In this article from the NYU Stern Business School, researchers are analyzing the marketing strategy, “one-to-one.” A firm, marketing to the individual costumer is the essence of one-to-one marketing. Two forms of one-to-marketing are personalization and customization. Explanation of personalization occurs when the firm decides that the marketing mix is suitable for the individual, based on collected customer data, which sparks customization. Customization occurs when the customer proactively specifies one or more elements of his and her marketing profile and preferences. This article analyzes key challenges and knowledge gaps in understanding both firm and customer choices in one-to-one marketing. With one-to-one marketing advocates aspects of the firm’s marketing mix to be the individual customer. One-to-one marketing represents an extreme form of segmentation, with the target number being one. The notion of personalization is created when the firm decides what can be marketable to a specific customer usually based on previously collected data. Researchers presented an example of one-to-one marketing with Amazon.com’s personalized books and music recommendations. The e-commerce sector is replete with instances of personalization.
One of the most popular examples of personalization is Amazon.com. Amazon uses collaborative filtering to decide what music or books to recommend to users. Another example is ebay.com, the website can recognize the use and detect previous trends of the searches that he or she has made. The system then infiltrates appropriate related links on the website as the user browses. Search engines, or the usage of Search Engine Optimization analyzes the types of searches the user undertakes over time. When the user searches for a similar topic on the search engine, the engine tends to respond faster and more effectively. The potential advantages of personalizations lay increased customer satisfaction, which results in higher profits. The researchers concern with personalization of the one-to-one marketing strategy is the issues of invasion of privacy. Personalization thrives off of data, driving companies to stretch the envelope on what data to collect. It is also expensive; it requires data and expensive software for implementation.
A potential advantage of customization is greater customer satisfaction. Customization is a part of differentiation and ensues that the product itself, is unique. However, a disadvantage of customization is cost. The critical question is whether the incremental value and strategic advantages overcome this cost. Is it worth it? Customization could make the purchase more complex. There can be psychological implications and difficulties of trading off the higher utility derived from customized products with the complexity of making the choice. Another issue is the raising of customers expectations.
What are the forces shaping the evolution of Personalization and Customization? How did one-to-one marketing originate?
Challenges in implementing personalization and customization are to be met by taking future advances, within three steps…
- Collecting the data
- Transforming the data into insights
- Optimizing the results
The collecting data implication is customer data integration-the collection of customer data at all “touch points” The extent of integration and how many customers the firm has the integrated data are two key points. Developing insights is a constant concern of companies. Companies that perform sophisticated personalization and customization have strong capabilities in statistical modeling. To analyze customer behavior, many companies have software like SAS and BUGS. This software allows access to consumer emails, blogs, chat forums, and other virtual communities, with this intention, and companies are slowly starting to learn how to analyze text data. The final step, optimization requires close coordination among marketing, informational technology, and production. The creation of brand communities comes to the forefront. So what are the empirical challenges in personalization?
“A distinguishing feature of personalization versus customization is its reliance on statistical analysis of customer data to predict customer response to prices, promotions, or communications. There are two key issues. First, how accurate are these predictions? Personalization relies on assigning the right marketing effort to the right customer. But, if the cost of misclassification is large, the firm may be better off not personalizing. For example, distracting and annoying the customer by recommending a series of books in which he or she has no interest may be worse than making no recommendation at all. The second issue is how far the firm should go toward the ultimate goal of one-to-one marketing? Figure 2 depicts the choices available to the firm. It may be that the loss in “precision” in going one-to-n may be worth avoiding the errors of misclassification in going one-to-one.” (Arora, 2008)
This week I will be tackling the rest of this article, which focuses on firm choices in product customization, consumer perspectives, and future research/solutions to issues with one-to-one marketing.