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Personalization Strategy: Past, Present And Future

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Personalization Strategy: Past, Present And Future

“The future of marketing is bespoke everything,” wrote Amanda Mull in the Atlantic. The start-up Prose ships personalized hair-care prod­ucts made to order to customers who fill out a survey beforehand, while Care/of sells personalized nutritional supplements and Curology offers personalized skin-care concoctions. One of the more successful start-ups with a personalized (and servitized) value proposition is the online fashion retailer Stitch Fix, which makes buying fashionable clothes easier and more convenient than it has been up until now. Collecting data via an initial questionnaire and ongoing consumer feedback, the company matches individual consumers with human stylists, who select specific items for each consumer. The company then ships a selection of clothing items to consumers, either as a recurring service or on a one­time basis. Stitch Fix combines “data and machine learning with expert human judgment” to curate clothing recommendations and optimize other aspects of operations, employing dozens of data scientists. In 2019, just eight years after its founding, the company notched nearly $1.6 bil­lion in sales.

One company that has aggressively and impressively pursued per­sonalization as a strategy is the global cosmetics company L’Oréal. For some time now, the company has been personalizing its marketing and communications by leveraging its customer data platform. The company has embraced personalization beyond market­ing, however. In 2020, it launched its Perso skin-care system, which uses artificial intelligence to allow consumers to create highly customized cos­metics formulas at home. With consumers’ consent, the system collects data about their preferences, skin condition (using an AI-aided analysis of pictures taken on consumers’ smartphones), and environmental con­ditions that can affect the skin. Based on this data, the device creates and dispenses just the right formula of skin-care product for consumers using raw product components in cartridges located inside the device. A similar device for lipstick allows consumers to choose the precise color they want using a panel on their smartphones—a welcome and revolu­tionary alternative to the common practice of keeping dozens of differ­ent shades on hand. In the future, customers will be able to refine their products even more, designing “a lipstick shade to match their outfit or to opt for a color that is trending on social media at that moment.”

Personalization Strategy: Past And Present

Personalization is hardly new as a strategy—since the 1970s, the restaurant chain Burger King has promised consumers that they can have their burgers “your way” (i.e., allowing them to choose which top­pings were put on their sandwiches). What has changed is the tech­nology, which makes personalization much more economical on a global scale. Under traditional approaches to globalization—what we call the old globalization—companies could personalize their offerings for indi­vidual consumers, but only by making thousands or even millions of varieties of a physical product. Today companies are making relatively few varieties of the physical product but using software to deliver potentially hundreds of millions of functional variations. Gatorade, for instance, is rolling out a patch that analyzes consumers’ sweat, and on that basis it allows them to choose beverage formulations that best serve their bodies’ needs (consumed from a bottle that consumers also customize via Gato­rade’s website). Not to be outdone, Burger King has now deployed dig­ital technology to enhance how consumers can have it their way, feeding them personalized offers as well as customizable sandwiches.

Even a single physical product design can now mean many things to many people across geographies. Tesla offers only four car models (Models 3, S, X, and Y), yet it allows for a highly personalized experi­ence. Post purchase, drivers can “customize the positioning of their seat, steering wheel, mirrors, suspension, braking, and many other features,” creating an individual user profile. This capability, in the words of one reviewer, “creates a unique feeling that the vehicle becomes an extension of a driver.” Software updates for the Model S allow the car to learn a driver’s daily commute and then provide traffic updates. They also allow the car to download calendar information from a user’s smartphone so that the car can automatically generate directions on how to drive to upcoming events. Tesla seems poised in the years to come to use a camera installed in the cabin to recognize users when they get in the car and immediately reconfigure numerous ele­ments of the car to them—what CEO Elon Musk has called “dynamic personalization.”

Tesla’s example suggests how global companies might profitably combine servitization and personalization to bring breathtakingly new offerings to market. Tesla’s cars are not just physical objects but “connected” vehicles that serve as platforms for the digital delivery of services and the building of an ongoing relationship with consumers. Tesla can make its cars ever more personalized via software updates downloaded from the web. But it also uses downloads to provide many other improvements and optimizations on an ongoing basis. Whatever other challenges Tesla’s business has, it is more resilient—and more advantaged operationally—because the company can launch new features and respond to product quality issues more quickly and at much lower cost.

Targeting The Global Consumer

Although the music-streaming service Spotify initially offered generic human-curated playlists to listeners around the globe, it is now using algorithms to tweak and personalize playlists to fit individuals’ tastes. The company hopes to notch ongoing increases in user engagement, as it did in 2018. Likewise, every element of Netflix’s platform is personal­ized to the user’s preferences, which the company gleans by performing experiments during user visits (for example, suggesting certain content to see whether a user clicks on it). By 2019, the company had created over three hundred million user profiles, which Netflix’s algorithms used to generate personalized content recommendations. The com­pany uses humans to categorize shows according to themes, enabling the algorithm to then suggest recommendations quite accurately (about 80 percent of the content Netflix’s users consume derive from the algorithm recommendations). Instead of segmenting its offerings by nationality or other traditional demographics, the company’s algorithms analyze consumers’ consumption of content and on this basis allow Net­flix to hone in on two thousand global “taste communities.” In addi­tion, the company customizes its recommendations on a regional basis, taking into account local preferences and government regulations.

Whether companies personalize their offerings or not, the rise of the global consumer has been so profound that some firms are creating new offerings and promotions to target cross-border groups of consumers defined by affinity, not geography.

In 2019, when music producer and DJ Marshmello put on a virtual live concert for millions of concertgoers within the global video game Fortnite, he was performing for the affinity group of video game con­sumers located throughout the world. Likewise, when Niantic released its Pokémon Go game in 2016, it targeted the affinity group of gamers across the world simultaneously, racking up almost $1 billion in revenues within a year, according to media reports. The NBA serves a global community of basketball fans, and in the near future it will deploy tech­nology that will allow consumers to personalize their viewing experience no matter where they are physically located.

Other major global companies pursuing digital models are bypassing geography and addressing themselves to consumers with common inter­ests, such as those who remain within a common brand ecosystem (like Apple, Android, or Tencent) when seeking out products and services. The rise of seamless global digital connectivity at decreasing cost (described in the introduction) means that companies will define consumers not just by their country of location but by their digital identities. All users of the rapidly expanding transportation network company Gojek (think Uber for motorbikes) access the service using apps on their phones, and the service is identical or at least similar across national borders, subject to legal or regulatory limitations. To Gojek, these consumers aren’t defined by their identity as Indonesian or Thai or Vietnamese (the company currently operates across Southeast Asia). They’re global con­sumers, and the company’s value proposition is designed to serve them seamlessly everywhere.

Implications For Leaders

In the years ahead, value propositions that merge the physical with the digital and that leverage data to deliver personalized offerings to global customers will flourish across industries. Many companies will no longer sell products or services per se but rather deliver outcomes and shape experiences. One large technology company told us that the servitized solutions it offered for its line of computer servers will soon account for 50 percent of its revenues, up from 10 percent in 2019. Among indus­trial companies, digital services attached to physical products are the fastest-growing part of the business. For car companies, as we’ve seen, the future lies in connected-car and mobility offerings. Companies that become adept at building and evolving these capabilities will thrive. Those that don’t will either become suppliers to those who do or go out of business.

How do you build and deliver these new value propositions? Based on our work with clients, we recommend that you start by pondering the following core questions:

  1. What key pain points are you already solving for your customers? Do you really understand these in sufficient depth? You might assume that your customers might rely on you for their fuel purchases, but what they’re really solving for is being able to go from point A to point B. How else might your company help customers solve this more fundamental problem via a digital servitized offering?
  2. Is the opportunity attractive enough? In addressing customer prob­lems, does a servitized value proposition you might deliver create a large-enough market opportunity? What kinds of costs (related to capital investments, retraining, realignment of incentives, etc.) would you accrue in the process of bringing this solution to market? Which companies would be competing with you? How will this new value proposition affect your existing businesses?
  3. Do you have the right resources in place to develop a winning solu­tion? Have you assembled a team capable of offering experiences and not just services? Do team members have the agility, collabora­tive mindset, and sense of the zeitgeist required to fully address the customer pain points that you set out to solve? What other infra­structure (manufacturing capability, data architecture, etc.) must you put in place?
  4. Are you prepared organizationally? If you’re a large global company, will your entrenched bureaucracy prevent you from pioneering new value propositions and getting them off the ground? How might you better position your teams to function like start-ups? Are your senior leaders focused enough on these projects in order to ensure their success? If you have traditionally been a product-focused company, what internal adjustments will you have to make to successfully deliver a service or solution?

Ultimately, creating new digital value propositions requires a mindset shift on the part of leaders, a new form of customer centricity. No matter what kind of product or service you currently offer, you must be willing to fundamentally reimagine it so as to maximize the value customers derive over the lifetime of that product or service. If you have long sold washing machines to local consumers, should you still do that? Or should you sell a clothes-washing solution to global consumers that, say, allows your consumers to operate remotely, change the cycle, and compare notes with other washing-machine owners on what settings and detergents work best for certain kinds of dirty clothes? If you currently sell a hair-care product to local consumers, should you still do that? Or should you sell a hair-care solution that allows customers anywhere to receive a personal­ized product, perhaps delivered as a service on a subscription basis?

To answer such questions, you must develop a much deeper, more rigorous, and more empathetic view of customers and their needs than the one you currently possess. Traditionally, companies developing new offerings have sought out the voice of the customer, but they’ve gen­erally limited their research to fielding surveys and conducting focus groups, involving only marketing and R & D teams. Succeeding with digital-physical business models means bringing together customers, business unit teams, technology teams, customer-behavior experts, and outside partners to take what we call a customer journey; mapping out how customers use and derive value from your product or service throughout its entire life cycle; and then exploring how you might increase that value with digital and other means.

Contributed to Branding Strategy Insider By: Dr. Arindam Bhattacharya, Dr. Nikolaus Lang and Jim Hemerling, excerpted from their book: BEYOND GREAT: Nine Strategies for Thriving in an Era of Social Tension, Economic Nationalism, and Technological Revolution

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