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Finding a profit in customer personalization

Find out how targeting specific products for customers through personalization technology can help you generate a profit.

Finding a profit in customer personalization

Vendors claim personalization technologies can drive revenue, differentiate valued customers, and increase loyalty. But can it really be that easy? Experts say success with these technologies depends on knowing your audience and what you want to achieve, conducting due diligence, having the right infrastructure in place, and receiving high-level management commitment.

By Judi Connor

Personalization, a term commonly misused, boils down to leveraging information about a specific customer to tailor content or services that are germane to that individual. Most commonly used in retail, financial services and high tech, personalization technologies are becoming more sophisticated and are being used in many industries to help achieve organizational goals beyond generating more revenue.

Collaborative filtering engines record actual user preferences to algorithmically make customer recommendations predicated on what like-minded customers would want based on their buying patterns. Rules-based technology requires that business logic and merchandising rules are embedded in conditional "if/then" statements to create content display. So, for example, if a customer purchases a printer, the system will offer ink at a 25% discount. Finally, data mining uses complex algorithms to select, explore and model large amounts of data to uncover previously unknown patterns for business advantage. All of these are used today to help companies target appropriate messages to specific customers at the right time.

Nissan's Infiniti consumer Web site uses "real-time" personalization software to generate demand indirectly to reseller channels. Using an E.piphany solution to track and measure visitor activity, Nissan can identify repeat customers and based on this knowledge, promote unique offers depending on the customer's location within the site. When a repeat visitor who has already received a brochure and picked out a car model comes to the site, a real-time offer appears and asks him to click through to receive the closest dealer information. He enters his information, and hits the submit button. A wireless device goes off at the local Infiniti retailer and they send an e-mail or phone the customer immediately.

Ted Ross, vice president of CRM solutions at San Francisco-based i-loft, Inc., said Nissan's results have been significant. "Within the first couple of months, they generated 3,000 sales leads from prospects for the dealers - compared to zero when it was basically a place to order brochures online. The process is built to know who the customer is, and promote the right message at the right time."

A Cahners In-Stat study revealed that large and medium-sized businesses (100 employees or more) plan to nearly double their use of online personalization technology over the next two years - but only 22% of those surveyed use it now. The report listed privacy concerns as one of the major obstacles in the technology's adoption, but Ross explained that it's a little more complicated than that. "Many companies respect customer privacy, but they simply don't have a process in place to define what privacy is in terms of how it relates to its business. The other problem is they have no way of standardizing privacy throughout the enterprise because they have a mish-mash of technologies."

Smith & Hawken, retailer of home and garden products, recently announced a 16.5% increase in average online order size over a three-month period from using Net Perceptions, Inc.'s retail-specific personalization solution. It matches products that customers are interested in with those in stock or possibly on sale, so Smith & Hawken can offer the right product at the right time. Paul Bieganski, CTO of Edina, Minn.-based Net Perceptions, said, "We approach personalization as a way to help our customers make more money and unless we can measure it, we don't believe that we're successful."

But true personalization is rare in that it requires information about the consumer across sales, marketing and service channels. It hasn't been achieved yet in the multi-tiered automotive industry and few other industries, simply because the nature of the infrastructure that needs to be built. Ross admits, "To get that degree of personalization - to have a truly complete view of who the customer is and then provide him with the appropriate message at that moment - requires a significant amount of backend integration of software."

Companies understand the validity of the privacy issue, as many studies highlight consumer concerns with privacy as a main barrier to online purchasing. A Cyber Dialogue survey indicated that 82% of 512 experienced online buyers said a site's privacy policy is a critical factor in their decision to purchase online. Indeed, 84% said that if they weren't sure how their information would be used, they simply refused to provide it. However, the survey also showed that if buyers felt satisfied that their information would be secure and confidential, they prefer sites with personalized content. Fifty-six percent said they're more likely to buy at sites that allow personalization, and 63% are more likely to register at those sites.

Personalization techniques have enabled the emergence of a new philosophy of doing business. Don Peppers, author and co-founder of Norwalk, Conn.-based CRM strategy consulting firm Peppers and Rogers Group, said, "Forward-thinking companies are changing from the old world of finding customers for their products to the new world of finding products for their customers." Peppers cites Capital One Financial Corporation as a good example of this new philosophy. The consumer lending products company uses personalization software tools to review its customer database of 33 million members, and based on current and past information and transactions, determines which products and services each customer is most likely to want next.

AMR analyst Kevin Scott said one of the main factors in determining success for personalization strategies is a company's management commitment. He added, "You only get what you put into it. If you put your less than stellar employees on these projects, which happens because of time constraints, then you're going to get the same results back."

A partial list of personalization technology vendors:

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