#128—David Edelman: Personalization as Competitive Advantage in the Age of AI

David Edelman is a Harvard Business School Fellow and Executive Advisor at BCG. David spent over 30 years as a chief marketing officer at Aetna/CVS, as well as building consultancy businesses in digital and marketing transformation while with McKinsey, Digitas, and BCG. He now teaches marketing at Harvard Business School and serves as an advisor to top executives in startups, private equity, and larger enterprises.  

In this discussion, we dive into David’s book, Personalized: Customer Strategy in the Age of AI, coauthored with Mark Abraham, which helps executives learn how to put personalization at the center of their strategy, accelerate growth, and capture their share of the value personalization creates. 

In this episode, he shares: 

• How personalization has radically shifted in the past decades to create unique value for customers, going beyond just marketing. 
• How data and AI play a pivotal role in this shift, governed by ecosystems where companies collaborate to deliver solutions rather than just products 
• The five promises businesses should focus on to seize the personalization advantage: empower me, know me, reach me, show me, and delight me 
• How to measure your solutions’ effectiveness with a custom Personalization index tool  

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Episode Timeline:
00:00—Highlight from today's episode
1:00—Introducing David+ the topic of today’s episode
3:20—If you really know me, you know that...
4:25—What is your definition of strategy
05:05—The true meaning of personalization
06:55—A surprising experience in personalization
10:04—Technological advances enabling personalization
13:10—Ecosystem-based personalized solutions
17:40—The five promises of personalization
21:25—Starting with empowerment before data collection 
23:34—The sequential implementation of personalization
26:41—Measuring personalization effectiveness with a personalization index 
30:06—How can people follow you and continue learning from you?
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Additional Resources:
Personal website: www.edelmanadvisoryservices.com
Link to book: Personalized: Customer Strategy in the Age of AI
Linkedin: www.linkedin.com/in/daveedelman

Thank you to our guest. Thank you to our executive producer, Karina Reyes, our editor, Zach Ness, and the rest of the team. If you like what you heard, please follow, download, and subscribe. I'm your host, Kaihan Krippendorff. Thank you for listening.

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Transcript

Kaihan Krippendorff: David Edelman. David, thank you so much for taking the time to be here with us. It's great to have you on the podcast. Where are you joining us from?
 
 David Edelman: I'm joining us right now from New Hampshire right by Lake Winnipesaukee where the fall colors are starting to get spectacular.
 
 Kaihan Krippendorff: Amazing. Amazing yeah, for recording this on a long weekend, you're normally based in Boston. Well, thank you for taking a little bit of time out from your family to be here, and we have so much to dive into. We'll get through as much as we can.
 
 I always like to start the same 2 questions. The first 1 is just to get us to know you a little bit more personally, could you complete the sentence for me? If you really know me, you know that.
 
 David Edelman: If you really know me, you know that. I'm a tennis hockey phone player. Really? I believe a lot in how to translate things you learn from being in a jazz combo to things that make you successful in business. Right brain and left brain working together, team work, building on each other, improvising, but having some kind of structure.
 
 Being very sensitive to your audience, the customer, and all the time trying to push the limits of everybody's capabilities, philosophy of mind for a while.
 
 Kaihan Krippendorff: Oh my gosh. And now that I know this and I think back on your book, I see very clear parallels. Amazing. Okay. What's your definition of strategy?
 
 David Edelman: My definition of strategy is looking ahead to decide how the company that you're involved with. Will compete to win the customer looking out and deciding what are the investment decisions, the trade offs you need to make, what you have to start, stop, or enhance in order to get to that direction of how you're going to compete to win.
 
 Kaihan Krippendorff: Love it. I love it. And, again, I see how it is so pointedly linked to this book. And this isn't I mean, you have been writing about and speaking about personalization long before this book. You wrote this book, and we love it when there is a culmination of lots of thought.
 
 And real application too. I think it's important for us to start off with what the definition of personalization or personalized is for you because, as you say, many peep many companies think they do it well, but they don't. And 1 reason is that they're not defining it the way that it should be defined. What what's your definition of?
 
 David Edelman: Yeah. So when I first started dancing in the personalization space, which actually was even before the Internet when companies were first starting to use customer information, it was very marketing focused. It was around, in those days, direct marketing, direct mail, outbound phone calling. It was and I even wrote an article segment of 1 marketing. But now with the capabilities that are available, personalization is about much more broadly how you are delivering value to customers based on using their information in a constructive, permission, comfortable way to give that customer unique value.
 
 And it's a basis of competition that goes well beyond marketing. It's about the c suite working together to think overall about how you're gonna distinguish your customer experience based on using customer information and constantly improving that over time as you learn more about your customers.
 
 Kaihan Krippendorff: Yes. I love it. And we're gonna get into what has changed that, you know, as you've written about, we can go from a segment of a group towards a segment of an individual. Now we can go not just to an individual, but an individual at that moment in time. But maybe just bring it to life for us.
 
 Could you share an example where you were surprised by personalization where you didn't expect it.
 
 David Edelman: Yeah. Sure. And this is a very real thing. So just before COVID, the town I was living in at the time, like, Singtel, Massachusetts, offered an incentive for people to put solar panels on their homes. You can get a rebate on your property taxes.
 
 And that opened an avalanche of all kinds of marketing of people trying to sell you solar panels. 40 percent off this, 20 percent off that, and it was just very hard to sort through. But I got a piece of mail that had on it the words, we've done the math your Evelyn family at this address can save over 20 percent on their annual energy bills through longevity. There's a personalized URL in this envelope check it out. So I did.
 
 I checked it out. I typed in the URL. It had our address in the URL, and I saw a Google Earth image of the roof of my house with solar panels superimposed on it. Down the right rail was a calculation of how much energy those solar panels would generate based on my longitude and latitude and the northeast, southwest exposure of the roof. And that calculated how much energy I would get.
 
 Then they went to Zillow, got the square footage of my house, and used that to estimate how much average energy over the course of the year I consume. So they have the numerator and the denominator, and that came to 21.3 percent. And then it said click here to talk to 1 of our sales reps and learn more. I click and I'm immediately in a video conference with a young man who greets me, sees on a mister Edelman and knows exactly who I am, has all the data, and immediately starts to explain to me how different leasing options work or if I bought it, and he's got all the math tied to our house laid out. And all or what I was doing was questions not having to tell him all this stuff just because he had it.
 
 And he even had email addresses of neighbors who had already worked with them, and we did it. It was amazingly simple. I didn't even look at a competitor because the math made sense to me. The experience was great. And then everything went forward through an app in terms of the installation and monitoring it.
 
 That's competing on personalization.
 
 Kaihan Krippendorff: Amazing. Yeah. I'd love to break that down. We're gonna get into you your framework about empower me, know me, reach me, show me, delight me. Before we get there, why is that possible now?
 
 And maybe it wasn't possible. I don't know how long ago. For example, you know, maybe you couldn't easily check Zillow and integrate that in with the calculation of Google and transfer data. To the person who and have the sales rep whatever pull it up. What are the key capabilities?
 
 Maybe they're technological? Maybe they're not that are allowing this level of personalization?
 
 David Edelman: Well, most of it is enabled by technology, although just simply having the technology is not enough. But AI is unlocking a whole lot of things. So, for example, we talk a lot about general AI in terms of chat, GPT, rendering your questions, but it can also write code, and it can write code to actually integrate sources of data. So, for example, there's a tool called Rosetta from a company called Meritiv. It looks at 1 database, looks at a second database, understands their schema, and lights the code to integrate those data sources.
 
 So you can now have a level of interoperability either between companies, if that's permissioned data, but certainly within a company to combine sales, marketing, billing, customer service data, all of which are sitting in separate repositories but they're all about the same person, and it was so hard to bring that together. AI is making that dramatically simpler. Gen AI can also do things like render that image of the roof of my house with solar panels on top. You can do that. You can also test and learn.
 
 Test and learn. So there's other AI capabilities. For example, there's a company called OfferFit that allows you to do large scale multivariate testing. So you can start to figure out what works with David that's different than what would work with Calen. So all these differences can be test and learn, test and learn, and you start to get data to feed the AI because there's a machine learning capability that allows you to set up test cells and run tests.
 
 And so there's this broad palette of capabilities backed by advances in the core digital capabilities like content management, for example, like CRM. Those are all advancing And now with this broad range of new AI capabilities, it enables you to really string together an experience in a way that you just couldn't before.
 
 Kaihan Krippendorff: Yeah. Got it. Yeah. So these 5 promises that you lay out, which will get into, we're now able to deliver on these promises closer to the theoretical optimal. I I wanna get into before we go there, could maybe just bring that for a life for us.
 
 I love the structure of your book. You cover travel, financial services, retail, fashion, beauty, health care. And could you just, like, maybe pick 1 of those and describe for us what you think the future will be? I know, for example, doesn't happy health care, but I know you know, personalized medicine is kind of 1, you know, example that people might be familiar with. But any of those could you bring to life for us what the future might look like?
 
 David Edelman: Yeah. Sure. Let me actually go through experience that I expect to be able to have. So that I know companies are working towards. So recently, I moved actually from Lexington to Cambridge, Massachusetts.
 
 And when I did that. I was bombarded with emails from Home Depot. Just all kinds of random stuff. And finally, they asked me, what's the project you're interested in? So I said bathroom renovation.
 
 And it got a little more focused, but I was still getting just a lot of stuff about bathroom stuff without really knowing. But I actually know Home Depot is working behind the scenes and their labs to take things even further. So you should be able to go into a chat window, say, I wanna renovate my bathroom. Here is a picture of the current bathroom. From that picture They can sense the dimensions.
 
 They can understand what's in that bathroom. I can then upload images from Pinterest that actually create a mood board of things that are interesting to me in terms of style, I can give them a budget based on also where I live. They can understand code restrictions in that area and things they have to do from building standpoint, and they come back to me with 3 to 5 options of what could be done, what the costs are, and how they could get that installed. And so all of that becomes a personalized solution really that provides a whole experience, but it's a solution. And if we take that 1 step further from a future perspective, Home Depot can't do it by itself because they need to connect with the product suppliers.
 
 They need to connect with the installers. And so where this is going is in order to deliver personalized solutions central hubs are gonna emerge that orchestrate ecosystems, that pull together a number of different parties and share information in a very controlled way in order to coordinate providing that solution. Marriott Bonvoy, doing the same kind of thing for travel, coordinate my trip to Spain with 2 teenage kids for 10 days. I wanna use points. I want great eating experiences.
 
 They can't do it themselves. So we're going to see because, again, Jan AI can write code. So you can now write code to manage the movement of information across parties, share it appropriately, track what's being permissions, who has rights access to that data, actually have metadata about where that data has gone so you can keep track of everything that's happening, and use that to coordinate and monitor the delivery of a personalized experience. So companies are working on it. And so from a strategy point of view as chief strategy officers.
 
 Where are you going to play? Are you thinking about solutions? Do you need an ecosystem? How are you going are you going to be the hub? Are you gonna be a party within an ecosystem?
 
 Are you left out? There is a whole gamesmanship of competitive strategy that's tied to the notion of personalization.
 
 Kaihan Krippendorff: Mhmm. Love it. So my so my question is going to be then we're not talking about products anymore. And what are we talking about instead? Like, we had VJ government run on, and we had Venkat, who's who's a collaborator with him as well on.
 
 And they're both talking about experiences versus products. And we've had all the people talk about not industries, but scenarios. What how do you think about what the defining unit is that companies say this is the business we're in?
 
 David Edelman: So I think it's about solutions. And it's about empowering people through solutions, and experiences are solutions. They are. There are ways to help you have fun, discover new things, get stuff done, so it's about thinking through all the pieces of the experience, which really, from a mindset perspective, is a solution. It's got may have product components, service components, information components that all have to come together.
 
 And when you think about a solution and I'm gonna make this segue because it's just a natural point to the 5 things we talked about in the book, Yeah. So that solution is implicitly your if you're doing a personalized solution, you're making a promise to somebody that you are doing 5 things that are tied together. 1, First importantly, you're empowering them. You are empowering them to get something done that you have not they have not been able to do before, or that's hard like thinking through how to buy solar panels. It's complicated, actually.
 
 Second, you know them. In an appropriate way. You're getting data from your interactions. You may be asking them for data. You may be taking data that comes out when you talk to a sales rep so you know them.
 
 Third, you reach them. You interact with them at an appropriate time. You don't bombard them. You're using AI to figure out from an orchestrated perspective. When is the right time to reach out?
 
 Or you're available when they wanna reach in and pull you. And so you're not the danger with AI is that we get bombarded with spam. And everything I have seen in terms of data is that backfires. People unsubscribe and they turn off. So you've got empower me, know me, reach me, and then you show me you show me an image like my roof.
 
 With Solar panels. Another just quick example of show me when I was chief marketing officer at Aetna, because people didn't understand their health plans, we used a service called Sunday Skye to create personalized animated videos. To explain people's health care health insurance to them. And it was a home run. People calls the call center went down.
 
 People understood it better. So show me is the fourth, and then the last is delight me. As you're testing and learning and getting more information, the experience gets even better. And I think we see this with some of the real leaders in this Spotify, Netflix, Uber. They're using that information that they've captured to constantly improve the solution essentially that they're providing.
 
 So those 5 things empower me, know me, reach me, show me, delight me, We call those the 5 promises. And as you're thinking through your strategy, you need to have the capabilities for all 5 to really deliver that personalized experience.
 
 Kaihan Krippendorff: So the order that you presented in in the book, it makes sense for me as a consumer, customer, user, you know. But as I was thinking about it, for a strategy officer, a company that wants to implement it, I wonder if the order is different. And you've done this work with companies. So I may be wrong. Yeah.
 
 I'm probably wrong here, but it seems to me know me seems a natural first step where we need to turn as Mohan Subramanian who he had on their podcast here. He said, need to turn your customers into digital customers. We've got you know, we're able to sense information about them through connected devices and get that 360 degree view. Is that the right first step? And if not, what is
 
 David Edelman: Yeah. The challenge with making that the first step is it's endless. It's boundless. There's so many things you can do to collect customer information. So, yes, you need to have some kind of digital Tethr to your customers through which information can flow mutually.
 
 But if you think about empower first, what is it that you wanna deliver you can focus and actually not go after everything, but think more carefully about the priority data you need and how to activate it. Because I've seen too many companies spend lots of money on massive data stores before they really thought through how they're gonna use them.
 
 Kaihan Krippendorff: I see. So if I'm simplifying surely, but then empower me is about on going back to what we talked about before, we're not selling a product, we're helping the customer achieve something, and we need to first understand what is it that they're looking to achieve so that we can empower them to achieve it. Is it
 
 David Edelman: That's right. And then focus on the capabilities of know me, reach me, show me, and then constantly get better through delight me in service to that empowerment that you wanna deliver the customer.
 
 Kaihan Krippendorff: Okay. So if I'm doing a work plan, I'm gonna start there. We're what comes next in the work plan?
 
 David Edelman: So you start you so you have to first think through what are the use cases of experiences you wanna deliver? Then, absolutely, you gotta think about the data. So, Naomi and that's why we have it in that order. So you've gotta think about what data do we have? What data can we activate that we're already collecting?
 
 Is there data that we actually have access to that we haven't thought about? Like, what goes on in our call centers? What are people telling us about? What are they 1 of the challenges that they're having in the call center even at an individual level. And, you know, in the case of longevity, they thought about external sources of information like Google Earth, like Zillow that they could buy those feeds, and that's public data, that's available data.
 
 So they were thinking, how do we solve this problem by getting data, but it came from the use cases first.
 
 Kaihan Krippendorff: Got it. Alright. That makes absolute sense. It's it's very structured. Otherwise, as you say, we might just try to get random data from lots of places.
 
 Now we can prioritize. So then after we get to know me and we get this 03:60 degree view of the customer, what's the what's the next step?
 
 David Edelman: So the next step is figuring out how will you interact with the customer to deliver the experience. So do you need is it gonna be mediated through an app that you want to somehow try to get people to download? Are you using email? Are you going to have some kind of chat interface these days on your website that you're gonna be pulling people into through search and social. And so what's gonna be your channel strategy in order to have that interaction?
 
 And then within and then just getting to the next step what will be the content of that experience in terms of show me, and how personalized, how multimedia will that be.
 
 Kaihan Krippendorff: Going back to your Aetna experience as an example.
 
 David Edelman: That's right.
 
 Kaihan Krippendorff: Mhmm. That's right. Now we now we have lots of and I guess they're take technological capabilities of content management and be on the piece together, you know, databases of content that you put together and customize. And with AI, you create content as well. At the moment.
 
 Got it. Okay? And then that leads us to the final
 
 David Edelman: So then you test and learn because you're not gonna get it right the first time. Yep. Because you don't know what necessarily is going to work. So you've got to constantly try new things and it also may not it won't be the same thing for different customers. So the more you test and learn, the more you can refine what you offer, but also you can get more granular Yeah.
 
 And realize what's different for whom and use that to tune the experience.
 
 Kaihan Krippendorff: Fascinating. So companies are in different stages of different levels of capabilities across these 5. They often think that they're good, but they're not really good at it. How can you measure whether to what extent a company is good at personalizing?
 
 David Edelman: Yeah. So you can't improve what you can't measure. And so if personalization is a strategic goal, you should be able to measure it. And so together with BCG, I created a personalization index, and the way the index is structured is it's based on the 5 promises and for each of those promises, we look at 2 things. 1 is, do you have the capabilities in place to deliver?
 
 And secondly, does your experience reflect it that you actually deliver? And we did mystery shopping. So we looked at 200 different companies and across a whole range of different sectors to develop this index and refine it. And then we looked at the correlation of your score on capability and experience with financial performance. And so we looked at who were leaders and who were laggards.
 
 And you can actually take this index, by the way, if you go to the website for the book, which is called personalized the book. You can get a simple way of going through at a high level the index, and then there's more detail that's in the book. But when you actually do that correlation of index scores to performance, leaders are growing at 7 to 10 percent per year, laggards 0 to 3. And it is true across sectors. And what's interesting is that there's more variation within sectors than across sectors.
 
 People have asked, are there certain sectors that are better suited for this? And the answer is, well, as long as you've got customer data access in some way, it makes sense. Package goods is hard. That it is a lot harder because your distance in package goods, you have to think about personalization at the channel level. So thinking about the stores who you sell through.
 
 That's where you can do personalization.
 
 Kaihan Krippendorff: Yes. You know, I see you have a lot of services here, restaurants, hotels, cruise lines, airlines, and in those, there's yep. I can now see that that flow as you talk about of the I forget you have the volume and the frequency of the interaction. So higher.
 
 David Edelman: And b to b, by the way, also, there's tons of opportunity in b to b, and there are examples in the book. But the more you can get customer data and the faster you can test and learn, test and learn, test and learn, you're building up your information arsenal, and then you have to deploy it against the 5 promises. So that index is a tool that companies once you read the book, you can get the details of it. That comp companies can deploy to assess their starting point and to start sending targets for how they improve.
 
 Kaihan Krippendorff: Great. Well, I've got, like, 20 more questions, and we're out of time with you. But people will find the book. And I love that, you know, you were able to have Zoom us out into the future and envision what the future could be, but then give us really measurable, tangible specific things that we could do to start stepping on that journey how else can people be on this journey with you? Definitely they'll buy the book.
 
 How else can they connect with you, learn from you, work with you?
 
 David Edelman: Well, on LinkedIn, you can connect with me. You can subscribe to my newsletter every week. I come out with new thoughts and gather the feedback that I get from people who are trying to do this from my own consulting. I do independent consulting as well as work with BCG. And so all of that the best thing is to subscribe to the newsletter You can track my post on LinkedIn.
 
 Got a million, over a million followers who are doing that. So I get a lot of feedback and try really hard to bring the best of that back to life.
 
 Kaihan Krippendorff: Excellent. Well, thank you for doing this work for all of us and making it tangible and shareable and easy to access. And thank you for taking some time to be with us today.
 
 David Edelman: My pleasure. This was great. Thank you