McKinsey - The Value of Getting Personalization Right - or Wrong - is Multiplying

This Next in Personalization 2021 Report reveals that companies who excel at demonstrating customer intimacy generate faster rates of revenue growth than their peers. And the closer organizations get to the consumer, the bigger the gains.

Key takeaways

• Personalization matters more than ever, with COVID-19 and the surge in digital behaviors raising the bar. Three-quarters of consumers switched to a new store, product, or buying method during the pandemic.
• Seventy-one percent of consumers expect companies to deliver personalized interactions. And seventy-six percent get frustrated when this doesn't happen.
• Personalization drives performance and better customer outcomes. Companies that grow faster drive 40 percent more of their revenue from personalization than their slower-growing counterparts.

Personalization is not only a crucial capability, it's one that punches above its weight, no matter whether the company is a digital native, a brick-and-mortar player, or a behind-the-scenes producer or supplier.

Consumers don't just want personalization, they demand it. With store and product loyalty more elusive, getting it right matters. Roughly 75 percent of consumers tried a new shopping behavior in the last 18 months, and more than 80 percent of those intend to continue with new behaviors.

Furthermore, our research found that companies that excel at personalization generate 40 percent more revenue from those activities than average players. Across US industries, shifting to top-quartile performance in personalization would generate over $1 trillion in value. Players who are leaders in personalization achieve outcomes by tailoring offerings and outreach to the right individual at the right moment with the right experiences.

These seven charts show how consumer attitudes around personalization are changing and what outperforming companies are doing to grow customer lifetime value at scale.

Personalization matters more than ever before

The surge in online interactions since the onset of the pandemic escalated expectationsÑgiving consumers more exposure to the personalization practices of e-commerce leaders and raising the bar for everyone else. From web to mobile and in-person interactions, consumers now view personalization as the default standard for engagement.

Our research shows that 71 percent of consumers expect companies to deliver personalized interactions. And 76 percent get frustrated when this doesn't happen. Ratcheting up the pressure on companies, if consumers don't like the experience they receive, it's easier than ever for them to choose something different. Three-quarters of consumers switched to a new store, product, or buying method during the pandemic.

Research shows shoppers have a strong point of view on personalization

Seventy-two percent said they expect the businesses they buy from to recognize them as individuals and know their interests. When asked to define personalization, consumers associate it with positive experiences of being made to feel special. They respond positively when brands demonstrate their investment in the relationship, not just the transaction. Thoughtful touchpoints such as checking in post-purchase, sending a how-to video or asking consumers to write a review generate positive brand perceptions.

ÉAnd consumers reward those that get it right

Over three-quarters of consumers (76 percent) said that receiving personalized communications was a key factor in prompting their consideration of a brand, and 78 percent said such content made them more likely to repurchase.

Personalization is especially effective at driving repeat engagement and loyalty over time. Recurring interactions create more data from which brands can design ever-more relevant experiencesÑcreating a flywheel effect that generates strong, long-term customer lifetime value and loyalty.

Performance propels outperformance

Research shows that personalization most often drives 10 to 15 percent revenue lift (with company-specific lift spanning 5 to 25 percent, driven by sector and ability to execute). The more skillful a company becomes in applying data to grow customer knowledge and intimacy, the greater the returns. For digitally native companies that forge a data-backed, direct-to-consumer model, personalization isn't just how they market, it's how they operate.

Those leading the charge in personalization also have better customer outcomes. Their focus on the relationship and long-term value leads to better upward migration, retention, and loyalty.

Personalization can also be a revenue accelerator even for businesses that typically lack direct access to customers such as companies in the consumer packaged goods segment. Among these companies, those with the fastest rates of revenue growth were far more likely to prioritize personalization than slower growers. The research suggests that even small shifts in improving customer intimacy create competitive advantageÑand these benefits grow with maturity

Here are the five things outperformers can do to accelerate personalization and create value:

• They lean into data and analytics to identify opportunities. Looking across the customer life cycle, leaders build a granular view of where there is the most value. They leverage customer segments and microsegments, and factor in behavioral, transactional, and engagement trends. They use those insights to define and quantify their personalization objectives and ground their efforts in customer-centric key performance indicators (KPIs).
• They invest in rapid activation capabilities powered by advanced analytics. Leaders develop at-scale content creation and AI-driven decisioning capabilities so they can respond to customer signals in real-time. They leverage predictive analytics and models to determine what content and messages to serve which customers (for example, propensity models, or predictive next-best-action algorithms). They also establish robust measurement processes that track the impact of customer interventions and feed that information back to their systems and teams. These processes help them deliver the right content through the right channels at the right moments in a consumer's journey.
• They invest in fit-for-purpose martech and data. Rather than letting a “thousand flowers bloom,” personalization leaders target a specific set of customer outcomes and use cases that support them. They align organizational resources around these use cases and work back from the desired outcomes to build the data and martech road map and identify the enablers and investments needed to deliver.
• They commit to an agile operating model. Businesses that succeed in scaling personalization create teams that cut across marketing, product, analytics, and technology, using a hub-and-spoke approach. Each hub owns specific elements of the personalization journey, with each spoke empowered to build underlying use cases. Together, these teams run hundreds of tests per year, enabled by advanced data analytics and test-and-learn techniques.
• They invest in talent and training to refine capabilities. Leaders bring a similarly data-driven approach to building their teams and organizational capabilities. They focus in on the skills needed to support personalization at scale (for instance, digital and e-commerce acumen, advanced analytics, product management, or performance marketing). Then they map these capabilities against their current talent base, using the results to inform hiring, training, and upskilling. This approach allows companies to anticipate the expertise and tools they need as their personalization program advances.

Personalization is a force multiplierÑand business necessityÑone that more than 70 percent of consumers now consider a basic expectation. Organizations able to build and activate the capability at scale can put customer lifetime value on a new trajectoryÑdriving double-digit revenue growth, superior retention, and richer, more nurturing long-term relationships.

About the author(s)

Nidhi Arora is a consultant in McKinsey's San Francisco office, where Wei Wei Liu is an associate partner, and Kelsey Robinson and Eli Stein are partners; Daniel Ensslen is a consultant in the Boston office; Lars Fiedler is a partner in the Hamburg office; and Gustavo Schüler is a partner in the Southern California office.

This article originally appeared on McKinsey.