The Link Between Personalization and Customer Retention

Tailoring experiences to individual preferences makes customers feel valued, increasing their loyalty. Businesses that invest in personalization strategies often see higher retention rates and greater lifetime customer value.

Have you ever wondered why there’s such a push to create more personalized experiences in marketing?

Personalization isn’t a meaningless buzzword nor is it a short-lived trend in marketing. For years now, we’ve been talking about the benefits of using hyper-relevant targeting to create better user experiences. And, in so doing, improving user retention and customer loyalty for our businesses.

But why is this marketing technique so effective? Especially in light of the concerns that so many consumers share with regards to data privacy?

In this post, we’re going to look at some recent studies and surveys. They’ll shed some light on the connection between personalization and customer retention, consumers’ need to be understood by brands and how it all drives better business outcomes.

How Marketing Personalization Improves User Retention

Personalization is a strategy whereby users are shown different content from others based on their personal data.

There are different types of metrics that brands use to segment users and to deliver custom content and experiences to them. For example:

• Device usage
• Geographic location
• Referring source
• Personal interests
• On-page activity and interactions
• User account preferences
• Purchase history

Why is personalized content more effective than taking a one-size-fits-all approach in marketing?

Well, personalization provides target users with better experiences. From emails containing personal details to relevant and helpful product recommendations, brands leverage their users’ data to help customers feel seen, appreciated and rewarded for their business and loyalty.

There’s plenty of available data to demonstrate why this particular marketing tactic works so well, too.

Consumers Now Expect Personalization

Back in 2018, Google/Greenberg did a survey to find out how consumers’ expectations were changing when it came to brand experiences. What they learned was that 61% of consumers expected their experiences to be shaped by their personal preferences.

Three years later in 2021, that number rose to 72%, according to a McKinsey study on personalization. McKinsey dug a bit deeper than the Google study did. It sought to identify the kinds of personalizations that consumers preferred and/or wanted.

Here’s what the survey revealed:

These personalized experiences can be grouped into four categories:

• Meeting them where they’re at (black)
• Knowing their tastes (baby blue)
• Offering something exclusive (royal blue)
• Checking in with them (light blue)

Consumers seem to have a good idea of what’s possible when it comes to personalization as well as a healthy mix of preferences. They don’t just want brands that send them exclusive offers and discounts—they want ones that provide a better navigation and shopping experience, among other things.

There’s just one problem. A Twilio Segment personalization report from 2021 found that there’s a disparity between brand and consumer perception.

While 85% of the businesses surveyed said that they currently offer personalized experiences, only 60% of consumers believe that’s the case.

Failing to Personalize (or Getting It Wrong) Can Be Costly

According to the Twilio Segment report, 75% of business leaders agree that personalization is crucial to remaining competitive in today’s digital marketplace. That’s good, because not doing any personalization can be quite costly.

According to McKinsey’s survey, 76% feel frustrated when companies fail to provide personalized interactions.

With so many competing offers out there, it’s all too easy for consumers to abandon brands for ones that are willing and able to meet their personalization demands. 45% of Twilio Segment’s respondents said they’d spend their money elsewhere if a brand didn’t offer personalized experiences.

A 2024 Marigold report on personalization looked more specifically at what irks consumers about un-personalized brand interactions.

The study found that 40% of consumers were frustrated by irrelevant content and offers they got from brands. In addition, 33% were disappointed by brand messaging that failed to speak directly to what they wanted or needed.

It’s not just the lack of personalization that can cost you the business, respect and trust of your customers either.

Along with the expectation that their favorite brands will provide personalized content, consumers expect them to do it in an ethical way.

For example, when Marigold asked respondents if they felt that their favorite brand used their data in a way that felt comfortable, only 57% said “yes.”

What sort of data usage might make consumers feel uncomfortable?

Twilio Segment’s report found that 69% appreciated personalization. However, it came with the caveat that the personalization be based on data they’ve willingly shared with the brand.

Security and privacy also affected their feelings on personalization. Although 48% liked that personalization made things easier and more convenient for them, this was only as long as the data driving those experiences was secure. And, unfortunately, only 37% of consumers trust that brands are responsibly securing and using their data.

Personalized Content Improves Company Profitability

Although consumers have their concerns about what they’re giving up in the name of personalization, it seems to be paying off in dividends when brands get it right.

In 2017, Econsultancy and Google talked with marketing leaders (whose company revenues exceeded $250 million). And 90% of them said that personalization was a significant contributor to their company’s profitability.

But why specifically does personalization correlate with profitability?

It has to do with the the likelihood that they’ll return to buy from the brand and that they’ll spend more.

In the McKinsey study, 76% of those surveyed said that personalized communications played an important role when choosing brands to buy from initially. What’s more, 78% said that those personalized communications increased the likelihood they’d buy from them again. On top of that, 78% were more likely to refer their friends and family.

So, personalization doesn’t just get new customers in the door. It creates a perpetuating cycle of creating more pleasing experiences that encourage customers to buy more and refer others, who then enter the cycle themselves.

The Marigold report found similar findings: 68% of consumers said they’d have no problem paying more money for brands they’re loyal to.

In terms of actual revenue numbers, McKinsey found that personalization, on average, leads to a 10% to 15% increase in revenue. For some companies, it’s as high as 25%.

So, think about that the next time you’re wondering if personalization can do much for your marketing strategy and company profitability.

Why Customer Retention Should Be the Goal in Personalization

Customer retention is more than getting customers to spend with you a couple times before passing the baton to friends and family. It means holding onto those customers for as long as you can.

There are a number of reasons for this.

To start, it’s much more costly to spend all your time and budget on customer acquisition. We’ve known this for some time now. Recent figures from SimplicityDX show why this is even more critical today.

In 2013, brands lost about $9 whenever they acquired a new customer. As of 2022, that loss has gone up to $29 per customer, a 222% increase. It’s not just the cost of marketing to new customers that’s increased.

Because of the growing convenience of online shopping, the rate of product churns and associated losses have significantly increased as well. There are also all the hurdles that marketers go through to collect customer data. Think of regulations like GDPR and CCPA.

Now, compare that with how much businesses make from returning customers.

In 2013, a repeat sale brought in $28. As of 2022, that increased to $39. That’s just for a single repeat sale though.

According to real customer data collected by Smile.io in 2023, brands see much larger lifts in revenue the longer they hold onto a customer’s business.

This data reveals that the top 10% of customers spend two times as much per order than the average customer (the remaining 90%). Not only that, the top 1% of customers spend two-and-a-half times as much per order than average.

The hard part is how to retain customers for that long. In this same report, we see how likely customers are to make a return purchase after different shopping trips.

After making their first purchase with a brand, a customer is 27% likely to return and buy again. On their second purchase, that number shoots up to 49%. It gets even better on the third go-round, with a 62% likelihood they’ll return to the store for another purchase.

That’s where you want to be with your customers. And, according to recent marketing data, personalization is an indispensable tool in a brand’s customer retention strategy.

By getting to know your users and providing them with valuable personalized experiences again and again, you’ll get them past the one-time purchase hurdle. This will allow them to feel more encouraged and eager to buy from you on repeat.

Wrapping Up

An estimated 72% of consumers today expect brands to provide them with personalized content. Brands that successfully do this not only earn the business of customers seeking out personalized experiences. They earn their trust and loyalty over time.

Now, the question is: Is your brand set up to deliver the right personalizations to the right people and at the right time?

This step-by-step playbook for personalization is a good reference to start with. And if you’re looking for a way to make data-driven personalization easier to do, use Sitefinity Insight.