OPINION
Five Myths in E-Commerce About Personalization

On the surface, it seemed reasonable that personalization would be a building block upon which e-commerce innovation would take place. But a funny thing happened along the way to that goal.

Today, the online commerce market has reached a level of maturity that can be seen both in the myriad industries in which it can be found -- retail, travel and hospitality, media and entertainment, etc. -- as well as the revenue numbers it produces. Online retail sales in the United States soared past US$100 billion in 2003, an increase of 38 percent from the previous year, and were followed by sales of US$33 billion in the first quarter of 2004.

Victim of Misconceptions

Meanwhile, the functionality of transactional Web sites is evolving from the static sites of the 1990s. Sites today are striving to become dynamic, interactive platforms that cater to the full customer experience and are part of multi-channel business strategies that integrate the online channel with the physical retail locations or print catalogues.

However, personalization has fallen victim to a number of misconceptions that have cast it in a less positive light, almost to the point of becoming e-commerce's four-letter word. This creates a paradox because, by its very nature, personalization should be the cornerstone of an e-commerce strategy. It is only through the collection and analysis of customer data that a truly robust online customer experience can be created, one that mirrors the offline experience in terms of service and satisfaction.

Such antipathy also creates a dangerous precedent because, despite the relative maturity of the technology, to assume that every company with a commerce element to its business has its online house in order would be naive. The fact is that, while some major brand-name retailers have blazed the path in the online commerce market, there are scores of companies, both small and large, that are just dipping their proverbial toe in the e-commerce water and could be misguided by preconceptions in the market.

Consider these five myths of personalization.

Tracking Users

In order for personalization to work, you need to get users to log in or register, and you need to track reams of information. Obviously, if you are able to have a customer log in, you will generally end up knowing more than you would from the anonymous user, but the truth of the matter is that even the smallest level of insight can result in the critical increases in conversion rates that one is seeking with any commerce site.

Through the use of a persistent customer experience, for instance, vendors do not even need to rely on the information ventured by a logged-in user. Rather, this information can be gleaned simply by tracking the activity that takes place during a Web session or series of sessions. From there, the information can be leveraged by the marketing department to create campaigns and offers based on the preferences or habits shown during these sessions.

Likewise, the issue of information tracking has been mitigated over time as scalability has increased and customer experience platforms have allowed marketers to partner with their IT departments to build scenarios -- event and rules-based actions tied to business goals -- that serve as triggers based on the actions of the users during their Web session.

Clunky Systems

Systems that do personalization are clunky, expensive and slow and can be supplemented by standard databases not geared toward customer experience. Personalization was never meant to be a stand-alone technology, but rather a contextual one that functions inside a guided customer experience platform.

The biggest pitfalls that vendors have fallen into over the years that have led to these types of misconceptions have occurred when robust consumer-facing personalization capabilities have been tied to overtaxed backend systems.

It's possible to overcome these obstacles with the proper amount of time, effort and IT resources, but in all likelihood you would simply end up with an infrastructure that mirrors the persistent customer experience platform being discussed here.

Fuzzy Techniques

Personalization is really about a number of fuzzy, unproven techniques that can ultimately leave you with privacy issues. These are important issues.

The fact is that, like any market, there have been alternative or fringe technologies such as neural networks or inference engines that have flamed out on further inspection. Unfortunately, the attention that these technologies garner during their hype cycle has typically clouded the picture for the vendors that are performing causal, rules-based personalization that targets content based strictly on profile.

Similarly, privacy issues have subsided over time as online commerce has become more generally accepted and encryption technology has allowed transactions to become fully secure. From a personalization standpoint, the key for vendors is to be smart about their techniques and careful to make the value proposition clear to the customer.

Cookies, for example, can be incredibly useful, but they must be used in an overt manner with obvious benefit to the user, and users must be given the option to reject them.

Personalization and Customization

Personalization equals unique customization, meaning that my marketing department will need to come up with as many offers as there are people. This stems from a period in time when pundits and analysts were hyping the concept of "1-to-1 marketing" and the theories that mass customization was really the only way to reach users in a personal manner via the online channel.

What was missed during this period was that personalization is as much about segmentation as anything else. In essence, a customer is being personally serviced, but in all likelihood, he or she fits into one or more of a defined number of customer segments -- already identified by the marketing department.

Companies that have the greatest level of success here are those that identify first the very horizontal needs of their customers and then are able to create these segments with a greater degree of specificity.

Scientific Testing

There is no way to test what works in a cost-effective and scientific manner, and ROI for personalization is difficult to prove.

The testing issue was one that challenged personalization technology for a long time, but recent innovations in analytics technology, particularly in the area of A/B, or split-testing, have provided marketing departments with the ability to measure the effectiveness of numerous campaigns simultaneously.

These advances make it easier to create formulas for measuring ROI (that is, conversion rates) and revenue growth in a more segmented fashion rather than attempting to assess them at the enterprise level.

Avoiding the Myths

Chances are that if you have begun to realize the benefits of the online channel, then you are likely benefiting from personalization capabilities somewhere in your architecture.

No matter where you are in terms of the evolution of your channel, however, subscribing to the myths described here could ultimately close you off to techniques and methods that lead to another "P" word -- profits.

Robert Brazile is vice president and general manager of commerce products for ATG (Nasdaq: ARTG) . He can be reached at rbrazile@atg.com.