Personalized service. What does it actually mean?

Personalization is more than paying lip service to customer’s preferences; rather it is adding value to a customer's choice. But humans are funny creatures. Often times we prefer something because it is familiar to us. In fact, we prefer the familiar so much that the acclaimed psychologist Amos Tversky gave this phenomenon a name: familiarity bias. Preferences are built upon habits, where habits are established in the familiarity of repeated choices. Businesses, like individuals, must make choices in uncertain, ambiguous situations.

Product design demands a business choose between selling a product customers “prefer” as inferred from their previous choices, or selling a product that adds value to the customer’s choice. Decisions based on preference appear less risky than those based on “value,” under the assumption that past behavior is the best predictor of our future behavior. Amazon’s recommendations for similar products after you make a purchase is a great example. Decisions that consider what drives value for the customer are riskier by nature. Values are qualitative and variable as opposed to quantitative and fixed. Customers’ values might change over time, leading them to feel “bad” about their decision to buy your service or product.

However, the advantages of embracing uncertainty still outweigh its disadvantages, because when a customer purchases a product based on value it lets him or her feel the fulfillment of making a satisfying choice. Value, not familiarity, is the true measure of personalization. Clever companies know this, and they combine the right dose of "familiar" and "unfamiliar.”

Google and Facebook, as Eli Pariser discusses as a part of TED, are engaged in the process of quantifying preferences from the timing and frequency of online clicks, and using this information to alter web content. The stated goal of this practice is to “personalize” the web experience.

A lesson gleaned from Dell’s 1990s laptop boom illustrates the point that preference and value are two different things. Dell let its customers customize all aspects of their computer’s hardware – from screen size to keyboards to RAM – everything but color. Nobody thought to customize color, because a laptop was supposed to be black or gray. However, when color laptops were introduced, sales skyrocketed and we all learned that color was indeed an important factor.

Imagine if Google and Facebook had monitored “clicks.” They would infer that because customers did not indicate a laptop color preference, it doesn’t drive value and is therefore irrelevant.

The Dell example shows that customers have desires and feelings that aren’t manifest in their past actions. Latent desires can, however, activate and drive future consumer behavior under the right circumstances. Progress depends upon utilizing all the factors at your disposal in the present to add value to the customer choice – even if it breaks from how things were done in the past.

What principles of personalization do you and your company use?