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McKinsey explains personalisations rights and wrongs

McKinsey: personalisations rights and wrongs

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

Personalisation is not only a crucial capability, it 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 personalisation, they demand it. With store and product loyalty more elusive, getting it right matters. Roughly 75 % of consumers tried a new shopping behaviour in the last 18 months, and more than 80 % of those intend to continue with new behaviours.

Furthermore, their research found that companies that excel at personalisation generate 40 % more revenue from those activities than average players. Across industries, shifting to top-quartile performance in personalisation would generate over $1 trillion in value. Players who are leaders in personalisation 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 personalisation are changing and what outperforming companies are doing to grow customer lifetime value at scale.

McKinsey explains personalisations rights and wrongs

Personalisation matters more than ever before

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

McKinsey research shows that 71 % of consumers expect companies to deliver personalised interactions. And 76 % 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 personalisation

Seventy-two % said they expect the businesses they buy from to recognise them as individuals and know their interests. When asked to define personalisation, 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.

McKinsey explains personalisations rights and wrongs

…And consumers reward those that get it right

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

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

Predictive personalisation software (PPS) is the advanced facility to enhance all your communications with your consumers, by using the data captured on your website for future product selections on an individual level for each consumer. Indeed the sheer volume of data available for you to use, but for appreciation of its presence is enormous. You might consider it a best-kept secret.

McKinsey explains personalisations rights and wrongs

Performance propels outperformance

Research shows that personalisation most often drives up to 20x the revenue lift (with company-specific lift driven by sector and ability to execute). The more skilful 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, personalisation isn’t just how they market, it’s how they operate.

McKinsey explains personalisations rights and wrongs

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.

Personalisation 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 prioritise personalisation than slower growers. The research suggests that even small shifts in improving customer intimacy create competitive advantage—and these benefits grow with maturity.

Out-performers organise their business around personalisation

Companies that achieve the best results from personalisation approach it differently. Rather than seeing personalisation solely as a marketing or analytics problem, they view it as an organisation-wide opportunity. Rather than focusing solely on short-term wins, they look for long-term drivers of growth and emphasise customer lifetime value.

McKinsey explains personalisations rights and wrongs

Here are the five things outperformers can do to accelerate personalisation 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,” personalisation leaders target a specific set of customer outcomes and use cases that support them. They align organisational resources around these use cases and work back from the desired outcomes to build the data and martech roadmap and identify the enablers and investments needed to deliver. 
  • They commit to an agile operating model. Businesses that succeed in scaling personalisation create teams that cut across marketing, product, analytics, and technology, using a hub-and-spoke approach. Each hub owns specific elements of the personalisation 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 organisational capabilities. They focus on the skills needed to support personalisation at scale (for instance, digital and ecommerce 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 personalisation program advances.

Personalisation is a force multiplier—and business necessity—one that more than 70 % of consumers now consider a basic expectation. Organisations able to build and activate the capability at scale can put customer lifetime value on a new trajectory—driving double-digit revenue growth, superior retention, and richer, more nurturing long-term relationships.

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