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Why Retailers Are Racing to Crack the Personalization Code 

Study suggests $800 billion is at stake

From Starbucks to Walmart, retailers are investing to figure out how to speak to consumers on a personal basis, with the goal of offering products and services that are truly one-to-one recommendations. There are some hefty rewards for the sellers who get it right.

Brands that use technology and data to offer customers personalized experiences are seeing revenue increase by 6% to 10%, two to three times faster than those that don’t, according to a Boston Consulting Group survey of VPs and C-level executives at more than 50 companies with sales of at least $500 million each.

$800 billion is at stake over the next five yearsWhat’s at stake? For retail, healthcare and financial services alone, the study found personalization is a game changer that will push a revenue shift of some $800 billion over the next five years to the 15% of companies that get it right. Three-fifths of the companies surveyed were in the retail, food and consumer product sector. Most of the companies surveyed have some sort of brick-and-mortar presence.

“With the rise of digital natives like Amazon and Alibaba and smaller startups reshaping experience, consumers’ expectations have been completely reset,” said Mark Abraham, who heads BCG’s global personalization business, in an interview. “The ones that are going to win are going to be those that personalize the consumer experience.”

However, while pure-play online retailers have been able to track consumers through their digital footprint and online purchase and browsing behavior, the “next wave of personalization” is coming on the brick and mortar side, Abraham said.

“Having the human connection can trump the online experience,” he said. “A lot of people will research online, but in higher spend categories, they will want to touch and see the product.”

Personalization is the biggest driver of improved spend per customer, Starbucks says.

Starbucks President and CEO Kevin Johnson said in a recent earnings call that “one-to-one personalization” will count among the company’s top investment priorities. Starbucks sees “a significant opportunity” in returns on investments it makes around personalization, a company executive said on the call. Starbucks, which has begun sending personalized food and drink recommendations to its mobile app users, said the personalization initiative “is the single biggest driver” of improved spend per customer that it has seen.

How to target consumers one on one is also one of the key target areas behind Walmart’s new technology incubator called Store No. 8, where Walmart will invest in emerging technologies including machine learning and artificial intelligence, key toolsets for personalization.

“We are aligning all of our firepower against the consumer experience,” said Nike CEO Mark Parker on the company’s March earnings call. He said Nike’s is doubling its direct connections with consumers through personalization and digital membership.

The BCG study showed that half of its survey respondents have more than 25 employees dedicated to personalization programs and are spending more than $5 million a year on them. At half of the top performing companies, CEOs and the boards oversee those efforts.

The fervor of activity also can be demonstrated by the birth of some 500 startups that were created the past two years to help companies crack the personalization code, Abraham said, adding his group has doubled in both revenue and team size each year the past few years.

In another example of why personalization is gripping the industry by storm: Abraham said “high-value” customers drive 70% or more of the value for companies.

However, despite the promise, many companies still face challenges, including figuring out how to aggregate various consumer data points to form one universal view of each customer. Meanwhile, almost 60% of companies struggle to effectively measure and attribute the impact of those campaigns. But when it comes to the most often cited challenge: nearly three-quarters of the respondents said there are too few people at their companies dedicated to this area.

And perhaps because of those challenges, not all companies necessarily are ready to tackle personalization. A survey by BlueVenn found that less than 40% of the marketers said they planned to “embrace” real-time personalization in the relative near term.

There’s also another challenge: Consumers are feeling “restless” about the personal data collected on them and are torn between the benefits of giving up their personal data and worries about what appears as invasive and “creepy” marketing, according to the BlueVenn report.

Still, personalization is a high priority in the retail sector. In a February survey of retail executives by RIS News and Gartner, 49% of the respondents identified “developing personalized marketing capabilities” as a leading strategy/objective.