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Getting Personal

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When you take into account all of the online ads blasted at casual Web surfers every day, it's fairly easy to assume that Internet advertising has, to some degree, turned its back on its early promise to be the most targeted medium ever. After all, we're currently in an environment where a portal such as Yahoo! uses its home page to telegraph the news that Ford has a new car out—a move that is more reminiscent of the roadblocking techniques that were once used by advertisers on network TV than the accountability of the Web.

Adding fuel to the Web-as-mass-medium fire, the reinvigorated Interactive Advertising Bureau has spent much of the past year showing that traditional metrics, such as reach and frequency, can actually apply to the ever more segmented Web.

But the truth is that personalization—the ability to target down to wafer-thin slices, or even create markets-of-one—is still very much a goal that online marketers strive for. In June, New York-based Double Click conducted a survey focusing on what marketers planned for their email marketing efforts, the most common form of personalization. Sixty-one percent said they expected their email marketing budgets to rise over the next year. The study also predicted that on a percentage basis, increases in email spending would outpace online advertising by almost 100 percent, rising by 17 percent as opposed to 9 percent for the latter.

As for personalization itself, its pathways are also multiplying. Besides email, sites use pop-up ads based on previous visits. Customer service representatives are charged with giving particular offers to callers based on their buying patterns, and companies such as Volvo will even transmit personalized messages to PDAs, as long as the recipient agrees to it.

Yes, things are getting much, much more personal.

If that sounds creepily Orwellian, keep in mind that the marketers and vendors in the business (the reputable ones, anyway) bend over backward to emphasize that consumers have to opt-in to personalized messages—one, two or even three times—to make sure that they are really willing recipients of marketing messages. "We were always fairly sensitive about not wanting to intrude," explains Volvo's Phil Bienert, who heads the company's CRM and e-business efforts.

The good news is that when personalization is adroitly handled, customers are likely to see it as a benefit rather than an intrusion, with higher response rates being the obvious result. According to Yesmail, a Chicago-based email specialist, responses get higher as personalization elements go up. In the first quarter of this year, the company found that emails it sent with no targeting or personalization had a 4.7 percent response rate—the email version of a click-through. But if a marketer used seven or eight personalization elements—which can include everything from one's transaction history to geographical data and age—response rates hit 14.8 percent. "The degree of personalization has come a long way in the last few years," says Ed Henrich, vp of client services at Yesmail.

One indicator that personalization has advanced is evident at the IAB itself. In mid-October, it started its first-ever newsletter and e-mail committees, which plan to promote the best practices in delivering personalized email and its subset, newsletters delivered via email. "All of our members are seeing a revenue stream from that sort of media," says Michael Mayor, president/CEO of email marketers NetCreations and chair of the email committee.

OK. So there's evidence that personalization works. But how? Maybe it's telling that there are plenty of case studies on the subject (see sidebars). As one example, look at shoe retailer Nine West, which launched an online newsletter in 2001 as one way to boost sales with customers who buy shoes from the company's many lines, which include Easy Spirit and Enzo Angiolini. With a 180,000-person email database, Nine West is able to segment that mass by metrics as diverse as which company loyalty program registrants belong to, their shoe size, purchase patterns and more. A newsletter delivered to a Californian who is a member of the Easy Spirit Elite loyalty program receives a different newsletter than someone who tends to buy the Bandolino line and lives in the Midwest near a Nine West outlet that is having a sale; the email headlines also differ depending on market segment. Henrich explains that everything is automated in such a way that Nine West can swap in and swap out content depending on the customer. Response rates range from 20 percent to 30 percent within the week following each email; Web sales have increased by as much as 40 percent.

The Nine West example is certainly worth noting, but it also brings up one of the thorniest questions in the personalization field: Is personalization truly one-to-one marketing or is it just a higher evolution of targeting, where consumers are placed into successively smaller groups? The answers are as various as the people in the industry. To Jason Epstein, senior strategist at Philadelphia-based online marketing company I-SITE, personalization is happening now through what he calls a "personalization experience," a place "where most Web marketing never gets," he says.

As an example of what such an effort involves, he offers up nutritionexplorations.org, a site developed by the company for the National Dairy Council to help educate kids about nutrition. It contains a number of activities, such as a place where visitors can create their own milk shake using a variety of pre-selected ingredients. The site analyzes the nutritional value of the resulting shake using metrics such as its calorie count and calcium content. A printout version names the shake after the user. "That attribute makes it real," says Epstein. "It humanizes the experience."

Others see personalization as blossoming in more technologically advanced ways. Steve Schultz, product marketing manager at E.Piphany, which specializes in CRM, says that some marketers are moving toward predictive analytics, which can help a marketer figure out what products or services a customer might want with increasing accuracy as the relationship between the customer and the company grows. The technique is a step farther up on the personalization ladder than collaborative filtering, the popular method pioneered by Amazon.com, which recommends new items based on past purchase patterns. While collaborative filtering doesn't need to know a customer's identity in order to work, predictive analytics does. And the fact that it also incorporates self-learning—the ability of the personalization software to improve its performance over time based on customer input—is key to the technique's success. Its usage, Schultz admits, is thus far limited to categories such as financial services, telecommunications and retail, which are far more focused on individual customer relationships than, say, a packaged goods company might be.

One E.piphany client, Bell Canada, has employed predictive analytics on behalf of its Bell Mobility unit, which has 4 million customers. Rather than working over the Web, this solution, called E.piphany Real-Time, uses personalization technology to aid customer service reps. Simply by inputting a customer's account number into the database when he or she calls in, the customer service reps can access personalized offers that can then be presented to callers on the fly. According to a company Web site, the campaign resulted in a 10 percent increase in sales revenue.

If that example sounds like CRM nirvana to a marketer, it hasn't caught on like wildfire yet, if Epiphany's bottom line is any guide. It is still stuck in the dot-com doldrums of not having enough customers to be considered a success. The com pany began to experience its post-bubble revenue slide in late 2001, and though quarterly revenue has stabilized, it is still way off its peak. In third-quarter results announced in mid-October, the San Mateo, Calif.-based company reported $19.8 million in revenue as compared with $29.1 million in the third quarter of 2001.

Indeed, there are those who question whether true one-to-one personalization, as opposed to using technology as a means toward really superior targeting, is even possible, or worth the effort. "The idea of a segment of one is just overkill," says Jared Blank, a senior analyst at Jupiter Research. Blank says companies will get solid results from well thought out targeting, and the higher response rates garnered by heavily targeted emails bear this out. "This is balancing out the fact that on average, [email] response rates are down," he explains. But the lackluster performance of some companies in the sector can also be attributed to many marketers not being sophisticated enough to employ such advanced technology, or because of long-held beliefs that personalization is expensive—a school of thought that industry insiders are quick to debunk. "Is it expensive to buy a $500,000 commercial on Friends?" asks Michael Della Penna, vp of marketing at New York-based Bigfoot Interactive. "The question is, 'what is the end result?'"

He cites Bigfoot's participation in the launch of the 2002 Honda CR-V. The company's technology was used to manage the email campaign that was part of an online and offline marketing strategy created by Honda and rpinteractive, the online arm of Rubin Postaer & Associates. Over the course of the campaign, the email database of hand-raisers who had interest in the car grew from 7,000 to 95,000. More importantly, almost 5,200 people in the database actually bought the car. At roughly $20,000 per car, Honda grossed over $100 million from the campaign, which cost only a fraction of that.

And sometimes, technology actually keeps costs down. Yesmail's Henrich offers the example of the company's work for Hotwire, the online travel site. Because Yesmail was able to swap content in and out, easily targeting messages to customers in different locations, it reduced Hotwire's cost for the effort by 75 percent, compared to when it was handled by a previous vendor. And, Henrich stresses, Yesmail is still making money on the arrangement. "It's not because we're taking it on the chin and doing it for charity," he says.

Of course, as highly technical as personalization can be, those who've been there tend to stress that there's no replacement for savvy marketing skills in personalizing effectively. After all, when have you ever heard a traditional creative director talk about legacy systems and algorithms? "It's easy to get caught up in the technology discussion," explains Volvo's Bienert.

Instead he and others who've built successful personalized email campaigns advocate careful planning, and a sensitivity to the pitfalls of being too intrusive. Volvo has been slowly building its opt-in database over the course of several years and makes sure its email communications are relevant and to the point, attributes that algorithms can't confer on a com pany's marketing philosophy.

Despite the rise in technological targeting helpers, smart marketing is still personalization's most crucial element. In the end, I-SITE's Epstein says, "It's not about the databases; it's not about the back-end systems."