© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Part Two: Chapter Nine Personalization “The rediscovery of the customer is a byproduct – perhaps the most important one – of the onset of the information revolution.” Blattberg and Glazer, The Marketing Information Revolution

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Marketing Marketing has the responsibility to reflect customers’ goals, needs and wants The result is that companies create product lines with many product and service variations in order to meet the needs of various target markets Personalization is a special form of product differentiation –A standard product is transformed into a specialized solution for an individual

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Marketing Digital technology makes it possible –Encyclopedic storage of information provides a rich base of material The network makes it available –Internet connections can tap into databases and data archives, get news feeds, and provide time-sensitive information or accumulate information for later use Individuals make it valuable –Personalization provides value by focusing on specific individual needs Personalization and the DNI Framework

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Benefits Technology has the power to make available to the masses what was previously available only to the rich “Democracy of goods” refers to open and low-cost access to products and services Automation and leverage of existing digital assets makes personalized goods and services cheap to provide and widely available to consumers The “Democracy of Goods”

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Benefits SEARCH GOODS are products and services that are easy for a consumer to evaluate –Example – well-known branded products such as gasoline from Texaco The Internet Benefits Consumers By Turning Experience Goods into Search Goods EXPERIENCE GOODS tend to be difficult to understand and evaluate. They are too complex to judge easily. They may be highly subjective, with personal taste being the most important determinant of usefulness - Example – health care services

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Implementing Personalization Personalization has powerful potential competitive advantages –The first company to create an effective personalization approach in an industry can capture many of the most profitable customers Personalization creates the opportunity to learn more about –Customers’ current desires –Future trends –New opportunities for product features and extensions

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Benefits of Personalization Product distinction: a standard product becomes a specialized solution

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Benefits of Personalization Product distinction: a standard product becomes a specialized solution Low cost access to luxury and status of personalized services

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Benefits of Personalization Product distinction: a standard product becomes a specialized solution Low cost access to luxury and status of personalized services Hard to evaluate experience goods become predictable search goods

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Benefits of Personalization Product distinction: a standard product becomes a specialized solution Low cost access to luxury and status of personalized services Hard to evaluate experience goods become predictable search goods Survival through differentiation

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Benefits of Personalization Product distinction: a standard product becomes a specialized solution Low cost access to luxury and status of personalized services Hard to evaluate experience goods become predictable search goods Survival through differentiation Increased customer loyalty

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Benefits The Personalization Balance Providing Useful Information A key challenge is to determine the type and scope of information consumers will value and use Customers judge information programs by their efficiency and the ratio of usage costs with usage benefits Information programs that are linked to customers’ personal targets and objectives are often successful

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Benefits The Personalization Balance Personalization Backlash A natural result of personalization is treating customers differently –More valuable customers will receive special/preferential treatment This can lead to a backlash among customers who don’t receive special treatment Preventing resentment may be easier online where preferred programs are less visible

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation The Personalization Balance Personalization efforts can produce backlash: First Class envy Excessive personalization wastes time Sometimes, standardization is just fine

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation The Personalization Balance Competitive advantage comes when personalization is supported by focus on customer-relating capabilities (CRC)

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation The Personalization Balance Orientation—customer focused mindset; Information—quality; Configuration—organization focused on customer satisfaction; Thrust—extent to which customer relationship management is the defining theme for business; Motivation—to stay with or get ahead of competition; Relational—focused on customer service and relations; Product—value through superior functionality

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation SOURCE: Adapted from Kai Riemer and Carsten Totz, “The Many Faces of Personalization,” in Tseng and Piller, The Customer Centric Enterprise, (New York/Berlin: Springer Verlag, 2003 Many Opportunities for Personalization

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Marketing Choice assistance and customization lead to more powerful personalization Personalization becomes the basis for retaining loyal and committed customers When successful, customers are satisfied and profits are high Relationship Marketing

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Marketing On the left of the continuum, there’s no personalization Further to the right, products are customized for individual tastes On the far right, consumers collaborate with companies to create customized products, which builds relationships Relationship Marketing Mass MarketDifferentiatedCustomizedRelationship The Personalization Continuum

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Approaches Mass Customization: blending standard products with individual information

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Approaches Mass Customization: blending standard products with individual information Choice Assistance: advice giving systems cut clutter of product choice

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Approaches Mass Customization: blending standard products with individual information Choice Assistance: advice giving systems cut clutter of product choice Personalized Messaging: consumer needs and choices tracked across repeated interaction

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Customization / Personalization Two Necessary Ingredients Software capable of delivering customization Direct interaction between the firm and individual customers / consumers

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Marketing Mass customization has emerged by combining individual-level information and flexible manufacturing By incorporating individual preferences, marketing more closely reflects the “voice of the customer” Using specialized software, it is possible to deliver truly unique and dynamically personalized Web sites in real time The Web is emerging as an essential piece of the customization puzzle Customization

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Customization of how a product is represented or of a product’s specific attributes through four approaches: –Collaborative –Cosmetic –Transparent –Adaptive Mass Customization

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Change No Change Change Types of Customization CosmeticAdaptive CollaborativeTransparent Product Product: attributes create unique functionality Representation Representation: how a product or service is portrayed to a customer Present a uniform representation & let users filter out most possibilities to create personalized service Possible to create personalization online via use of frames & cookies Observe users’ behaviors (implicit model) Smart Ads Smart Offers NYTimes.com Spinner.com Dialogue with customers to help articulate needs, then create custom product Amazon.com

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Mass Customization Collaborative Customization: Online reconfiguration of a product to match consumer preferences –Example: Choosing features for a new car

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Types of Customization Collaborative Customization Conduct a dialogue with individual customers Help them articulate their needs Identify the precise offering that fulfills those needs Make customized products Example: Using a password protected extranet to communicate with customers via real-time sound and video sessions

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Mass Customization Cosmetic Customization: Packaging choices personalize standard products –Example: Choosing an iPod case SOURCE: Getty Images

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Types of Customization Cosmetic Customization Present a standard product differently to each customer Use of unique packaging, presentation, etc. Example: New York Times uses cookies to store registration information and show the user’s name at the top of the page Essential requirement is modularization – division of a product into components

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Mass Customization Transparent Customization: Product features learn the user and adjust accordingly –Example: Google Scholar

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Types of Customization Transparent Customization User needs and behaviors are observed The product is automatically changed to reflect individual tastes The user isn’t told or made aware of changes Example: Smart ads – use observable behavior to show different ads

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Mass Customization Adaptive Customization: Product features naturally customize themselves or are individually configured –Example: Weather reports by zip code

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Types of Customization Adaptive Customization Offer the same basic product and representation to everyone Let users filter out most of the possibilities using pop-up menus, search functions and preference settings Example: At Spinner.com, users can select the music they want to hear using a pop-up menu

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization & Marketing An explosion in the number of choices leads to customer confusion The Web is rapidly developing methods to help consumers choose wisely from the wide array of available products Choice assistance can help the consumer discover his or her own tastes Choice Assistance

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Choice Assistance Determining if a recommendation system could enhance online marketing: –Do customer lifetime values vary greatly? –Do customer needs vary greatly? –Are key product attributes qualitative or complex?

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Choice Assistance A recommendation system flowchart

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Determining the Correct Personalization System Customer Needs, Product Space Quantitative Few Highly Differentiated Qualitative Complex Uniform Collaborative Filtering Amazon.com CASE Chipshot.com Rule Based American Airlines Endorsement Autobytel.com Key Product Attributes Mass Marketing Price Brand

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Choice Assistance: Approaches Rules-based: Combines information about customers with understanding of how products are used

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Systems Observe behavior  predict preferences –Unobtrusive: consumers don’t have to answer questions or fill in extensive questionnaires Best when –Product space isn’t complicated –Product / service attributes can be quantified Example: American Airlines Require effective user models that are tied to observable online triggers –A trigger is a user action that a model can use to decide what personalized information to send Rule-Based System

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Choice Assistance: Approaches Rules-based: Combines information about customers with understanding of how products are used Computer-assisted self-explication (CASE): Advice generated from databases of consumer input

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Systems CASE (computer-assisted self-explication) –The system queries users about preferences  matches user with the right product / service Best when users only have to evaluate a small number of well-understood attributes and features –Example: Chipshot.com –Require user cooperation to get relevant user data Case-Based System

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Choice Assistance: Approaches Rules-based: Combines information about customers with understanding of how products are used Computer-assisted self-explication (CASE): Advice generated from databases of consumer input Collaborative Filtering: For complex product choices, linking like-minded individuals for recommendations

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Systems Match users who share similar tastes –Users share recommendations and preferences Best when –Product space is complicated –Preferences are subjective, qualitative and complex Example: Amazon.com instant recommendations Requires user cooperation to get relevant user data Collaborative Filtering

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Choice Assistance: Approaches Rules-based: Combines information about customers with understanding of how products are used Computer-assisted self-explication (CASE): Advice generated from databases of consumer input Collaborative Filtering: For complex product choices, linking like-minded individuals for recommendations Endorsement: Virtual word-of-mouth referrals link users with preferred providers

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalization Systems Connects users with local preferred providers Best when –Users’ product needs don’t differ greatly –It’s a challenge for consumers to judge quality and for vendors to explain the value of available choices Examples: Autobytel.com Endorsement System

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalized Messaging Users must be authenticated through a fixed, valid address –Online through Web servers, browser cookies or registration systems – and Instant Messaging accounts –Cell phones and wireless PDAs

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalized Messaging With an established address, online behavior patterns suggest best approach for personalized messaging

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Personalized Messaging With an established address, online behavior patterns suggest best approach for personalized messaging Distinct online events or inquiries can provide trigger moments for messaging –Example: A user searching for home value calculator could need real estate services

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Study Question 1 Greater personalization is possible online due to the general purpose technologies of digitization, individualization and which of the following? A.Advertising B.Networking C.branding D.marketing

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Study Question 2 Which of the following is an example of a search good? A.Restaurants B.Contractors C.Strawberries D.hair salons

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Study Question 3 Personalization has the greatest competitive advantage when it is backed by company dedication to what? A.Customer-relating capabilities B.Customer-enhancing products C.Customer-driven tools D.Customer-improving performance

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Study Question 4 Each of the following presents an opportunity for personalization EXCEPT: A.the product B.the web site C.the customer message D.the purchase price

© Copyright 2006, Thomson South-Western, a division of the Thomson Corporation Study Question 5 A car manufacturer that allows customers to select the vehicle’s stereo system is engaged in which of the following personalization approaches? A.mass customization B.choice assistance C.personalized messaging D.event triggering