SWAP MEET

By Published on .

AMERICA'S YOUTH AND VETERAN ONLINE USERS ARE THE MOST LIKELY TO DRIVE THE CUSTOMIZED MARKETPLACE.

AS COSTS CONTINUE TO DROP, AND CUSTOMER DEMAND CONTINUES TO RISE, MORE COMPANIES WILL BE FORCED TO ADOPT CUSTOMIZATION JUST TO COMPETE.

BEYOND TANGIBLE GOODS, THE NEXT BIG WAVE OF CUSTOMIZATION WILL BE IN THE OFFLINE SERVICE SECTOR.

In 1913, Henry Ford transformed consumer expectations by bringing mass production to the marketplace. “The consumer can have any Model T he wants, just as long as it's black,� Ford was known to say. Since then, shoppers have learned to sacrifice what they really want for what is available and affordable, and only the extremely affluent have dared to desire customized products and services. But today, advanced technology and the Internet's ability to seamlessly collect consumer preferences are making tailor-made items and attention more cost efficient for manufacturers and service providers, and more affordable for consumers. Now, anyone who covets customization must pay for it with a currency even more valuable than money: personal information.

Seventy-eight percent of adults say they'd be willing to trade some personal info for products and services tailored just for them, according to an exclusive survey conducted for American Demographics by market research firm Market Facts. The challenge facing marketers today is not in convincing people to give up the 411, but in proving that they can provide something of personal value in exchange, and that they can be trusted not to “sell out� their customers. Consumers and business execs now have unlimited access to data about each other, and as a result, consumers have reached a new level of power. With the competition quite literally a quick click away, cost is ceasing to be the primary point of differentiation for many services and products. The degree to which a company can meet the specific needs of each customer, while protecting his personal privacy, is fast becoming the new benchmark.

Consumers crave customization. In an exclusive, nationally representative survey conducted for American Demographics by Internet research firm Harris Interactive, 75 percent of adults in the United States say they wish there were more products and services customized to their personal needs and tastes. Moreover, 70 percent say they are more loyal to companies that make an effort to get to know what those needs and tastes are, and 70 percent are willing to pay a premium for the attention. The question then becomes one of pure demographics. Which consumers are most willing to trade personal information for personal service? With which kinds of information are they most willing to part, and for what kinds of products and services is it worth the swap?

America's youth are the most likely to drive the customized marketplace. “Younger consumers will come to expect customization more as they grow into adulthood,� predicts Joe Pine, co-author of Markets of One: Creating Customer-Unique Value Through Mass Customization (Harvard Business School Press, March 2000). “Older consumers were used to having to sacrifice what they wanted in order to get a low cost, but today's young consumers won't have that ingrained in them.�

In fact, 85 percent of 18- to 24-year-olds say they wish more products and services were customized, compared with 62 percent of those 65 and older, according to our Harris study, which weighted its sample of 900 to reflect the U.S. population. And 77 percent of the youth group say they are more loyal to companies that make an effort to get to know their tastes and needs, compared with just 54 percent of the senior set. This demand runs across all industries. Eighty-six percent of the youth group is interested in buying customized clothing or shoes (compared with 67 percent of the general population), 80 percent are interested in personalized computer or electronic equipment (compared with 57 percent), and 82 percent are interested in tailored travel services (compared with 65 percent).

Online users, regardless of age, appear to be similarly conditioned to expect just-for-me experiences. Among “tenured Web purchasers� — those who have been online for two or more years and bought at least one item over the Internet in the past year — 56 percent say they are more likely to purchase from a site that allows them to personalize it, according to a report by the Personalization Consortium Inc. (PCI), an advocacy group formed by marketers and researchers that promotes the use of responsible one-to-one marketing technology on the Web. In fact, 85 percent of heavy Internet users in our Harris study (defined as those browsing the Web for at least eight hours per week) say they wish there were more customized products and services available, compared with 72 percent of non-Internet users.

This demand for customization online has led to the launch of numerous personal-focused e-shops and e-services, across a variety of industries. News and information are customizable on sites like myCNN.com and Individual.com. Entertainment sites like SonicNet.com allow music buffs to customize their own radio stations. As for products, major players like Nike have created an online space where customers can design and personalize their own “Nike iD� sneakers. And at Reflect.com, women can design made-to-order cosmetics, based on their skin type, style, and personality.

The Internet makes it affordable for businesses to offer this level of personalization, explains Richard Gerstein, vice president of marketing and design at Reflect.com. A brick-and-mortar cosmetics company, for instance, may only be able to develop and stock inventory of just a few varieties of makeup to suit different skin types because the overhead costs — warehousing fees, returned goods, salary for the rep behind the counter, etc. — are very expensive. But online, a company doesn't need to manufacture anything until there is an explicit demand. Says Gerstein: “Even if customization doubles the cost to make the product, we don't have to double the pricing to the consumer because we can take the money we saved elsewhere and put it toward the customization process.�

In addition, more flexible manufacturing tools and computer-based design techniques are bringing down the cost of customization, says Scott Killian, CEO of FanBuzz, which offers design-your-own CustomFan â„¢ sports team apparel. Just a decade ago, creating a custom logo on a sweatshirt, for example, would mean cutting an individual pattern out of steel, at an expense that he says is too large and inconceivable to quantify. Even now, the cost to create a custom product is about 20 percent more than it is to make a mass-produced version, Killian estimates. But he believes there are customers willing to pay for personalization. Our Harris survey found that to be true: of those very interested in buying customized clothing or shoes, 79 percent are willing to pay a premium. Pine predicts that as costs continue to drop, and customer demand continues to rise, more companies across all industries will be forced to adopt customization just to compete. His forecast: By the end of the decade, at least 20 percent of all consumer businesses, online and offline, will offer customized products and services, up from less than 5 percent who do so today.

But offering customization or personalization for the sake of doing so isn't the answer either. The trick is to get personal, but not too personal, and never too quickly. One of the biggest mistakes businesses make is that all too often, in their race to hoard data, they forget to think about what they really want it all for, says Bruce Kasanoff, author of Making It Personal: How to Profit from Personalization Without Invading Privacy, (Perseus Publishing, November 2001). By rushing, marketers risk both turning off potential consumers and costing their business serious bucks, he says. Managing extraneous data is expensive, and with an emotionally charged topic like privacy, companies can't afford to offend. “If you are constantly asking people for more and more information about themselves, you are only training them to ignore you,� Kasanoff says. “But if you only ask once in a blue moon, people are more likely to respond and be curious about what benefits they can get in return.�

Mark Hollander is a believer in “drip-irrigation marketing� or incremental relationship building: Ask for a little information upfront, show consumers what they can get by trusting you, then, and only then, ask for more. As a frequent business traveler, Hollander, executive vice president of DeepBridge Content Solutions, is constantly strapped for time. He remains loyal to Marriott, in particular, he says, because its online booking system offers a personalized service — a complete listing of his prior stays and preferences — in exchange for bits of personal information, like his name, address, and frequent traveler number when he logs on. He likes having the option to add to or delete from his personal profile at any time, at his own pace, and he especially appreciates that they remember his preferences so he doesn't continually have to repeat himself.

It's a pet peeve that irks many others as well. Among those who have been online for two years or more and have purchased something online in the past year, 87 percent say they are annoyed when a Web site asks for the same information more than once, according to PCI. Being the technologically savvy person he is, Hollander can also tell that Marriott is not littering his computer with “cookies� to track his Internet use, and he appreciates that. “I don't like being spied on,� he says. “I don't feel like my privacy has been violated, and that makes my loyalty to the company that much stronger.�

But even for pro personalizers, not all types of private data is up for grabs. The PCI study found, for instance, that while tenured online purchasers are very likely to give up most types of personal information including their name, address, product purchase history, age, gender, ethnicity, and financial or lifestyle information in exchange for personalization, they are much less likely to see any trade-off benefit from revealing their hobbies or e-mail address. In fact, a separate syndicated Cyber Dialogue study found that while 90 percent of consumers are willing to share their e-mail address in exchange for personalized Web content, just 18 percent would still do so if they knew the information would be shared with other sites, companies, or advertisers.

Researchers say this hesitancy is a backlash to the irritating and time-consuming nature of unsolicited and irrelevant e-mail ads, or “spam,� that online users received in the past when they gave up such information. Thus, any personal information a marketer asks for must be obviously relevant to the offer, or consumers won't play along, says Kevin Mabley, vice president of strategic and analytic services at Cyber Dialogue. “Marketers really need to show the value exchange — what immediate value are they [consumers] going to get for giving out each piece of information,� he says. In fact, Kasanoff outlines four main benefits of customization: the ability to save time, save money, get more relevant information, or receive special treatment.

For those marketers who choose not to customize, however, beware of the Net-reared consumer. Hollander says that he's put a block on all e-mail solicitations from U.S. Air, for example, because the company has never made any effort to customize its offerings to him. “Even though I live in D.C., they send me specials from all over the country. While I'd love to hear about specials from D.C. to Chicago, they've never asked, and so they're just wasting my time,� he says.

Understanding the sea of spam and solicitations consumers are swimming in, Promo CD, a direct marketing firm, is starting to take personal marketing efforts further by using Eastman Kodak Company's Programmable CD-ROM Technology. Promo CD and Kodak are working with retailers to customize multimedia catalogs. So for instance, based on prior purchases, a CD catalog could automatically show the kinds of items that a particular consumer would most likely be interested in, down to preferred colors and sizes. The CD's shopping advisor could even make detailed recommendations like: “Take a look at these red pumps, they'd go great with the plaid skirt you bought three months ago.�

The technology, says Mike Inchalik, hybrid media director at Eastman Kodak, has the potential to bring the high-end personal shopper experience found in luxury shops like Saks Fifth Avenue and Nordstrom to segments of the population who either don't have access to or don't have the funds to shop in such stores. A full 85 percent of those with incomes between $15,000 and $24,999, and 75 percent of those making less than $15,000, desire personalized products, according to our Harris survey — in addition to the 68 percent of those who earn $75,000 and above. What's more, blacks and Hispanics crave customized attention more than whites: 86 percent of blacks surveyed and 78 percent of Hispanics wish for more personalized services and products, compared with 73 percent of whites. They are also considerably more likely to stay true to those who do: 79 percent of blacks and 85 percent of Hispanics say they are more loyal to companies that customize, compared with just 68 percent of white consumers.

Beyond tangible goods, marketing efforts, and personal e-services, experts agree that the next big wave of customization will be in the offline service sector, as more and more companies figure out how to use new technologies to their advantage as brand loyalty building and customer service tools. At Quicken Loans, for example, in addition to the abundance of information customers are asked to supply on the application, such as their Social Security number and annual income, the company has recently added the option of providing additional contact information, such as a personal cell phone number or e-mail address. Using a technology branded as the Intelligent Response Platform, from Seattle-based PAR3 Communications, Quicken gives customers the option to customize the frequency and communication channel of personalized alerts regarding their loan status. They can choose, for instance, to have time-sensitive info sent to a cell phone or pager, and other types of info sent to an e-mail address or left on a home answering machine.

The company decided to offer the service last fall, not only to differentiate itself from its competitors by offering a more “personal� touch (so what if the alerts are automated?), but for a more obvious business reason: money savings. “It's a no-brainer cost justification,� says Anna Allred, product manager for Quicken Loans. She explains that each loan consultant on staff can spend up to eight hours per loan making follow-up and status calls. But by sending one automated message to the borrower, and have him send it to anyone he thinks needs to hear it, consultants can spend their highly priced time on other tasks. So far, 75 percent of Quicken's clients have signed up for the service, and 60 percent of those polled by the company say the availability of the personalized alerts will make them more likely to choose Quicken Loans over another loan provider in the future.

Where customization is really taking off is in the travel and hospitality service sectors, and rightly so: 65 percent of Americans say they would be interested in customized travel planning services tailored to their interests, according to our Harris study. The demand makes absolute sense to Rob Roberts, founder and “head coach� at VacationCoach.com, who started the year-old travel site in response to his own trip-planning woes. He found that the first thing most travel sites ask is “where would you like to go,� but he had no idea what locations would cater to his family's varied interests. Built around the idea that every person has unique tastes, like a fingerprint, VacationCoach gives consumers the ability (for a $25 annual fee) to create a Me-Print profile. The patent-pending technology captures relative degrees of leisure preferences by providing consumers the ability to rank each of 63 activities and interests on a 10-point scale.

For instance, the site asks how much the customer likes “nature� on a scale of 1 to 10, 1 being “hate it� and 10 being “love it.� If and when the consumer wants, he can get even more specific and reveal the degree to which he cares for parks, zoos, or gardens. Users can even make Me-Prints for other family members or friends to find vacation destinations where everyone can find something to do. “We are moving away from a world where competition is always based on price,� says Roberts. “Customers have much more knowledge about what their other options are now because of the Internet. Companies are learning that we have to provide something unique and deeply personal to win loyalty.�

Winning consumer loyalty and repeat business is exactly what Wyndham Hotels seems to be doing with its mass customized guest recognition program, Wyndham ByRequest. Guests can join the free program by filling out a detailed preference form: Do you prefer foam or feather pillows? Sweet or salty snacks? A glass of Merlot or a cold Bud in the mini-fridge? Requests are automatically fulfilled each time a customer reserves a room at any Wyndham property. In February, after a year in stealth testing mode, the company launched a $30 million media campaign called “What's Your Request?� to drum up more business. So far, according to Andrew Jordan, senior vice president of marketing, it's doing just that. He says that membership in the program is increasing rapidly, and they've received “only positive feedback� so far. Jordan says Wyndham expects to capture the lion's share of business travelers with the program, and hopes that by collecting information about their customers' favorite leisure activities and sending personalized discounts and offers to those customers, they will also succeed in winning their non-business business as well. Says Jordan: “We're confident that once people experience our level of service, they'll be loyal repeat customers, because we're the only ones doing this right now.�

But not for long. “As people come to enjoy customized offerings in some facets of their lives, at prices they are willing to pay, they begin to expect them in other facets as well,� writes Joe Pine in Markets of One. “Indeed, mass customization will be as important to business in the 21st century as mass production was in the 20th.�

Move over Henry Ford.

ME GENERATION

Younger consumers are more likely to be interested in buying or using all types of products and services customized specifically to their needs and tastes.

TOTAL 18-24 25-29 30-39 40-49 50-64 65+
Clothing/Shoes 67% 86% 80% 77% 68% 56% 45%
Cosmetics/Fragrances 42% 58% 54% 52% 39% 33% 23%
Travel planning services 65% 82% 84% 75% 67% 58% 35%
Accommodation preferences* 57% 78% 69% 69% 57% 49% 33%
Food (at-home) 56% 67% 68% 69% 56% 48% 37%
Financial planning services 65% 79% 89% 74% 65% 57% 38%
Computers/Electronics 57% 80% 72% 74% 61% 42% 26%
Online information/Entertainment 47% 61% 56% 59% 49% 40% 25%
*ACCOMMODATION PREFERENCES REFER TO BEING ABLE TO DO THINGS LIKE HAVE THE TEMPERATURE PRE-SET IN A HOTEL ROOM, OR CHOOSE THE COLOR OF A RENTAL CAR.
SOURCE: AMERICAN DEMOGRAPHICS AND HARRIS INTERACTIVE INC.

THAT'S MINE

In December 2000, almost half of all adults online had personalized a Web site, up from just 9 percent in April 1997.

SOURCE: CYBER DIALOGUE'S AMERICAN INTERNET USER SURVEY, 1997-2000

THE EXTRA MILE

Of those who have made purchases over the Internet, customers with lower incomes appreciate getting personalized follow-up attention more than those with higher incomes.

AFTER MAKING AN ONLINE PURCHASE I APPRECIATE IT WHEN I RECEIVE…

SOURCE: PRIVACY LEADERSHIP INITIATIVE AND HARRIS INTERACTIVE INC.

In this article:
Most Popular