What Is Personalization? Meaning Defined
May 30, 2024
Customer Experience
Here we explore what personalization means — for customers and businesses.
Personalization is a top priority for companies across industries, but what is personalization, anyway? Personalization is possible when brands collect customer data and use these insights to create unique interactions, experiences, products, content, and services for customers at the individual level.
Examples of personalization in business can be found throughout history, dating back hundreds of years — before the rise of the kinds of technologies that are driving personalized experiences today.
For instance, 18th century retailers used to keep detailed records of customer sizes and style preferences to personalize future product offerings and experiences for repeat buyers.
For another example from more than 100 years ago shared in a recent Medallia webinar, Charles Walgreen, the founder of Walgreens, is said to have grown his business in the early 1900s by taking the time to get to know and build relationships with his customers on a one-on-one basis. By learning about their families and personal lives, he was able to establish the kind of trust that kept customers coming back.
The ways in which brands are able to tailor experiences have evolved dramatically since these early days, but one thing has remained the same — the power of personalization.
Ahead, we’ll explain why that’s the case by exploring what personalization means for customers and businesses, the benefits of personalization, and what companies can do to build out successful personalization strategies.
But first, let’s jump into that personalization definition you’ve been looking for.
Personalization Definition
What is personalization? It’s the process of collecting comprehensive customer data, behaviors, interests, and preferences from across channels and touchpoints and leveraging these insights to tailor content, interactions, experiences, and outreach for customers at the individual level.
Personalization happens when brands shift from a one-size-fits-all approach to business to successfully creating the most relevant and meaningful experiences, content, products, communications, and services for a given customer based on what the company knows about the individual.
Personalization requires gathering qualitative and quantitative customer data from across channels and interactions, from digital and in-person channels, and keeping this information up to date in real time. This includes demographic information, observed behaviors from digital experience analytics, customer feedback, customer loyalty program membership data, insights from contact center interactions, and more.
What Types of Personalization are Companies Investing in?
Personalization has a wide variety of business use cases. Brands can use personalization technologies to customize the products and services they offer, to tailor customer service interactions, to create unique website and app experiences at the individual level, and to target marketing campaigns and content.
Where are businesses focusing their efforts these days? The majority of brands are investing in the following types of personalization strategies and technologies, according to a Medallia Market Research and Customer Experience Professionals Association™ survey published in our 2024 State of CX Personalization Report:
- Delivering proactive customer feedback requests based on customer interactions
- Serving up personalized content and recommendations
- Using personas or segmentation profiles to personalize experiences
- Leveraging personalized experience orchestration tools
- Using automated marketing/closed loop communications for personalization
- Offering rewards and recognition based on individual customer information
Personalization Meaning for Customers?
What personalization means varies depending on who you ask. While companies may focus on the financial advantages of personalization — and see it as a means to drive repeat business and loyalty — when taking the customer’s point of view into consideration, personalization is meaningless if it doesn’t result in an improved customer experience.
Medallia recently sat down with Tracey Brown, EVP and President of Walgreens Retail and Chief Customer Officer at Walgreens, and Fred Reichheld, co-founder of the Net Promoter System (NPS) and an Advisory Partner at Bain, to get these experts’ insights on personalization. As part of this conversation, Brown and Reichheld shared what personalization means to customers and how brands can use personalization to improve the customer experience.
1. Being treated as a person
When it comes to personalization, brands often focus on tools and tactics, says Reichheld. “We can track people in a digital way, ‘We know so much about them, we can fine tune our offers.’”
But that’s not what matters to the end consumer. What they care about is when companies treat them like a person, “like a human being, like they deserve to be treated,” he explains.
2. Receiving added value and having their lives enriched
Brands need to think about the ultimate purpose of personalization, says Reichheld. And that shouldn’t be to simply sell something — the end goal should be to enrich customers’ lives.
That’s how Brown approaches personalization at Walgreens. She’s always thinking about how to add more value for customers and patients, whether that’s saving customers time or money, better educating them, or helping them lead healthier lives.
3. Having individual needs met
Too often, organizations approach personalization from a siloed perspective. The digital team may be focused on increasing conversions while the contact center prioritizes cutting costs or hold times.
“In some ways, the greatest challenge of personalization is to get back to a view and understanding of the customer that is truly from the customers’ eyes and not from the organizational control system,” says Reichheld.
When brands get this right and serve customers the types of experiences they’re looking for, people are more likely to refer that company to their friends and family, he explains.
The Types of Personalization That Matter to Customers
As part of our 2023 Medallia Market Research report How Consumers Really Feel About Personalization, survey participants rated the most impactful types of personalization strategies brands can use to improve their customer experiences. Based on our findings, these include:
- Offering customers special recognition, rewards, and treatment for their customer loyalty
- Sharing important customer information across teams so that customers don’t have to repeat what they’ve already said if they’re transferred to a new customer service agent
- Providing forgiveness or leniency for late payments, returns, etc.
- Proactively detecting errors or issues and offering help in the moment (i.e. when an account is locked or service is down)
- Treating customers to a special offer or free item on their birthday
Personalization Meaning for Businesses?
Personalization is something the vast majority of companies in business today are already investing in — or plan on investing in. One study finds that as many as 92% of businesses are embracing AI-powered personalization to tailor experiences for individual customers, and, according to our 2024 State of CX Personalization Report, making customer experiences more personalized is the #1 priority for customer experience (CX) professionals in 2024, ahead of any other area.
So why’s that the case? What does personalization mean for businesses?
In a recent Medallia webinar about personalization, Brown and Reichheld discuss what personalization can mean for business outcomes, explaining how brands that successfully personalize experiences are better positioned to grow, add shareholder value, and generate referrals.
1. The ability to acquire, retain, and grow customers
When brands are able to harness customer data for personalization efforts that grow trust, forge emotional connections, and add value for customers, they’re better positioned to attract, retain, and grow their customer base, says Brown.
2. Adding shareholder and employee value
In his book Winning on Purpose, Reichheld looked at companies’ NPS® scores and in every case found that brands with higher NPS scores — that is, those with the greatest number of promoters and smallest share of detractors — generate stronger shareholder returns.
“Real value for investors really comes only when you get this flywheel going, which drives the economic prosperity of the business, not just for investors but for employees as well,” he explains.
Promoters are individuals whose lives have been so enriched by an experience that they want to share it with others and recommend it to a friend. That’s the link that exists between companies effectively executing personalization strategies, adding value for customers, and generating desired results for their shareholders, Reichheld adds.
3. Generating referrals
When looking at the net present value of a customer, for many the greatest value comes not in what they spend on purchases with a brand but in the business they generate for a company through their referrals, he explains.
That’s why organizations should pay attention to referrals generated as a critical measure of success of any personalization effort.
The Top Benefits of Personalization for Businesses
Over the past few years, Medallia researchers have explored the financial value of personalization, and we’ve found that personalization drives customer spend, brand choice, and revenue growth:
- CX leaders who self-rate their brand personalization capabilities the highest are 2x as likely to achieve major revenue growth (10%+).
- Most consumers are willing to spend more with companies that offer a customized experience (61%).
- The majority of consumers (82%) say personalized customer experiences influence the brand they choose at least half of the time when shopping.
- Companies with top-performing customer experience programs are 2x more likely to prioritize improving personalization across interactions than laggards and are also 26x more likely than laggards to report year-over-year revenue growth of 20% or more.
Essential Building Blocks of Personalization
Now that we’ve shared our comprehensive personalization definition and explored personalization’s meaning for customers and businesses, let’s dive into some of the fundamentals of personalization.
1. Setting the right end goal — building trust, emotional connections, adding value, and enriching customers’ lives
The true power of personalization lies in driving stronger connections, meaningful engagement, and consumer trust.
Walgreens has studied their quantitative and qualitative customer data to determine there’s an eight-step journey that matters to customers.
“We know that there are two points of friction in this eight-step journey and two moments of truth. And for us, those points are the actual visit when they actually come into the store, how they actually navigate the store, the checkout experience, and then the actual collection or receiving of the goods,” explains Brown.
“We’ve got to get those four touchpoints right because we know those are the ones that will drive people back to our store or pharmacy again, and those are the things where if we get those right, they will recommend us to a friend,” she adds.
That’s why the team focuses their personalization efforts in these areas that have the greatest potential to forge trust and connections and add value for customers.
2. Bringing the right data and technology together
This starts with creating a single source of truth for each customer that’s continuously updated in real time and encompasses the customer’s entire history across interactions, channels, and touchpoints, such as:
- Contact center interactions (chat, calls, emails, SMS, social media, etc.)
- Transaction histories
- Digital histories (app and website browsing, transactions, etc.)
- Engagement with marketing campaigns
- Customer feedback and survey responses
- Loyalty program membership histories
Beyond gathering the right data, brands need to invest in customer experience personalization technologies capable of:
- Creating rich profiles based on customer interactions across touchpoints, channels, and journeys
- Segmenting customers by groups
- Leveraging AI to detect patterns and trends, analyze customer journeys, predict customer behavior, and orchestrate next best actions, experiences, and individual omnichannel customer journeys
- Providing personalized customer service
- Creating more relevant campaigns powered by experience-based segmentation
3. Creating products, services, and experiences for the individual
Brown explains that leading companies are embracing adaptive design, “where designing for the average user is no longer the standard.” This is in line with customer expectations — today’s consumers want to be treated differently than the standard because they don’t see themselves as average.
Another trend that’s at play, she adds, is deep personalization, which happens when brands not only use demographic and behavioral data, but integrate individuals’ purchasing behavior, habits, and preferences to design tailored experiences and communication.
By using AI-powered Text Analytics and Speech Analytics to collect the right customer data and instantly uncover the meaning behind every customer interaction across touchpoints, brands can shift from a one-size-fits-all approach to using real-time insights to:
- Surface the next-best actions and experiences at the individual level
- Personalize customer service interactions
- Develop dynamic content and optimize marketing promotions and messaging across digital touchpoints based on the latest customer behavior and intent
4. Allocating investments in personalization strategically
“Focusing in on the areas that matter first is most important,” says Brown.
She and her team start with looking at the value of each segment to determine resource allocation, prioritizing high-value customers with greatest potential to add more value to the organization. For example, at Walgreens, a customer who regularly comes to pick up prescriptions but doesn’t cross shop in the store offers a lot of “untapped potential,” she explains.
Lower-priority segments might be those customers who are already bringing a lot of value but have no untapped potential and customers who bring no value today and have no potential to bring value tomorrow.
“If I only have a dollar to spend, I’m going to allocate maybe 60 cents of that dollar to that group of customers that I know they’re spending well with us today, but they still have a lot of untapped potential,” she says. “That’s how we actually start to think about when we’re trying to think through personalization and designing experiences that are personalized. We use our value segmentation to help us with resource allocation.”
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