Consumers are conflicted, and rightly so. Study after study shows that they want – and expect – the convenience that comes from personalized experiences and simultaneously are worried about the security of their online data and invasion of privacy.
While there is no clear red line, consumers know personalization that goes too far when they see it – what has come to be known as “the creepy factor.”
For businesses, the stakes couldn’t be higher. Personalization can deliver five to eight times the ROI on marketing spend and can lift sales by 10% or more, according to McKinsey & Co. And, after more than 20 years of promises, marketing technology, automation, and advanced analytics have reached the point where effective personalization at scale is possible.
But personalization goes well beyond just marketing. Intelligent technologies are enabling industry after industry to create deeper, more informed customer experiences: everything from connected cars to personalized health applications to custom retail experiences to intelligent supply chains, and on and on. Great customer experience is becoming as important as great products and services. Still, as the experience becomes more customized, the reputational risk of overstepping customer privacy grows, as does the security risk of protecting so much customer data.
Governments around the world are anxious to step in. One year after Europe enacted the General Data Protection Regulation (GDPR), bills in the U.S. have been introduced in at least 25 states addressing different aspects of data privacy, according to the National Conference of State Legislatures. The U.S. Senate has set up a task force focusing on data security and privacy. Forrester recently updated its map of global privacy rights and regulations to include 61 countries.
Regardless of regulatory oversight, businesses will not get far without building consumer trust. According to this year’s Edelman Trust Barometer, 81% of consumers said trust is their top buying consideration, while only a third said they actually trust the brands they buy. Building this trust requires an unprecedented level of transparency, as businesses collect more and more consumer information to help create personalized experiences.
In our experience working across 25 industries, we have seen that the companies that have found the right balance between personalization and privacy are those that have a single-minded focus on their customer. They design personalized applications that are useful, not invasive, and deliver truly relevant customized offers and content. They are meticulous about ensuring that their data sources are valid – and they are transparent about those sources. They give their customers control over how their data is used and with whom it is shared. And they collect only the data needed to provide their service.
When done thoughtfully, personalization can create a virtuous cycle, creating value for customers and building an even more trusted relationship. And, by creating convenient and efficient experiences, companies raise the switching cost for their customers and create a source of both experiential data (things like satisfaction, feedback, and context) and operational data (things like costs, revenues, and sales). Together, this data can lead to the development of even more personalized products and services.
For example, Discovery Limited, an insurance group from South Africa, uses a behavior-change platform to encourage positive behavior change in areas of risk, such as health, lifestyle, and driving. This model generates significant risk savings for the business while creating value for customers and positive social impact.
Discovery extended the model to banking with the introduction of what the group describes as a behavioral bank. This concept was introduced in response to a critical societal need in South Africa. Debt-to-income levels are at record highs, with 40% of consumers struggling to make debt repayments and fewer than 10% adequately prepared for retirement.
Discovery’s behavioral bank works like this: The bank integrates behavioral economics principles into its product design by using incentives to encourage better behavior. The bank rewards customers who spend less than they earn, save regularly, insure against serious events, pay off property, and invest for the long term.
Rewards are based on engagement with the behavior-change part of the product, while data from across its businesses is channeled into algorithms that measure and monetize behavior change actuarially. This enables the company to dynamically adjust the pricing of benefits, such as interest rates, based on the client’s behavior. The more customers engage and the more data they agree to share through this participation, the richer the rewards.
In this model, there is a distinct purpose and benefit to the customer for sharing personal data. The customers are at the center and, by opting into the program, have control over what they engage in and what data they share to realize benefits. And, the more customers use it, the smarter the system gets, combining experiential with operational data to refine the rewards system and inform new product development.
This is how you build trust through personalization.
According to the Edelman study, consumers reward trusted brands with purchases, loyalty, and advocacy – and punish the brands they do not trust. What’s more, with trust comes the opportunity for businesses to develop more personalized services and to become more deeply enmeshed in their customers’ lives. As a result, they can create more innovative products and services based on both experiential and operational data.
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