In an ideal world, you can fully leverage the power of personalization to provide 10 million separate offers to your 10 million customers. Wouldn’t your shoppers love that?
In the real world, you have negotiated very specific offers with your suppliers. If all you do is personalization, you may deliver those special offers to people who already buy those products without the special discount – reducing ROI. Optimization makes sure you reach the customers who will act on the specials, increasing the size of their shopping cart, share of wallet, and overall margin without cannibalizing your other suppliers or simply replacing a regular full-priced purchase with the special offer.
To get to the right customers, you need to consider their regular transactions, the size and timing of the offer, and even the physical location of the branch with regard to their regular shopping habits. You also need to take into account how your temporary price reductions fit into the mix.
Your inventory manager, has negotiated only one offer with the yogurt company. Who gets the discount? Personalization would give everyone who has ever bought yogurt a coupon for yogurt. An optimized system will make sure only the shoppers who would react to the yogurt coupon will receive it.
Customer A buys chocolate yogurt every few months as a treat. Customer B eats yogurt every day, so she buys them in large quantities every time she goes to the supermarket. Customer C buys yogurt only when she buys granola, which happens once every six weeks. Pure personalization would give all three of these customers the yogurt offer.
According to your CRM system, Customer C bought granola last week, so she won’t get the yogurt coupon. Customer B won’t get it because it would cannibalize her basket. With an optimized system, only customer A gets the yogurt coupon. She doesn’t buy it regularly, but we already know that she does purchase it.
The optimized system has automatically grown Customer A’s basket.
Every time you negotiate specials with your CPGs, every time you rearrange shelf space, every time you change suppliers, you need to make sure you are optimizing, not just personalizing.
“Theoretically,” your personalization software tells you that one customer will buy if she gets 10% off and another will only buy if he gets 20% off; this is based purely on the individual’s previous purchase behavior and can translate into millions of offers across your entire potential inventory. Optimization means combining the theoretical personalization possibilities with the reality of the specials available.
The goal is to find a balance between optimization and personalization, which is an ongoing process – while you need to keep your customers happy, you also need to ensure that your highly active, co-marketing suppliers get their products in shopping carts, and your customers keep coming back to buy more.
