Getting to Know You: Personalization is the Web’s Most Unfulfilled Promise

Remember all those big promises the dotcoms made about being able to market to their customers on a one-to-one basis? All that fancy-schmancy personalization technology they had behind their websites was supposed to make it happen. They would track their customers’ every click, purchase and page view and then make recommendations about what books, CDs and clothes their customers

should buy. As we all know, personalization technology didn’t pay off in time to save dotcoms’ skins.

In fact, personalization has been the Web’s biggest unfulfilled promise, at least so far. It has disappointed companies and consumers alike for several reasons. first of all, efforts that many companies tout as personalization are really just exercises in simplistic customer segmentation. Just because a letter from a bank about a home equity loan is addressed to “Dear Meridith Levinson” instead of “Dear Valued Customer” doesn’t mean it’s tailored to Meridith’s needs, especially when she is single, rents an apartment and doesn’t need a $20,000 credit line. That is an instance of a bank segmenting an individual into some category of customer it deems worthy of a home equity loan. Neither the bank nor the consumer wins in this situation; the bank doesn’t sell a home equity loan, and the customer doesn’t get offered the Roth IRA she really wants.

The second reason personalization hasn’t lived up to expectations is because off-the-shelf personalization technologies focus on giving customers specific recommendations based on what they’ve bought in the past. And those recommendations don’t differentiate between gifts and personal purchases. If Dad, who usually buys classic rock CDs for himself, purchases a Korn album for his 12-year-old son, he may start getting recommendations for grunge every time he logs in. And that’s just annoying. By contrast, when a customer patronizes a brick-and-mortar store, he can get sensible recommendations on everything from house paint to upholstery swatches by simply asking a clerk. And it takes a lot less time.

Despite such disappointing outcomes, there are a handful of companies that understand the essence of personalization and are doing it right. They realize it’s about determining a customer’s unique needs and offering products and services that satisfy him. For instance, at San Francisco-based Reflect.com, a Procter & Gamble spinoff, women can customize cosmetics, moisturizers, cleansers, shampoos and conditioners that best suit their skin and hair care needs. And if you’re fed up with Weight Watchers and the Atkins’ diets, essentially one-size-fits-all regimes, eDiets.com offers weight loss and fitness plans tailored to your individual activity level, dietary preferences, medical history and emotional needs.

B2B companies are also finding that their customers view personalization as a value-added service. For example, PSS World Medical, a $1.8 billion distributor of medical products and diagnostic imaging equipment, is expanding its business by personalizing its online catalog according to its physician-customers’ type of practice and what their colleagues are buying. Although only 6 percent of PSS’s customers currently use the Web on a monthly basis to place orders, the company has increased its incremental sales by $200,000 a month since the launch of its online system.

All three companies have based their personalization efforts on one fundamental principle. They put strategy first and technology second. They had to figure out if personalization was right for their business and how they could make it work before installing a single piece of code. Company executives also realized they had to fully integrate their information systems so that they could access and share customer information in disparate databases.

Tellingly, none of these companies rely exclusively on off-the-shelf software. Instead, they use entirely homegrown applications or some combination of packaged and custom-built software. (Off-the-shelf packages often don’t include the functionality that many companies need to access and integrate legacy customer information.)

Finally, at least two of these companies are using their personalization systems to reach the Holy Grail: getting customers to spend more money with them through cross-marketing. If a Reflect.com customer orders another bottle of customized shampoo online, she is immediately greeted with a pop-up ad that offers her a special deal on the conditioner that goes with that shampoo. And when a dermatologist shops on PSS’s personalized website, the site automatically shows him other products that are most popular among his own colleagues.

If the pundits are correct, every company will have to individualize its products, services and interactions with customers in order to stay competitive. Only then will the promise of CRM?increased customer revenues?be fulfilled.

Weighing In, Online

EDiets is one of a handful of subscription-based Internet pure-plays to have survived the shakeout and achieved a profit. The dotcom personalizes diet plans to overcome its biggest handicap?not having the face-to-face weigh-ins that programs like Weight Watchers and Jenny Craig offer. With eDiets, members weigh themselves in their homes and track their progress on the site. To compensate for not having regional weight loss centers, eDiets has to customize its weight loss plans to such an extent that they appeal to people who have grown tired of Weight Watchers and Jenny Craig’s cookie-cutter approach.

Every month, as many as 40,000 people sign up for eDiets’ free newsletter, according to Steve Johnson, the company’s CTO. And each quarter, approximately 100,000 new dieters pay $45 for a three-month subscription to the program. The subscription entitles members to weekly fitness and meal plans customized according to their eating habits, dietary preferences, medical conditions, and emotional and weight loss needs. The Deerfield Beach, Fla.-based company has more than 300,000 paying members and 9.8 million opt-in subscribers to its newsletter.

Before the company went online, Johnson worked with professional, licensed dieticians to build eDiets’ proprietary diet engine from scratch. The diet engine, which runs on Windows NT, relies on a customer database and a meal plan database connected via software. The software extracts information from each database to produce the customized diet plan for each member.

When a new customer registers on eDiets, she fills out a questionnaire, indicating her current age, weight, height and gender. Then, selecting from pull-down menus, she specifies whether she has any dietary preferences or restrictions?such as being a vegetarian?and indicates if she has any medical conditions, such as high blood pressure, hypertension, diabetes and high cholesterol. Finally, she indicates whether she’s a couch potato, exercises moderately or is very active, and if she eats when she’s stressed, depressed or upset. She submits the questionnaire to eDiets, and it gets stored in the customer database.

Not everyone gets a customized diet. The company advises dieters to check with their doctor before beginning any diet or fitness program, and they won’t give you a diet if you’re within a recommended weight range. Instead, the service may tell you that you’re within your target weight and that trying to lose additional weight is unhealthy.

For eDiets’ business to survive, it has to make sure members return to the site on a weekly basis and renew their subscriptions after three months. To encourage them to do that and ensure they feel supported in their weight loss efforts, eDiets uses the same proprietary technology the company has developed for generating the personalized diets. For instance, if the system finds that a member hasn’t logged in for several weeks, it will automatically send that individual an e-mail encouraging him to stay on track, says Johnson.

The one drawback to the plan is that many members find the online program isolating. “With an online weigh-in, there just doesn’t seem to be the motivation to stay on program the way there is with a face-to-face program like Weight Watchers,” says a former eDiets subscriber.

EDiets tries to combat that handicap with chat rooms and bulletin boards on its website, as well as a toll free number dieters can call for help or a kick in the pants. If a member calls to say she’s having trouble staying on the diet because she’s hungry all the time, eDiets’ staff can access the member’s information through a Web-based application that is linked to the diet engine and the customer database. They can see the meal plan the customer is currently using and adjust her caloric intake.

The personalized approach seems to be paying off. EDiets celebrated its first profit one year after it launched online in November 1999 and has been in the black ever since. The company earned approximately $11.4 million in revenues in 2000 and an estimated $25 million in 2001, 90 percent of which were generated through paid subscriptions.

The Beauty of Integration

Like eDiets, Reflect.com also developed proprietary technology to customize its products?in this case, skin and hair care products and cosmetics. When the online company (which is majority-owned by Procter & Gamble and 15 percent owned by venture capital firm Institutional Venture Partners) launched in 1999, many onlookers were skeptical that the company could actually do such a thing, says Jonathan Grayson, Reflect’s CIO. Besides convincing women that customizing beauty products is possible, Reflect.com also has to carve a niche for itself in the highly competitive beauty care space.

Now, when a customer wanders on to Reflect.com and indicates an interest in buying eye cream, she is prompted to fill out a questionnaire that will help Reflect.com create a product that suits her needs. She indicates, for example, whether she gets dark circles or puffiness under her eyes, whether she would like the skin under her eyes to be smoother, if she has laugh lines that she wants to reduce, and if her eyes are sensitive.

Once she completes the questionnaire, it is transmitted to Reflect.com’s homegrown matrix system and its IBM Websphere transaction system, which processes the order. The matrix system is a connected system that learns from example rather than following preset programs. The matrix determines which active ingredients should or should not be included in a product given the parameters the customer has provided. So if the customer purchasing the eye cream indicates she wants to minimize dark circles under her eyes but thinks her crow’s feet give her character, her eye cream will be made with vitamin C to treat the dark circles, but vitamins A and K, which supposedly reduce wrinkles, will be left out.

Because Reflect wanted to go beyond customizing products to personalize its every interaction with every customer, Grayson had to overcome the biggest challenge companies face when trying to do personalization effectively. He had to create an infrastructure in which disparate data sources?from Reflect’s e-commerce transaction system to its CRM, manufacturing and fulfillment systems?could all be accessed as one. And he did that in two ways: by basing all of the systems on Oracle databases and by making them feed into an Epiphany data mart. For example, the transaction server, the Web server and the homegrown system that formulates each customized product access the same database. The data mart also pulls information from those servers and systems. So if a buyer who once customized eye cream replaces it, Reflect.com will automatically cross-market other eye products to her in a pop-up ad.

Whether a customer rejects or accepts the offer, Grayson says, her response is fed back into the Epiphany system. This way, she won’t be bombarded with offers for products in which she’s not interested, and Reflect.com can alter the segments of customers to which certain offers are targeted based on the type of women who have responded to them.

To date, Reflect.com has created about 3.5 million unique products, according to Grayson, who says that the cost of customizing is slightly higher than mass-producing similar high-end beauty products. Since it first launched, Reflect has received $85 million in funding from Procter & Gamble and Redpoint Ventures. Grayson says the company is on target toward profitability, but he declined to release specific financial numbers. According to Jupiter Media Metrix, Reflect is the largest beauty products site on the Web.

Companies that don’t customize their own products but want to personalize their marketing and sales campaigns can use the same approach. Access to information in different systems is key when it comes to tailoring interactions with customers, says Grayson. With it, companies get a more detailed understanding of their customers’ preferences, which “allows you to tailor messages that don’t look cursory or thrown together,” he adds.

A Doctor on Board

Personalization is not just for B2C companies. PSS World Medical, an up-and-coming distributor of medical supplies and diagnostic imaging equipment, is finding that the power of personalization works as well in the B2B space.

Today, the Jacksonville, Fla.-based company controls 15 percent of the physician supply business and competes directly with 10 other distributors, including divisions of such big name companies as McKessonHBOC and Cardinal Health. To differentiate itself from its competitors and crack bigger accounts, PSS launched two portals, MyPSS.com in December 2000 and MyDIOnline eight months later. It customizes these portals according to each customer’s practice type and brands the pages with the customer’s name or logo.

Small private medical practices and large health-care organizations alike use MyPSS.com to order more than 56,000 products including everything from basic bandages and syringes to test tubes and petri dishes. Radiologists use MyDIOnline (the DI stands for diagnostic imaging) to select from more than 8,000 SKUs including mammographic and X-ray equipment, film and chemicals. The portals are built on BEA’s Web Logic Application Server and run on BEA’s commerce component framework and personalization server. Customer information is stored in a centralized Oracle database. The company’s ERP system, sales- force automation application and databases are pulled together using IBM’s MQ Series middleware.

When a customer first registers to use one of the catalogs, say MyPSS.com, she can choose to see only the products that are relevant to her practice type. Once she begins placing orders, PSS maintains a real-time list of all the products the physician ordered during the past 18 months ranked in descending order by quantity. This section, called MyItems, makes it a lot easier for a doctor to find the 20 items he has purchased (out of a catalog of 56,000). PSS can also use the list to show one dermatologist what her colleagues are buying.

Wayne Meyerson, director of e-business for PSS, says the recommendations encourage people to shop more. “Because we make it so easy for people to buy online, we see a 20 percent higher average size order on MyPSS.com as opposed to through the traditional methods of the phone and sales rep,” he says.

As an added advantage, PSS can use the personalization information it collects to determine whether a customer is a member of a small private practice or belongs to a much larger clinical system. If the latter is the case, David Ramsey, CIO of PSS World Medical, alerts PSS’s corporate accounts staff, who then attempt to open more accounts across that entire clinical system.

Ramsey says that big accounts were always tough for PSS to win in the past. But with its personalized tools, PSS’s sales force is pitching like Pedro Martinez. “With the technical ability we have to personalize a site in a day, we can walk in on a prospecting deal and show them a customized site with their logo, their colors and their content needs,’’ Ramsey says. “It’s interesting how well that plays to people’s egos. It is helping us win large accounts that we’ve never before been able to win.”