Personalized retail: Data-driven customer service

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  Quantumrun Foresight
• September 20, 2023

Insight summary

Fashion consumers are strongly interested in personalized products, particularly among frequent high-end purchasers. Moreover, advancements in analytics and production technologies enable the mass production of personalized fashion through style customization and fit tailoring. Personalization in retail offers deeper connections with customers, improved supply chain efficiency, and targeted marketing but also raises concerns about privacy, income inequality, and biased algorithms.

Personalized retail context

Consultancy firm McKinsey's 2021 study, which surveyed 2,000 fashion consumers from Europe and North America, reported that 84 percent of respondents are keenly interested in personalized products. This number significantly increases to 94 percent among individuals who frequently purchase high-end fashion. Simultaneously, the emergence of advanced analytics, alongside cutting-edge design and production technologies, is paving the way for the feasible mass production of personalized products.

In the fashion industry, personalization primarily manifests in two key ways: style customization and fit tailoring. Style customization involves allowing customers to select colors, patterns, materials, and style elements from a predetermined range of options. A digital 3D configurator tool can create a real-time simulation of the final product's appearance and texture. Meanwhile, tailoring to body shape focuses on adapting the garment to fit the wearer's unique physique perfectly.

Adobe further defines retail personalization as a comprehensive process that targets all aspects of a customer's shopping journey, offering an individualized experience built on their immediate needs, past browsing and purchasing history, as well as insights gathered from analytical technologies. This personalized approach to retail doesn't just create a unique shopping experience for each customer; it also fosters an emotional connection between the consumer and the brand, strengthening customer loyalty and engagement.

Disruptive impact

Personalized retail, fueled by technological advancements and data analytics, can shift mass marketing to hyper-personalization, allowing retailers to create deeper and more meaningful connections with customers. By harnessing this data, retailers can gain valuable insights into individual customers and their unique preferences, enabling them to create tailored experiences. However, companies may also need to balance personalization with intrusive behavior. According to Adobe, brands still need to demonstrate that they value their customers' privacy, including allowing a data opt-out. 

Regarding the supply chain, real-time data and predictive analytics can optimize inventory levels, reducing wastage and improving efficiency. Personalization also enables retailers to implement just-in-time manufacturing and delivery models, minimizing the need for excess inventory and lowering costs. Moreover, by understanding individual preferences and purchasing patterns, retailers can accurately forecast demand and plan production accordingly, improving supply chain agility and responsiveness.

Personalization is also crucial in marketing. Personalized retail allows retailers to deliver targeted marketing messages and recommendations, increasing the relevance and effectiveness of their promotional efforts. According to McKinsey, a positive customer experience leads to customer satisfaction rates that are 20 percent higher than those without personalization. Furthermore, personalized retail experiences contribute to a significant boost of 10 to 15 percent in sales conversion rates, meaning more customers are inclined to make purchases. 

Implications of personalized retail

Wider implications of personalized retail may include: 

• More inclusive and representative product offerings. However, if personalization algorithms are biased or rely on limited data, certain demographic groups might be excluded or receive inferior retail recommendations. In this scenario, personalized products and services may become more accessible only to affluent consumers.
• Increased consumer isolation and reduced human interaction, as individuals can shop online and receive customized recommendations without visiting physical stores.
• Brands increasingly relying on advanced technologies such as artificial intelligence (AI), machine learning, and big data analytics. Additionally, emerging technologies like augmented and virtual reality (AR/VR) may allow customers to virtually try products before purchasing.
• Traditional online retail jobs, particularly those involving routine tasks, being replaced by automated systems and AI-driven algorithms. However, new employment opportunities may emerge in data analysis, algorithm development, and customer experience management.
• Minimized overproduction and unsold inventory. Moreover, personalized recommendations can guide consumers toward more eco-friendly and sustainable products.
• Constant exposure to tailored advertisements and recommendations influencing individuals' preferences, values, and purchasing habits. Ethical concerns may arise when personalization techniques exploit psychological vulnerabilities or manipulate consumer choices without their awareness.
• Governments implementing stricter regulations to safeguard consumer information and prevent unauthorized commercial use. Political debates on the balance between personalization and privacy rights may emerge, shaping future policies and legislation.

Questions to consider

• What are some ways that your favorite brands personalize your shopping experience?
• How can brands ensure they address customer needs without violating their privacy?