchase and a special promotion works well to acquire that custom. And some customers are more tempted by a premium product at full price. This form of dynamic pricing based on knowing who the customer is clearly maximizes returns.
Personalization works for content as well as commerce sites. On
HREF="http://www.e-consultancy.com" target="_blank">www.e-consultancy.com we introduced personalization features nine months ago. These include personalized e-mail alert services, a personalized homepage letting users know what has changed on the site since they last visited, as well as the usual profile management tools. We have found that over 90 percent of the site's most frequent visitors are users of the these services and, notably, the time between when a user registers and when they first contribute content to the site is halved.
From what we have seen of online personalization so far I would make the following observations:Personalization should feature as part of any eCRM program, as it is an extremely powerful means of building relationships
Done properly, personalization does work both for the customer and for the business. The 1-to-1 vision is correct but it needs to be understood as a concept and as an approach and not taken too literally.
Don't ever start with the technology. Begin with people, the proposition, the processes, the business rules. Focus on customer and business benefits to ensure ROI.
Do not underestimate the time and commitment required to make personalization work. Providing customers with the tools and services is one thing but the majority will first need to develop a sense of trust in your site before they begin to personalize their experience.
Be wary of any "turnkey" personalization solution. Personalization, like a relationship, grows from small beginnings. It is better to start small and build on what works best than to throw every personalization feature you can buy out of the box at your customers Tesco.com, the world's largest and most successful online grocer, is only now beginning to introduce basic personalization features to its site as they finally feel their customers are ready for it. Dell took four years (between 1994 and 1998) to refine its customer groups from two initially to eight. Typically you might start by giving customers access to their profile, account details, order status etc, then allow them to edit and update that and other information, before moving onto more sophisticated content, product and service personalization features.
Finally, I would point out that though I am a great believer in personalization as a tool for competitive advantage and differentiation, I think there is no point even thinking about it until you're sure you have other more important basics sorted out on your site. No amount of personalization is going to make up for poor navigation, poor content or poor customer service, for example. Focus first on what customers care most about--and that isn't personalization. In most cases, they can live quite happily without it.