The Effectiveness of Personalized Marketing - Literature review Example

Personalized Marketing As David Maister (1997) emphasizes, marketing is about getting better business not simply more business. The calibre of a professional firm is measured by the type of clients it serves and the nature of the tasks on which it works. Volume alone is the measure of excellence, sustainability and profitability. Hyper competitive market forced the organization to adopt a strategic approach to retaining, upgrading and even terminating customers. Customer retention involves developing long term, cost effective links with customers for the mutual benefits of both the parties, but these efforts need not necessarily target all a firms customers with the same level of intensity. Recent research has confirmed that most firms have several tiers of customers in terms of profitability and that these tiers often have different service expectations and needs. According to Valarie Zeithaml, Roland Rust and Katharine Lemon (2001), it's critical that service firms understand the needs of customers with different profitability tiers and adjust their service levels accordingly. So more and more marketing led organizations are moving towards personalized/customized relationship marketing to know and filfill the actual needs of the customers. This new orientation has its roots in American (Berry, 1982) and Nordic (Gummensson, 1987) concepts. Supporters of this new form of marketing argue that in order to survive in the markets which has become more competitive and more turbulent, organizations must move away from managing transactions and instead focus on building long lasting customer relationships ( Webster,1992). Research by Kevin Gwinner, Dwayne D. Gremler and Mary Jo Bitner (1998) suggests that relationships create value for individual customers through such factors as inspiring greater confidence, offering social benefits and providing special treatment. Piyush Kumar (1999) emphasizes that relationships strengthen in a business to business are dependent largely on the quality of the interactions between individuals at each of the partnering firms. As relationships strengthen over a period of time, he observes the service provider's personnel often assume the role of outsourced departments and make critical decisions on behalf of their clients. In the process of developing relationship with customers, personalization has been preceded by mass customization. Mass customization emphasized on satisfying a specific segment of the customers from a production perspective (Pine II et al., 1995) whereas personalization specifically depends on satisfying the needs of an individual. So reaching out to an individual customer, knowing the needs of the customer and then providing product or services required is all about personalizing the marketing. In the hyper competitive situation and advent to interest and database about individual customer has equipped companies to customize their product or services according to individual customer. Prior to advent of electronic/internet communication, personalization was available only to selected few for selected product or services at premium prices (Mattilla, 1999). Personalization of marketing has taken place due to emergence of internet technology and providing opportunities to the organization to have one to one relationship with the customer. Riecken (2000) states, personalization is about building meaningful one to one relationship; by understanding the needs of each individual and helping satisfy a goal that efficiently and knowledgeably addresses each individual need in the given context. Personalization of product or services increases the differentiation and helps in positioning of the product or services. Customizing the product or services to the needs of single customer has been facilitated by the modern information technologies. More and more information about customers and their needs of services and products is the basic requirement of personalization. Different methods of data gathering about customers i.e. customers profile give an insight of new marketing strategies. To facilitate personalized marketing, more and more companies are adopting customer relationship management with complex information technology systems and infrastructure. CRM systems act as an enabler, capturing customer information and delivering it to the various touch points. From a customer perspective, well implemented CRM systems can offer a unified customer interface which means that at each transaction, the relevant account details, knowledge of customer preferences and past transactions, or history of a service problem are at the fingertips of the person serving the customer. This can result in a vast product/service improvement. From company perspective, CRM systems allow the company to better understand, segment and tier its customer base; better target promotions and cross selling and even implement alert systems that signal whether a customer is in danger of defecting (Quiring & Mullen,2002). Organizations which are accepting personalization of marketing are basically based on marketing mix. Product related personalization is based on either individual product recommendation or group of products for single customers (Resmick & Varian, 1997). At the process level, personalization is basically based on one to one contact and relationship with more emphasis on timely response to the customers. Cortese and Stepanek (1998) in their Business Week article on E-commerce use the term 'Goodbye to fixed pricing' clearly indicated about price personalization. Organizations are basically providing flexible, individualized pricing as well as product differentiation. This personalized pricing offered by the organizations create certain amount of loyalty among customers depends upon the repeated use of products or services. At the promotional level, one to one marketing and CRM is the measure which has developed personalized marketing concept. Personalization of marketing could be considered as one to one relationship with customer and seller (Bagozzi, 1974; Bagozzi, 1975; Kotler 1972; Kotler and Levy, 1969). Personalization is perceived as the way to service quality and customer satisfaction (Mittal & Lassar, 1996). These are the two factors which determine the level of personalized marketing. In the service context, SERVQUAL, a tool to evaluate customer satisfaction has been developed by Valarie Zeithamal and her colleagues in 1988. It is based on the five dimensions namely, reliability, responsiveness, assurance tangibles and empathy. One of the dimensions, empathy includes the concept of personalized marketing. Personalized attention given to customers has been perceived as a critical factor in signalling superior quality of services (Mittal & Lassar, 1996). Mattilla (1999) indicated that even small firms deals with localized customers also provide personalized services though such services have significant cost to the customers (Suprenant & Solomon, 1987). Mostly personalized services have been attributed to web based services but may not be preferred due to privacy factor (Chellappa & Sin, 2002). SERVQUAL has been widely used to gauge customer's satisfaction but doubts have been expressed about both its conceptual foundation and methodological limitations (Terrence et al., 2002). Gerhard (1997) findings suggest that in reality, SERVQUAL scores measure only two factors; intrinsic service quality and extrinsic service quality. The relationship between buyers and sellers, on the basis of exchanges has been studied on the dimensions of number of factors involved, nature of relationships, length of relationship, meaning of exchange and structure of exchange (Mowen & Minor, 2001). Offline personalized marketing involved one to one relationship and information has been restricted between two persons. But in online personalized marketing, it differs in other aspects. The major aspect which plays an important role in developing personalized marketing system to work is of perception of privacy (Chellappa, 2001). Another aspect of duration of relationship between buyers and sellers has been explored with reference to the personalization of markets. Repeated exchanges are one of the factors which inculcate trust in personalized relationships (Gefen, 2002). More recently repeated exchanges and duration of relationship with respect to personalized marketing has been explored by Gundlach and Murphy (1993). Nowadays it has been argued that whether or not personalized marketing is viable for the organizations. As we know that personalization of product or services costs extra to the buyer as well as to the seller also. So personalized marketing as a strategy must be argued for its viability. The technology based personalization marketing costs heavily to the organization but now it is the necessity for any organization due to competitive market and increasing switching threshold of consumers (Chellappa & Kumar, 2001).While reputation is the key in offline personalized marketing but researchers (Chellappa, 2001) has found that building online personalized trust need heavy technological investment in security, privacy and protection mechanism. Personalized marketing has been taking different shapes day by day. Recent literature provides a detailed classification of online personalization based on the three factors on which value is delivered (Chellappa and Dutta, 2001). Personalization based on customer attributes; personalized on product purchasing experience of customers and personalized products or services. Personalized marketing has some specific concerns like privacy of customer information. Cranor et al. (1999) find that privacy concerns vary with both the individual and context. Perceived privacy is measured by the different between the expected and actual information collected and usage (Chellappa, 2001). Personalized marketing has certain limitations like customer perception about the company, its products, its credibility and its privacy to database which has acquired from its customers. Current practice intimates that careful market research of the customer's needs and creative development of differentiated products or services for a well defined segment will lead to success. More and more market driven forms are moving towards a customer focus organization which has a customer orientation (strategy and culture), a customer driven configuration (organization and processes) and customer investments (competences and resources). No one can build a customer focussed organization without clear definitions of the valued customers and the value proposition to deliver. To acquire and to retain customers, companies typically look for flexibility and economies of scope in this process. Customer acquisition and retention is based on the quality, speed and efficiency improving products or services. In addition to these factors, customer also assesses how customer friendly process the organization is using. To remain successful in the market, organizations are basically investing continuously in learning about customer needs and testing managerial instincts against consumer reality. Over the past two decades, companies have invested considerably in technology. Yet many of these investments have not enable companies to focus more on customers. But one should not mistake a customer focused organization with powerful corporate marketing function. Some academies and marketers still determine the degree of an organization's customer focus by asking whether executives' value, respect and view marketing as benefit to the firm relative to other departments. Caring about and organizing around customers and overriding company - think with customer - think in designing a firm operation must transcend any particular function. A company can never be too customer driven because as soon as it gets close (personalized) the customer moves. Targeted segments change, customer's needs evolve, the new competitors, channels and technologies materialized and all of which necessitate a new customer driven strategy. Intensive competition pushes organizations to continuously seek ways to improve their productivity. The personalization of marketing develops and involving deeply the customers, could be more productive. Customers who assume a more active role in the service production and delivery process can take over some labour tasks from the organizations. Benefits for both parties may result when customers perform self-service. Some customers may be more willing than others to serve themselves. A large scale study presented respondents with the choice of a do it yourself option versus traditional delivery systems (Bateson 1985). Some researchers argue that firms should view customers as partial employees who can influence the productivity and quality of service processes and outputs (Bowen, 1986). When competition is fierce, the best companies go back to basics; creating value for the customer. Today, any advantage based on a company's product or service innovation is short-lived; instead, continuously creating value propositions for customers is the key to survival in and increasingly dynamic market. It's nearly a clich, but in the contemporary world of sophisticated customers and intensifying competition, the only way for an organization to succeed is by focussing diligently on customer needs. To keep the best customer management must concentrate on quick and efficient creation of new delivery channels. Capturing massive amounts of customer data and integrating the data to create a unique customer experience. Customer incentives (through personalized facilities) such as frequent flyer loyalty programs and by-x-amount and get one free punch cards, no longer go far enough. Only by integrating their sales and service in fracture with all aspects of operation can a company's management expect to see a change in customer relationships. To remain competitive and maximize profits organizations must align people processes, strategy and technologies and search for innovation, cost effective ways to build, retain and deepen the lifetime value of customer relationships. References: 1. Bagozzi, Richard P. (1974), "Marketing as an Organized Behavioral System of Exchange," Journal of Marketing, 38 (October), 77-81. 2. Bagozzi, Richard P. (1975), "Marketing as Exchange," Journal of Marketing, 39 (October), 32-39. 3. Bateson, J.E.G. (1985), "Self service consumer: An exploratory study," Journal of Retailing 51: 49-76. 4. Berry L. L. (1982), "Relationship marketing," in L. L. Berry, G. L. Shostack and G. D. Upah (eds.), Emerging perspective in service marketing, Chicago: American Marketing Association, pp. 25-28. 5. Bowen, David E., (1986), "Managing customer as human resources in service organizations," Human Resource Management 25, no. 3:371-383. 6. Chellappa, Ramnath K. (2001), "The Role of Perceived Privacy and Perceived Security in the Development of Trust in Electronic Commerce Transactions," Working Paper, ebizlab (Marshall School of Business, USC), Los Angeles. 7. Chellappa, Ramnath K. and K. Ravi Kumar (2001), "Explaining Price Dispersion and Switching Behavior in Electronic Marketplaces: An Optimization Model for Selecting Web-based Services," Working Paper, ebizlab (Marshall School of Business, USC), Los Angeles, CA. 8. Chellappa, Ramnath K. and Raymond Sin (2001), "Online Personalization versus Privacy Concerns: Modeling The Flip Sides of the Same Coin," Working Paper, ebizlab (Marshall School of Business, USC), Los Angeles. 9. Chellappa, Ramnath K. and Shantanu Dutta (2001), "Dimensions of Web-based Personalization: Organizing for Customer Asset Management," Working Paper, ebizlab (Marshall School of Business, USC), Los Angeles, CA. 10. Cortese, A. and Stepaneck, M. (1998), Special report on E-commerce: Goodbye to fixed pricing, Business Week May 4, available on www.businessweek.com/1998/18/b3576023.htm. 11. Cranor, Lorrie Faith, Joseph Reagle, and Mark S. Ackerman (1999), "Beyond Concern: Understanding Net Users' Attitudes about Online Privacy," www.research.att.com/library/, 2001 (August 15, 2001), -. 12. Gefen, David (2000), "E-commerce: The Role of Familiarity and Trust," The International Journal of Management Science, 28 (6), 725-37. 13. Gerhard Mels, Christo Boshoff and Denon Nel (1997), "The dimension of service quality: the original European perspective revisited," The Service Industry Journal 17:173-189. 14. Gummensson, E. (1987), "The new marketing- developing long term interactive relationships," Long Range Planning, 20(4):10-20. 15. Gundlach, Gregory T. and Patrick E. Murphy (1993), "Ethical and Legal Foundations of Relational Marketing Exchanges," Journal of Marketing, 57 (3), 35-46. 16. Gwinner, Kevin P., Gremler, Dwayne D. and Bitner, Mary Jo (1998), Relational benefits in service industries: The companies' perspective," Journal of The Academy of Marketing Science 26, no. 2:101-114. 17. Kotler, Philip (1972a), "A Generic Concept of Marketing," Journal of Marketing, 36 (April), 46-54. 18. Kotler, Philip and Sidney J. Levy (1969), "Boadening the Concept of Marketing," Journal of Marketing, 33 (January), 10-15. 19. Maister, David H. (1997), True Professionalism, The Free Press: New York. 20. Mattila, Anna (1999), "Consumers' Value Judgement," Hotel and Restaurant Administration Quarterly, 40-46. 21. Mittal, Banwari and Walfried M. Lassar (1996), "The Role of Personalization in Service Encounters," Journal of Retailing, 72 (1), 95-109. 22. Mowen, John C. and Michael S. Minor (2001), Consumer Behavior: A Framework. Englewood Cliffs, NJ: Prentice Hall. 23. Pine II, B. Joseph, Don Peppers, and Martha Rogers (1995), "Do You Want to Keep Your Customers Forever," Harvard Business Review, 103-14. 24. Piyush kumar (1999), "The impact of long-term client relationships on the performance of business service firms," Journal of Service Research 2:4-18. 25. Quiring, Kevin N. and Mullen, Nancy K. (2002), "More than data warehousing: an integrated view of the customer," in the ultimate CRM handbook- strategies and concepts for building enduring customer loyalty and profitability, ed. John G. Freeland, McGraw-Hill, New York, 102-108. 26. Resnick, P. and Varian, H.R. (1997), Recommender system, in communications of the ACM, 40/3:56-58. 27. Riecken d. (2000), personalized views of personalization, in communications of the ACM, 43/8:27-28. 28. Surprenant, Carol F. and Michael R. Solomon (1987), "Predictability and Personalization in the Service Encounter," Journal of Marketing, 51 (2), 86-96. 29. Terrence H. Witkowski and Mary F. Wolfinbarger (2002), "Comparative service quality: German and American Ratings across service settings," Journal of business research 55:875-881. 30. Valarie A. Zeithaml, Leonard L. Berry and A. Parasuraman (1988), "Communication and control processes in the delivery of services," Journal of Marketing 52, April: 36-58. 31. Valarie A.Zeithaml, Roland T. Rust and Katherine N. Lemon (2001), "The customer pyramid: creating and serving profitable customers," California Management Review 43, no. 4:118-142. 32. Webster, F. E. (1992), "The changing role of marketing in the organization," Journal of Marketing, 56:1-17. Read More