Getting Personal: Web Retailers Are Using Software That Tells Them Who Is Shopping Online and Why

When Dana Lemke of Olathe, Kan., shops in a traditional store, she likes to look at things, touch them, and talk to a salesperson about how they are made. Getting folks like her to buy things online is a challenge. So when her husband, Marc, opened a Web store that sells bird feeders and nesting boxes for every kind of landscape, he knew the site needed advanced technical features that would make customers feel like they were getting the kind of personal attention his wife seeks out.
     Lemke turned to personalization software-applications that enable merchants to create individual customer profiles or customized shopping experiences. People who visit backyardnature.com can access a personalized gift selector that asks them a series of detailed questions about where they live, their level of bird watching interest and the type of birds they would like to attract. Armed with specific answers, the selector uses a simple rules-based logic program to search a database of the store's products and suggest the best bird feeder for the customer to buy. "Customers can ask questions and get a result," Lemke says. "That is real interactive and personalized."
     With the number of Web stores already exceeding 15,000 and competition for the attention of online shoppers heating up, Lemke is among the growing number of Internet retailers using personalization software to zero in on consumers and customize their online purchasing experiences. He incorporated personalization software when he launched his site last September. But more commonly, retailers who already have transaction-enabled Web pages are adding personalization applications as they refine their Internet selling plans.
     For instance, toysmart.com Inc. (formerly Holt Educational Outlet) added software to its Web store that in real-time tracks which shopping category a customer is clicking on, determines which products they are interested in, searches the company's inventory of 20,000 toys and suggests other items the person might want to seek out. Since installing personalization software, toysmart.com has added more than 100,000 customer profiles to its marketing database, which has helped drive up orders to as many as 1,000 per day. "The best thing that personalization does is give us a sense of the type of product customers want," says Michael Boldezar, Internet manager, toysmart.com, Waltham, Mass. "We can make what they are interested in readily available."
     Now that interest in Internet customer tracking is catching on, retailers are implementing many different types of personalization, including electronic dialog, suggestive selling, targeted advertising, and e-mail marketing programs. The customized software programs aren't cheap-costs to add various personalization applications to a Web site range from $45,000 to $300,000, with monthly support costs of $2,000 to $20,000. But Web retailers say they are willing to spend big money on personalization applications because they believe the software helps them connect directly with Internet shoppers.
     "Personalization is growing at a rapid pace," says James McQuivey, senior analyst, Forrester Research Inc., Cambridge, Mass. "Within the next year, every Web site will have some form of personalization, even if the site just remembers your credit card number and address without you having to type it in."
     The concept of personalization is touching all Internet categories. Individual search engine functions such as MyYahoo! allow users to customize the information they see when they sign on to the Internet. And retailers find the idea of using personalization technologies to improve their customers' online experiences an especially good fit.
     "A lot of sites are just getting to the point where they have their product catalog up, they have transaction capabilities and now they need an effective solution for customer service," says Chuck Williams, chief executive officer, Brightware Inc., a Novato, Calif., personalization application development company. "Personalization deals with that, and it's critical." Personalization technologies are needed to help consumers sort through the vast amounts of data available on the Internet.

Personalizing Amazon.com

At Amazon.com, consumers have access to thousands of items-including every book in print. And the need to give customers the titles they want when they want them is turning Amazon.com into a big user of personalization applications. The site is personalized in three ways. It recommends books to customers based on what they have purchased in the past, it suggests titles by asking them to enter their likes and dislikes, and it allows people to sign up for e-mail notification of new book releases in categories they choose.
     "Selling on the Internet becomes a question of how you help people find exactly what they want," explains an Amazon.com spokesman. "A lot of times people come to the site and just know that they want a mystery or something to read on the plane. So we've developed a number of things to personalize it. It's not unlike in the old days when people went to the corner clothing store and the tailor already knew that they liked blue pinstripe suits. He could say, 'Hey, I've got a new blue-striped suit I want to show you.'"
     Comparing shopping to a time when most retailers knew their customers on a first-name basis to today when consumers are using computers and the Internet to buy from home may seem a bit odd. But even though the Internet is a mass medium, it offers the potential to make one-to-one connections, just like that corner store relationship, says Stephen G. Kanzler, vice president, marketing, Andromedia Inc., a San Francisco personalization software company.
     Web sites can recognize individual visitors when they enter a site and move around within it-and that's a boon to marketers. "For the first time in a mass medium, we have the ability to record what consumers do, how they behave and what they buy," Kanzler says.
     The concept driving personalization software development is to take information gathered about consumers and use it to tailor Web pages to suit them, so that every person sees what's most relevant to their preferences and needs. Retailers gather information about consumers in two ways.
     The first is by asking them specific questions, says David B. Pakman, vice president of business and product development, N2K Inc., New York, which runs Music Boulevard, an online music store. (N2K recently merged with its primary online competitor, CDnow Inc., Fort Washington, Pa.) The company recently introduced My Music Boulevard, a service that creates unique Web pages for customers who sign up, giving them information on their favorite recording artists and genres. Since its launch last November, about 100,000 people have registered for the service.
     When people log on to My Music Boulevard, the site asks such things as what types of music they listen to, who their favorite performers are and how often they want to receive e-mail communications from N2K. For example, if a visitor says she likes the blues and the Indigo Girls, she'll receive a monthly e-mail notifying her of new blues releases and reviews, discounts on Indigo Girls CDs and other information. On her next visit to My Music Boulevard, the site creates Web pages designed around her interests.

Tracking customers

The second type of data is gathered by consumers' activity on Web sites. The Music Boulevard site tracks which CDs a customer has purchased, which sound samples they have listened to and which articles they've read. That information is then added to the customer's profile to generate even more suggestions and information links. Personalization applications may soon be as common a function on Web store sites as electronic catalogs and shopping carts.
     But building customer profiles and tracking consumers' movements through a Web site raises privacy concerns, and retailers have to protect personal data collected on the Web the same way they protect consumer data collected at the point of sale and in other kinds of direct marketing activities. Many retailers, including N2K, feature prominently on their Web sites the store's policy about not selling customer data to outside third parties.
     "The customer only wants to give information about himself or herself if they feel confident you will use it to service them better, not to take advantage of them or make money off of it," Pakman says. "So we do not sell or distribute customer information. That is our prize information, and we keep that confidential."
     Yet even if online retailers do develop and maintain strict guidelines about the kinds of information they collect from Web shoppers, that effort still isn't enough for many privacy rights groups, which are taking take a wait-and-see attitude toward personalization software. Privacy and the security of credit card transactions over the Internet are still the two biggest reasons keeping more consumers from shopping online.
     "Consumers are concerned about personalization because a lot of it seems to be done covertly, which means people don't know how information is being acquired or used," says Marc Rotenberg, executive director, Electronic Privacy Information Center, Washington, D.C. "That's typically the basis for privacy problems."

Getting to know you

     Still, many people are deciding that the convenience of shopping on the Web and the advantages of more customized attention when they do outweigh the disadvantages of divulging personal information-knowingly or not. When retailers assemble customer profiles about people who visit their sites, they use them in several different approaches, Brightware's Williams explains.

These programs include:

• Frequent-customer programs. This approach uses customer profiles to tailor Web pages to suit individual visitors. "A Web developer can put some logic in an HTML template file so that when a user comes to the site and has profile indicators set in their profile, the logic chooses which content to display to them," says Cliff Allen, president of GuestTrack Inc., a Los Angeles-based software development company that specializes in Web site personalization. "The logic says, if the customer is a golfer, then show this additional paragraph of material. You can do a lot with that."
• Collaborative filtering. This technology considers what someone is looking at, searches the database for profiles of other customers who have bought that item, identifies what else those people purchased, and then uses that information to make suggestions to the original customer. It may sound complicated, but the idea is simple.

Know your software With so many different types of personalization technologies available, businesses must decide exactly what they want to accomplish and create a strong business plan before they buy. "This is not an off-the-shelf, slap-it-in kind of thing," says Geoffrey Bock, senior consultant, Patricia Seybold Group, a Boston-based e-commerce consulting firm. "It takes as much work on the business side as it takes on the technical side. A company needs to think through what they are going to personalize and how to go about it."
     Technology in the personalization market remains in its infancy, with work still to be done in the areas of data integration and the scalability of applications. And the full value of the technologies will only be seen when retailers personalize the entire online experience, rather than just the content customers see, according to Forrester Research.
     That's a goal of many retailers. With N2K and CDnow merging their online platforms into one combined store under the CDnow banner, personalization will be key to as the stores expand together. "We'd like to have the entire store be personalized," explains Evan Schwartz, CDnow's director of product management. "If you go to Pearl Jam's discography page, we want to show you the Pearl Jam records in the order we think you'll want to see them. So every single page in the store will be personalized just for you-the merchandizing, the content, the advertising-everything you see."
     Because the technologies are new, companies are still experimenting with personalization. Last year, American Airlines launched a new site featuring a highly touted personalization program for its frequent flier plan members using technology from BroadVision Inc., Redwood City, Calif. "We have a million questions we are just starting to address," admits John R. Samuel, managing director of interactive marketing at American Airlines, Dallas. "For example, how often do you show somebody something that they haven't clicked on? Do you quit showing it to them? If they do click on it, do you allow them to save it someplace?"
     Even so, American already is seeing benefits. "What we wanted to hear from customers was that the information we are now providing is relevant and more useful," Samuel says. "Our top-tier members come back to the site once a week. We're pretty pleased with that. We think it means they are receiving useful information."
     N2K has enjoyed sales from a program that sends highly targeted e-mail to people who have asked to be notified when certain new CDs come out. Up to 30% those recipients return to the site to buy the CD, Pakman says. That compares more than favorably to typical scenarios in which less than 5% of visitors actually purchase something at a Web site. "The measurable benefits are in the form of a better relationship with the customers," he adds. "Our customers come back more often and are more satisfied."
     Customers like the attention personalization technologies offer, says Backyard Nature's Marc Lemke. "They really want to know someone is on the other end taking care of them."