Personalizing the Customer Experience: Driving Differentiation in Retail (2023)


The current retail environmentIt's a challenge for shoppers from almost every perspective due to price pressure from discount stores, online player market disruptions, and increased price transparency. Traditional approaches to retail differentiation, such as single selection or strategic pricing and promotions, are not as effective as they used to be because competitors can easily imitate them. However, differentiation is still possible through personalized approaches, where retailers create unique experiences tailored to individual customers.

Highly personalized customer experiences delivered to millions of unique customers using proprietary data are difficult for competitors to replicate. When executed well, such experiences allow companies not only to differentiate themselves, but also to gain a sustainable competitive advantage. Additionally, our research has shown that personalized experiences increase customer retention and sales.

Meet customer expectations for a personalized experience

Thanks to online pioneers like Amazon, customers increasingly expect and want personalized experiences: A survey of 1,000 US adults by Epsilon and GBH Insights found that the vast majority (80%) of respondents want personalization of their products.1 "New Epsilon Research Shows 80% of Consumers Are More Likely to Make a Purchase When Brands Offer Personalized Experiences," Epsilon, Jan. 9, 2018, might even be called the "hygiene factor": Customers take it for granted, but if a retailer gets it wrong, customers can switch to a competitor.

Personalization, previously limited primarily to targeted offers, now extends to the entire customer experience. This means that customers want personalization during their interactions with a retailer, with multiple personalized touchpoints allowing you to allocate your time and money according to your preferences. At thebest personalized experiences, retailers engage with the customer and use data to create individualized personalization. Customers receive offers that are not just targeted at customersAsthem, with brands targeting segment-level offerings with broad-based offerings, but in them asindividuals, with products, offers and communications that are uniquely relevant to them.

Understanding how personalization pays off

In the face of customer expectations, retailers must respond to the demand for personalized experiences not just to differentiate themselves, but to survive. Done right, however, personalization allows retailers to do more than survive – it allows them to thrive.Customization at scale(where companies have face-to-face interactions with all or a large portion of their customers) typically results in a 1-2% increase in overall sales for supermarkets and an even greater increase for other retailers, often increasing loyalty and wallet . share with already loyal customers (for whom there is more data and higher response rates). These programs can also reduce marketing and sales costs by 10 to 20 percent.

Additionally, successful personalization programs result in more engaged customers and increased sales. Overall, a positive customer experience is very important to a retailer's success: it leads to a 20% increase in customer satisfaction, a 10-15% increase in conversion rates, and a 20-30% increase in sales. Retail customer experience leaders (retailers with consistently high customer satisfaction scores) delivered returns to their shareholders three times greater than the returns achieved by retailers with low customer satisfaction scores.

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To maximize the results of a personalization program, we recommend targeting your most loyal customers first, as repeat shopper programs offer three times the ROI of mass promotions. Furthermore, building data on the most loyal customers starts a virtuous cycle, generating ever more relevant data and higher response rates, further increasing the quality of the data.

Learn from success stories

Retailers in many different categories have been able to effectively implement personalization at scale and have achieved notable success in this effort. Sure, Amazon pioneered this space, but other companies, including supermarkets that make up for their lack of e-commerce data with loyalty data from their brick-and-mortar stores, have risen to the top tier in recent years. successfully. homemade customization programs.

Pioneer in personalization: Amazon

As the leader of large online-only retailers, Amazon has used sophisticated analytics to shape its personalization efforts. Over time, Amazon expanded its personalization program to show customers products that are commonly purchased with the item they are viewing, display items that can be grouped with products in a customer's cart, and display additional products in emails.

Amazon continues to raise the bar for personalization with increasingly detailed and innovative offerings for individual customers. For example, Amazon Prime Wardrobe recently launched a personal shopping service exclusively for Prime members. Customers complete a survey about their style and fit preferences, and a team of stylists provide personalized recommendations on more than half a million items from all brands. Amazon is likely to continue to lead innovation in personalization, but other smaller retailers with far less sophisticated systems are also breaking new ground.

Dynamic Customization: European Grocery

A large European food company successfully transitioned from one-size-fits-all marketing to personalized experiences. This shift started with surveys based on retailer macro-segmentation; The retailer could then split another level to create smaller segments based on location, time of day and other details. From there, the merchant created a new transaction mechanism to introduce negotiation rules. For example, the engine does not provide discounts for regular shoppers who buy coffee or food in the store every day. Instead, it sends discounts to other segments and users of the grocery store's smartphone app, who receive deals when they pass by the store.

(Video) Driving Differentiation in Retail with Personalized Customer Experience | IReC 2022 | Xeno

Valuable data from this grocery store's transaction engine, personalization engine, mobile app, and other tools allowed the company to track sales across its network of locations, giving the grocery store optimization of weather, day of week, time of day, and more. perform similar data points that greatly improve the effectiveness of promotions.

Omnichannel Experience: Sephora

Sephora, an international beauty products retailer, offersPersonalized experiences that are truly omnichannelin its presentation to consumers. The company's digital channels, particularly its mobile app, encourage customers to book in-store fashion appointments and makeovers. The app's In-Store Companion feature allows users to find a store, check if an item is in stock, and make a reservation. When customers choose to have their makeup done in stores, they are given an application login so that the makeup artist can enter any product they use into the customer's personal profile. The app also allows customers to try on products virtually and get recommendations based on their personal beauty traits. When customers visit a Sephora store, they can use the app to find products they've tried virtually.

All communications with Sephora customers, regardless of platform, display customer loyalty points. Sales reps can also view these point totals and access a customer's in-store profile. The profile contains data about the customer's in-store purchases, online browsing and purchasing patterns, and in-store interactions with suppliers.

Sephora's program is also notable for another reason: It clearly demonstrates the effectiveness of reaching its most loyal customers. The company's tiered loyalty program, Beauty Insider, gives its top-tier members early access to new products, invitations to exclusive events, free personalized beauty services and more. All members receive personalized recommendations based on the profiles they complete online. Your profile details such as name, shopping habits and survey responses are used across all channels. Store associates can access a customer's in-store profile and keep track of which items have been tried, making it easier for customers to find and purchase those items on the website or in the app. Each brand communication on each platform shows customer loyalty points and offers are synchronized across platforms.

The results of Sephora's customization efforts have been impressive. The loyalty program now has around 25 million members. In 2018, members accounted for 80% of Sephora's total transactions.2Pamela N. Danziger, “How can you make a great loyalty program even better? Sephora has the answer,” Forbes, Jan. 23, 2020,; James Stewart, “Sephora makes 80% of its revenue from this”, Ragtrader, November 6, 2018, for the third straight year, Sephora ranked #1 on Sailthru's Retail Personalization Index, with a score of 79 out of 100.3 „The Third Annual Retail Personalization Index“, Sailthru, 17 de setembro de 2019,

Customization in store: Nike

Not to be outdone in the customization game is Nike, one of the largest sports and athletic shoe companies in the world. Nike has taken personalization to the point of the individual product, allowing customers to customize their own clothing and shoes. The company recently launched a 3D shoe customization platform that allows shoppers to create real-time snapshots of finished shoes that can be shared.

Personalization also extends to physical Nike locations. Nike's flagship store in New York City offers an immersive omnichannel shopping experience powered by membership in NikePlus, the company's personalized loyalty program. Members receive exclusive, personalized benefits, such as access to the Nike Speed ​​​​​​Shop, which offers a variety of data-driven and locally customized "New York Favorites". Members can also reserve items to store in the collection lockers and retrieve them by scanning their NikePlus membership pass. With Nike Shop the Look, members can use QR code scanning to determine the availability of their preferred sizes and colors and order delivery to their selected pick-up location or locker room. With Instant Checkout, members can skip the checkout line and pay directly from their own saved payment device. Additional benefits include access to the Nike Expert Studio, where members can schedule in-person meetings with Nike experts, and the ability to schedule meetings with Nike by You, where members can view a selection of silhouettes uniquely tailored to their needs. your specifications.

The necessary changes will require a significant shift in employee mindsets to get them comfortable with the experimentation that personalization requires.

Identify common challenges for retailers

Given the success stories, it's no surprise that in a Periscope survey conducted by McKinsey of retailers attending the 2017 World Retail Congress, 95% of retail CEOs say personalizing the customer experience is a strategic priority for their organization. . However, the same survey found that only 23% of consumers believe that retailers are doing a good job in their personalization efforts. What's behind this discrepancy?

First, most retailers are still in the early stages of their personalization efforts. Our research shows that only 15% of retailers have fully implemented personalization strategies. More than 80% are still defining a personalization strategy or have launched pilot initiatives. The remaining retailers have chosen not to prioritize personalization for now, for a variety of reasons.

Retailers seem to face four key tactical challenges to getting personalization off the ground:

  1. data management.More than two-thirds of respondents (67%) say their biggest personalization challenge is collecting, integrating, and synthesizing customer data.
  2. data analysis.For 48% of retailers surveyed, gaining and maintaining in-house expertise in data science and analytics is a top concern.
  3. Alignment of retail organizations across functions.For many retailers, siled processes and organizational models (eg, difficulties aligning marketing and merchandising teams) prevent the efficient and rapid exchange of customer data and advertising decisions. Of the group surveyed, 43% say these silos "make life difficult" and 25% report that these silos make it difficult to get financing, as well as capital, from suppliers for personalized offerings (especially in the grocery category). . In many cases, these types of changes require a significant shift in employee mindsets to get them comfortable with the test-and-learn-and-fail-quick experiments that personalization requires.
  4. Tools and Technological Support.67% of respondents admitted not having the right tools to perform personalization at scale. Another 41% say finding the right solution partner was difficult.

Compounding these challenges is the fact that many retailers still operate with a hybrid “bricks and clicks” strategy, making it even more difficult to implement the right level of personalization in stores and online. However, retailers with an omnichannel setup have their own challenges, particularly in structuring offers and executing across communication touchpoints.

(Video) Driving Differentiation in Retail with Personalized Customer Experience | IFF 2022 | Xeno

overcoming obstacles

However, all is not lost. As our previous case studies show, retailers across the spectrum have been able to create truly personalized experiences for both the online and brick-and-mortar worlds. The results for affected customers and the bottom line are impressive. How do these retailers do it?

There is no silver bullet, as the breadth of our case studies shows. However, in our experience, aeffective personalization operating modelIt has four pillars: database, decision making, design and distribution (exposure). Within this model there are eight core elements.

Personalizing the Customer Experience: Driving Differentiation in Retail (1)

First, all these retailers started small. They begin testing and learning as they develop the necessary skills and multidimensional customer insights over managementIt's crucial here: getting the data right is much more important than collecting all the data. The customer database should be multidimensional, but it doesn't have to provide a 360-degree view of customers. Successful retailers collect the most important data first before moving on to a deeper understanding of each customer.

a detailedCustomer segmentation and analysisis the next common element. With the right data management and analysis, retailers can identify customer value triggers and then score and rank customers for effective segmentation and personalization.

development of asung bookResponses to specific triggers, such as abandoning a shopping cart and looking for items that belong in a larger collection, is the third element. The goal here is to build a library of offers, with a few hundred being a good starting point. Some companies end up building a large library of content that they can compile into a personalized magazine for customers. The right combination of triggers results in open and click-through rates that exceed traditional mass marketing.

The fourth element is robust.Decision engine (campaign coordination)that plans multi-channel experiences and reduces the risk of mixed messages. It also enables retailers to increase the value created by each touchpoint and maximize that value through multichannel assortment.

an agilemultifunctionalThe team is the fifth element. A team room should feature a cross-functional team: engineers, marketers, and salespeople should all be in one room. The team's work should include weekly deployments, implemented in a test-and-learn spirit more commonly found in beta versions of Internet software from Google and other web giants. The purpose of this cross-functional space is to break down organizational silos and bring mixed teams together to increase speed and quality.

The sixth element of a successful customization effort is ensuring that the lawtalents, skills and cultureto fill the team. Leadership must lead by example from the start, but from there the program will touch everyone from the HR team to the marketing and merchandising team. You also need the right mix of data scientists and marketing technology experts.

Personalizing the Customer Experience: Driving Differentiation in Retail (2)

The end of purchase limits: omnichannel personalization

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(Video) Keynote Driving differentiation in retail with personalized customer experience

On the righttechnological releaseImplementation can be complex, but it is the core and seventh element of a successful customization effort. Getting the different systems to work and function together can be the heart of an organization's business. Most retailers are not maximizing the value their existing technology platforms can deliver, so unifying systems will extract more value from them in the future. Building a more flexible platform on top of legacy systems is also often an advantage.

Finally, retailers must make this effort with aTest and learn approach. You don't need to build a huge multivariate database in the first step. As the exhibit shows, don't expect perfection. Instead, start small. Choose a hassle-free experience that makes a positive impact and get started. Test the effectiveness of that idea, generate useful metrics, and scale up a second idea. Repeat. When the resulting impacts are quantified and the lessons learned from experimentation are fed back to the team, the cycle is closed with the analyzes that support each implementation.

In some retail industries (for example, the food sector), cooperation with suppliers is important. The goal here is to establish a mutually beneficial partnership with the provider. To do this, shift funding from massive promotions to personalized experiences and give vendors complete visibility into their product performance. Also, give each supplier a central person to manage their relationship with the retail chain. This person quickly becomes a strategic partner, helping to better align retailers and suppliers.

All eight elements in unison create an effective personalized experience engine that sets the retailer apart from the rest, increases portfolio share among the most loyal customers, and ultimately increases the retailer's sales and profits.

It started

Given the potential impact of personalization, it makes sense that retailers would want to jump-start their personalization efforts. But how can they do it carefully?

The first step is to define a short list of high-impact use cases that are relevant to the consumer but not too complex to execute. A competent cross-functional team can then be assembled to build an integrated database for these use cases. The team must ensure that the data is highly available and targeted, while also considering the needs of future programs (including high-impact use cases). This database doesn't have to be perfect. Instead, it should be built through iteration, testing, and learning.

To begin building a personalization program and driving its effective execution, retailers need to assemble a cross-functional team to test and learn from the experiments. Analytics and technology professionals will be critical to the program, especially as it expands. Finding the right third-party partner to support the personalization program development is also important and will help accelerate the retailer's progress towards the results: a more personalized experience, greater customer retention, clear differentiation, greater portfolio share and significantly better sales. and winning numbers.

(Video) Personalisation of the Customer Experience


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