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DirectLandings :: Resources :: Articles by Encephalo Associates :: Why Personalize
Why Personalize? Reasons and Research-Based Answers
As anyone who follows e-business trends can attest, personalization has been widely embraced as a matter of faith. It’s easy to believe that if you present the right information to the right person at the right time, you’ll dramatically increase the chances of a sign-up or a sales close. And again it’s easy to believe that by offering a personalized experience, customer loyalty, satisfaction, and revenue would likely increase.
As often happens when sentiment overwhelmingly swings in the same direction, a counter-movement develops in response. And that’s what has happened with respect to personalization.
This controversy over personalization came to a head in the fourth quarter of 2003 with the release of Jupiter Research’s report "Beyond the Personalization Myth," a research-based assessment of high-tech personalization systems (source, retrieved July, 2004). According to Jupiter’s study findings, high-tech, full-bore personalization systems:
- can be four times more expensive to run, versus comparable dynamic websites
- are typically twice as likely to host visitors unlikely to pay for anything, than to host paying customers
- can turn off a quarter of the potential market, due to customers’ concerns over potential abuse of personally identifiable information (PII)
To date, Jupiter’s conclusions have generally gone unchallenged in the e-business media. It is particularly curious that Jupiter drew these sweeping conclusions largely based on attitude and opinion research. Had Jupiter studied what people actually do (behavioral research), rather than what they believe or say they do (attitudinal research), the data might have painted a different or less dour picture.
Even so, Jupiter’s findings should be taken very seriously, given that too many companies have jumped on the personalization bandwagon without evidence that personalization is cost-effective. In counterpoint to Jupiter, there’s a range of research and case studies that paints a positive picture of what can be accomplished through personalization.
But before reviewing the evidence, let’s take a step back to elaborate about personalization. According to the Personalization Consortium (source, retrieved July 2004), personalization combines the use of technology with customer information to tailor interactions between a business and an individual customer. These practices can range from inserting the contents of data fields into text or graphics, to assembling infinite variations of content or graphics as directed by algorithms applied to each customer record. The former is commonly considered "basic" personalization - processes that originated decades ago in the marketing industry. The latter, which boomed in the late 1990s, has a "black box" mystique that is typical of sophisticated technology solutions. Jupiter’s study and conclusions were directed toward high-tech forms of personalization.
So, what is the evidence that personalization, in any form, contributes to business profitability? In time, sufficient research will be available, but for now, here is a compendium of what can be readily found on the subject.
- The promise and reality of online personalization helps entice prospects and customers to share personal data ("soft" conversions)
The Personalization Consortium sponsored two studies that demonstrate consumers’ willingness to exchange PII for a better online experience. Fifty-one percent (51%) of web users in Q1 2000 said they were willing to share their data in order to receive a truly personalized online experience (source, retrieved in June 2004). A year later in 2001, 47% declared to have actually shared personal data with a website, in line with intentions measured the year before. Moreover, this represented a greater than 100% increase in data sharing between 1999 (23%) and 2001 (47%) among website users interested in the benefits of personalization (source, retrieved June 2004)
- The effective use of personalization encourages website users to share more of their personal data ("soft" conversions)
In the Personalization Consortium’s 2000 Survey, web shoppers were willing to share a broader spectrum of personal data when that data was to be used in personalizing their web experience. Higher percentages were willing to share the following:
- Name (96% when personalization benefits are featured vs. 85% when not featured)
- Email address (95% vs. 88%)
- Address (81% vs. 60%)
- Hobbies/interests (76% vs. 51%)
- Job title (50% vs. 32%)
- Phone number (45% vs. 29%)
- Income (34% vs. 19%)
- Credit card number (22% vs. 19%)
- Mother’s maiden name (22% vs. 14%)
Additionally, BroadVision, in commissioned research among its customers, noted an increase in the number of profile elements learned about both business-to-business (BtoB) and business-to-consumer (BtoC) customers as a result of personalization efforts (source, retrieved June 2002).
- The effective use of website personalization builds website usage momentum
McKinsey and Surgency, the firms commissioned by BroadVision to conduct research among its customers, reported that personalization boosted web usage rates by 33% to 50%
- The effective use of online personalization helps call prospects and customers to action ("soft" and "hard" conversions).
BroadVision’s customer research revealed increases in response of up to 38% to information, offerings, and promotions targeted to customers who took advantage of personalization features (source, retrieved June 2002)
- More intensive and relevant personalization strengthens the call to action ("soft" and "hard" conversions).
YesMail's analysis of 90 million email messages in Q1 of 2002 showed that email with no personalization generated an average click-through rate of 4.7%. That rate jumped to 7.5% when three to four personalization elements were used, and 14.8% when seven or more personalization elements were used (source, retrieved January 2003)
Hewlett-Packard’s experience in 2002 with email-to-web and dmail-to-web campaigns to induce sign-ups for training classes provides more evidence. When presented with a highly personalized message and a personalized URL, click through to a special landing page posted at 9.4%. Click-through from the landing page to the HP website for more information or to register for a class posted at 57%. Thirty-one percent (31%) converted into signing-up for a course (source, retrieved July 2004)
- The effective use of web personalization helps build sales per customer.
The Personalization Consortium’s 2001 study also revealed that US adults who shared personal data at websites were more likely than non-sharers to be high spenders - that is, 28% vs. 17% spent more than $2000 online in 2000.
- The effective use of web personalization encourages repeat purchases and retained customers, crucial conditions for profitability
Repeat purchase rates increased by 25% to 45%, and customer retention rates increased by 10% to 18% with the use of web personalization, according to BroadVision’s customer study conducted by McKinsey and Surgency.
- The effective use of web personalization helps reduce costs and streamline transactions
Again, BroadVision’s customer research revealed reductions in order entry errors of up to 70%, and faster transaction handling that reduced costs by two to three times.
- When used in direct mail campaigns, personalization helps build higher revenue and profits
In a study published in 2003, CAP Ventures (source, retrieved June 2004) measured improvements attributed to the use of web-acquired personalization data in direct mail programs. Improvements versus general marketing campaigns were as follows:
- Overall Revenue/Profit - 31.6%
- Response Rates - 36.0%
- Response Time - 33.9%
- Average Order Size/Value of Order - 24.5%
- Repetitive Orders/Retention - 47.6%
- The effective use of personalization in email helps trigger fewer unsubscribe requests, thereby fewer broken relationships.
Unsubscribe rates, as measured in the 2002 study conducted by YesMail, decreased from 0.7% with no personalization, to 0.5% with three to four personalization elements, to 0.2% when seven or more personalization elements were used.
- The effective use of personalization, either online or offline, promotes customer satisfaction
As reported in a study sponsored by CRM vendor Kana in 2002 (source, retrieved July 2004)
almost 75% of consumers cited personalization as a major contributor to a satisfying purchase experience - either online or offline. The fact that 33% of consumers cited slow response times as a major contributor to a negative experience underscores one of the reasons why personalization is appreciated. Effective personalization can leave the impression of better service.
While it’s not unusual to see improved business results as a result of using personalization, it’s important to clarify that even stellar results must be examined in relation to their costs and profitability. In the end, each effort and variation should be compared with respect to its Return on Investment (ROI), so that resources can be aligned in relation to profit potential. (It wouldn’t make good business sense to work twice as hard to undertake or improve personalization only to yield the same level of profit, unless personalization were also a route to improving work processes, reducing waste, or asserting a strategic edge.) These payoffs to personalization, when considered alongside the customer-focused benefits cited above, create a compelling case for investing in personalization.
© 2002 - 2004. Ruth V. Armstrong, PhD and Allen L. Armstrong. All Rights Reserved.
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