Brands that create personalized experiences by integrating advanced digital technologies and proprietary data are seeing revenues increase by 6% to 10%, according to new research by The Boston Consulting Group—two to three times faster than those that do not. The results of the BCG research are discussed in a new article, “Profiting from Personalization,” which can be downloaded here.
Personalization leaders stand to capture a disproportionate share of category profits while slow movers will lose customers, share, and profits. BCG expects that over the next five years in three sectors alone—retail, health care, and financial services—personalization will push a revenue shift of some $800 billion to the 15% of companies that get it right.
“In many consumer categories, high-value customers drive 70% or more of the value for companies,” says Mark Abraham, a BCG partner. “Brand individualization unlocks the ability to enhance loyalty with these and other customers by tailoring the brand experience to each contextual user journey.”
Investing in personalization
The BCG survey of personalization programs at more than 50 companies in ten industries underscores the potential value to be achieved but also highlights the execution challenges. Two-thirds of respondents said that they expect at least a 6% incremental annual revenue lift from personalization, with companies in several sectors—apparel, financial services, grocery and wholesale clubs, and technology—anticipating increases of 10% or more. About a quarter of companies in those sectors have already achieved revenue increases of 6% or more.
Many companies are making significant investments in personalization: half of the survey respondents have more than 25 employees dedicated to personalization programs and are spending more than $5 million a year on personalization campaigns. At half of the top performers, the CEO and the board oversee personalization programs; that is the case at only about 20% of total companies.
“For incumbents to defend—and expand—share, they need to reimagine their business with an individualized value proposition at the core, merging physical and digital experiences to deepen their customer connections,” says Steve Mitchelmore, a BCG partner. “They need to put brand individualization at the forefront of their strategy agenda to influence everything that they do, including marketing, operations, merchandising, and product development.”
At this stage, only about 15% of companies can be considered true personalization leaders, and most of them are tech companies and digital natives. Another 25% are experimenting with one-to-one campaigns, but only 13% say they deploy truly customer-specific individual messages and only 7% manage fully integrated tailored communications across all channels. The remaining 65% are still using segmented marketing or even mass-market approaches.
“Digital natives have a head start because their business models are built around collecting data and responding to customer needs,” says 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.”
Barriers to fulfilling personalization’s potential
Companies face significant hurdles to realizing the full potential of personalization. These include the technical barriers that one might expect, such as poor data centralization (companies collect ample data, but struggle to aggregate it and form one universal view of each customer), legacy technology that doesn’t support one-to-one communication at scale, and insufficient measurement capabilities. Almost 60% of companies struggle to effectively measure and attribute the impact of campaigns, limiting their ability to learn from customer feedback and adapt accordingly, which is at the core of individualizing the brand experience.
The lack of dedicated personnel is the most-oft-cited barrier (74%), but the majority of companies also face hurdles that are organizational and cultural in nature. These include insufficient cross-functional coordination (61%), inadequate creative processes (57%), lack of talent and knowledge (54%), and cultures that are not conducive to innovation (52%). More than 60% feel that they lack a clear road map, and half cite the absence of a clear business case and objectives.
At 60% of companies, no one team is responsible for personalized cross-channel communication to consumers, and 54% of companies say they have no or low cross-functional coordination for personalization efforts. In addition, in a field where speed is essential, 57% of companies take three to six weeks to create a campaign (another 22% take several months) and up to four weeks to measure the results. More than half take one to four weeks or more to make changes based on the lessons learned.