OPINION: Personal touch is now crucial to growing profits

In a rare interview last week, Sir Terry Leahy looked back at what would prove to be the turning point in Tesco's fortunes. He told The Sunday Times that as a marketer during the recession in the early-90s, he was charged with finding out why the retailer was doing so badly. Research showed him the answer was pretty straightforward: people had less money to spend.

At the time, Tesco was pouring its energy into trying to be more upmarket like Sainsbury's, but from then on, it decided to focus on what customers wanted, rather than try to be something it wasn't.

Now, of course, Tesco is outstripping its once formidable rival in almost every area. It has a much more segmented view of customers and is using its Clubcard data in an attempt to personalise offers according to individual attributes. But the fact that this is still at a relatively rudimentary stage highlights two important points.

The first is how tough it remains to make substantial progress in customisation, no matter how much data you collect and how many customer insight managers you hire. The second is that it might be tough, but it's the only way to go if you want to enjoy real growth.

According to a study from consultancy Booz Allen Hamilton, the way a company responds to demand for customised products or services can be the difference between a performance that leads or lags a sector. What it calls "smart customisers" outperform industry peers by two to one in revenue growth and have profit margins 5% to 10% above those of competitors.

The research was carried out over six months across industries including consumer goods, telecommunications, chemicals, media and financial services.

The conclusion was that these paragons of customisation perform a delicate balancing act by focusing simultaneously on the same three best practices.

They understand the value customisation brings to customers; they work out how to make sure it benefits both company and customer; and they align all parts of the company to provide it at the lowest cost.

However, although this sounds like common sense, the study also found that about two-thirds of companies with defined customisation programmes have failed to make much of an impact on performance. They may have a great strategy, but that is not the same thing as doing it, and doing it well.

Most merely add variety to products or services indiscriminately and do not understand what will turn indifferent customers into loyal ones - and it shows. What the study calls "simple customisers" are far more likely to have profit margins below the industry average.

The problem, says Booz Allen Hamilton, is that customers are demanding ever-higher levels of customisation. This means the laggards will be shown up by companies such as BMW, which keep raising the bar.

As Business Week pointed out last week, the car company's technology now allows buyers to design their own model from 350 variations, 500 options, 90 exterior colours and 170 interior trims.

BMW claims that 80% of cars bought by individuals in Europe and up to 30% in the US are built to order.

Amazon's Jeff Bezos has said that if his company wants 20 million customers, it needs 20 million "stores". In other words, it's no longer business as usual; it's also personal.

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