Internet Marketing Personalization

Topics Personalization and marketing Consumer benefits of personalization Implementing personalization

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

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

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

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

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 Choice AssistanceDesign Figure 7.4: The Personalization Continuum

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

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”

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

Personalization & Benefits Consumers benefit from reduced uncertainty about experience goods An accurate personalization system that can match products to taste can eliminate unpleasant consumption experiences The Internet Benefits Consumers By Turning Experience Goods into Search Goods

Personalization & Benefits Levitt’s rules for success through differentiation Any product can be customized Consumers use products to solve problems Do not ignore hard-to-measure features of the product such as fun or friendliness Make the intangible tangible. Provide signals that demonstrate quality and reliability Personalization and the Total Product

Personalization & Benefits Personalization is a rich area for augmenting the product and finding ways to achieve the potential product Use the Wells Fargo example to illustrate Levitt’s framework Figure 7.6: Increasing Amounts of Differentiation

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

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

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

Change No Change Change Types of Customization CosmeticAdaptive CollaborativeTransparent ProductProduct: 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 Reflect.com Observe users’ behaviors (implicit model) Smart Ads Smart Offers Smart EPG’s NYTimes.com Sybase.com Dialogue with customers to help articulate needs, then create custom product

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

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

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

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

Customization / Personalization Q: When is one-to-one marketing worthwhile?

Highly Differentiated Uniform Highly Differentiated 1:1 Matrix Quadrant II Quadrant I Quadrant IV Quadrant III Customer Valuations Valuations: How different are your customers in terms of their value to your enterprise? Customer Needs Needs: How different are your customer needs?

When Is Personalization Profitable? III IVIII Customer Needs Similar Highly Differentiated Customer Valuations Wide Range Uniform 1:1 Marketing Niche Marketing Target Marketing Mass Marketing Frequency Marketing Key Accounts Figure 7.11: The 1:1 Matrix

Customization / Personalization Two Necessary Ingredients Software capable of delivering customization Direct interaction between the firm and individual customers / consumers

Determining the Correct Personalization System Customer Needs, Product Space Quantitative Few Highly Differentiated Qualitative Complex Uniform Collaborative Filtering CASERule Based Endorsement Figure 7.12 Key Product Attributes Mass Marketing Price Brand

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

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 & Personalogic (Chapter 7 Online) –Require user cooperation to get relevant user data Case-Based System

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

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

Personalization Flowchart Q2Q3 Collaborative Filtering CASEEndorsement Rules Based Q1: Do customer lifetime values vary significantly? Q2: Do customer needs vary significantly? Q3: Are product attributes qualitative or complex? Q1 Don’t Personalize NO Q2 NO YES NO YES NO YES