David Edelman on Adopting a Personalization Strategy to Cultivate Meaningful Customer Relationships
The Harvard Business School Senior Lecturer shares insights from his latest book, PERSONALIZED: Customer Strategy in the Age of AI, and discusses how personalization, AI, and consumer data can drive consumer engagement and brand loyalty.
David Edelman is a senior lecturer in marketing at Harvard Business School, an executive adviser and board member to brands and technology providers, and an adviser to the Boston Consulting Group. Over the course of his 30-year career, he has worked with clients such as JP Morgan Chase, SAP, American Express, Verizon, IBM, and McDonalds, and he developed and popularized foundational marketing concepts such as “The Customer Decision Journey” and “Segment-of-One Marketing.”
Forbes has repeatedly recognized David as one of the “Most Influential CMOs in the World” and by Adweek as one of the “Top 20 Marketing and Technology Executives.” His work and writing have attracted over 1.1 million followers to his LinkedIn blog, and he has delivered dozens of keynote presentations at conferences around the world.
Last year, The Continuum spoke with David about the foundations of marketing and the role AI is playing in how marketers work. We recently had the pleasure of sitting down with him again to discuss his new book, PERSONALIZED: Customer Strategy in the Age of AI, which he co-wrote with Mark F. Abraham, a senior partner at the Boston Consulting Group.
Let’s dive right in. Why did you write the book?
The idea actually goes back a while. In 1989, I was a young consultant at the Boston Consulting Group (BCG), and I had done three projects in a row about companies that had access to customer information and were trying to figure out what they could do with it. Could they start loyalty programs? Could they use it to target their marketing? Could they use it to change the way they delivered customer service?
I thought there was something to this and told my colleagues that this kind of marketing was only going to grow. With the help of colleagues at BCG, I wrote an article about this and came up with the term “segment of one marketing.” The article got a lot of coverage, I got invited to many conferences, and this topic essentially became what I focused on for much of my career.
Then, the Internet came along, giving us new database capabilities, new content management systems, and new digital channels. I continued to work on ways to help companies better use customer information to improve their performance, brand, and customer relationships.
Now with the added capabilities of AI, brands can do a lot of the things we were talking about back then at a much bigger scale. There has always been a tension between personalization and economies of scale because managing personalization requires granularity. AI removes some of that tension.
In 2021, I was back working with BCG as a senior advisor and met Mark Abraham, the head of their marketing practice. We decided that this would be a very good time to write a book about personalization.
Our goal is to explain that personalization is not just about putting a customer’s name on an email or retargeting a Facebook user after looking at a pair of boots online. We want marketers to understand that personalization is a strategy, not a tactic.
You start by articulating the “Five Promises of Personalization.” Can you explain those quickly?
Companies can cultivate trust and loyalty through meaningful customer connections and interactions. For them to have that kind of relationship with me as a consumer, however, they need to do five things: empower me, know me, reach me, show me, and delight me.
You can empower me as a consumer by helping me do something that I couldn’t do before, but first, you have to really know me by collecting appropriate data in a responsible manner. You also have to reach me in a way that triggers an interaction without over-saturating my email or social media feed, which will likely turn me off. Next, you have to show me truly personal content tailored to what you know about me. And finally, you have to delight me by using the insights you have about me to elevate my satisfaction with all of our interactions.
“There has always been a tension between personalization and economies of scale because managing personalization requires granularity. AI removes some of that tension.”
There are examples of personalization in our lives all the time. Are there companies that you think are doing a good job?
Netflix is a great example. It knows a lot about you based on what you started to watch and what you’ve actually watched all the way through. It then uses what it knows about you to tailor trailers to what it thinks you’ll like. For any show that it launches, Netflix has over 100 variations of the trailers. It picks which one you’ll see based on what it knows about you.
I did an experiment with my son, who is 28. I asked permission to look at his Netflix account to see what was different. What surprised me was that when I clicked on the same show on his account and mine, I got very different trailers.
Of course, digital native brands like Netflix and Spotify were always built for this. One of the more traditional companies we talk about in the book is Voya. It’s an employee benefits company, so it sells health insurance, disability plans, and retirement benefits, to name a few. The company's components were bought and sold a few times, and their services were all chopped up. They realized that when someone needs to make decisions about their 401K, it’s not enough for them to just be looking at their 401K. To make a coherent decision, they need to understand whatever other investments they have and their health care costs because those are a huge part of anyone’s budget and are often overlooked in financial planning.
So, they created an app called myVoyage, which brings together your health, your retirement, and your personal investments in a completely integrated way in one portal. The app has intelligence to give you unbiased recommendations, some of which might not necessarily be in Voya’s best interest. It may tell you, for example, that you don’t need to contribute more to a health savings plan because, in the past, you've not used that money and that a better move for you would be to invest the money for a higher return. The app is deliberately agnostic to earn the trust of its users.
You also have some real-life examples of brands that have done a good job personalizing your experiences and some that haven’t. Can you explain the differences in their approaches?
Home Depot is a good example. I got on their list because I moved houses. They buy lists of people who have recently moved because these are people likely to take on home improvement projects. At first, they started bombarding me with all kinds of stuff, which only proved they didn’t know me, but then an email asked me about my priority projects. I clicked kitchen remodel because that was the one thing we really had to do in the new house. Now, they know me, and everything I’m getting is focused on something I care about, and I’m being offered some smart recommendations.
But I’ll give you another example of a company that proved they didn’t know me: Nespresso. I’ve always wanted one of their espresso machines and finally bought one when we moved. I also bought a box of the pods that you use for it, which came with 100 pods. Within two days, Nespresso emailed me with offers to buy more pods. How much coffee do they think I drink?
It would have been much better if they’d done some math and waited at least a month before trying to sell me more. Then, they could have gotten to know me better by asking me which flavors I liked and offering me new flavors that I hadn’t yet tried. Instead, they bombarded me with emails about buying more pods every other day, and I just unsubscribed.
Marketers have to continually ask themselves, “Am I adding value to the customer’s life?” BCG does a survey every year about consumers' attitudes. About 70% of consumers want brands to use the information they have to interact with them appropriately. But the same number, also around 70%, say they’ve stopped doing business with a brand or unsubscribed because of inappropriate use of information that they found annoying or intrusive.
“Marketers have to continually ask themselves, ‘Am I adding value to the customer’s life?’”
Speaking of surveys, the book was partly based on surveys of over 5,000 customers. What were some of the insights you got from them?
What became most apparent is that people really want to learn about things that are relevant to them. They want to find new things to watch on Netflix. They want their favorite clothing brand to suggest a new outfit. They want to find cosmetics that are appropriate for their complexion. They want help making smart financial decisions that they can feel confident in.
Essentially, consumers want to be able to discover new things, be educated, and take action. And more and more, they realize that the information brands collect on them can help make that happen.
What’s the first step for a company that wants to adopt a personalization strategy? Other than reading the book, of course.
A lot of marketers think the first step is about spending money on tech, data, and AI, but the reality is that you start by understanding how you add value for your customers. It’s basic marketing, really. What are the use cases where customers in your category are frustrated? What are things that you can help them do better? Because otherwise you could spend money on all kinds of tech that may not be relevant.
Let’s go back to my Home Depot example for a second. They could have started with technology and data. They could have spent a lot of time and money learning more information about the socioeconomics of my area or gotten floor plans of my house to determine what I was most interested in, but instead, they just asked me.
One of the big messages from the book is that you’ve got to think about it from a customer's point of view strategically.
“Essentially, consumers want to be able to discover new things, be educated, and take action. And more and more, they realize that the information brands collect on them can help make that happen.”
You believe that a personalization strategy goes beyond just a marketing strategy and that the whole C-Suite needs to be on board. Why is that?
There’s a whole chapter in the book that talks about the roles across the C-suite because a CMO can’t do this alone. The CEO has to state a commitment to the strategy and be willing to make trade-offs to see the strategy through. The CFO has to help set up the business case and figure out how you’re going to free up money to invest in the technology you need and then how you’re going to track that investment. The head of human resources has to be involved because a lot of the test and learn process happens through fast cycle, agile marketing, which often works better with smaller teams who can get things out the door faster. And there needs to be a link to operation because customer service practices may change as you adopt personalization.
The CMO may be the one who’s driving the program, but it takes a village, as they say.
You said that you wrote this book partly because of the advances in AI. What role can/does AI play?
AI-enhanced personalization can eliminate many of the annoyances customers face if done correctly. Smart systems can bring together all the information about someone and spot the right time to reach out so a consumer doesn’t get yet another pitch for something they have already bought. AI can also track your use of different channels, so if you call for service help, the rep (or the chatbot) is ready to walk you through how to solve the specific problem you’re having right now. And AI can help customers envision what they want—it can let you enter pictures of your bathroom, assess its dimensions, and work with your budget to suggest renovation ideas, for example.
AI can also help marketers on the back end of all of this. Most companies have a fair amount of consumer data, but it is often spread out. Some of it is in the marketing department, while some may be in customer service or billing. They often don't—or can’t—bring that data together because it’s all in different databases that are simply not compatible. Putting all that data together would have been a massive undertaking before AI, but today’s AI writes code.
In the book, we discuss an AI system called Narrative. You point it at one database, and it learns the schema. Then, you point it toward a second one so it can learn the schema of that database. You can ask it to write code combining them into a third database, where the fields are all lined up. Now, you have one integrated data set that you can start to analyze.
Another example of what AI can help with is test and learn. I may think I know what makes one customer different from another and what will push his buttons specifically, but the only real way to know is to try it. Personalization is about constantly testing and learning. It’s a multivariate issue because I don’t know if what is going to move you is the creative visualization, the offer, or even the time of day when I send it. Marketers usually do very simple split tests that can test two things at a time.
AI, on the other hand, can handle large-scale multivariate testing. With a tool such as OfferFit, you decide all the things you want to learn. It takes the data set and creates the cells for each test. It then informs your CRM what to send to whom, captures the back-end data, looks at what happened, and optimizes for the next time based on what it learned.
“To keep them, your marketing must be more deliberate, engaging, distinctive, and unified into one strategy.”
What would you say to a CMO or any member of the C-Suite who is reluctant to adopt a real personalization strategy?
I think they will find that it’s becoming a competitive imperative, and most of their competitors are already doing it. AI makes it easier to generate all kinds of spam, and that's turning consumers off in general. It’s a tragedy of the commons; everybody loses as that spam goes up because consumers are more willing to unsubscribe. To keep them, your marketing must be more deliberate, engaging, distinctive, and unified into one strategy.
Sephora is a good example. At one point they had stores operating differently than their e-commerce, and their different departments were doing separate marketing programs. The result was that Sephora shoppers were getting overwhelmed with marketing efforts.
The company set out to change this and coordinate all marketing. Consumers now get one integrated set of offers on the websites, on the app, and in email, and that same set of offers will pop up in stores when you use your loyalty card. Redemptions went up, and there were fewer unsubscribes.
In the end, C-Suite execs get control over the chaos, more customer engagement, more transparency, and a way to stand out from the competition.
The book came out last week, and you’ve been on a book tour for a while already, which will continue. What are you most excited about in the next few months?
I’ve spoken to so many great groups. I talked to the Association of National Advertisers, the Harvard Alumni Club and the Harvard Business School Alumni Club, members of the London Stock Exchange, and the Association of Supply Chain Managers, to name a few.
I think I’m just excited about how much this topic is resonating with folks and what a wide audience we have.
October 29, 2024
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