ANALYSIS

Personalization Hat Trick: Revenue, Loyalty and Conversions

Coming in on the heels of eTail 2007, it is clear that personalization is a hot topic in e-commerce.

According to recent Aberdeen Group research, 87 percent of retailers want to jump on the bandwagon. And why not — it was the No. 1 listed strategic action, with 41 percent of retailers surveyed stating that personalization leads to higher levels of customer satisfaction, increased average order values and greater customer loyalty.

However, to truly offer personal touches that influence purchasing decisions, customer information must be readily available in real-time, personalization must be dynamically delivered and, finally, customers must have some control over the personalization process.

Achieving this level of complexity will separate truly personalized sites from those that deploy highly configured solutions.

Getting Cozy with Customers

Personalization comes in many forms, such as simple “welcome back” messaging on retail home pages and personalized marketing campaigns, to full-fledged “MyAmazon.com” sites complete with browsing histories, product recommendations and methods to improve personalization by editing a user’s profile.

Although Amazon.com may be cited as the pioneer of personalizing the online shopping experience, many retailers such as Land’s End, J. Crew and Neiman Marcus are building loyalty and gaining wallet share by playing the personalization game on their own.

However, personalization is a tricky business that can quickly bring privacy concerns to the forefront, driving customers away rather than pulling them in. Allowing users control over different levels of personalization will mitigate most concerns. In addition, retailers must inform customers how their information will be used.

In most cases, these safeguards can be covered by a comprehensive privacy policy and full disclosure of how personal information will be used. Of course, users should be allowed to control which marketing messaging they receive — from opting in to discontinuing at any time.

Additionally, sites should differentiate between voluntary information provided by the user (explicit data) and information gained based on click tracks and other analytical analysis (implicit data).

Whereas some shoppers may be pleasantly surprised when a retailer suggests a product based on implicit data, such as products purchased by shoppers with similar buying histories, others may be wary and feel as though Big Brother is watching.

Data Drives Personalization

Effective personalization is dynamic, operates in real time and — most importantly — is based on customer information. Best-in-class retailers are migrating to this triple play of personalized service in part by enabling real-time accessibility to customer information.

In a recent Aberdeen study, titled “The 21st Century Retailer: Managing Customers, Merchandise and Data,” 70 percent of all retailers planned to implement real-time analytics in the 12-month to 24-month time frame.

Currently, 94 percent of best-in-class retailers utilize an integrated customer relationship management (CRM) process to bridge disparate sales channels. The challenge for retailers is making this data actionable by including it in the online user interface to enable a personalized experience.

A lack of action is exemplified by 56 percent of non-best-in-class retailers who acknowledge that they collect CRM data but don’t do anything with it. These metrics indicate lost opportunity for those retailers.

For example, the data required for relevancy includes personal, buying history, click behavior, search terms, shopping cart contents, geographic location, profile settings and personal preferences. These customer data points can feed rules-driven content, multistage scenarios and affinity selling.

Relevancy of content and products will lead to a better customer experience because the customer is more likely to find what they seek, or discover an unexpected item, receive the right information to make an informed decision, and save time and money in the process.

Enabling Technologies

Solutions available from e-commerce platform vendors (e.g., ATG), search providers (e.g., Endeca, Mercado and SLI-Systems), and recommendation companies (Bazaarvoice, Choice Stream and Loomia) enable personalization in numerous ways.

In most cases, personalization adds to the value of online tools by making them more relevant and, therefore, more effective.

For all retailers surveyed in the Clicks to Customers benchmark study, three indicators of performance surfaced above the rest as metrics that retailers use to evaluate success: increased year over year comparable sales (49 percent), increased average order value (43 percent) and increased customer conversion rates (43 percent).

Personalization can influence these top three performance indicators. For example, loyalty programs deployed by best-in-class retailers resulted in 40 percent sales lift when personalized to unique shoppers’ needs and preferences.

Cross-selling and up-selling tools benefited best-in-class with 25 percent sales lift by presenting targeted offers based on both related products and similar products purchased from other customers that improved the average order value.

The benefits of personalization resonate throughout numerous areas of an e-commerce offering. The challenge for merchandisers and managers is to align their data to fit with user profiles and to automate the data for delivery at critical points during the purchasing process.

Recommendations for Action

Create a personalization strategy and outline program goals. This strategy should consider whether or not the personalization process will manifest as part of a comprehensive offering or is delivered as a point solution.

The use of real-time or at least near real-time data enables retailers to dynamically place products in front of shoppers during critical decision making moments.

Evaluate existing tools and technologies and determine the level of personalization currently delivered, as well as the potential to enhance online tools through increased personalization.

Evaluate your privacy policy. Ensure that your published privacy policy provides full disclosure of how and where customer information will be used. Implicit personalization must not violate established policies.

Personalization Means Profits

Personalization, when used correctly, is an extremely effective tool for consumer marketing, building customer loyalty, improving merchandising and generally elevating the online customer experience.

However, this differs from merely configuring an application to meet specific market segment needs and promoting products the retailer needs to unload.

Currently, 41 percent of sites are personalizing their applications to meet their customers or customer segments. These same retailers are projecting a 25 percent growth in their e-commerce channels over the next year.

Personalization will affect 87 percent of online shopping experiences in the very near future; therefore, retailers who cultivate their personalization efforts will reap benefits and so will their customers.

Click here to download a complimentary copy of the full benchmark report: “The 21st Century Retailer: Managing Customers, Merchandise and Data.”


John Lovett is an e-commerce research analyst atAberdeen Group. He focuses on e-commerce as it relates to the business environment, including the B2C (business to consumer) landscape. Areas of research include e-commerce platforms, search technologies, Web analytics, content and publishing management tools, and transaction engines necessary to conduct business online.


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