• New Roland Berger study: Customers prefer to shop where they find personalized product offerings – retailers need to know their customers' preferences
• Social media offers fascinating customer insights: 300 Facebook likes is enough for an extremely precise analysis of personal preferences
• Systematic data analysis is important to keep the focus on the customer

Munich, May 2, 2017

Online retail giants have a clear recipe for success: they know exactly what their customers are thinking, doing and buying. This puts them in a position to offer precisely what the customer wants – including early product recommendations before customers are even aware of their wish to buy something. In the battle to remain competitive, retailers with roots in the store-based business and e-commerce vendors alike will need to decode their customers' "digital DNA". Once they've done so they will be able to offer an attractive shopping experience, keep consumers coming back, and increase their revenues while cutting out unnecessary costs. Experts from Roland Berger describe just how to do this in their new publication, Inside the customer's mind – Successfully customizing retail by decoding the digital customer genome.

"If you are prepared to embrace the digital transformation in the e-commerce era, the benefits you'll reap can be outstanding," says Thorsten de Boer, Partner at Roland Berger. "But if you hesitate or refuse to engage with the transformation, you may well miss the boat and find yourself frozen out of the market before too long." Because what digitization is doing is creating more scope for a personalized and individual shopping experience, which is infinitely more attractive to the customer.

Successful online retailers have spotted this opportunity and offer customers what they can't get from competitors: "The trend in retailers carrying wider and wider assortments often leaves customers unable to appreciate the full range of what's on offer," says de Boer. "Customers do not like having to click through endless lists of products, so they'll go instead to an e-store that recommends relevant products for them based on their shopping behavior – and tailored to their current needs and desires."

The customer's digital DNA: Individualized purchase predictions support retail

Understanding the customer's digital DNA is the basis for being able to make such offerings because there is a lot more to predicting the customer's buying behavior than just looking at their history of purchases, searches and product reviews. Other online data can also be mined in a bid to make precise and individualized predictions about what consumers are going to buy in the future – unimaginable just a few short years ago. "Social media is the biggest source of such data," says Roland Berger expert Tobias Weisel, "because the social media channels present a forum for more and more people to openly disclose what they are interested in and what their buying habits are."

Some 700 million data points have already been left by German Facebook users in the form of likes. Added to that are about five billion website visits per month stored in people's browsing history, and nearly seven billion searches in their search history. "Every one of us is voluntarily leaving our digital fingerprint behind and giving away a whole lot about our needs," says Weisel. "Every click on the internet, every Facebook like, every photo on Instagram is another little piece in the mosaic of information that retailers can build up about us, their customers, in a bid to get closer to us and offer us an individualized shopping experience."

Manageable effort, maximum benefit

So what does this mean for retailers? Assuming you know how to put all of the little details together and interpret them, you will gain in-depth insight into your customers' interests and be able to use this knowledge to individualize your product offering – everything from personalized storefronts to preselected products to individualized prices. And the effort of doing so is manageable, while the method also presents the opportunity to raise revenues and avoid unnecessary costs: "Firstly, retailers can offer targeted products that actually interest their customers. And secondly, they can avoid offering things that customers do not want and prevent scatter loss," says Thorsten de Boer.

That said, the sheer scale of the online information that is available can quickly cause retailers to lose sight of the customers behind it. That's what makes systematic data processing so important. Several steps are absolutely crucial here, including concept design as a means of defining the target and the degree of individualization, along with the data bundling and analysis phase. Different possible use cases can then be developed and subsequently realized through rapid prototyping. "The systematic approach helps minimize the degree of effort and optimize the resulting benefit," says de Boer. "And that can allow online retailers to gradually adapt their business model to the new normal and give themselves a competitive edge for the future."