Welcome to the world of hyper-personalization
The retail trend everyone was talking about at #NRF16.
Benjamin Mokotoff | January 20, 2016
A new breed of retailers is provoking a paradigm shift in retail, harnessing new insights from big data and predictive analytics and inviting customers to co-create their products. It's a trend everyone was talking about at Retail's BIG Show 2016: hyper-personalization.
Fueled by data, hyper-personalization combines curation and personalization to create tailored curated experiences based on individual consumer preferences.
Hyper-personalization makes consumers feel like they have a personal shopper responsible for curating products tailor-made for them. The element of anticipation and surprise drives both social buzz and advocacy. The simplicity of the end-to-end experience—from sign up to returns/exchanges— keeps customers coming back for more. With prices that are in line with traditional retail, the case is compelling.
But let’s back up a bit and talk about the retailers behind the hyper-personalization revolution.
Meet the game-changers
Startups like Birchbox and Stitch Fix used hyper-personalization to springboard into the market. They established themselves as trusted experts who make high-end products accessible to the everyday consumer, paving the way for curated e-commerce. Now these companies are scaling and evolving across channels to both widen their reach and better understand their customer base.
Birchbox, the sample-size cosmetics subscription service, provides access to premium products with a minimal financial commitment from subscribers. Stitch Fix does the same in the women’s apparel space.
Now let’s talk about some of the hyper-personalization tactics we’re seeing in the market.
Mass customization upfront, refined over time
One of the most common ways we’re seeing retailers use hyper-personalization is by curating their selection of products to subscribers based on their demographics, price sensitivity, and solicited style preferences, as well as regular feedback with regard to items purchased and returned. In essence, the concept is mass customization upfront, which is then refined to the individual over time.
Stitch Fix and Birchbox both start the process by asking customers to share personal information, creating a style (StitchFix) or beauty/grooming (Birchbox) profile. This enables them to start with mass customization. From there, Birchbox uses product reviews and ratings to refine personalization. Stitch Fix evaluates what’s kept/returned and associated feedback to serve the same purpose.
Trunk Club is owned by Nordstrom and offers men’s apparel (and now women’s, too). It utilizes a similar model, but take things a step further by allowing customers to talk with a stylist one-on-one and preview/refine their “trunks” prior to shipping.
The trend has even extended to pets. Just Right by Purina gets to know a customer’s pet through an online survey and establishes a pet profile. From there, customers have the opportunity to work with Just Right Experts to tailor each bag of food to their pet's nutritional needs and preferences.
In 2014, Birchbox created a retail experience in New York City. While sales are a focus, services (which range from basic product information to full-blown beauty services) are a big part of the in-store experience. This, coupled with in-store technology, enables employees to build stronger customer relationships, collect direct feedback, and refine the assortment/experience accordingly across channels.
Rent the Runway, which helps customers augment their closets with luxury designer dresses and accessories at a fraction of the price, now has stores in Washington DC, New York, Las Vegas, and Chicago. Physical retail locations offer customers the opportunity to browse and book a one-on-one appointment with a “fit specialist.” This ultra-personalized experience is aimed at both increasing conversion and building a lasting relationship with the customer.
Shifting to a pull model
A handful of forward-thinking online retailers have turned the traditional push approach on its head and shifted to a pull model. The concept is fairly straightforward: design high-end products and share those designs with consumers online in an effort to solicit demand. Once demand thresholds are reached, manufacturing begins.
Production runs are typically limited and not often repeated, which yields a level of exclusivity. Gustin, an online retailer that allows customer to “back” products (and one of the largest fashion Kickstarter campaigns to date), is a good example.
Some of these retailers take it a step further and source design ideas directly from their customers. Cut on Your Bias enables customers to collaborate directly with designers and create a unique collection. “Winning styles” are then available for sale at the end of each week.
With this model, consumers get exclusivity as well as a feeling of personal ownership in the design— bespoke fast fashion in a crowdsourced sense. At the same time, they sacrifice flexibility around exchanges and product configurations (e.g., color, size) due to limited production runs optimized to align with pre-determined demand. In addition, consumers have to be patient and willing to accept that their desired design ultimately may not go to production.
How are traditional retailers reacting?
Ultra-personalization, as it evolves, continues to disrupt retail. This is not going unrecognized by traditional retailers, and those embracing it are positioned to reap major benefits.
Online and in-store customization
On the brick-and-mortar front, some retailers like Suitsupply have built their primary value proposition around personalization and curation in the store. Suitsupply encourages customers to bring in pieces from their current wardrobe for matching purposes while also offering three levels of personal tailoring programs.
Nordstrom has offered personal “Stylists” for quite some time and grown a reputation for providing a curated experience to shoppers in their stores. Nordstrom now allows shoppers to book an appointment with a Stylist online, who follows up within 24 hours by phone to learn more about their budget, style, and goals. Nordstrom took things a step further in 2014 by purchasing Trunk Club and diversifying its ability to create personalized customer experiences across channels.
Partnering with curated retailers
Partnering with prominent curated retailers is another avenue that traditional retailers are taking. Burberry and Neiman Marcus (among others) have partnered with Lyst, an online player that aims to create a personalized experience for every customer based on their expressed preferences and buying habits. Lyst customers can also “follow” specific retailers/brands on the site and get notifications when new items become available. In some cases, customers are redirected to the retailer’s site to complete a transaction, and in others, the transaction can be completed on Lyst itself.
Warby Parker, a retailer that offers easy access to affordable designer eyewear, dipped its toe in partnership waters in 2011—partnering with small retailers to offer in-store showrooms. This model expanded into well over a dozen technology-enabled retail stores over the last several years, enabling Warby Parker to control the end-to-end customer experience. Stepping into the physical retail world has allowed Warby Parker to better understand the shopping habits of their customers and enhance personalization across channels.
The expectations of younger, more connected consumers have driven retailers to evolve the shopping experience—both online and in the store. A journey toward hyper-personalization enabled by data across channels is evident and ongoing amongst leaders in the space. Have you begun the journey?
Benjamin Mokotoff is a client service partner in Slalom’s Atlanta office. He’s spent the past 17 years consulting with some of the largest retailers in the country, primarily in the technology space. Benjamin can be reached at [email protected].