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Salesforce Commerce Solution Guide

Is 'Personalized Merchandising' Becoming an E-Commerce Reality?

By Joe Lichtman
Aug 20, 2007 4:00 AM PT

Brick-and-mortar merchandisers' shift from a product-centric to a customer-centric mentality is examined in a recent report from Gartner. By starting backwards from the known profiles of shoppers in every ZIP code, merchandisers can create extremely granular assortments for each store -- even down to sizing and color choices -- to increase sales and create loyalty.

Is 'Personalized Merchandising' Becoming an E-Commerce Reality?

What struck me most about this report was that merchandisers in the offline world are personalizing their strategies in spite of the serious constraints working against them: supply chain complexity, marketing costs, shelf-space limitations and the like. Yet retailers are doing it. So, why do online retailers -- who face none of these limitations -- still struggle to present a truly personalized, dynamic shopping experience for each and every shopper?

One reason is the explosion of online catalogs. Freed from supply chains, printing costs and shelf space limitations, online retailers' product catalogs have ballooned. With widely expanded catalogs comes the challenge of presenting the right products and merchandising messages at the right time to each shopper.

'A Formidable Hurdle'

As Forrester Research concluded in a recent report, "Given the sheer breadth of merchandise available online, search engines, comparison-shopping engines and retail sites face a formidable hurdle of connecting the millions of consumers who are searching with the millions of products available online."

Online retailers have taken several different approaches to try to personalize assortments and marketing messages for online shoppers. Some use site registration to customize what the shopper sees based on his known demographic data and expressed interests. Others have shoppers explicitly rate products they like the most so that they receive "similar item" recommendations. However, more than any other approach, nearly every online retailer has implemented the tool that lets shoppers personalize their own shopping experience: site search.

Online storefronts with advanced site search and faceted navigation allow shoppers to instantly filter hundreds of thousands of SKUs (Stock Keeping Units) to just the five or 10 products they are interested in. Every dynamically generated search results page is an opportunity for an e-tailer to present contextualized merchandising messages that match the shopper's expressed intent. However, are e-tailers actually using search to personalize merchandising?

Searchandising: An Unmet Promise

For years, e-commerce search vendors have been touting the fusion of search and merchandising, or "searchandising." Conversion rates and average order values will skyrocket, say the vendors, when merchandisers utilize the "conversation" of search to tailor promotions for each shopper. However, for all the demos and ROI (return on investment) justification, most online retailers are simply not searchandising.

It's not because of a lack of tools. Leading search vendors provide tools that allow online merchandisers to create search-based promotions on the live storefront. These tools have their value in that they enable retailers to capitalize on the most commonly searched keywords. (If I search for a "TV" on a consumer electronics site, for example, a retailer can dynamically display a "10 percent off" sale on TVs.) However, the sheer breadth and unpredictability of shoppers' searching habits (which change every hour, day, week, month and year) makes it impossible to manually searchandise the thousands of search queries that are entered every day on major sites.

While searchandising has value, it is clearly not the answer to personalized merchandising. Instead of trying to predict and react to searches with custom merchandising messages, a truly personalized storefront records each individual shopper's searches and combines them with other "facts" about him: what products he viewed after a search, what purchases he made, what reviews he read along the way, and any other information he explicitly or implicitly provided about himself (e.g. where he lives, how old he is, etc).

With a partial or complete picture of every shopper, the storefront itself can become personalized. The homepage will display recommendations based on related items and previous searches. Category and landing pages will show personalized product selections and promotions. Most importantly, search relevancy and navigation will become personalized (meaning you and I will get different search results because we're different people with different interests).

If this sounds like a picture of the future, think again. One needs to look no further than the 800-pound online retail gorilla to see that personalized merchandising is becoming a reality today.

Amazon: A Micro-Store for Every Shopper

Just as offline merchandisers are thinking in a customer-centric mindset, Amazon has created a complete customer-centric experience by building -- in a sense -- a micro-store for each and every customer. (Note: Amazon is not a Fast customer.) Everything about the Amazon experience is dynamic -- not static -- and becomes more personalized the more you shop.

I recently visited Amazon after getting a new computer. With no stored cookies or a registered profile, nothing on the store appeared personalized for me at first. As a test, I ran a few searches: one on kids toys (I have two under 10), one on Michael Crichton (my favorite sci-fi author) and one on iPhone (you want one too). Then, I returned to the site a few hours later to find the following promotions on the home page (in order):

  • A "Recommended for You" box spotlighting "King Kong" and "Terminator 2" DVDs (Merchandising message: If I like Crichton, I must like sci-fi movies.)
  • An Xbox 360 bundle promotion (Merchandising message: If I'm searching for iPhone, I must be a gadget hound.)
  • A promotion for Braun shavers (Merchandising message: I'm male.)
  • A "Find Fun for Under $5" promotion for kids toys (Merchandising message: I'd better buy my kids something if I'm buying myself something.)
  • A "Customers With Similar Searches Purchased" promotion (Merchandising message: There are others like you here, and they buy these things.)

Mind you -- this is the Amazon homepage. It's the most coveted merchandising real estate on the site, and it's completely automated, dynamic and personalized -- just for me.

Can You Be Like Amazon?

Two fifths of U.S. consumers now expect retailers to offer them personalized promotions, according to research from Gartner. Yet only 16 percent of retailers are using personalized recommendations tools, according to Forrester. Now is the time to get personal before your competition does.

Like Amazon, you should be focused on building a personalized online shopping experience that is based on personalized search, navigation and recommendations. What's important, though, is that you look at personalized merchandising as a cohesive strategy. The personalization piece parts -- your search engine, navigation engine and recommendations engine -- must work together as one. Only then can you ensure true personalization and have a single point of management.

While a dynamic, personalized storefront will automate some aspects of the online merchandising process, the role of the online merchandiser will become even more critical. There will always be a need to overlay the right set of business rules to align personalization with the key needs of the retailer. The benefit of the personalized storefront is that it allows you to merchandise for future conditions instead of reacting to past trends and data.


Joe Lichtman is vice president of product management for Fast Search & Transfer, a provider of search technologies.


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Salesforce Commerce Solution Guide
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