ChoiceStream: Increase Revenue with Micro-Targeted Product Recommendations 1

Increasing Revenue with Micro-Targeted Product Recommendations

Executive Summary

Even amidst the global economic slowdown, the trend towards eCommerce presses forward, offering increasingly rare growth opportunities for innovative companies who are willing to take action. eCommerce revenue continues to grow—both as a percentage of overall retail spending and in absolute levels. However, capitalizing on this opportunity requires innovation and a willingness to experiment. As the long tail grows and more products and services become available, online shoppers can be bogged down by the nearly unlimited set of choices. That’s why it is important to focus on finding ways to present your customers and prospects with the products and offerings that are most relevant to them, including personalized product recommendations.

This whitepaper will:

can increase purchases, revenue and customer loyalty

recommendations spending in just five months, and how another company has seen revenue driven by recommendations increase by

® Recommendations instead of its editorial-based approach.

to your site

ChoiceStream, Inc.210 BroadwayFourth Floor

Cambridge, MA 02139617-498-7800

www.choicestream.com

Table of Contents

Executive Summary .........................1

Online Shopping and eCommerce is Increasing Dramatically ....................................2

What are Personalized Recommendations? How do They Generate More Revenue? .....2

Success Stories ................................3

Measuring Potential Impact of Personalized Recommendations ..........................4

Conclusion .........................................6

About ChoiceStream ........................6

ChoiceStream: Increase Revenue with Micro-Targeted Product Recommendations 2

an increasing share of consumer retail spending. Further, online shopping continues to grow in absolute terms—one of the few bright spots in the current economic environment for retailers. Some of the latest figures are as follows:

U.S. retail sales.1 The percentage has grown steadily since the U.S.

2

their holiday shopping online, and the percentage is expected to be

Though revenues from eCommerce are growing, so are challenges to online retailers. A new report from eMarketer notes that websites’ relationships with customers are increasingly important and that online consumers’ expectations are now higher than what many online shopping sites provide. Regardless of what type of product or service you sell online, catering to users’ preferences and site expectations is a must.

How Can Personalized RecommendationsGenerate More Revenue?Personalized recommendations are a great way to personally connect with each visitor every time he or she visits your site. They allow you to drive faster conversions, larger order size and increased profitability by presenting each consumer with product recommendations based on their preferences and shopping behavior and your inventory.

ChoiceStream is the market leader in personalization services for e-retailers. Recently named the company with the “deepest experience” and the “largest and longest-standing of the ‘pure-play’ personalization engines” by Forrester Research, ChoiceStream enables you to target each visitor with the products and services most likely to generate interest and prompt a purchase, as well as encourage shoppers to return to your site more often.

1. U.S. Department of Commerce | 2. JPMorgan, Jupiter Research, Forrester Research | 3. Turner Investment Partners

ChoiceStream: Increase Revenue with Micro-Targeted Product Recommendations

Success StoriesThe following case studies illustrate how ChoiceStream RealRelevance

Recommendations increase purchases and customer loyalty for two of today’s largest e-retailers.

Multi-billion Dollar, Multi-channel Retailer Achieves 14x Return on Recommendations

After years of outsourcing its online operations to a third-party, this retailer decided to take its operations in-house. As part of the site re-launch, the company sought a best-of-breed vendor to generate automated personalized product recommendations.

The retailer selected ChoiceStream RealRelevance Recommendations because of its:

a-service delivery model.

A particularly valuable differentiator was ChoiceStream’s ability to solve the ‘Cold Start’ challenge. The ‘Cold Start’ challenge occurs when a retailer doesn’t have enough purchase or transaction data about its consumers to generate good quality recommendations when it first launches personalized product recommendations. This multi-channel retailer had limited online purchase data, but ChoiceStream’s RealRelevance Recommendations cold start feature bundle was able to leverage purchase data from the retailer’s brick-and-mortar stores to bootstrap the recommendation service while online data was accumulated. In addition, whenever new catalog items or new users appear, the system uses a variety of algorithms to quickly determine which recommendations will be most effective.

recommended items now make up 17.1% of total online revenueall buyers choosing to purchase at least one recommended item.

Online movie site sells more DVDs

A subscription-based online movie site wanted to boost revenue by increasing add-on purchases made by subscribers. In addition, the Company wanted to sell

had already implemented its own recommendations, but felt that there was more opportunity that it had yet to capture.

The Company chose ChoiceStream to replace its own editorial recommendations that had been manually-picked in-house. Compared to these internally-generated recommendations, the ChoiceStream recommendations resulted in a 38% increase in DVD revenues. In addition, the ChoiceStream recommendations generated more back-catalog sales resulting in a much higher margin than the internal, rules-based recommendations.

ChoiceStream: Increase Revenue with Micro-Targeted Product Recommendations

Measuring Potential Impact ofPersonalized RecommendationsIn order to get the most out of site personalization, it is important to forecast the potential impact recommendations can achieve for your site. The forecast can be done through a simple spreadsheet exercise like this example below.

For an eCommerce site, you will need to know the following:

contains several recommendations)

recommendations

Using these inputs, you can easily create a calculation to determine the potential incremental revenue that ChoiceStream could provide. The following chart illustrates the calculation using three separate scenarios, for three classes of online retailers. While you should make assumptions based on your particular business model, the estimates included here are based on the results we’ve seen among ChoiceStream’s customers.

Conservative

Emerging Start-up

Mid-Tier Media Site

Large Market Leader

Total annual pageviews 25,000,000 75,000,000 500,000,000Pageviews that include recommendationsRecommendation sets per page Total recommendation sets servedClick-through rate

12,500,0001

12,500,0008%

37,500,0001

37,500,0008%

250,000,0001

250,000,0008%

Recommendation-driven product detail page viewsPurchase conversion rate

1,000,0003%

3,000,0003%

20,000,0003%

Recommended items purchasedAverage item price (ex. shipping & handling)

30,000$15.00

90,000$15.00

600,000$15.00

Annual Incremental Revenue from recommendations (ex. shipping & handling)

$450,000 $1,350,000 $9,000,000

ChoiceStream: Increase Revenue with Micro-Targeted Product Recommendations 5

Moderate

Emerging Start-up

Mid-Tier Media Site

Large Market Leader

Total annual pageviews 25,000,000 75,000,000 500,000,000Pageviews that include recommendationsRecommendation sets per page Total recommendation sets servedClick-through rate

12,500,0001

12,500,00010%

37,500,0001

37,500,00010%

250,000,0001

250,000,00010%

Recommendation-driven product detail page viewsPurchase conversion rate

1,250,0005%

3,750,0005%

25,000,0005%

Recommended items purchasedAverage item price (ex. shipping & handling)

62,500$25.00

187,500$25.00

1,250,000$25.00

Annual Incremental Revenue from recommendations (ex. shipping & handling)

$1,562,500 $4,687,500 $31,250,000

Aggressive

Emerging Start-up

Mid-Tier Media Site

Large Market Leader

Total annual pageviews 25,000,000 75,000,000 500,000,000Pageviews that include recommendationsRecommendation sets per page Total recommendation sets servedClick-through rate

12,500,0001

12,500,00011%

37,500,0001

37,500,00011%

250,000,0001

250,000,00011%

Recommendation-driven product detail page viewsPurchase conversion rate

1,375,0006%

4,125,0006%

27,500,006%

Recommended items purchasedAverage item price (ex. shipping & handling)

82,500$35.00

247,500$35.00

1,650,000$35.00

Annual Incremental Revenue from recommendations (ex. shipping & handling)

$2,887,500 $8,662,500 $57,750,000

ChoiceStream: Increase Revenue with Micro-Targeted Product Recommendations

to continue measuring their performance in order to ensure you are achieving the best possible results and getting the highest possible return on your investment.

However, it is also important to remember that not all of personalization’s benefits are captured in the above calculations. Personalized recommendations can also improve customer experience, loyalty and retention.

For more information on tracking recommendations that are already implemented “Personalization – A Top

Priority for Up-selling and Cross-Selling on the Web.” The Webinar is available at www.choicestream.com.

ConclusionThe internet continues to offer a large and growing opportunity for retailers. In order to capitalize on this opportunity, sites need to not only encourage purchases, but also attract and retain a loyal customer base. Personalized recommendations are a great way to make your site more relevant to each consumer, and to improve your online business. Recommendations are easy to implement and proven to provide uplift in click-through rate and purchases when executed well. A few key things to consider when evaluating recommendation service providers include performance and reliability, multi-channel support and editorial controls. For more information, download our White Paper: “Seven Key Requirements for Personalized Recommendation Services.”

About ChoiceStreamChoiceStream is the premier personalization service provider for the world’s largest

AT&T, and Blockbuster. Recently named the company with the “deepest experience” and the “largest and longest-standing of the ‘pure-play’ personalization engines” by a leading independent research firm, ChoiceStream enables customers to put the right content and products in front of the right people at the right time to maximize the value of every interaction with consumers.

ChoiceStream can recommend all types of content and can be delivered via any medium, including the desktop, kiosks, mobile devices, the TV set-top, and call centers. And ChoiceStream delivers this innovation through a fully-hosted service, providing everything customers need to dramatically increase revenue and consumer satisfaction without a costly IT investment.

210 Broadway | Fourth Floor | Cambridge, MA 02139 | P: 617.498.7800 | F: 617.621.6780