January 19, 2001, 12:00 AM

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

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     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.

     For example, if a visitor to toysmart.com is purchasing a Brio train set, collaborative filter software, which shows up as the Toy Detective on the site, may suggest that the person also look at the wooden bridge that many people who bought the train set also purchased.

     Automated sales advice and customer assistance. This application follows rules-based logic to help consumers find what they are looking for on a Web site and educate them about the products. "We are the 'Hi, can I help you folks?' that you would find at a traditional store," says Stephen Tomlin, chief executive officer, PersonaLogic Inc., a San Diego-based personalization company acquired last November by America Online Inc. PersonaLogic creates decision trees that bring people through the process of selecting which product such as a bicycle or cruise, for example, is right for them. And in doing so, it tells the consumer why the questions are relevant to the product, so they understand why certain items are recommended.

     Brightware also implements this type of system on Web sites, offering its Advice Agent server and software to create an electronic sales advisory dialog. "The idea is to have the same kind of dialog you might have with an excellent salesperson who knows the products," Williams says.

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."

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