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The psychology behind personalization

The psychology behind personalization Tal Rubenczyk

The ubiquity of personalized products and services is evident across the board. Whether it is an e-commerce website or a major land-based operation, personalization is paramount. Businesses realize that they would be doing an egregious error to themselves and their profitability by discounting the importance of consumer needs, wants, and preferences -- but, more importantly, the motivation behind consumer buying patterns. It is the latter aspect that requires the most careful scrutiny, and this is where psychology plays a big part.

Much has been written about psychology and personalization of content. Today, it would be foolhardy to remain competitive online without delving into the inner dynamics of need satisfaction. Resources are being channeled into creating viable business models that incorporate a study of the psychological drivers of customer behavior. Take for example the case of Netflix. This online movie streaming and DVD rental organization generates 75 percent of its rental income from personalized suggestions via complex algorithms that monitor your browsing and watching habits.

Another classic example of personalization in full swing is Amazon. Personalized recommendations at this e-commerce giant account for 30 percent of its revenues. And these numbers quickly add up: billions of dollars are generated around the world by e-commerce sites using personalized marketing to cater to customers everywhere. This begs the question: is automated content better than human interaction? If we are searching for timely data that matches with personal needs, an automated approach works fine. However, if we seek reassurances then the personal approach is always appreciated. This is where psychology plays an integral part in the customer experience.

But what about marketing and psychology?

The key word in any transaction between a customer and a business is trust. Customers want to know that the products or services they are going to be paying for will satisfy a need. However, more importantly, they have to be sufficiently motivated to trust the company enough to make that purchase. This is where marketing and psychology go hand-in-hand. Most of the time, customers will have an inkling about what it is that they are looking for, but clarity is only achieved when desire has been tweaked to drive that need to action. And of course, the call-to-action is the sale.

In effect, the human need for personalization takes multiple aspects into account including science, psychology, and technology. A paper was written by Dr. Scott Brave in 2012 detailing the complex interactions between all these aspects. A man/machine user interface that is capable of fusing technology and psychology is already available and multiple variants of this type of technology is everywhere. Retailers and e-commerce websites are continually tweaking systems to better understand the customer experience, to enhance it and to add core value to the personalization process.

Clearly, marketing departments utilizing psychology as part of their personalization processes have to avoid the most common cognitive distortions about their customers. Several aspects such as polarized thinking and assumptions, over generalization, global labeling, and so forth would naturally impact their advertising campaigns in a negative way. Therefore, psychology needs to be implemented in such a way that the individual needs, wants, and preferences are catered to. Psychology becomes all the more important because it is the one aspect that truly pays dividends in terms of profitability. If the requisite work is undertaken, consumers can be enticed into make purchasing decisions with a far greater ROI.

How does this work exactly?

First of all, it is important to understand what personalized marketing is and what it isn't. The mere collection of empirical data on shopping behavior and then providing an automated recommendation of that is not what personalization is all about. The psychology, technology, and science that goes into creating an effective personalized system is far more important. It is near impossible to cater to the individual preferences of every single person on a one-on-one basis. But, with the correct psychological profiling of market segments, it is possible to broadly separate groups of people and then to hone in on other aspects that will further elucidate the differences between target market segments.

"What drives people?" "Is everyone the same?" "Are we all different?" Fortunately, we all share a similar set of characteristics including a desire for need fulfilment, varying levels of attachment or detachment to products and/or services, and varying intensity based on motivational forces. Advertisers can tap into the intensity component by driving up our emotional responses via our psychological preferences. It all begins with complex data collection through a set of algorithms. This builds up a demographic data profile that can then be used to target individuals. The profiling creates predictive models that anticipate your likely buying habits. This is done in an effort to increase the accuracy of information and raise the likelihood of closing a deal.

Psychology needs to create an important link between the e-commerce site and the customer. Once again that link has a name, and it is trust. If we trust the integrity of the product and/or services on offer, and we enjoy the message that is being relayed to us vis-a-vis the products and/or services, we are more likely to be affable. This naturally translates into a far higher retention rate, satisfaction rate and engagement rate among customers.

An example: Previously, personalized content would be an automated computer program that would greet the user by name and direct him/her through the process of buying a product or service. That is no longer the case because customers have wised up to the impersonal nature of that type of marketing, and they are seeking a far more personal form of communication. This is available in the form of bull's-eye focus on customer choices, a personalized HP (homepage), and customized marketing apps that are directly attuned to the individual.

There is no doubt that psychology can effectively change the operating dynamic. Email opening rates, website visitor numbers, return visits, app installations, downloads, click-through rate emails, and registration/signups are all higher. The power of personalization is only made possible through the psychology behind that personalization.

Anyone up for a cocktail party?

The cocktail party effect is a widely-referenced paradigm in personalized marketing. Think of the internet as a cocktail party, and then think of the host/hostess at that cocktail party calling you out by name over and above the din of the other revelers. You can see why this is so effective in terms of personalized marketing. It's all about grabbing your attention. Intelligent psychological analysis is capable of not only calling you out by name, but by placing you at the right cocktail party where all the folks have similar interests to yours. The food on offer is precisely the type of entrees or delicacies that you are interested in and by singling you out, the noise instantly gets muted and you hear only the message that the advertiser is directing at you.

Naturally, the goal is to create a personal connection between the company and the customer. First we get curious about the product, thanks to the ingenious marketing techniques used, and then we learn more about personal recommendations from the company. This trend is catching on like wildfire on both sides of the business spectrum -- retailers and customers. In fact, 50 percent of marketing departments are data driven according to the individual messages that are sent out. 92 percent of executives subscribe to individualized marketing techniques. This was provided by a study commissioned by Teradata. Building brand loyalty is only possible if the psychology behind the initiatives is capable of forging a connection between the consumer and the company. Data is an intractable part of the equation, but it has to be the right data that targets the user in a personalized way.

Tal is a successful entrepreneur and co-founder of Celebros, where he headed the marketing division for more than seven years. Under his leadership Celebros grew to become one of the leading international vendors of search and navigation solutions.

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