What is Personalization and How to Use It to Boost Loyalty?

A personalized gift from a friend is a perfect way to show that they care and pay attention. A generic one may suggest they don’t know you as much as you’d hoped. And why should your brand treat customers any differently? The term “personalization” is constantly used in the marketing world, but what does it really mean for customer experience? Let's explore what marketing personalization is, as well as some examples of how you can use it to drive loyalty.

What is Personalization?

Personalized marketing is a strategy of delivering content, products, offers, or any other digital touchpoints to an individual customer with the goal of increasing relevance. 

The rules that determine customer experience are often collected beforehand, such as shopping behavior, content consumption, demographics, or interests, and then used to provide customers with the most relevant message as they continue to interact with a brand.

Customers expect companies to deliver a personalized customer experience everywhere, be it on a website, in an email, through social media, or even in-person. If you want customers to buy what you have to offer, you have to give them personalized interactions that are better than what they can get anywhere else.

Your competitors are already using and testing various personalized marketing strategies, working hard to offer the holy grail – omnichannel personalization. This is why marketing personalization is no longer an option, it’s a must.

What Are the Advantages and Challenges of Marketing Personalization?

Personalization pros

For both companies and customers, personalized marketing offers a number of benefits. Here are some of the key advantages:

1. Customer experience improvement

You can create a more relevant and engaging experience by tailoring your messages and promotions to each individual customer. This can help to retain, engage, and increase satisfaction.

2. Sales and revenue growth

You can increase sales and revenue by targeting the right customers with the right message at the right time on the right channel. With personalized marketing, it is possible to support up-sell and cross-sell campaigns in a more effective way.

3. Higher conversions

Personalized marketing campaigns drive more conversions than generic campaigns. Customers are more likely to take action when they receive offers and promotions relevant to their particular interests and needs.

4. Improved loyalty and customer satisfaction

By providing a more tailored and relevant experience, marketing personalization can help you build stronger relationships with customers. The result can be an increase in customer retention and long-term loyalty.

Personalization challenges

Personalized marketing can be incredibly effective. But it's not without its challenges. Some of the most important considerations are: 

Concerns about data privacy

Collecting customer data can be a mixed bag. While it provides you with valuable insights into customer behavior and preferences, it also raises concerns about the privacy and security of customer data (complying with GDPR and CCPA, depending on geographic location, is only a first, although mandatory, step in that direction). 

Expectations of customers

Consumers have an expectation that companies will deliver a highly personalized experience, built everywhere and at each touchpoint. You can’t just stop personalizing one element on their path and expect them to be treated individually. 

Aiming for the right content and experiences

Accurate and relevant data is essential to personalization in marketing. Personalized marketing campaigns can fall flat if you don’t have access to quality data. Use testing and AI/ML-powered automation tools to stop guessing what your customer wants and start providing it according to the right data.

Transparency and consent

To implement a successful personalized marketing strategy, you need to ensure that customer data is used in an ethical and responsible manner. Also, be transparent about data collection and use policies, and obtain customer consent before using their data for marketing – if you fail to do it openly, there is a risk customers can be alarmed by your actions. 

What Are Some Examples of Personalization in Marketing? 

Personalized marketing is not a new concept – over the years, many brands have engaged their customers in an effective way and increased revenue. Here are a few examples:

• Amazon
  With the use of an algorithm, Amazon initiate so-called collaborative filtering to send customers highly contextualized messages with product suggestions. With what result? More than 35 percent of purchases stem from providing a relevant experience for each shopper.
• Netflix
  An algorithm that links behavioral aspects and predictive learning helps Netflix suggest personalized recommendations to almost 250 million users. Their methods pass the test with flying colors with 80 percent following through on recommendations without searching for movies on their own.
• Sephora
  The brand runs a highly successful “Beauty Insider” loyalty program based on a constantly expanding range of personalized product offerings for diverse customers. They do it with a $37 billion valuation – and program members generate 80 percent of Sephora’s sales.
• Spotify
  Their Year-in-Review, a personalized experience sent by email, features a unique music journey of an individual user and is highly awaited at the end of each year. Since 2017, when it started, the campaign became a viral hit, with over 156 million users engaging with Spotify Wrapped in 2022.

Customization vs. Personalization vs. Hyper-Personalization

Although customization, personalization, and hyper-personalization might seem similar at surface level, they don’t mean the same thing.

The first two terms can be differentiated quite easily – customization is always explicit (a customer actively modifies their experience to meet certain preferences), while personalization is implicit (an experience is modified by the brand for the customer to meet their certain preferences).

Hyper-personalization is everything that personalization does and beyond – thanks to the opportunities that come with the use of data and innovative technology. Let’s break it down:

• Customization is giving the power of tailoring an experience to a customer without making assumptions about what they expect. It can take the form of a physical product design according to  individual taste or subscription option configurations adjusted to a specific budget. The aim of customization is to provide customers with the feeling of agency and control over a service or product.
• Personalization, as we have already stated above, is the practice of delivering individualized experiences by the brand based on customer preferences. E-commerce brands can make product recommendations based on a customer's recent purchase history, or they can send targeted email campaigns to customer segments that share similar interests.
• Hyper-personalization is a personalized approach that takes marketing one step further than traditional personalization campaigns, using real-time behavioral data and advanced algorithms to provide a far more tailored experience for individual customers. Hyper-personalization looks beyond past behavior and preferences to maximize the benefits provided by personalization. It delivers personalized content, recommendations, and offers based on the customer's current context, often location, time of day, or even the weather.  

Why Loyalty Programs Need to Be Personalized

We could just go back to Sephora’s example of a loyalty program and get rid of this section, but it’s important to fully understand why personalized marketing drives customer loyalty. The reasons come from the statistics as well as from psychology. So, why is personalized marketing important?

If a message lacks personalization, 52% of recipients simply won’t read it. In addition, 72% of consumers will only engage with content that is personalized. For both brands and customers, personalization can have a significant impact.

Personalized communications that are relevant can help build lasting customer loyalty and increase revenue by 10 to even 40 percent, according to McKinsey. However, when Bond studied the level of personalization in loyalty programs, it turned out that only 2 in 10 members were satisfied with it.

Instead of feeling like just another customer, loyalty program members want to be treated like the unique individuals that they are. Leveraging personalization capabilities based on a variety of customer data inputs ensures an ongoing relationship with the ones you aim for.

Loyalty and personalization can’t really exist without each other – they are two sides of the same coin. Rewards available in a loyalty program need to resonate with an individual, not the masses. And a couple of loyal individuals are, in fact, a stronger force than many one-time buyers.

Remember the 80/20 rule, famously known as the Pareto principle? When applied to business, it suggests that 80% of sales come from only 20% of customers. In other words, it's a relatively small group of loyal people who are often the driving force behind a successful business.

How to Use Personalization to Increase Customer Loyalty

What can you do to add a personal touch to your loyalty marketing? There are several personalized marketing strategies you can choose from. 

Collect customer data to know who you want to get personal with

…and put that data into use. Often, the challenge is not how to collect information, but how to utilize it effectively to create a successful personalized marketing strategy. What exactly do you need?

Start with as much as 

• A first name – which helps to start off on the right foot 
• Purchase data – to know what your customers are interested in and what answered their needs previously 
• Demographic – to learn details such as age, gender, geographic info, etc.
• Membership history – to discover their level of involvement in your program (points, benefits you can offer)  

Get personal from the very beginning

When you start communicating with your loyal customers, be sure to make it personal. The inclusion of relevant details early on will provide the groundwork for your program, emphasizing that each member is important to you, and showing that your messages, no matter the channel, shouldn’t be easily ignored.

Enrolling is a great opportunity to implement personalized marketing. It's important for your members to understand how they're going to benefit from your program. Rather than sending a generic introduction to every new person, include personal details in the explainer to grab their attention.

Use the power of personalized storytelling

Getting personal means invoking emotions which are a natural fuel for deeper connections you’re your customers, and a great tool to drive this is storytelling. For example, custom video messages make customers better, remember your message, and buy more products or services.

You can incorporate it into personalized marketing by crafting your narrative on the basis of data collected in the first step and then move into creative processes. Make customers the heroes of your brand’s story.

Suggest personalized offers and rewards

Another great way to connect with your program members is through personalized offers and rewards for their commitment. But don't stop there. You should make it easy for your customers to see what they are going to get out of the program.

All in all, that's why they chose you. Your offer must be fun and include the right – also personalized – benefits to keep members happy. It’s all about the value you deliver and the wishes you make come true.

Summary – Implement Your Own Successful Personalized Marketing Strategy and Optimize It Over Time

Now that you know what you can achieve with personalized marketing and how to start, it’s time to add one more critical component. To retain loyalty program members, personalization must be analyzed and optimized over time. You want to know which targeted messages are relevant and practical for your customers, which means you need to measure personalized marketing efforts.

It is easier to keep track of your personalization goals if you are agile and adapt to your customers' needs. There are also changing personalization trends, such as AI personalization or hyper-personalization, worth following – or even anticipating, when your marketing practices achieve a level of personalization maturity.

Improving the customer experience shows members that they are important to your brand and that what you offer is relevant, fresh, and valuable. This is key to the long-term success of your loyalty program, and your business holistically.