McKinsey Explainers

What is personalization?
In marketing, personalization is when seller organizations use data
to tailor messages to specific users’ preferences.

May 2023
 Personal greeting, personal touch, personal best. What do customers value in
Close, personal friends. All good things, right? personalized marketing?
Right, according to consumers in a recent McKinsey McKinsey asked 60 shoppers to create mobile
survey. When asked to define personalization, diaries of their personalized interactions with
consumers associated it with positive experiences various brands over two weeks. They made over
that made them feel special. Personalization 2,000 entries, which helped us see what
marketing represents an opportunity for companies works for customers and what doesn’t. Here are
to benefit from those warm, fuzzy feelings. four things customers said they wanted from
brand interactions:
Personalization marketing has real advantages for
companies: it can reduce customer acquisition costs 1. “Give me relevant recommendations I wouldn’t
by as much as 50 percent, lift revenues by 5 to have thought of myself.” One common
15 percent, and increase marketing ROI by 10 to personali­zation practice is to remind shoppers
30 percent. Personalization has also been shown to of items they looked at but didn’t buy. This
improve performance and provide better customer can be annoying or intrusive if not executed well.
outcomes. Companies with faster growth rates derive Instead, customers appreciate being recom­
40 percent more of their revenue from personali­ mended products or services that complement
zation than their slower-growing counterparts. what they’ve already browsed or bought.
McKinsey research also shows that personalized Brands should keep track of impressions
experiences drive up both customer loyalty and a and stop serving ads to customers who
company’s gross sales. And the COVID-19 pandemic haven’t responded.
has only made personalization more urgent for
brands: three-quarters of customers switched to a 2. “Talk to me when I’m in shopping mode.” A
new store, product, or buying method during the message’s timing is just as important as its
pandemic, proving that store and product loyalty is content. Perfecting the timing requires a close
increasingly a thing of the past. look at customer behaviors, patterns, and habits.
One clothing retailer found that shoppers who
But it’s a tricky needle to thread. Getting it wrong visited a physical or online store were more likely
can have lasting consequences for brands. You to open and respond to messages delivered
probably already know the uncanny feeling of being either on that same day or exactly a week later.
served a too-relevant ad. Sometimes it’s just
a little unsettling; other times, it can put us off the 3. “Remind me of things I want to know but might
product altogether. not be keeping track of.” Brands can become
relevant to shoppers by tracking events and
Even so, the modern customer does expect a circumstances. These can include letting a
personalized experience—even if they take it for customer know when a desired item is back in
granted. McKinsey research shows that 71 percent stock or when a new style is launched for a
of consumers expect companies to deliver product the shopper has previously bought.
personalized interactions. And the story doesn’t
end there: 76 percent get frustrated when 4. “Know me no matter where I interact with you.”
this doesn’t happen. Customers expect communications that
seamlessly straddle offline and online
How can companies get started with personalization experiences. This is challenging for retailers
and scale up? What trends can we predict for because it requires collaboration between
personalization in the future? And—critically—how disparate areas of the organization—from store
can companies toe the line between creepy and operations to analytics.
helpful? Read on to learn more.

2 What is personalization?
How can brands avoid being — Invest in customer data and analytics
perceived as creepy? foundations. These include systems to pool and
Customers see value as what they get from a analyze data, algorithms to identify behavior
message relative to how much it costs—meaning patterns and customer propensity, and analytical
how much personal information they have to share capabilities to feed that information into simple
to get it. To understand how to deliver value while dashboards. This foundation will allow marketers
retaining trust, the following questions are helpful: to understand what high-value customers are
looking for on an ongoing basis. A recent survey
— Are you infusing empathy into your customer indicates that nearly one in five organizations
analytics and communications? Create segmen­ are already investing in customer service analytics
ta­tion based on customer attitudes and prioritize and customer segmentation AI use cases.
customer satisfaction based on the overall
journey rather than individual touchpoints. — Find and train translators and advanced tech
talent. This technological leap requires a close
— Are you listening carefully for feedback on partnership between marketing and IT. In
customer acceptance? Test and learn constantly addition to data scientists and engineers, product
to improve engagement. Do this by digging into management teams will need analytics
upstream (likes, clicks, opens) and downstream translators who can communicate business goals
(conversions, unsubscribes, ROI) engagement to tech stakeholders and data-driven outcomes
metrics. Engage with qualitative listening tools, to the business. The ability to recruit and develop
like an ongoing shopper panel and ethnographic this type of translator will provide a significant
research and observation. competitive advantage for organizations.

— Build agile capabilities. A successful personali­

How might brands use personalization zation program requires cross-disciplinary
to achieve their goals? project teams—and hence, a commitment to
agile management. Teams should be
Most marketers know that personalization is
organized around specific customer segments
important. But we anticipate that, in coming years,
or journeys and should excel in creative,
personalization will transform the way companies
collaborative problem solving.
approach marketing. Here’s what brands should
focus on to prepare for the future:

Customers see value as what they get

from a message relative to how much it
costs—meaning how much personal
information they have to share to get it.

What is personalization? 3
 — Protect customer privacy. Data privacy is a big personalized triggers. The team should be staffed
deal to customers: according to a 2022 survey, with a fully dedicated campaign manager and
85 percent of customers say that knowing a creative, digital media, analytics, operations, and
company’s data privacy policies is important IT staff—and should have executive sponsorship
before making a purchase. Companies working to remove roadblocks. The team’s goal should
on personalization are likely to trigger privacy go beyond page views and clicks to actual
concerns, so proactively managing these will be business results.
important. That means showing customers
that they take data privacy seriously. 4. Focus on processes and technology that
help teams work faster. Agile processes are key
here—they enable teams to quickly mix and
OK, but I’m starting from scratch. match copy, creative content, and templates
Can you be more specific? to find out what works and what doesn’t.
As with most things, the hardest part of Mistakes will happen, and that’s OK. Learn
personalization marketing is getting started. lessons and move on.
Here are four steps companies can take
to establish and scale digital personalization, The right automation technology is also needed
without investing millions in IT: to work at this pace. Too often, automation
software spits out messages that customers
1. Use behavioral data to analyze customer perceive as spam. It’s the tech team’s respon­
journeys. Organize behavioral data by grouping sibility to guide the tech stack to find signals and
customers, like mothers who shop for their efficiently deliver triggers that work.
children, or fashion-conscious young women
who buy new private-label styles. Then
understand the customer journey—that’s the How about an example of
series of interactions a customer makes with a personalization marketing in action?
brand, from initial consideration to repeat Here’s how a personalization journey might work.
purchases. Combining segments and customer
journeys creates microsegments, and that’s Mary is a mother with two children in primary school.
a step toward personalization. Early last August, she visited a store to buy items for
her kids, including several she’d previously viewed
2. Listen to customer signals—and respond online. That’s signal one. The items she purchased
quickly. When customers provide signals about were logged and attached to Mary’s profile in the
their intentions, marketers should be prepared store’s database.
to respond right away with a relevant message
known as a “trigger.” Trigger messages can be This summer, almost a year later, Mary browses
any combination of images, copy, titles, or offers children’s clothes on the same retailer’s website but
to match the situation. Developing the right doesn’t buy anything. This interest combined with
trigger involves combining creative problem her purchases last summer together comprise
solving with analytics. For example, when signal two: Mary might be open to making her first
a mother clicks on a product but hasn’t bought back-to-school online purchase for her children
it, a next-product-to-buy algorithm based this year.
on machine learning could send a message
suggesting a set of related products. Within 24 hours of browsing the clothes, Mary
receives a trigger message: a personalized email
3. Build a small, dedicated team. Empower offering a 10 percent discount on some of the
a small group of the right people to transition items she’s been reviewing if she purchases them
the marketing department to a focus on online. The message explains how to make the

4 What is personalization?
When customers provide signals about
their intentions, marketers should be
prepared to respond right away with a
relevant message known as a “trigger.”

online purchase and suggests additional items How can brands scale personalization?
she might consider based on her history with According to McKinsey’s research, four factors—or
the retailer. four “Ds”—drive personalization at scale. These
four factors can be further broken down into eight
core elements.
I meant a real example.
Sephora is a great example of a real-world brand Data foundation
that has excelled at personalization. The beauty Data should be centralized and made available so
retailer has used personalized experiences that are activity in one channel can immediately support
truly omnichannel, encouraging shoppers to book engagement in another—in real time or close to it.
in-store makeovers and fashion consultations via its
online channels, particularly its mobile app. The — Data management. Brands should develop a
app lets makeup artists log each product used in multidimensional view of the customer to serve
makeovers into each customer’s profile, and lets as the backbone of analytics. Quality should
customers virtually try on products and receive take precedence over quantity; having the right
personalized recommendations. data is more important than having lots of it.

Sephora’s personalization program also demon­ Decision making

strates the effectiveness of focusing on the most Marketers should create an integrated decision-
loyal customers. The retailer’s loyalty program making engine that uses machine learning
offers its highest-level members perks such as early and AI models to score various propensities for
access to new products, invitations to exclusive each customer.
events, free custom beauty services, and more. And
all of Sephora’s customer communications, — Customer segmentation and analytics.
no matter the platform, display the customer’s Segment customers, identify value triggers, and
loyalty points. score customers accordingly.

The results speak for themselves. In 2018, members — Playbook. Create a library of campaigns and
accounted for 80 percent of Sephora’s total content that can be matched with customers.
transactions. As of 2020, the loyalty program had
about 25 million members. And in 2022, for the — Decision-making engine (campaign
fifth year in a row, Sephora ranked first in Sailthru’s coordination). Develop a multichannel decision-
Retail Personalization Index. making engine to prevent conflicting messages
and drive maximum value per touchpoint.

What is personalization? 5
 Design tools to improve service. Finally, facial recognition,
Marketers should break content into small location recognition, and biometric sensors will
pieces that can be mixed and matched for likely become more widely used.
maximum flexibility.
— Empathy will scale. Empathy is the basis of all
— Cross-functional team. Assemble a cross- strong relationships. Understanding social cues
functional, co-located team to manage and adapting to them builds trust. And it’s not
weekly deployment in a test-and-learn culture easy to do digitally or at scale. Machine learning
for faster results. is changing that. Sophisticated algorithms
are allowing programs to extrapolate emotions
— Talents, capabilities, and culture. Secure the from data more easily. Ultimately, these
right capabilities and talent, often starting out advances can help marketers respond to
by setting the right ambition in leadership. customers’ specific moods.

Distribution — Brands will use ecosystems to personalize

Integrate channels to coordinate communications journeys. At present, various players contribute
and react to customer actions. to a customer’s in-person experience—for
instance, a shopping mall, a retail store, and a
— Technology enablement. An optimized brand. Creating connections among these
technology platform can be complex; start points is a big opportunity for organizations in
with existing technology and make the most the retail space to provide customers with more
of its potential. seamless decision journeys.

— Test and learn. Don’t let the perfect be Learn more about McKinsey’s Retail and Growth,
the enemy of the good; get started and iterate Marketing & Sales Practices and McKinsey
over time. Digital. Also check out personalization-related
job opportunities if you’re interested in working
at McKinsey.
How will personalization shift in
the near future? Articles referenced:
Advances in AI, analytics, and data over the past few
years have created new frontiers for marketers. But — “The state of AI in 2022—and a half decade in
to capture the opportunities, marketers need to review,” December 6, 2022, Michael Chui,
understand the three main shifts in personalization Bryce Hall, Helen Mayhew, Alex Singla, and
and build the skills to respond to them. Alex Sukharevsky

— Physical spaces will be “digitized.” Deploying — “The value of getting personalization right—
personalization beyond digital channels is a or wrong—is multiplying,” November 12, 2021,
huge zone of opportunity, especially as physical Nidhi Arora, Daniel Ensslen, Lars Fiedler,
stores continue to build back business in the Wei Wei Liu, Kelsey Robinson, Eli Stein, and
wake of the COVID-19 pandemic. Offline Gustavo Schüler
interactions such as store visits could be the new
horizon for personalization. Store employees — “Personalizing the customer experience:
can use insights from advanced analytics to Driving differentiation in retail,” April 28, 2020,
provide customers with personalized offerings, Erik Lindecrantz, Madeleine Tjon Pian Gi,
and personal shoppers can use AI-enabled and Stefano Zerbi

6 What is personalization?
 — “The end of shopping’s boundaries: Omnichannel — “What shoppers really want from personalized
Find more content like this on the
personalization,” February 10, 2020, Gal marketing,” October 23, 2017, Julien Boudet,
McKinsey Insights App
Gitter, Meg Raymond, Kelsey Robinson, and Brian Gregg, Jane Wong, and Gustavo Schüler
Jamie Wilkie
— “Marketing’s Holy Grail: Digital personalization at
— “The future of personalization—and how to get scale,” November 18, 2016, Brian Gregg, Hussein
ready for it,” June 18, 2019, Julien Boudet, Kalaoui, Joel Maynes, and Gustavo Schüler
Brian Gregg, Kathryn Rathje, Eli Stein, and
Kai Vollhardt
Scan • Download • Personalize
— “A technology blueprint for personalization
at scale,” May 20, 2019, Sean Flavin and
Jason Heller

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What is personalization? 7