Listen, Learn, and Leverage:

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• Listen, Learn, and Leverage
• Merchant Views of Personalization
• and Lasting Customer Relationships
• By Lauren Freedman
• President, the e-tailing group
• October, 2007

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Todays Presentation

• Merchants Define Personalization
• The Historical Perspective
• The Rebirth of Personalization
• Personalization as a Differentiator
• Business Strategies for Achieving
  Personalization
  
• Personalization and its Challenges
• State of Personalization within the Retail
  Environment
  
• Building a Personalization Culture
• Email and Call Center Tactics
• Personalization in 2010
• The Personalization Checklist

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I. Merchants Define Personalization
Listening to and responding to the individual n
eeds of the shopper/customer.
Peter Taylor, former GM Road Runner Sports
matching what we offer with customers individ
ual needs Rich Bergsund, CEOwine.com unders
tanding consumer shopping patterns, emphasizing
the importance of their brand affinities
Peter Cobb, Co-founder and Sr VP eBags
It is clearly tied into the messaging or functi
onality which ultimately drives that higher level
of relevanceit can include content, messaging,
offers, and tools that drive an experience.
John Giusti, VP Marketing, Staples Business
Delivery
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II. The Historical Perspective
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The Amazon FactorFrom a merchant perspective,
Amazon is most often mentioned as top-of-mind
when thinking about personalization
Amazon has done a great job doing the quiet
forms of personalization like recently viewed and
recently searched. They take every opportunit
y to message specifically to me and periodically
I do click on one of the personalized touts. My
experience as a consumer is that it works for
self consumption where I'm getting relevant
information for me.
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III. The Rebirth of PersonalizationThe right
timing for personalization is based on concurring
events includinginterest in social networking
and plateauing of e-commerce sales
Sites like MySpace, YouTube, and Flickr allow
customers to create their own identity. As
merchants we need to take this inspiration and
apply it the e-commerce space in order to engage
this new breed of shopper. Brian Finke, Marketin
g VP Nau
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As Online Growth Slows and Competition
IncreasesPersonalization will be a Differential
for ProfitabilityMerchants will need to further
personalize the online experience more
effectively targeting customers to generate
increased sales and higher conversion.

• 2007 CAGR for US online sales will be 11 of
  total retail sales1
  
• In 2010 US online sales will reach 171B,
  accounting for 6.6 of total retail sales1
  
• Based on present trending, US Online retail sales
  will plateau at 10-15 of total US retail sales1
  
• Conversion rates currently fluctuate between 1-5
  depending upon category and site evolution2
  
• In a 4Q 07 survey 74 of merchants reported
  their conversion rates were about the same or
  somewhat higher than in 2006, just 8 stated that
  they were significantly higher2

Sources 1) Jupiter Research, 2007 2) the
e-tailing group 6th Annual Merchant Survey, 2007
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Customers are Ready for Personalization59 want
special offers and 29 want recommendations
based on prior purchases
The DoubleClick/e-tailing group Consumer Loyalty
Survey of 1000 online consumers, conducted in 2Q
07, found that 1/3rd of respondents want
merchants to send a reminder with an incentive
when they have not been on the site in a while.
Source DoubleClick Performics/the e-tailing
group, Consumer Loyalty Survey, 2Q 2007
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IV. Personalization as a Differentiator
A marriage of tools, technology, and techniques
delivered through scenarios containing well
thought out tactics, overlaid with automation,
will make personalization a reality.
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Personalization supports eBags mission and value
proposition
Our mission is to be the most recommended
retailer for bags and we need tools to do this,
where personalization is the quickest way to find
the right bag for me. However, it may be more
like ballpark personalization, with lots of
products. We need to figure out the best approach
for us and our customers. Peter Cobb, Founder an
d SVP eBags
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At Staples personalization is core to their
strategy
Our brand strategy is about easy, and
personalization can help with that goal.
Personalization is at the very core of our direc
t business, as it adds relevance and makes
shopping easier for our customers because we
displayed the right product.
John Giusti, VP Marketing, Staples Business Del
ivery
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Upromise is looking to deliver to consumersa
comprehensive experience
The differentiator will be THE UPROMISE WAY
in 2008, when you have your own plan, where you
can explore who and how you will get your family
there, ultimately helping you to close the
college savings gap. We always want the next s
teps to feel positive to our customers, and there
the notion of simplification also resonates in
helping them achieve their goals.
Lisa Boucher, VP Marketing, Upromise
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For the NFL a database and personalization
strategy are integral components of success
Their database is comprised of 75 different
variables including demographics, the NFL Shop,
the NFL Extra Points credit card travel and
hotels. Customers favorite teams are tagged and
information is broken out starting with team
affinity then subsequently based on history that
comes as a result of customer records.
We want to see how active they are on the site,
taking a look at all data points. It's the first
level of building a relationship, giving us a
better sense of how to communicate to make it
more relevant. Once we know about the customer
, we address segmentation of the communication
(i.e. a recent shopper who spent x dollars).
Bob OKeefe, Senior Director Fan Relationship Ma
nagement, National Football League
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At wine.com their category suggests
personalization
Personalizations a big part of our growth
people often know what they like, but not why
they like it We know the wallet of past purcha
ses and recommend accordingly our tools don't
recognize everything yet we can accomplish it thr
ough personalization. Richard Bergsund, CEO, w
ine.com
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Road Runner Sports uses personalizationas the
basis for acquiring new customers
We're in a very personal salethat means the
right running shoe to maintain the right running
health and longevity. We're mapping customer's
foot type (arch), their typical running distance,
gait, and the shoes engineering to counter the
gait. The obvious answer might have been a col
laborative filtering model, but to us that feels
invasive, For example if we dynamically populated
a sock, it would not be specific or
brand-centric, and ultimately not right for the
brand proposition we take to market.
Peter Taylor, Former GM, Road Runner Sports
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V. Business Strategies for Achieving
Personalization

• Merchants are the masters of their own destiny
• where the power of personalization should be kept
  top-of-mind.
  
• It will require a two-way dialogue to best
  personalize a relevant experience.

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JC Penney strives to establish an emotional
connection with their customers
Its about presenting an assortment that is
relevant to you as a shopper on an emotional
level It doesn't require a separate customer
experience for each individual, but is more about
getting to know you on a personal level.
Based on customer behavior and browsing patterns
we have an opportunity to learn and understand
customers needs including style and
aspirationsOur goal is to tie it all together
with customer attributes married to the product
experience.  Richard Last, Vice President an
d Director of New Business Development,
JC Penney
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bluefly focuses on delivering relevant
contentearly in the experience
Providing consumers with the most relevant
content in the quickest way possible should be
essential for todays time-starved shopper.
This personalized experience must be delivered e
arly enough in the experience to catch their
attention. Marty Keane, SVP e-Commerce, Bluefl
y
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Petco addresses shoppers cross-channel behavior
Their store locator includes specific services,
gift cards and store circulars
Knowing the customers online and offline needs
is important addressing shopping channel of
choice, and optimally their favorite store in
order to best tailor their experience.
John Lazarchic VP ecommerce Petco
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At PersonalShopper.com personally relevant
product recommendations and valued content are
the goal
With ongoing use, PersonalShopper.com
intuitively refines and tailors the product
selection to more precisely reflect the users
expressed, demonstrated, and inferred interests
and preferences. Unlike other shopping sites,
the product selection is based solely on the
users unique preferences, not advertisers
desire to reach her. Laura Silsby, Founder, Pe
rsonalShopper.com
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Orvis applies personalization for marketingto
peoples specific areas of interest
It depends on what we know about the customer.
If we're targeting a woman who has bought mens,
womens, and kid's, but no fishing products, it
would be ideal for her to receive a different
size of the hero imagegiving that extra real
estate to the 3 categories she had demonstrated
affinity for (rather than wasting it on
fishing). Customers with singular interests ar
e where we see personalization being a winner and
thus are a part of our strategy for 2008.
We hope to accomplish personalization at the cat
egory level, as it's less risky than pursuing the
more granular approach. Brad Wolansky, Direct
or of e-Commerce Orvis
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VI. Personalization and its ChallengesKnowing
the challenges and keeping them in mind frees
merchantsto truly build a personalized
experience for their customers.

• Measurable business goals must be part of any
  merchants strategy to ensure long-term success
  
• Personalization must be seamless across all
  channels
  
• Data needs to be actionable by including it in
  the online user interface to enable a
  personalized experience
  
• If it's too specific, it gets creepy and you
  don't show your brand well
  
• Personalization requires commitment it is work
  intensive
  
• Pigeonholing the customer is a risk, a no sale
  can result or you limit their lifetime value
  
• First purchase may not impact the second in
  categories where products are beyond mere
  replenishment, personalization appears to be more
  difficult and complex

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VII. The State of Personalizationwithin the
Retail Environment

• These perspectives show that personalization
  comes in many iterations,
  
• can work for a diverse range of categories, and
  supports varying business models.
  
• It is up to merchants to personalize the site
  experience
  
• providing their specific customer types
  convenience and effectiveness.

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Merchants are starting to implement
Personalization
Segmentation and personalization were sited most
often as the greatest merchandising challenges me
rchants wish to solve this year
42 of the 175 merchants who completed the
e-tailing group 6th Annual Merchant Survey also
indicated that to improve website performance,
personalization initiatives are slated for 2007
Source the e-tailing group 6th Annual Merchant
Survey, 2007
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Segmentation One-to-Group
While the true one-to-one experience will be
possible for a few merchants, the reality is that
segmentation and scenario building will be the
guts of personalization
We believe segmentation and scenario building a
re the proper techniques to deliver relevance
because it takes such an overwhelming amount of
data to truly have one-to-one personalizationby
combining the data we accumulate for finely tuned
segments, we can take the power of the collective
and apply it to the recommendations for the
individuals to achieve great results.  
Borders There are varying types of crafters an
d they can be sophisticated or simply novice.
It's important and becoming more important to
understand the customer type and their level of
expertise. Jo-Ann
Stores In the near term it will be about segme
ntation. Whether you are a Bali customer or a
luxury consumer purchasing La Perla, we have your
purchase history and click data and we can tailor
the assortment onsite and via communications.
Bare Necessities
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Tools Drive Personalization
Ultimately we know that we need to give the
customer control of the experience and we will
continue to prioritize those tools that have the
most utility for them.   Staples
Loyalty members have access to tools that save
and track their activity Everything stems from
these loyalty initiatives, given the high
percentage of online shoppers who participate in
the program. Jo-Ann Stores
Areas of focus to date include order history,
bluefly products you have purchased, and
recently viewed, which follows the shopper around
and is available in new sessions as part of their
profile, while the shopping bag is saved
indefinitely. bluefly It is essential
for merchants to understand what is the right
mix of vendors and technologies to provide the
tools needed to move your business, yet still
maintain operational efficiencies. Petco
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VIII. Building a Personalization Culture

• Whether a company is a pure-play or
  multi-channel,
  
• the organization must establish a point of view
  on personalization
  
• and embed that deep within their culture to
  succeed.

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To properly implement personalization, it must be
embedded into the cultural fabric of the company
We all are at one level as part of the
personalization proposition. We buy product to
suit running types, the site is laid out in this
manner, and in fact we are the only retailer to
set up the store by shoe type, easily matched to
the runners need. Peter Taylor, Former GM
Road Runner Sports
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Building it into your organization begins withan
individual who champions the cause or a
cross-functional team to set the
customer-centricity tone
Everybody is in charge and the discussion of
personalization is very active within our
organization, down to Q/A individuals chiming in
given its integral nature to the business
success, we believe that all voices should be
heard. Netflix
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Personalization should start at the top as it
takes diligence and patience
JC Penney It starts with the CEO level with
alignment through the Chief Merchandising
Officer, GMMs, President of Direct, Chief
Marketing Officer, Product Development, and CIO
to build and execute the plan Bluefly Both Ma
rketing and Merchandising work together to define
the strategy Jo-Ann Stores Retail-marketing i
s the driver with input from merchandising
Upromise Two marketing segment heads work clos
ely with partner verticals eBags IT owns pers
onalization given its technical nature with all
of the demands marketing is now under IT
Petco Merchants tap into existing CRM systems
assuring that existing marketing agreements are
adhered to cross-utilization of integrated
information supports a team focus
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Tactically Measuring Success It is our belief
that the more you measure in hopes of delivering
a more personalized shopper experience, the
wiser the merchant.

• Merchants are bottom-line focused
• Online conversion
• Email increased open rates and click-throughs
  conversion
  
• For some serving the customer is a stronger
  driver than ROI

Cost-savings should be factored into the
equation, as theyre a natural outgrowth when
providing the self service aspect of loyalty,
where points and personalization are accessible
on the site. Famous Footwear
Were looking to understand both Average Order
Value and Sales Per Visit as the two tie sales
and conversion together.
Orvis We do want to understand new visi
tors versus return customers. Analytics tools
allow us to do this and we should be able to
merchandise to the different visitor types.
NY Co
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Measurement is a natural derivative as
customers engage with tools
We look at increases in sales, as well as any
incremental margin increase. Beyond that we lo
ok at the number of customers who use the tool
and its unique conversion rate. From there we can
assess where the opportunity lies. 
At the end of the day, it's always about some le
vel of ROI. John Giusti, VP Marketing Staple
s Business Delivery
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The amount of information shared by the consumer
is an indicator of future success
The amount of information shared by the consumer
is an indicator of future success, because it
enables the company to deliver highly targeted
product recommendations and valued content.
Metrics such as purchase rate and repeat visit r
ate are important indicators of how consumers
value the service. Personal Shopper
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Leveraging analytics and a/b testing helpsJC
Penney understand site performance
Our solutions approach to selling leverages our
analytics package to track conversion in sessions
in which customers use our shopping tools.
We also perform a/b testing from the home page t
o product pages, to get an objective
understanding of performance on the site.
Vice President and Director of New Business Deve
lopment JC Penney
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Neflix measures just about everythingto see what
customers respond to
We measure just about everything by creating
test cells to see what customers respond to
We have current and future variants and if it wo
rks then we promote it to more people. Were
always measuring for satisfaction
We also look at click-stream data and do things
implicitly from behavior. Lastly, we ask peopl
e directly what they think because we know that
if we start a conversation we can be more
confident and ultimately make better choices in
order to take Netflix to the next step.
Jim Bennett, Vice President of Recommendation S
ystems NetFlix
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IX. Email and Call Center Tactics

• Initially merchant forays into personalization
  began with email.
  
• Richer tactics that embrace more targeted
  personalization and segmentation
  
• are now required to improve performance.

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Marketing plans have room to improve
Of the merchants in e-tailing group 6th Annual
Merchant Survey 48 acknowledge that their
marketing plans are a mixed bag, 24 are at plan
22 see performance above plan but trending is
down year over year.
Source the e-tailing group 6th Annual Merchant
Survey, 2007
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Merchants ranks how personalized and
segmentedtheir email experiences are on a 1-10
scaleFor those not pushing ahead it is a
workload issue
JC Penney 7 We are a big event-driven company
and our big event emails are generally
successfulWe find banners on email to be an
effective means to communicate additional more
targeted messages. Staples 3 or 10 Some campa
igns are extremely customized and in other cases
we don't believe it will make a difference. All
things being equal, comparing the standard emails
to those that are personalized, the latter tend
to do better by a magnitude of 2-3X.
Source the e-tailing group 6th Annual Merchant
Survey, 2007
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At Famous Footwear email enhances loyalty efforts
we can suggest reward levels as well as send
rewards certificates. Today, however, we leve
rage our CRM platform where we have nine buyer
segments (i.e. kids, juniors, women's mens
athletic). We offer behavioral-based email ver
sions including, as an example, sending wide-size
shoe messaging. The family shopper is the larg
est base of the business and we've translated
that to the web, Lisa Dyson,
Director Consumer Relationship Marketing Famous
Footwear
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The NFL sees double the response rate when they
personalize/customize the experience
We try to manage the flow of communication it's
not how much were sending, but if what we're
sending is relevant. We are always assessing t
he number of unsubscribes and also send an email
for abandoned carts when triggered that performs
great. Bob OKeefe, Senior Director Fan
Relationship Management, National Football League

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Targeted email initiatives based on past
purchases are generating a lift in sales and
conversion
Godiva Target buyers of couture collection for
repeat purchases, convert 2X mass emails
wine.com Suggest purchasing 3 bottles if last p
urchase was for 3 bottles, revenue per email sent
is 5X standard email query if gift is business
or personal Sharper Image Reminder email sent
2 weeks prior to the expiration of a month long
promotion offering Buy 1 - Get the 2nd at 50
off 50X lift per email per person
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Personalizing the call center enhances the
customers experience
As personalization evolves, more merchants will
take advantage of the technology options that
handle inbound calls as well as facilitate the
option to reach out to callers.
Netflix identifies callers by their customer nu
mber so they can field questions and make
recommendations on an account basis
JC Penney relies cross-channel customer informa
tion to enhance the service experience
Famous Footwear uses a recency monetary score t
o assess each segment and understand how valuable
each customer is in order to appropriately offer
up more generous offers Staples incorporates o
nsite tactics, utilizing the same offers they
customize on the site NFL up-sells at the end
of a call based on interest
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XI. Personalization core to e-commerce future
Interviewed merchants were asked, If you had a
crystal ball, where would you see personalization
in 2010?

• In the broadest sense people are focused on
  personalization, people will get better at it,
  and results indicate it will make a difference.
  
• As we develop better algorithms and predictive
  models based on our segments, our ability to
  produce more relevant content for each individual
  will get better and better.
• Consumers will increasingly expect the entire
  shopping experience to be personalized.
  
• Ultimately personalization will be mainstream,
  given its potential for enriched merchandising.
  
  
• We're in the infancy of personalization and it
  will be the price of poker by 2010. Today it is
  another way to differentiate yourself tomorrow
  it will not be.
• The marriage of customer preferences and
  predictive tools will be put in place, but
  ultimately marketers must make the choice of what
  will work best.

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XII. The Personalization Checklist
Ten tips that can ensure best-in-class execution

• Encourage your organization to invest in
  personalization
  
• Plan and prioritize tactics for personalization
  as all merchandising tactics
  
• should be on the table
• Understand and ensure that privacy policies are
  in place
  
• Explore how tools can be deployed to personalize
  the experience and to foster retention
  
• Define a retention strategy that either builds in
  loyalty elements or explicitly establishes a more
  formal program
  
• Start with defining explicit segments for
  marketing purposes
  
• A/B test to assess performance
• Measure success
• Ensure that your personalization is intelligent
  and simplifies or expedites a shoppers
  experience
  
• Make it manageable and evolve as needed

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Thank you

• Lauren Freedman
• President,
• the e-tailing group, inc.
• 1444 W Altgeld Street
• Chicago, IL 60614
• 773-975-7280
• lf_at_e-tailing.com
• www.e-tailing.com