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Mass markets of one: personalising your business model for individual customers

March 31, 2014

Personalising products, services and interactions with individual customers is becoming more prevalent with the growth of online business models, with one-to-one marketing fostering greater customer loyalty and better return on marketing investment.

One-to-one marketing is treating different customers in different ways. This focus demands meticulous knowledge of the customer, based on their potential lifetime value and not just a single transaction. But to apply it is complex, since it demands a capacity for segmentation and very refined profiling which entail an entire organisational shift towards a customer orientation, instead of the traditional product focus.

It’s not the customer who must define themself to the provider, personalising their demands, it is the obligation of the provider to know these needs and anticipate them. Amazon and iTunes provide examples of the ‘mass markets of one’ approach.

Amazon’s vision is to Relentlessly focus on customer experience and to be Earth’s most customer-centric company. Achieving customer loyalty and repeat purchases has been key to Amazon’s success. Many online businesses fail because they succeeded in achieving awareness, but not loyalty. Amazon achieved both and stress how they seek to achieve this: we work to earn repeat purchases by providing easy-to-use functionality, fast and reliable fulfilment, timely customer service, feature rich content, and a trusted transaction environment.

We’re all familiar with the key features of the Amazon website – editorial and customer reviews, manufacturer product information, 1-Click technology and the Look inside the book feature. Free shipping offers are used to encourage increase in basket size since customers have to spend over a certain amount to receive free shipping. The level at which free-shipping is set is critical to profitability, service comes at a price to the customer.

However, the most notable aspect of Amazon are personalised web pages tailored to individual preferences, such as recommendations and notifications, based on individual customer preferences determined from their purchase history. Amazon is thus able to deliver ‘one to one’ marketing based on a ‘culture of metrics’, their business data model provides an amazing window into human behaviour. They record every move a visitor makes, every last click and twitch of the mouse. As the data piles up into digital heaps, you can draw all sorts of conclusions about consumer behaviour.

Amazon is a data driven automated marketing engine, data replacing intuition, including managing the way content is displayed to different user types such as new releases and top-sellers, merchandising and recommendations. Sponsored links is an automated programme generating keywords, determining best landing pages, measuring conversion rates and profit per converted visitor.

Amazon can thus automatically optimize content to improve customer experience, which enables them to avoid sending an e-mail campaign that has low click through or high unsubscribe rates. Customers who bought X…, also bought Y is Amazon’s signature feature. Every purchase, every page viewed and every search is recorded. They also have a system codenamed ‘Goldbox’ which is a cross-sell and awareness-raising tool.

Amazon has also educated a generation of consumers. In response to decades of marketing overload, online consumers have adapted the way they absorb information. Today’s consumer hears an operator on the phone or glances at a piece of mail or reads an e-mail, and decides in an instant whether it has value. Messages not immediately identifiable to the individual are promptly cast off into a sea of irrelevant clutter.

As customer sophistication evolves, so must your business. Companies need to move away from the traditional mass marketing practice of blanketing everyone with the same message and start connecting with consumers on an individual basis. Customers want to feel that you know them, what they need, what they want.
Every time a customer purchases, they are telling you something — what kind of products they are interested in, when they are purchasing, how they make payments. Through data acquisition, you have the unique opportunity to listen to them. If a customer doesn’t respond to phone contacts but responds to e-mail, take notice. It sounds obvious, but a lot of companies don’t do it. They ignore the preferences of customers and, consequently, the customers don’t come back.

By creating a relationship that your customer feels is mutually beneficial, you can establish a dialogue. From there, you can collect even more data about your customers. However, one of my favourite quotes from futurist Paul Saffo – Never confuse a clear view for a short distance – applies here. Like so many technology-driven revolutions, this has its dark side and its light side – where some see a fresh appreciation of the value of the individual, others see Big Brother.

On April 28, 2003, the entire world of music – the industry as a whole, our perceptions of it and interactions with it – began its most rapid change in history. Apple released iTunes, a proprietary digital media player application,along with the iTunes Music Store, a software-based online digital media store. Within five years of its release, the iTunes Music Store became the number-one music vendor. In less than seven years, over 10 billion songs had been purchased from it.

iTunesintroduced a disruptive, personalised pricing model as an à-la-carte MP3 store, where individual songs can be purchased all at the same price. This has given consumers unparalleled choice in music consumption and has also opened up performers to niche markets to which they previously had little access.

Another interesting change in music consumption was the introduction of ‘recommendations’ and iTunes Genius iniTunes 8. Genius, using various algorithms and collaborative filtering, recommended new music to listeners based on their current library and musical preferences. This marked an important change in the way listeners could actually discover new music. The radio, long saturated by commercial music from the top record labels, was no longer the only source for discovering new music.

However, as an avid music lover, I cannot refrain from commenting on the recommendation process from a more personal perspective. Finding new music is an incredible adventure. It is an exhilarating rush to find something new, either seeing a new band live or hearing a new tune on the radio with no previous expectations – I grew up with John Peel guiding my listening. However, when reduced to simple algorithms, the recommendation system removes the emotional process of discovery. In fact, it removes all processes – it is instant gratification. Losing the self-adventure removes much of the satisfaction of discovering new music. This is why I refuse to use recommendation services and explore myself.

Much of iTunes success comes from their ability to host an enormous catalogue without having to worry about what will sell. This has been an incredible revolution for artists. As I mentioned earlier, artists are now able to instantly distribute their music to a worldwide audience, what I consider to be a reasonable trade-off for lack of profit in digital sales.

Both Amazon and iTunes have the business model derived by James Gilmore and Joseph Pine in their book Markets of One – Creating Customer Unique Value through Mass Customisation. Mass Customisation calls for flexibility and quick responsiveness, it requires the business to be dynamic because the purpose of mass customisation is to adapt one-to-one; its goal is to allow customers to identify and design needed products themselves. With that goal, the demands of customers become predictable. Mass customisation goes around the concept ‘build to order’ when the company does not know demands until having orders in hand. As a result, production just happens after that.

A differentiation strategy is a basic requirement if the objective is to apply mass customisation. The competition on differentiation must be intensive. Individual demands may be very different from each other, so mass customisation means that we can differentiate our products to changing demands. Reality proves that mass customisation is the most effective model based on highly differentiated products like computers, mobile phones, clothing, shoes, etc.

Today, customers are very fastidious. On the one hand they want to choose a product fitting to their exact needs, on the other hand, they require a price just slightly higher than that of the standard products. Mass customisation must satisfy both. The combination of differentiation and value based pricing often directs a mass customisation company toward the strategy of best value provider. Dell articulates a strategy of best value provider who provides highly differentiated products with very competitive prices.

So what customer model can you adopt on these principles? Gilmore and Pine identify four approaches to apply mass customisation:

Collaborative customisers: these organisations establish a dialogue to help customers articulate their needs and then develop customized outputs to meet these needs. Levi’s is an example of this approach. Customer wants (size, style, colour) will be measured at Levi’s shops, the information digitized and sent to Levi’s plant to produce a custom-fitted pair of jeans. Nike and Dell are two other examples of this approach.

Adaptive customisers:customers buy a standard product but they can modify it themselves based on their needs. For example, Microsoft offers a software package designed to run all activities of small businesses. But if a buyer wants, for instance, to add more accounting functions into the package. It enables that because it uses a popular programming language that can be used by other programmers.

Cosmetic customisers: these companies produce a standard product but present it differently to different customers. For example, Planters packages its peanuts and mixed nuts in a variety of containers on the basis of specific needs of its different customers – wholesalers, large supermarkets, local supermarkets, and vending machine operators.

Transparent customisers: These companies provide custom products with the customers knowing that a product has been customized for them. Amazon and iTunes operate this model.

Identifying your model, what other questions should be answered before deciding whether to follow the mass customization strategy?

  • Do your products compete on high differentiation?
  • Can we maintain or even reduce costs through mass customisation?
  • Can a strong relationship develop with suppliers and thus adopt an effective supply network?
  • Can integration of the distribution network be achieved?
  • Is it possible to outsource components to aim at enhancing postponement of assembly when low demand is 
in the market?
  • Is there the ability to communicate directly with customers?
  • Is manufacturing flexible enough to satisfy individual demands (low volume, different features) in shorter time and less cost than before?

A start-up business I’m currently working with is driving a bespoke, hyper-personalised product strategy, on a combination of the above attributes and business model. Concoction, http://www.concoction.co.uk/ was founded by entrepreneur Alex Epstein with the vision to create the most exquisite personalised hair care products. It combines the online delivery model of Amazon, with the unique personalisation of product choice and self-selection of iTunes, but goes a step further by enabling the customer to create their own unique product. By fusing science, beauty and a big dose of creative alchemy, they are creating a completely new kind of brand. One where YOU call the shots.

The idea is that depending upon what your hair needs, you can choose from a base blend shampoo fragrance that is then mixed with two of eight super-shots of concentrated serum (they’re full of actives and vitamins). The Concoction Mixologists can blend 256 different versions, so if there isn’t something for you, you need to have a word with your hair! Check this out for the core of the value proposition http://www.concoction.co.uk/what-is-mixology/

Another disruptive ‘one to one’ business model is crowdfunding, and Concoction has recently launched a campaign on Indiegogo. http://www.indiegogo.com/projects/concoction-couture-haircare-customised-for-you

However, there are limits to one-to-one strategies, and they’re not just economic. Excessive diversification can end up confusing the consumer, when what the company wanted was to satisfy their most specific needs as much as possible. For example, ordering a pizza off a ‘create your own’ menu means having to face several dozen combinations of base, crust, cheese, toppings and size – too much choice can overwhelm the customer, when the idea was exactly the opposite, to free the customer from standardisation and let them order according to their own taste.

But in today’s social media driven economy, customisation is the antidote to commoditisation, because personalisation of a good automatically turns it into a service, and customising a service automatically turns it into an experience. The key to profitable, efficient, high-volume customisation is to break down your offering into modules that can be brought together in different ways for different customers – and let them self-select, that way no one else can replicate the learning during their unique, personal customising process. Selling to your customers’ aspirations will ensure you gain much more economic value because you’re delivering much more to them.

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