As personalization evolves as a multi-channel technique, retailers are once again raising their expectations
By Paul Demery
Of all the excesses and unrealized promises of the early dot-com days, one that stands out is personalization technology. Its promise of the mid- to late-'90s suited the Internet euphoria of the day--that the ubiquitous nature of the web combined with reactive technology would produce a form of one-to-one retailing that would keep customers coming back for more through customized marketing and merchandising.
But promising too much too fast, before retailers truly had the infrastructure, the capital or the expertise to carry it through, personalization landed in the equivalent of the desktop trash can. "The role of the web in helping customers got a black eye with personalization's unmet expectations years ago," says Sam Taylor, senior vice president of online stores and marketing for Best Buy Co. Inc.
But as technology and business expertise have grown, Taylor and other e-commerce experts are seeing personalization in a new light. "Personalization is back to being a successful tool in the online space," says Jay Shaffer, general manager of gifting services at Wine.com, where a new personalization strategy helped uncork gift-giving as the source for 70% of sales in the fourth quarter of 2004.
Rather than lost in a trash bin, experts say, personalization has been lingering in a recycle bin, now re-emerging as a tool that will not only improve retail e-commerce, but change the face of retailing itself.
"The whole paradigm of how the web works will change," says Dave Towers, vice president of e-commerce at apparel company Liz Claiborne Inc. Instead of the web offering a personalized experience in a simple reaction to how someone shops, he adds, it will become more proactive through personalization that extends through multiple pieces of technology as well as through multiple selling channels. "The whole notion of the Internet being just reactive will change to proactive and flip retail 100%," Towers says.
Retailers have little choice but to get on with the new age of personalization, Taylor warns. "Customers want us to know who they are and recommend products," he says.
Adds Towers: "The real win we're striving for is to have customers think of us as the source for solving their shopping problems and as their preferred if not only source. That's the end game we're looking for."
But no one's saying that reaching that point will be easy.
48% of retailers place personalization high on their list of technologies they'll concentrate on this year, making it the third most-frequently cited category, according to a study released this year by consultants BearingPoint Inc. and the National Retail Federation, "Horizons: Benchmarks for 2004, Forecasts for 2005."
Still frustrating
But the same study found that personalization still frustrates retailers, who placed it among their lowest capabilities, scoring it 2.4 on a scale of 1 to 5.
Nonetheless, many retailers say they are encouraged by the new promises of personalization even if they haven't figured how, or to what degree of sophistication, they'll implement it.
"Personalization is a huge opportunity for us," says Jared Tanner, director of e-commerce and online services for Golfsmith International Holdings Inc., a multi-channel retailer with more than 45 stores which recently began to build up its web channel.
Although personalization technology itself is becoming more useful as retailers increase their expertise in using it, retailers need to start out with clear goals, experts say. "For some companies, personalization didn't take off early on because people weren't sure how they wanted to use it," says Scott Todaro, director of retail industry and product marketing at personalization technology company Art Technology Group. "Now in many second-generation rollouts, they do it right, with a greater consensus. You need to create a strategy, think about what you want as the end game of personalization--to increase customer loyalty, increase sales or lower customer service costs."
Even in a multi-channel organization, the web plays the central role in personalization. "In a multi-channel environment, the web team needs to be the ringleader to manage, on an ongoing basis, those business rules in coordination with merchandising," says Matt Corey, vice president of marketing for Golfsmith.
10 definitions
Because the first chore of the marketer is to decide which personalization method is best to meet a company's goals, there is no one-size-fits-all strategy, experts say. "If you ask 10 people to define personalization, you'll get 10 answers," says Ruud Van Hilton, global director of business consulting services for BroadVision Inc., one of the pioneers in personalization technology. That's not necessarily bad, he adds, because retailers need to create an approach that is right for them. "It's what personalization is all about--different ways to make it easier for customers to do business with you," Van Hilton says.
Best Buy, for example, is taking a multi-channel approach to personalization by exploring multiple merchandising strategies in 67 stores, each of which focuses on two of five customer segments: suburban mom, family man on a budget, higher-income male, early adopter of technology products and small business owner. Lessons learned in how to market to these segments will help in devising ways to offer more personalized shopping online, Taylor says, adding that the web will support a long-term customer segmentation strategy.
At Golfsmith, which recently
relaunched Golfsmith.com, personalization presents a great way to determine which of its many varieties of golfing equipment online customers are likely to buy, Tanner says.
But before diving into what Tanner and others call "black box" personalization--or technology that relies on cookies and complex mathematical formulas to record, analyze and predict consumer behavior--Golfsmith will start out with a simpler version of personalization, relying on consumer surveys to find out what shoppers want to see in e-mail marketing messages and on web pages.
"Golfers play one type of ball but not another, one type of club but not another, and they're either right-handed or left-handed," Tanner says. "Instead of guessing what somebody might like based on their and other customers' shopping experience, I'd like to ask them what they want by inviting them to build their own profile."
The right approach
Personalization technology itself takes up to five forms, and retailers need to decide how many of them they need for targeting and serving customers, experts say. "There are a lot of different ways you can go with personalization, it depends on what you have in your arsenal and what you want to get accomplished," says Adam Sarner, analyst with research and consulting company Gartner Inc.
He lists five basic methods of personalization, covering a mixture of marketing and merchandising strategies:
l Rules-based, where a retailer uses a personalization software application from a company like BroadVision, ATG, E.piphany Inc. or Blue Martini Software Inc. in which particular online shopping actions trigger follow-up personalized e-mails that lure customers back to a web page configured to their interests;
l Collaborative filtering, a technique mastered by Amazon.com, which presents cross-selling opportunities in real-time as customers reveal their interests online;
l Statistical modeling, considered a more sophisticated "black-box" method of personalization from companies like Touch Clarity Ltd. that use algorithms to figure what consumers with particular shopping histories will like to see in merchandising displays and marketing messages;
l State-based personalization, which is designed to respond to changes in a customer's personal state of shopping behavior. If a regular customer suddenly stops returning to a favorite web site, for instance, that could trigger an e-mail message with a discount that links to a web page populated with merchandise the customer has been known to favor;
l Configuration options, such as virtual modeling or web pages that allow a shopper to self-configure a personal computer.
Prices for personalization systems vary widely, especially if they're implemented as part of new complete e-commerce system. A software package, for instance, can range from $500,000 to millions of dollars, ATG says.
One thing at a time
"One personalization technique doesn't necessarily work best in all situations," Sarner says. If a retailer isn't sure where to begin, he adds, it needs to first determine who its customers are and what they're looking for. "The mistakes made in the past with personalization occurred when retailers tried to do too many things at once--cost savings, bringing new people to a site, cross-selling," he says.
A pure-play online retailer offering a broad range of merchandise, he adds, may benefit most from collaborative filtering to encourage shoppers to add a variety of products to their shopping carts.
But a multi-channel retailer that wants to focus on a strategy of pushing its highest-margin products to its highest-value customers, he adds, might do best with a statistical modeling version of personalization. "Statistical modeling helps the retailer to decide where to put its resources to target segmented customer models," Sarner says.
Personalization strategies are beginning to overlap with efforts to use web analytics and marketing optimization tools that monitor online shopping behavior and provide reports on customer preferences.
"Personalization and marketing optimization are blurring together," says Todaro of ATG, one of the pioneers in personalization technology. "Today, you really can't have a successful marketing program without tools that segment what you deliver."
Faster buying
Wine.com, for instance, uses web analytics from Omniture Inc. to identify customer preferences for particular merchandising offers, a strategy that helps it tailor merchandising and marketing campaigns for the many segments of wine and gift customers, Shaffer says.
Wine.com must sort through customer preferences for its more than 10,000 products, including gift baskets, that can also be affected by state laws that restrict out-of-state shipment of wine. By using web site cookies that record a customer's home state as well as buying preferences, it can tailor follow-up e-mails to visitors, offering promotions that induce them to click to web pages configured to their interests. "As long as a cookie shows that, for instance, you're a customer that buys only $15 bottles of wine, I can serve up a shopping experience personalized to your interests," he says. "The sooner I can get you looking at what's relevant to you, the sooner I can get you to close the deal."
Effective personalization, experts say, requires a broad stretch beyond just using web site cookies to track a shopper's web site traffic in order to respond in subsequent visits with a web page adorned with a personal greeting and displays of items related to past online shopping visits. Getting maximum mileage out of personalization, they add, requires combining shopping behavior with a shopper's personal data in a CRM application and with the shopping behavior in all the retailer's channels of customers who have shown similar preferences.
"Early personalization received a black eye because retailers didn't integrate merchandise displays, and personalization was more around individual touch points, the web site or call center," says Tom Johnson, managing director in the CRM solutions practice at BearingPoint. "The next step of personalization is to take the experience end to end." That means gathering customer shopping interests as expressed in each of a retailer's selling channels, then responding in each channel with merchandise displays and marketing pitches that recognize a shopper's interests by brand and groups of products, he and others say.
Don't forget the rules
In addition, effective personalization requires retailers to apply, on top of information on consumer shopping behavior and demographics, business rules that support their retailing goals--pushing high-margin products to consumers most likely to buy them, for example, or pushing sales of certain products in a way that will smooth out levels of inventory.
Effective personalization also requires merchandise and marketing expertise as well as personalization technology, which must be supported by adequate levels of data storage and analysis capabilities, experts say. With all that underlying support, they add, a personalization strategy can be designed to reach consumers in more effective ways than simply greeting them by name on a slightly personalized web page. "Retailers are just now beginning to combine a customer's personal information and shopping history, affinity across products, and retail business rules, helping them to better understand customers and motivate them to buy," says Craig Stevenson, IBM's worldwide marketing manager for WebSphere Commerce B2C and multi-channel retailing solutions.
Instead of just personalizing the content on the web pages of a shopping visit based on a shopper's online activity, a state-of-the-art personalization program would present coordinated merchandising displays that offer multiple products tied to segmented interests indicated by the customer's shopping behavior, Johnson says. By pitching to a consumer's community of interests, organized by a favorite apparel brand or a passion like cars or home improvement projects, a retailer can use personalization to broaden a range of merchandise offers. "Personalization can say, here's where you go if you're doing something with your car, with your house, with back-to-school, with a wedding," Johnson says.
Adds ATG's Todaro: "If you know a customer is an avid skier, you can push skiing conditions to them through pop-ups, banner ads or through a concept we call slotting, or dynamically changing real estate in a part of a web page. We can rotate any content into that slot, and change pages dynamically as the customer goes through a site."
Better plumbing
Supporting more effective personalization today, experts say, is better integration in underlying infrastructure--a situation that will continue to improve as technology vendors move further into open standards that support integration across multiple applications and platforms.
IBM, for instance, plans to introduce this year its Retail Enterprise Data Warehouse, or REDW, which is being designed under open standards set by the Association of Retail Technology Standards, or ARTS. REDW integrates with IBM's WebSphere Commerce platform to serve as a data repository for all of a retailer's touch points, or selling channels. "All customer information can be extracted and put in REDW," says Stevenson. Prices for the WebSphere Commerce platform start at about $30,000 for an Express version designed for small retailers, he adds.
REDW also supports serving up customer data when it's needed in applications, he adds. "This is some of the underlining plumbing to enable you to execute not just personalization, but to get the right data you need to personalize correctly," Stevenson says. "If you don't have good customer data, then you can only personalize in a small way. That was one of the reasons personalization didn't do well early on in the dot-com era."
Lots left to do
That means that completely clearing up the black eye of personalization requires doing the necessary legwork to identify segments of customer interests, experts say. It's a chore each retailer must figure out for itself.
At Best Buy, for instance, its strategy of using its stores to identify customer segments is just the beginning of a process that will move more to the online channel, Taylor says. "We'll identify more and more segments, and the online channel is the most cost-effective way to do that," he says. "But we're just scratching the surface for now."
paul@verticalwebmedia.com
