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How Electronic Commerce Has Led to the Return of Personalized Marketing.

The new business paradigm of electronic commerce, spawned just a few years ago, is evolving quicker than any previous business shift in history. Its fundamentally new ways of doing business in both the so-called "business-to-consumer" and "business-to-business" arenas have the propensity for generating major shifts in the business world and in society itself. With features that include mass customization, online auctions, increasingly sophisticated supply chain links, and electronic exchanges in which competitors coordinate business functions with each other, the emerging new business models are breathtaking both in the rapidity of their development and in the breadth of their concepts. Among these new business models is a new marketing technique known as personalized marketing, one-to-one marketing, or customer relationship management (CRM). What is personalized marketing and is it really new?

Personalized marketing simply refers to a retailer offering a customer specific products for his consideration based upon what the retailer already knows about the customer. For most of retail history, even well into the 20th century, this personalized knowledge was exactly how marketing was normally practiced. Imagine that you were a customer walking into the town or neighborhood dry goods or clothing store. The shopkeeper typically greeted you by name and perhaps engaged in a bit of conversation about your family, your work, or other aspects of your life. Then, the shopkeeper asked what kinds of goods you were interested in viewing that day and often made suggestions about specific merchandise based upon what he knew about you. This knowledge might have included (formally or informally) your age range, family members, income level, and, very importantly, your past buying patterns. Thus, the shopkeeper might have suggested some new clothes for you or your children, based upon the style of clothing the shopke eper knew that you favored from past purchases. This all seemed quite natural and worked very effectively. The relatively limited number of customers the shopkeeper maintained matched the number of facts (as a practical matter) he could remember. The friendly atmosphere relaxed the customer, and the shopkeeper's guidance toward specific goods saved the customer time while increasing the probability of the shopkeeper making a sale.

After World War II, dramatic social changes took place in the United States. These changes included the growth of suburbs, increasing dependence upon the automobile, and the growth of shopping malls, department stores, and supermarkets with the corresponding decline in small, neighborhood stores. The most recent developments in this trend are "super stores" and no-frills warehouse stores. While large stores can provide economies of scale, better product selection, and lower costs, the personal touch is often missing. Yet, large stores mean large numbers of customers, and it is almost impossible for store personnel to remember these customers on an individual basis. Today, when you walk into a store, you are most often a nameless stranger to the store personnel; they know nothing about you personally. Although store personnel try to be helpful, their knowledge base is geared only toward the store's wares, limiting their usefulness to you. As Prof. Abraham Seidmann of the University of Rochester pointed out, wh en you go to a supermarket today, generally the very first thing that a store employee says to you is, "Paper or plastic?" With the advent of self-service checkout stations, even that greeting seems like a luxury. Among marketing professionals, the response to this environment and the concomitant development of the mass media has been segmented marketing. Why is beer advertised on football game telecasts? Because the assumption is that a fair proportion of the population that watches football games likes beer.

However, people like the personal touch and miss it in this environment. Every so often we see some evidence of an attempt being made to return to a more personal atmosphere. In the TV show Cheers, people went to the bar because it was a place "where everybody knows your name." The use of the well-known Wal-Mart "greeters" stationed at entrance doors is also an attempt at friendliness and perhaps the appearance of personalization (even if it is, in actuality, quite anonymous). Such limited attempts as these have been miniscule in the overall retail scene. Then, along came the Internet and the world of electronic commerce.

Business-to-consumer Internet retailing forms the basis for the re-emergence of personalized marketing, which, through Internet Web sites, has several key features. It levels the playing field between large and small companies, greatly increasing competition and consumer shopping choices. It reduces overhead and the number of middlemen, thereby lowering costs. It permits shopping on a 24-hour-per-day, seven-day-per-week basis from the privacy of your home. It greatly increases the amount of information available to the consumer about products, including cost comparisons that previously would have taken much more effort to obtain. And, it permits huge numbers of customers to shop at particular Web stores or otherwise have business-to-consumer relationships. (Citicorp has said that it eventually wants to have a personal relationship with one billion customers.) But, how does the electronic commerce environment permit personalized marketing on the same mass scale that it permits simple shopping?

Before we can answer that question, we have to take a closer look at the fundamental elements of personalized marketing. These elements are required whether the environment is the old-fashioned neighborhood store or Internet-based electronic commerce. First, the retailer and the customer must be able to communicate with each other on an individual or one-to-one basis. This communication does not literally need to be face-to-face, but it must be an isolated interaction between one retailer and one customer. Second, the retailer must be able to learn about the customer and have the capability to store what he has learned for future use. In the neighborhood store mode, the storage facility was simply the retailer's brain. Obviously, something else must be involved in the electronic commerce environment. Third, the retailer must be able to effectively use what he has learned about the customer in future marketing attempts.

What has changed about the world that now permits all of this to take place on a mass scale? The answer to that question lies in recent advances in information technology. First, the very nature of the Internet and its World Wide Web permits individualized, simultaneous contact between a company and an almost limitless number of customers. Second, large-scale data storage devices (permitting ever-greater amounts of data to be stored with faster access and at lower cost) form the basis for retailers being able to store and retrieve personal data about endless numbers of customers. Third, clever programming allows retailers to use the information they have learned about individual customers, together with information about their product lines, to effectively market to the customers on a personalized basis.

Before attention can be given to the specific personalized marketing techniques used in the electronic commerce environment, the types of data a company might collect about a customer must be analyzed. There are three basic categories of customer data that can be collected for personalized marketing. One is a broad category of personal data that includes, but is not limited to, demographic data. Thus, personal data includes age, education level, income level, geographic location, family members, and any other useful demographic data. But, this category may also include such "personal data" as an image of the customer's face, the dimensions of a customer's body, or the furniture layout in a customer's home. The second category is preference or interest data. This category could include such general items as a person's favorite color, but it is more typically associated with preferences within a particular product category, such as jazz or classical as the person's preferred music category. The third category is sales history, or the products a customer has previously purchased from the retailer. It is important to understand these different data categories as we look at their use in various personalized marketing techniques.

Personalized marketing techniques may be divided into eight categories. A particular company, through its Web site, e-mail, and other vehicles, may use one or a combination of these techniques. The first technique is, simply, the offering of specific, existing (as opposed to new) merchandise for sale. The offering can be made when a customer makes a return visit to the company's Web site, or it can be made via e-mail or any other individual communication means. Since the issue at hand is personalized marketing, the choice of product must be based upon what the retailer has learned about the customer. For example, the retailer could offer the customer a product that the customer has purchased in the past, a product complementary to a product purchased in the past (you bought shoes, now would you like socks?), or a product that people in the particular demographic category that the customer falls into are known to like. This latter example could be considered to be a form of segmented marketing used in the per sonalized marketing milieu. Figure 1 shows an e-mail sent from Amazon.com to a customer, suggesting new books based upon the subject of a prior purchase.

The second category is similar to the first in that it offers products for sale, but it is distinguished from the first in that there is something inherently special about the product itself. Two examples of this are new products or products that are on sale. Thus, a retailer might offer a customer a new VCR model because the new model has more advanced features than the one the customer bought from the retailer two years ago. Figure 2 is an e-mail sent to a customer from CDNOW.com offering new products based upon the customer's stated music preferences. Or, a retailer might inform a customer that a product the customer has bought several times in the past is now on sale. The purpose of this is not only to make a sale, but also to generate increased customer loyalty, about which we shall have more to say later.

Gift lists comprise the third category of personalized marketing techniques. This is the old concept of the bridal registry taken to new heights on the Internet. Variations include gift lists for birthdays and other occasions and "wish lists" to which a person can give friends and relatives access, as well as bridal registries. Some Web sites even allow distinguishing between individual lists and family lists. Clearly, it is a form of personalized marketing as it is a rather direct example of the use of preference data. Figure 3 shows a sample gift list from eToys.

The fourth category is automated reminders. In this use of personal data, customers give retailers dates, such as family birthdays, and the retailers typically send e-mail reminders of the events (often with gift suggestions) a few weeks before the dates. Sometimes, the customer composes and stores a message on the retailer's Web site and has it sent back to him or her on a specified date. Figure 4, also from eToys, is a customer-entered birthday reminders list.

The fifth category is automated replenishment. This technique, which is particularly applicable to the grocery industry, permits the retailer to make repeated, often scheduled, sales to the customer at the latter's request. Figure 5 shows grocery retailer Streamline.com's "Don't Run Out" automated replenishment capability.

The sixth category may be labeled the "personal dressing room," although the category is actually broader than that connotation. The personal dressing room typically involves graphical or spatial data of a personal nature. The graphic may be an image of a customer's face, a model of a customer's body, the layout of furniture in a customer's home, or the arrangement of plants in a customer's garden. The retailer uses this graphical data to target market-specific products to the customer. Figure 6 shows one of the earliest examples of this technique. Clothing retailer Lands' End (landsend.com) allows women to build electronic models that resemble their body shapes and then try clothes on them.

The seventh category is Web presentation differences. The concept here is that when a repeat customer signs on to a Web site and identifies himself, he should receive a personalized presentation. For example, product categories known to be of interest to the customer can be displayed, weather information at the customer's locale can be shown, or, simply, the customer can be greeted by name. American Airlines is one of the best examples of the use of this technique, automatically providing such information as the best dates and prices on routes that a customer has flown in the past. Figure 7, also from CDNOW.com, shows a personalized web page that includes suggestions for new merchandise, order history and status, a wish List, and incentive bonus points earned.

The eighth and final category is access to sales history, which is providing a customer access to his or her own sales history. This personalization technique reminds the customer about previous purchases and can be particularly effective when applied to repetitively-purchased goods, such as groceries. Figure 8, from web grocer Peapod.com, refers to the customer's ability to access his own sales history.

A variety of other associated marketing techniques have been used in conjunction with these personalization techniques. Two examples are buying incentives and mass customization. Buying incentives, including discounts and "coupons," are intended both to increase sales and to improve customer loyalty. Mass customization permits the consumer to configure a product to his specific needs.

How do consumers and retailers feel about personalized marketing? First, from the consumer's point of view, does personalized marketing actually feel impersonal when the consumer knows that there is a computer, not a person, on the other end of the wire? Also, does the consumer resent the retailer gathering all of his personal data? Clearly, only the individual consumer can answer these questions. The optimistic view is that the consumer considers personalized marketing to be a time-saving device, with offered products that are probably of personal interest and intended to be an aid in managing his life with such devices as reminder lists and automated replenishment.

From the point of view of the retailer, personalized marketing clearly has the advantage of increasing sales by target-marketing specific goods of interest to the consumer. Another very significant issue is customer loyalty; it is less costly to keep existing customers than to have to go out and find new ones. The hyper-competitive nature of the electronic commerce age makes it all the more important to keep loyal customers. All personalized marketing techniques share a common attribute--they tie each customer's interest to a particular retailer and entice the customer to come back again and again. Indeed, the issue of customer loyalty may be the ultimate business currency in the electronic commerce age and the primary reason that retailers subscribe to it.
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Author:L. Gillenson, Dr. Mark
Publication:Business Perspectives
Geographic Code:1USA
Date:Mar 22, 2000
Words:2460
Previous Article:Preventing CYBERTIRRORISM.
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