Creating personalized experiences by integrating advanced digital technology and proprietary data can lift a brand’s revenues by 6% to 10%. According to new research by The Boston Consulting Group (BCG), these percentages are two to three times the revenue increases of retailers not creating similar personalized experiences.
BCG's “Profiting from Personalization” report found that in the next five years, retail, along with healthcare and financial services, will use personalization to push a revenue shift of about $800 billion to the 15% of companies that get it right.
In fact, in some categories, high-value customers drive 70% or more of the value for companies.
Two-thirds of respondents to the BCG's survey said they expect at least a 6% incremental annual lift from personalization, with companies in several sectors—apparel, financial services, grocery and wholesale clubs, and technology. Another quarter of companies in those sectors have already increased their revenue by 6% or more.
Due to its success, many of the companies surveyed are investing in personalization. Fifty percent of the respondents have more than 25 employees dedicated to personalization programs and spend $5 million annually on personalization campaigns.
About 15% of companies surveyed can be considered true personalization leaders. Another 25% are experimenting with one-to-one campaigns, 13% say they deploy customer-specific individual messages, and 7% manage fully integrated communications across all channels.
“Digital natives have a head start because their business models are built around collecting data and responding to customer needs,” said Sean Collins, chief investment officer of BCG Digital Ventures. “These companies build strong customer loyalty using both traditional vehicles, such as loyalty programs, and new models, like ‘free’ and short-notice delivery, automatic replenishment and other forms of convenience. The deeper direct connection enables digital natives to more fully understand what customers need and create new ways to serve them, both on their own and by working with their suppliers.”
Retailers that are truly nailing personalization are creating engaging experiences that delight customers while integrating the physical and digital experiences. For example, Starbucks' Star Dash and Personalized Recommendations in the mobile app are examples of engaging customer experiences. Sephora's makeup and beauty app that allows customers to select the exact right shade of lipstick and pick it up in a store is an example integrating the physical and digital experience.
What’s stopping more retailers from creating personalization? Hurdles include poor legacy technology or data centralization. Plus, measurement capabilities are lacking, as almost 60% of companies struggle to effectively measure and attribute the impact of campaigns.
Plus, lack of dedicated personnel was cited as a barrier for 74% of respondents. At 60% of companies, no one team is responsible for cross-channel personalization and 54% of retailers have no or low- cross-functional coordination for personalization efforts.
“Organizations need to work differently in a world where marketing decision making, big data analytics and technology need to work together seamlessly, continuously improving based on data and insights that are coming in real time,” Mark Abraham, a Seattle-based BCG partner and co-author of the research, told FierceRetail. “Organizations that focus on a select few use cases that improve the customer experience meaningfully, and dedicate a cross-functional team that has access to the right data and resources to improve every week, will succeed.”
According to Abraham, the next wave of personalization will leverage social networks and geolocation data, areas that call for even greater two-way engagement.