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3 lessons in personalization from the retail industry

By Eric Pilkington and Bryan Medlock

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Published by IBM

aves of COVID-19 cases and varying regulations have created complexity for companies trying to maintain customer relationships in a new reality. By necessity, companies have digitized many touchpoints in the customer journey that used to involve in-person interactions. And as a result, customer expectations are higher than ever for how companies are using past purchases and browsing data to shape these experiences.

There’s an increasing need to create a seamless, highly personalized digital journey that replicates, and even exceeds, an in-person experience. No industry has mastered personalization yet, but some have fared better than others, according to our recent research with Forrester. While leaders in personalization include expected tech companies and digital natives like Facebook and Netflix, Retail stands out as one of the more digitally mature industries. Retail companies like Sephora, Nike and Starbucks, have been able to hyper-personalize the customer experience through dynamic content and real-time segmentation.

Understanding key areas where Retail does well in personalization will help other industries mature their strategies. Here are the specific ways where Retail commands a wide lead compared to lagging industries and how these differences have a tangible impact on business results and the key lessons for any industry.

 

#1 – In Retail, the entire organization works together on personalization

Retail stands out over other industries in having a cohesive personalization strategy for the organization, while other industries tend to have a siloed approach. 53% of Retail respondents report having a single, enterprise-wide B2C personalization strategy, while only 39% in Travel and Hospitality and 32% in Financial Services report the same.

Many companies struggle with lack of coordination and cooperation across the organization, using fragmented approaches by channel or product. Some make personalization an “IT” focus or a “Marketing” focus, while others argue over ownership. Instead, a successful approach to personalization starts with a cohesive strategy and is enabled by effective ways of working. The organization needs to think about personalization in all key channels and critical steps in the customer journey. Amazon has evolved Whole Foods to adopt a more holistic approach to personalization—when shoppers place online orders for groceries, they’re reminded of their past in-store purchases. Rather than operating in silos as in-store and online teams, Whole Foods teams work together to create a single view of the customer and recognizes that customers use different channels for different occasions.

#2 – Retail cares about more than lagging and vanity metrics

Compared with other industries, Retail tends to use leading metrics and more closely track success for their personalization strategies. 47% in Retail report they’re very effective at purchase frequency, compared to 33% in Telco. And 57% of Retailers report that they’re very effective at tracking revenue per visit, compared to only 39% of Travel and Hospitality companies. Retail also routinely reevaluates their metrics more than other industries, demonstrating their commitment to evaluating what success is.

Understanding and measuring leading metrics helps organizations prioritize initiatives that have the most impact. While some industries have historically focused on lagging indicators, Retail’s focus on leading metrics gives them the ability to dynamically adjust their approach. For example, a marketing campaign on Twitter and Instagram may result in an uplift in measures of brand equity and trust for a retailer, but they may shift their message depending on how the campaign translates into actual store visits and revenue per visit. Measuring and reevaluating the metrics that matter most will help organizations be more targeted in the specific ways they enable their personalization strategies.

#3 – Retail is deeply committed to a 360-degree customer experience

Most retailers have a fairly good 360-view of their customers and tend to include more touchpoints in their personalization strategies, including technology-driven ones. Retail companies are 18 percentage points more likely than Financial Services and 10 percentage points more likely than Telco to use social media in their strategies. Retail is also 10 percentage points more likely than Travel and Hospitality and 8 percentage points more likely than Media and Leisure to use chatbots and virtual assistants.

Organizations that are effective at personalization recognize that customer segments aren’t static, and customers move fluidly across segments and touchpoints. By including more touchpoints in their strategies, companies gain more customer data and can provide a consistent experience across channels. For instance, Sephora uses a chatbot and artificial intelligence to help customers find personalized product recommendations based on their face and skin tone. By using customer data and automation, Sephora is able to replicate the in-store experience in a highly personalized and effective way.

As a result of their approach to personalization, Retail experiences significantly improve business results

From the research conducted by Forrester Consulting commissioned by IBM, Retail sets a benchmark for many KPIs. Of respondents who reported benefits from their personalization strategies, Retail report better results across key metrics:

Greater than 10% improvement in cross–sell/upsell opportunities: 68% of respondents in Retail compared to 41% of respondents across all industries

Greater than 20% in decreased marketing costs: 34% of Retail respondents compared to only 14% across all industries

Greater than 10% improvement in conversation rates: 40% of Retail respondents compared to 33% across all industries

These differences are substantial and are playing out during the pandemic for Retailers who’ve invested in personalization. Nike serves as a great example of how effective personalization is at impacting business growth. Onboarding data, past purchases and mobile app engagement are all used to personalize recommendations for workouts, shoes and apparel across Nike’s ecosystem of touchpoints. Nike also uses purchase frequency to target customers who are overdue for new shoes.

And while some retailers have struggled recently, Nike reported a dramatic 82% increase in digital sales in its most recent quarter, an acceleration that be attributed toward consumer preferences toward online shopping and Nike’s ability to create hyper-targeted recommendations.

Retail hasn’t fully mastered personalization, but other industries can learn from them 

Despite Retail’s success, the industry faces challenges in executing their personalization strategies like many industries. Retail struggles with managing customer data, using customer data effectively, and data integration. However, Retailers serves as a bright spot for other industries to learn from. Retail tends to start with an organization-led strategy, focus on leading metrics to enable dynamic segmentation and approaches, and include technology-driven touchpoints to capture real-time customer data. By adapting this approach, other industries can start to mature their personalization strategies and realize more impactful growth.

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