Section 1: History
Since the .com boom there have been many changes in the business and technological spaces. How can we describe these changes in a general way? When we look at them in a commercial context, the term ‘personalization’ seems like a good place to start. In other words, many of the changes in how businesses operate, both online and offline, can be grouped into this one, broad trend – the increase in personalization. Let’s take a closer look at its evolution.
1980’s – The introduction of relationship marketing
According to Gartner, the term relationship marketing first came into use in the 1980’s. Relationship marketing references the idea that companies need to think of their customers as more than just dollar signs, but as real people with whom the brands need to build a relationship with. This concept forms the foundations upon which the concept of personalization rests.
1990’s – Web 1.0
These were the years where the internet was still in its primacy. Along with web 1.0 came the term CRM (customer relationship management). CRM refers to strategies and technologies used by companies to gather and analyze customer data from the sales cycle, with the aim of using the data to improve the customer’s interaction with the company. Using data to identify customers suddenly became viable for two main reasons. The number of different data points that we could gather had increased, and gathering data in general became cheaper. Prior to this, data had been collected manually. The 1990’s saw a shift towards automated data collection, allowing a business to have large number of data points, keeping an eye on larger segments of their customer base. This shift in the ability to collect more data for cheaper was extremely important in the progression of personalization, because without effective data collection and analysis, it is almost impossible to personalize in the truest sense of the word.
2000’s and beyond
At the turn of the century, personalization began to pick up steam. Email marketing campaigns were early examples of personalization. Initially, the personalization would be as simple as name recognition – being able to send an email to a customer with their name at the beginning of the email rather than the more generic “dear valued customer”. These days, personalized email campaigns are far more advanced, using data about a customer’s browsing history and on-site behavior to deliver a truly personal experience. (Having said this, a number of small and large companies today still are failing to take advantage of the advanced email personalization technology that is available).
Personalization also began to creep into various markets. Travel was one of the first sectors to use personalization – initially in the form of merchandising. Merchandising is the idea of determining where a user is browsing from – and guessing their socio-economic status based on where they live – and charging them accordingly. You still see this today in online car sales, for example. Try looking at prices on your normal web browser, and then through Google Chrome Incognito – you will likely see two different prices.
Another big development in the digital space that affected personalization, was the rise of the iPhone and the subsequent smartphone revolution. Not only was this another avenue for companies to connect with their customers, but smartphones provided another source of data. At the same time, social media sites started growing exponentially, providing businesses with a goldmine of potential data about their consumers.
With the development of the cloud, companies now had a secure (and increasingly cheaper) place to store and analyze the growing amount of data that they were able to collect about their customers.
The economic crash of 2008 accelerated the development and use of personalization as companies scrambled for strategies to maintain their sales targets in the face of a massive reduction in consumer spending. By the time the recession had passed, consumer expectations had changed for good. Individuals, both online and offline, expected more personalization from the businesses they bought from. It’s the idea that once you’ve had it, you can’t go back to not having it. At this point for most consumers, simply getting an email with their name in the subject line would no longer cut it.
Section 2: Current State
Although some big players have been using it for years now, personalization is still in a relatively early stage. There is a big gap between the perceived importance of personalization, and the number of companies actually doing it. It is reported that 77% of businesses believe that real-time personalization is crucial, yet 60% note that they struggle to do this. Another study found that 75% say that personalized content across channels is important, but they are still in the planning stages when it comes to implementation. eConsultancy reports that of the businesses actually using content personalization, a majority say that it is fundamental to their business, while only 5% of them say that they are personalizing extensively.
From a consumer perspective, the research points to consumers wanting more personalization. About 3 from every 4 consumers get annoyed with websites when the content that is shown has nothing to do with their interests. When asked, it seems that consumers value personalized experiences more than we would intuitively think. Janrain reports that 25% of people would give up chocolate for a month, just in order to receive relevant content based on their personal interests and needs. More than just a tool for customer engagement though, consumers report that personalization affects their buying habits. A reported 86% of customers agree that personalization influences their purchase decision, with 1 in 4 being influenced ‘significantly’.
Section 3: Case Studies
We will now turn to explore 3 case studies – Amazon, Facebook and Netflix. What each of them have in common is that they adopted personalization early – before it was cool to do so. Their reward for their innovation and risk? Each of them is now the leader in their respective market(s). We will walk you through how personalization helped each of them achieve the success that they enjoy today.
Even back when Amazon was just an online retailer for books (remember that?!), they were experimenting with personalization. Their 1995 homepage advertised their ‘personal notification service’. Check it out below.
The reason Amazon began experimenting with personalization as early as 1995 is because of the need to compete with physical, brick and mortar bookstores. They needed to show their customers that they could understand their needs in the same way that a shop assistant could through a face-to-face interaction (and even better). They began using behavioral data such as on-site behavior and purchase history, as well as the behavior of similar customers, to determine and provide a series of personalized book recommendations for each customer. This kind of personalization is now all automated and all the recommendations are done through their software – but back in the early days this personalization was all manual and done by humans!
To this day, Amazon’s recommendations engine is a major part of their business model, generating an additional 10%-30% of revenue for them.
Facebook use content personalization too when they filter what you see on your newsfeed. Facebook’s News Feed algorithm decide what posts to show you – without it there would be an average of 150,000 posts competing for your attention at any one time. Their premise is simple, if you are shown videos and articles that are aligned with your interests, you will spend more time on Facebook and be more engaged – commenting, liking, coming back to it. And it works – nearly a billion people worldwide go on Facebook everyday. Their content personalization works so well in fact, that it prompts Americans to spend almost as much time on Facebook as they do socializing with people face-to-face.
Facebook are reaping the rewards for being an early adopted of content personalization. Their controversial, but effective ‘News Feed’ has developed into what Time Magazine calls the “most valuable billboard on earth”
Out of all three of these case studies, Facebook has by far the most advanced form of content personalization. Some of the metrics that Facebook personalizes by are pretty obvious:
- How close you are to a person (judged by how often you like their posts, write on their timeline, talk to them on messenger) is the most important, and obvious metric
- Facebook also looks at past behavior, by showing more videos to someone who watches a lot of videos, for example.
- Content that has been shared and engaged with is assumed to be of wide appeal, which could also be a factor in propelling it to the top of your feed.
However, Facebook goes even further than this, personalizing content by taking into account less obvious factors.
- For instance, if their algorithm detects that you are browsing from a mobile device with a slower internet connection, they will show you less videos and more written content because it is faster to load.
- Another example of Facebook’s cutting edge personalization approach is their “like” system. Not all likes are created equal. Liking a news article before you’ve read it carries less weight for the algorithm than when you like an article after reading it.
Netflix have come a long way since their humble beginnings as a DVD delivery service. The road to their success started in the early 2000’s when they pivoted from their original business model and became an on-demand streaming service. They understood that most people would be unable to find movies and TV shows that quickly hooked them if they had to browse all of Netflix’s 100,000+ inventory. In 2006, Netflix held a now famous competition with $1 million prize money being offered to the team that could improve the accuracy of their existing recommendations engine (their term for personalization software). Since then, they’ve gone from strength to strength, constantly refining their recommendations engine which quickly became a core feature of their business model. It is now estimated that about 75% of what Netflix users watch comes from the recommendations engine.
Personalization is what enabled Netflix to be the multimedia powerhouse that it is today. It is so central to their identity that in a recent interview with Netflix’s head of content, Ted Sarandos, he described Netflix’s brand identity by stating that “our brand is personalization”.