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NOW IT'S YOUR WEB

The Net is moving toward one-to-one marketing--and that will change how all companies do business

Soon after Jeri Capozzi logged onto the online nursery Garden Escape Inc. last winter, she was hooked. And it wasn't just because the World Wide Web site offered unusual plants, such as hyacinth beans, firecracker, and dog's tooth violet. It's because Garden Escape created a personal store just for her. Greeted by name on her personal page when she visits, Capozzi can take notes on a private online notepad, tinker with garden plans using the site's interactive design program, and get answers from the Garden Doctor. So far, the 41-year-old insurance caseworker from Litchfield, Conn., has spent $600 at Garden Escape and has no plans to shop at any other nursery. With service that personal, she says, "I probably will never leave it."

Personal service on the Internet? Isn't that an oxymoron? For most Web surfers, the Net has been just another aloof mass medium like television, radio, and newspapers, dishing up a morass of information that you then have to sift through. But as consumers such as Capozzi are discovering, the Net is finally beginning to cast off the mistaken identity of its youth and deliver on its original promise--the ability to tailor itself to every one of its 100 million users.

Don't think "mass." Think "me." Like no other mass medium or marketplace, the Net offers merchants the ability to communicate instantly with each one of their customers. The Net also lets those customers talk back, so that they can demand unique products and customized services. Until now, few Web-site operators have taken full advantage of this intimate link, but that's changing. According to a survey of 25 top online merchants by New York market researcher Jupiter Communications, 40% say they have begun to offer personalized features, with 93% saying they will within a year.

If personalization pops up all over the Net, it could usher in a new era in electronic commerce--one that threatens to shake the foundations of conventional mass marketing and mass production. Indeed, the real kick from the Net's personal touch will go far beyond marketing and sales. Ultimately, it could transform not just merchants' contact with customers but all their operations, from how they research and design products to how they're manufactured.CHANGING FOCUS. For most of this century, mass marketing and production have held sway, thanks to both the exploding population and the incredible production efficiencies of the Industrial Age. It just didn't make economic sense to provide products and services customized to each buyer. And without a cost-effective way to track the purchases and preferences of individuals, marketers had to resort to inexact measures, such as demographics, to sell their wares.

Now, the Net--and its ability to reach the masses individually yet economically--may mark a historic swing back to one-to-one marketing. That could change merchants' focus from gathering a mass of customers for their products to getting products that fit individual customer demands. "The technology has caught up to the number of people in the world, and we've come full-circle," says Steve Kanzler, chief executive of LikeMinds Inc., a personalization technology company with the slogan: "Every individual is a market."

Early signs show personalization has a huge payoff. Jupiter reports that customization at 25 consumer E-commerce sites boosted new customers by 47% in the first year--and revenues by 52%. Even at a cost of $50,000 to $3 million for the personalization software, along with computers to store the customer profiles, personalization generally pays for itself within a year.

Music retailer CDnow Inc. already is singing its virtues. On Sept. 16, it launched My CDnow, which lets customers get a page designed just for them with music suggestions based on their stated preferences, past purchases, and ratings on artists and CDs. CDnow has seen an immediate benefit in consumer interest: The number of pages viewed on one of its features, called "Wish List"--which appears on the customized pages and lets shoppers name CDs they may buy later-- jumped 200% almost immediately. "It really is a music store for each of our 600,000-plus customers," says Jason Olim, CDnow's CEO. "At the end of the day, it will mean more revenues."

Only if cybernauts are of the same mind as merchants, who think the upside of personalization outweighs the downside. So far, the answer to that is decidedly mixed. Because customizing requires people to cough up personal information and fill out sometimes lengthy forms, only a small fraction of Netizens have done so.

Worse, there are rising concerns about privacy, which could prove the Achilles' heel for personalization. Too often, sites step over the fine line between being personal and being nosy. And many Web surfers chafe at the very underpinnings of personalization: To build customer profiles, Web merchants often monitor an electronic trail that reveals all sorts of things about users--say, that you're a 28-year-old female Los Angeles office worker who likes vegetarian food, Jackie Chan movies, and mystery novels. "Personalization to many Web sites means, `How can I sell you out to an advertiser so I can charge more for ads?"' says Steve Tomlin, CEO of PersonaLogic Inc. of San Diego, which makes personalization software.

Alarmed, government officials are threatening federal regulation that could severely limit the use of personal details merchants so badly need to offer tailored products. One encouraging sign: Most E-merchants seem increasingly aware that they have to be upfront with customers, and they're devising ways for cybernauts to surf incognito (page 174).SNEAKY PEEPERS. Even if fears of sneaky peepers are assuaged, personalization faces yet another hurdle. For all its promise, it still is crude and cumbersome. Personal-recommendation technology, which uses complex mathematical formulas to match people's likely interests, has a long way to go before it lives up to your most trusted critic's suggestions. Buy a gift for someone whose tastes you abhor, for instance, and your future customized recommendations may never recover. And separate databases on your habits aren't always matched up: Amazon.com, for instance, sometimes suggests books you have already bought there (page 176).

Still, those who have taken the plunge seem pleased. Portal site Excite Inc. says people who use personalization come back five times as often as others and view double the number of pages. They also tend to stick around when they come. "It has kind of contained my surfing," says Hollywood producer Chris J. Bender, who has his stocks, movie news, and local weather on his customized MyExcite page.

How does personalization work? Buy a book at online retailer Amazon.com, and the next time you visit, the opening screen will welcome you back by name. Using recommendation software that analyzes your previous purchases, plus any ratings you have made on other books, it will suggest several new books you might like. And it will remember your personal information so you can buy a book with a single mouse click.

Or surf over to portals Yahoo! Inc. and Excite. Click on lists of what you want to see and do on the Net, and type in some personal information. Voila! Your MyYahoo! or MyExcite page displays your name and personal E-mail box, news you request, sports stats, the weather, and an alert about your spouse's birthday next week.

It's happening at work, too, where businesses are getting just as up-close with each other online. This month, Office Depot Inc. began offering small-business buyers personalized online catalogs. And new software from Trilogy Development Group Inc. in Austin soon will enable these customers to craft unique Office Depot catalogs for each of their employees--based on their buying authority--and created instantly on demand.

There's a lot more to come. This fall, many of the best-known consumer sites, such as computer-seller Cyberian Outpost and N2K Inc.'s Music Boulevard, will launch personalized features to help kick off the holiday selling season. N2K, in a trial run of personalization this year, found that the recommendations prompted people to buy CDs 10% to 30% of the time--a huge leap over the average 2% to 4% rate on the rest of the site.IN THE RED. Cybermerchants need just that kind of boost. After paying millions of dollars for real estate on portals and other high-traffic sites, few E-merchants are actually making money. Some big ones, such as Amazon.com, are expected to lose money until well after 2000. To earn profits, they have to get customers to buy not just once, but over and over.

For that, a personalized Web experience is critical. To keep coming back--or even to hazard an online purchase for the first time--customers need to feel they're getting something no one else in the brick-and-mortar world can offer. That's what Amazon.com is trying to do. By offering personal recommendations, which can change after every purchase and every visit, it hopes to get people to keep coming back. It worked for Christopher Mills, a marketing manager for a Torrance (Calif.) software company. He keeps buying at Amazon because, he says, "it has a real personalized touch." Indeed, repeat buyers accounted for more than 60% of Amazon's $203 million in sales in the first half of 1998.

Brand-building is just as important as sales for many merchants. They're finding that personalizing attracts more people and keeps them on their sites longer. Ralston-Purina Co., for instance, has a Breed Selector on its purina.com site that guides people through a series of questions on their lifestyle and what canine qualities they prize. It then spits out a ranked list of dogs that fit their personal preferences. Since the feature was installed in June, the number of visitors has jumped 25%, and they stay twice as long--exposing them to more Purina marketing messages, says Mark S. Whitzling, director of Purina Interactive Group.

Loyal users are just as critical for merchants. They can use the data that members have revealed to help advertisers target the most likely buyers--and charge more for the ads. Right now, an untargeted Web site banner ad averages about $17 per thousand people reached--less than half the rate of consumer magazines. Kent Godfrey, CEO of the San Francisco Web marketing technology firm Andromedia Inc., thinks ad-driven sites need some ads to top $300 per thousand viewers. "To do that, you have to target on an individual basis," says Godfrey.

It will be an uphill struggle--and not because it can't be done technically. So far, few advertisers target ads online with any more precision than they do in conventional media because segmenting too finely may produce scant customers. "We can show ads to golfers in Kentucky with two kids," says Charles Ardai, president of Juno Online Services, which offers free Net access to people willing to accept ads. "But is it really worth your while doing a lot of work and analysis to target three people?"

Even so, early trials show some promise. Kraft Foods, Bristol-Myers Squibb, Kellogg, and others, for instance, saw an average 27% increase in sales when they ran a targeted banner ad on the grocery-shopping service, Peapod Inc. Even more impressive, San Francisco electronic coupon company planet U found in a trial at Dick's Supermarkets in Wisconsin and Illinois that Web coupons targeted to shoppers' preferences were redeemed 20% of the time--more than 10 times conventional coupons.

For many earthly merchants, the Net's ability to personalize products and services with pinpoint precision adds up to a bowling ball aimed at the very foundations of modern-day commerce. It heralds wrenching change for how manufacturers, distributors, and retailers will be organized and run. Today, most companies organize themselves by products: Product managers are the basic drivers for marketing. In the future, companies instead will have customer managers, predicts Martha Rogers, co-author of The One to One Future: Building Relationships One Customer at a Time and a professor at Duke University. Their job: Make each customer as profitable as possible by crafting products and services to individual needs.HALLOWED GROUND. The upshot is that actual customer demand--not forecasts--will drive production. Dell Computer Corp., for instance, has created some 1,500 customized home pages for its best customers so they get direct access to corporate-specified personal computers, negotiated discounts, and records of orders and payments. This is a big reason Dell's PC unit sales are growing over 70% a year, light-years ahead of the industry average of 11%.

The Web even allows customers to directly influence the most hallowed province of corporatedom: product research and design. Consider the case of Sapient Health Network. The site offers personalized information for some 115,000 sufferers of 20 different diseases, from breast cancer to hepatitis C. After filling out an extensive questionnaire on their unique conditions, each patient gets a personal "bookshelf" full of symptoms, treatments, and the like, specifically related to their unique ailments.

Originally, Sapient charged subscription fees--but patients balked. So now, Sapient makes money from collecting patient data anonymously, compiling it into population studies, and selling it to drug companies. It also conducts focus groups and recruits willing patients into clinical trials of new treatments--often with unheard-of targeting, such as people who are incontinent and wet one pad a day. Asks Sapient product marketing director Michael S. Noel: "Where are you going to find these people in the real world?"

Ultimately, these ever-widening electronic links to the customer will lead to the Holy Grail for manufacturers and service providers: mass customization of products. For an early example, look to artuframe.com. The art and framing site based in Lake Forest, Ill., started offering 1 billion possible combinations of posters and frames last May. Using recommendation software from Net Perceptions Inc. in Minneapolis, customers narrow down the vast choices--eventually coming up with their unique product. "We're giving total control to the customer," says artuframe.com President William A. Lederer. He expects $3 million in sales this year.

The Net's ability to reach millions instantly and individually is even creating products that couldn't be sold economically before. American Airlines Inc. recently beefed up its frequent-flyer member site using one-to-one marketing software from BroadVision Inc. Members can streamline their booking process by creating a profile of their home airport, usual routes, seating and meal preferences, and the like for themselves and their families. With these profiles and a way to reach members instantly, American can offer, say, parents whose children's school vacations start in a few weeks discounts on flights to Disney World. Says John R. Samuel, managing director of interactive marketing: "We're now able to create a product that couldn't have existed before."

As the Net's ability to personalize products and services spreads, terra firma businesses will have to follow suit. How long will Compaq Computer Corp.'s customers, for instance, remain willing to wait longer for shipments and get less-customized PCs than competitors buying from Dell? "Consumers are going to have the big stick," says Eileen Hicken Gittens, president of Personify Inc., a San Francisco maker of Web customer-analysis software.

Does all this mean the end of mass marketing? Of course not. Many merchants aren't even ready to go online in a big way, let alone market one-to-one. But for all the perils of personalization, the real danger is pretending the Net is just another marketing channel. After all, why do you think they call 'em customers?By Robert D. Hof in San Mateo, with Heather Green in New York and Linda Himelstein in San MateoReturn to top


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