The Grand Illusion

As accountants at various e-tailers finished tallying their holiday receipts, the hangover from the dot-com holiday ad spending binge set in. “We paid what in customer acquisition costs?!” boomed from dot-com boardrooms across the country.

Now that they’re past the denial stage, e-tailers are struggling to make the best of an expensive situation. To protect their advertising investments, businesses are turning to personalization as the key to online customer retention. Others have gone further, claiming that personalization – and one-to-one marketing in general – is a panacea for all present and future online marketing challenges.

But before you sign over your estate to the cult of one-to-one personalization, look at the numbers first. (And no, we don’t mean the ones from e-tailers or personalization “solution” vendors.) If personalization is such an effective online marketing strategy, there should be abundant independent studies supporting its reported return-on-investment boost.

Show Me the Numbers

Unfortunately, only a handful of selected case studies – and no full-range scientific analyses – are available. And as WebCMO regularly points out, most of these cases are marked by poorly constructed evaluations and erroneous conclusions. How else could you explain something like Levi Strauss’s crash and burn with personalized e-commerce? One month, Levi’s boasts that 87 percent of their users say they would buy products recommended by their Style Finder personalization system. Levi’s then promptly follows this (apparently) compelling discovery by shutting down their online store.

Some evidence suggests noticeably improved user conversion rates under certain conditions. However, the only universally certain numbers regarding personalization are the prohibitive costs for small- and medium-sized web sites.

Personalization software starts at a steep $25,000 price tag, with a product such as BroadVision’s One-to-OneTM (truthfully more like Many-to-ManyTM, given how it relates customers to choices) starting at $80,000.

At this price, you’d expect leather seats and a 13-speaker CD stereo system to be included as standard options. But for many small- and medium-sized web sites with moderate traffic and limited inventory, personalization software doesn’t accumulate enough data to make useful suggestions, and it’s far too pricey to be cost-effective.

This says nothing of the order-of-magnitude cost increases personalization requires in the form of additional computing capacity, database licensing, disk space, bandwidth, user support, and maintenance. Personalization dramatically increases testing and development complexity, requires more highly skilled (and highly paid) consultants, and introduces many more moving parts that can be misconfigured or go awry.

Personalization, R.I.P.

Another pervasive myth regarding personalization is that it’s a marketplace inevitability. Meanwhile, there is mounting evidence indicating that the past 30 years have witnessed the death of personalized service.

The ascendancy of category killers, major chains, and discount warehouses has been the characteristic retail story of the past thirty years. Consumers have resoundingly chosen Home Depot over the local hardware store, massive drug store chains over neighborhood pharmacies, and the chain-store homogenization of every American downtown over the preservation of local color, character, and business on a first-name basis.

Let’s not kid ourselves: We as consumers have voted with our dollars. Even if it wasn’t explicit, we voted to replace human operators with mazes of voice mail options. We voted to forgo personal service at the corner market in favor of becoming magnetic strip IDs embedded in mega-supermarket member club cards.

It should come as little surprise that web site personalization hasn’t exactly been a cash magnet. When active personalization options are presented to users, the majority doesn’t personalize.

One secret of the major portals is that the great majority of their personalized page traffic (e.g., My Yahoo and My Snap come from the default, generic versions. Some experts theorize this is because web site personalization offers diminishing returns for the effort put into it.

Unless you target a small swath of wealthy clientele with luxury items at high margins, bottom-line cost and ubiquitous brand names are what matter most to consumers. Burger King’s “Have It Your Way” campaign may make us feel special, but deep down, all we really want is a pre-packaged Big MacTM at a discount price.

The Emperor Is a Nudist

Does this mean small- and medium-sized web sites should abandon plans for personalization? Not so fast. Consumers overwhelmingly like the concept of personalized service, even if they have repeatedly demonstrated an unwillingness to pay for it.

The sweet spot is in presenting just enough of an illusion of personalization while streamlining your operations to minimize costs. IBM airs e-business TV commercials that poke fun at customer service platitudes such as “Your business is important to us – please stay on the line,” yet you know that’s exactly what you’ll get from IBM’s own customer service line.

A similar phenomenon exists in the retail fashion industry. The key is to make people feel like they’re making very personal choices and statements about themselves just as merchants sell the same items to thousands of others thinking the same thing (e.g., Levi’s Style Finder). How many teens think their choice of clothes expresses their individuality while they look so much like each other? (Some must be hip to the irony here.)

“I am not customer #324532. I am special.” – Yeah, you and 10 million other customers just like you.

Building an effective illusion of personalization requires skill, experimentation and time. Disney theme parks didn’t engineer the illusion of shorter lines for their rides overnight. While there are no quick answers, a few helpful guidelines do exist.

First, seek personalization parity with your competitors, but no more. Don’t take the financial risks of building it first; your customers will likely still prefer lower costs over advanced service. This is especially true with the Internet making competitive pricing data more accessible than ever.

If you offer personalization on your web site beyond basic account management, apply the simple, easy touches first. Weight your site’s personalization priorities around simplifying the easiest and most common tasks and automating them for prompt responsiveness. For example, save basic user settings for when they return to the site, and autorespond to initial inquiries.

High-end customer email management software, such as eGain and Kana, succeed by delivering on 80 percent of requests with 20 percent of the total effort through canned emails and “Frequently Asked Questions” (FAQs). These products also succeed in creating an illusion of personal service by providing a quick response to inquiries, even if it’s a canned email.

Refer to users by name, never call them by their “screen” names. A simple but effective investment is to address user emails with their real names in the salutation – even if it’s a form letter you’re sending to thousands.

You don’t need to build the Seventh Wonder of the Web World to make your users feel special – a little illusion goes a long way. Chances are that your customers are unwilling to pay for more than that anyway.

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