2013 HiConversion, Inc.

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2 Table of Contents Executive Summary... 1 e-commerce is More Complex than Ever... 1 Additional resources... 1 The Evolution of Technology & Competing Vendor Strategies... 2 Why Personalization Isn t Enough... 2 Beginnings: It s about Testing... 3 Content, Layout, and Functionality are Critical... 3 Now: It s About Personalization... 5 User Experience is Most Important... 5 Personalization Methods... 6 Rules-Based Targeting Does Not Work... 7 Interaction Between Page Changes are Significant... 8 Going Forward: It s about erpm Predictable Revenue Growth is Essential Adaptive Algorithm and Real-time Results Multivariate Modeling: Harness the Interactions Full Funnel Coverage and End-to-End Revenue Increases Breaking Down Technical Barriers The Golden Opportunity: Get More Revenue from Existing Web Traffic Predictable Revenue Growth Actionable Customer Insight Resource Allocation and Empowerment Conclusions... 15

3 erpm: Beyond Personalization 1 Executive Summary e-commerce is More Complex than Ever e-commerce as a business is continually evolving. The advent of Web 2.0 technologies, social marketing, and mobile / tablet form factors are adding complexity that is making it harder and harder to achieve sustainable revenue growth. There are many software products designed to assist e-commerce professionals with the management of various aspects of online business. Personalization, or the targeted treatment of different groups of e-commerce visitors, is gaining a broad market acceptance and is considered the next big thing in e-commerce. In this white paper, we ll shed more light on both the value and limitations of personalization solutions. Our goal is to create an understanding that personalization is simply an evolutionary step toward the development of a comprehensive e-revenue Performance Management (erpm) solution. Revenue Performance Management, or RPM, was introduced by leading marketing automation vendors as a new software category in an effort to help differentiate their offerings from traditional CRM solutions. e-commerce is a delicate ecosystem There are two main aspects of e-commerce business that are not well-understood, and therefore not solved by existing rules-based personalization solutions: (1) the timevarying nature of visitor behavior, and (2) the interdependencies between website element changes. If your software solution is unable to effectively address those issues, your efforts to improve revenue performance may actually hinder your results. As you ll learn from this white paper, HiConversion has extended the advantages of RPM to the e-commerce space by providing innovative solutions that enable e-commerce brands to build predictable, sustainable revenue growth strategies. Additional resources For a complete, high-level overview of the erpm methodology and available erpm solutions, we recommend HiConversion s Industry Solutions Guide. Have questions or comments about this guide? Feel free to drop us a line: info@hiconversion.com. Stay in the loop with the latest e-commerce optimization best practices and commentary by visiting the HiConversion erpm blog.

4 erpm: Beyond Personalization 2 The Evolution of Technology & Competing Vendor Strategies Why Personalization Isn t Enough Marketing leaders intuitively know that it takes a multi-faceted approach to realize success in today s competitive e-commerce marketplace. However, it has become increasingly difficult to get a clear picture of which software solutions and approaches to revenue growth actually work. Software categories are in a state of rapid evolutionary growth, and e-commerce professionals are challenged by both a lack of tried-and-true best practices and a poor understanding of vendors competing product positioning. In the paragraphs that follow, we ll explain the real complexities that surround the e- Commerce revenue growth problem in the evolutionary context of website optimization product categories, from online testing to personalization, and most recently, to erpm. This overview is provided with the goal of fostering a better understanding of how the erpm capabilities delivered by HiConversion s e-optimizer platform are disruptive to a majority of the existing online testing and personalization solutions.

5 erpm: Beyond Personalization 3 Beginnings: It s about Testing Content, Layout, and Functionality are Critical As a basic best practice, e-commerce operators need to publish and maintain a highperforming website that includes a mix of key features, such as live chat, social widgets, and/or product reviews. Once the site is functional and bug-free, they can explore variations in content, layout, and general look-and-feel. Substantial empirical evidence demonstrates that content and presentation matter, and the right website modifications can have a significant impact on the bottom line. Testing solutions providers are teaching the marketplace that online testing is a sure way to grow online sales. As far as these vendors are concerned, the more you test, the more you stand to gain. What is multivariate testing? Multivariate testing (MVT) is a process of testing numerous page component changes at the same time. Unlike a split or A-B test where traffic is apportioned between two distinct versions of the entire web page, MVT tests dramatically expand the scope of possibilities by enabling testing of dynamically generated combinations of the individual element changes. As a result, an MVT solution can experiment with millions of versions of a single web page, versus just a few versions via A-B testing solutions.

6 erpm: Beyond Personalization 4 Somewhat ironically, many e-commerce brands have paid for expensive multivariate testing (MVT) solutions only to run simple A/B tests. Their reason: MVT experiment setup is complicated, and since MVT involves testing more page elements than A/B (or split ) tests, MVT can take a relatively long time to carry out. The few e-commerce companies that are ambitious enough to actually run multivariate tests might tell you that MVT results are short lived, or worse yet, do not show any positive lift at all. Their explanation is very simple: web visitor behavior is constantly changing, and what worked in the past does not always work moving forward. The use of traditional testing solutions is like driving a car while only watching the rear-view mirror.

7 erpm: Beyond Personalization 5 Now: It s About Personalization User Experience is Most Important Recognizing some of the difficulties and shortcomings associated with traditional website testing, some MVT vendors have turned their attention towards solving another common e-commerce problem: visitor targeting, or to use a more polished term, e- Commerce personalization. This shift makes perfect sense: these vendors have realized that online marketers have worked hard and spent heavily to attract segmented traffic from different online channels and keyword campaigns. It does not make sense, then, to push all of that segmented traffic through a single version of the e-commerce site. To the vendors, traditional e-commerce sites behave like a meat grinder, wasting all of the benefits of the customer segmentation that was carried out in the demand-generation process. Instead, the personalization solution providers offer capabilities to present different content or offers to different types of visitors. These personalization vendors are promoting the view of an e-commerce world where testing is a nice to have, but should not be made a priority, since it requires considerable effort.

8 erpm: Beyond Personalization 6 Instead, personalization vendors tout that personalization solutions are easier to implement than testing, and because of the potential for increased ROI, that personalization should be considered the low-hanging fruit of online sales and marketing. Personalization Methods There are two primary ways to achieve personalization: A basic, rules-based approach More advanced segmentation driven by algorithms. In rules-based personalization, companies match different audiences with targeted content by using simple rules, like the one shown below: The second approach, called algorithm-driven personalization, uses machine intelligence to automatically determine targeting rules. There is a clash between the vendors that represent these two personalization approaches. Rules-based vendors dominate the marketplace today, and they invest significantly in marketing that casts algorithmic-based methods as black box solutions that aren t transparent, controllable, or trustworthy. As explained further in this paper, they couldn t be more wrong. The black box argument can be compared to a debate which was sparked by the invention of automobiles at the turn of the 20th century, when horse-buggy manufacturers fought the advent of the automobile, they deemed them too hard to know and control.

9 erpm: Beyond Personalization 7 Rules-Based Targeting Does Not Work The simplicity of rules-driven personalization solutions is appealing, but these platforms have a significant drawback: similar to traditional online testing, rules-based methods do not work. Reason 1: Visitor Behavior is Irrational Personalization rules are usually created based on the assumption that marketers somehow know in advance how their visitors will react to an offer or experience. In reality, visitor reactions are determined by a large number of factors, and are often based on unpredictable emotional factors. In this way, visitor behavior is irrational. Otherwise, all ad campaigns would be clear cause-and-effect connections, and would always produce predictable results. Reason 2: Visitor Preferences Change Continually Just as with online testing, visitor behavior changes from one time interval to another. As a result, even if the targeting assumption was at one time successful, there is no guarantee that it will continue with the same success moving forward. Example One of our clients decided to target visitors generated through campaigns with a simple free shipping incentive. Logically, one would expect that free shipping for every purchase would outperform a free shipping offer with a minimum purchase requirement. The campaign was provisioned to explore multiple shipping options, including no purchase requirement, a $50 minimum, a $75 minimum, and finally, a $100 minimum purchase. The goal was to uncover the most profitable option. During the first phase of the campaign, our client was surprised to learn that the best revenue-per-visitor came from the offer of free shipping with a $50 minimum purchase, followed by the offer of free shipping with a $100 threshold.

10 erpm: Beyond Personalization 8 Example (continued) The continuation of the earlier experiment showed that if our client had permanently used the $50 minimum purchase offer, their results would have turned negative, and this client would have lost money going forward. In fact, the $50 free shipping threshold that performed best during the initial test produced a -12% drop in revenue per visitor. This change in performance illustrates the time-varying nature of web visitor behavior. Interaction Between Page Changes are Significant As previously indicated, extracting more revenue from existing e-commerce traffic is a very complex problem. The paragraphs above have shed some light on the multidimensional nature of the problem: Content: copy and layout matters. Visitors: presenting personalized content to different market segments is valuable. Time: visitor behavior varies, and it is essential to adapt to visitor changes. The e-commerce problem is deeper still: interdependencies between your on-page content and functional changes can trigger unexpected visitor reactions. The diagram below depicts the multi-dimensionality of real-world e-commerce revenue management. In this diagram, you ll notice that individual website changes cannot be treated as independent events any given change to a website s elements or functionality can affect the performance of another element. This aspect of e-commerce site performance is poorly understood, even by marketing professionals. As a matter of fact, leading personalization vendors are encouraging their clients to run as many simultaneous A/B tests or personalization campaigns as they can. The hope is that each positive uptick in the performance of one campaign will add up to an overall increase in the performance of the entire e-commerce site. This logic is flawed; ignoring the interdependencies between page element changes can mean the difference between the success and failure of your revenue growth strategy.

11 erpm: Beyond Personalization 9 Example: two rights can make a wrong In online sales and marketing, 2+2 does not always yield 4. This is because the human brain absorbs information in a non-sequential pattern. Our brains are wired to scan and notice the most visible item on the page first. When marketers place too many good, but potentially distracting elements on a page, the website becomes cluttered and the visitor becomes frustrated and can leave without making a purchase. A major publishing company conducted the following A-B tests: Test #1: Free shipping for a minimum purchase of $75 was tested against no free shipping. Free shipping produced +3.95% RPV (revenue per visitor) lift. Test #2: Red versus blue Add-To-Cart buttons were tested. The red button produced RPV lift of +4.3%. Upon completion of these two tests, the company implemented both winning elements together: the free shipping banner and the red button. To this company s surprise, instead of getting a +4% or higher RPV lift, the new page yielded a -1.83% drop in RPV. This outcome illustrates that two rights can backfire and produce a wrong; the result of a combination cannot necessarily be predicted by aggregating the results of each element in that combination. * RPV: revenue per visitor

12 erpm: Beyond Personalization 10 Going Forward: It s about erpm Predictable Revenue Growth is Essential e-optimizer is an e-revenue Performance Management (erpm) platform that is designed to effectively solve every aspect of the e-commerce revenue growth puzzle. The solution is built on multiple patents held by HiConversion. It breaks down the technical complexities of setting up multivariate experiments and uses an adaptive algorithm that leverages artificial intelligence and multivariate modeling to deliver fullfunnel coverage and end-to-end results for a predictable and reliable growth strategy. Adaptive Algorithm and Real-time Results As aforementioned, one major flaw associated with traditional A/B and multivariate testing solutions is the assumption that web visitors behaviors are steady-state. Based on that logic, testing vendors advise their clients to run tests until they reach statistical significant and then implement the winning results thereafter. HiConversion has a huge body of evidence that suggests that visitor behavior varies so much that it is highly unlikely that test results will hold going forward. That s why we ve developed and patented innovative optimization methods that are driven by a patented adaptive approach, leveraging artificial intelligence to automatically allocate a disproportionate amount of traffic to combinations that are predicted to win, while simultaneously filtering out losing variations in real time. As your customer s purchasing behavior changes, the system adapts by allocating more traffic to high revenue-per-visitor versions of your website. In this way, you re always delivering page combinations that have the highest chance to succeed. Multivariate Modeling: Harness the Interactions e-commerce professionals are often running multiple testing or personalization campaigns parallel in an attempt to simplify the implementation and glean the best result in the shortest period of time. They then lump the outcomes together on a web page, believing that the results from individual campaigns will aggregate and the result will be a bigger overall performance lift. Outside of rare exceptions, they re wrong. Time and time-again, we ve discovered that this approach fails to deliver positive outcomes. The interactions between winning elements are often negative it s like mixing independently-beneficial medications to produce negative side effects. Rather than ignoring this element, e-optimizer uses an advanced multivariate statistical model that can effectively predict how multiple page elements will perform in tandem. This modeling complements the adaptive algorithm to create an adaptive multivariate optimization (AMVO) engine. Full Funnel Coverage and End-to-End Revenue Increases Every e-commerce site can be viewed as a multi-step sales funnel. The benefits of a single optimization might not trickle down to the end results.

13 erpm: Beyond Personalization 11 To optimize end-to-end outcomes, we ve developed a rich set of campaign configuration features that enable the creation of multivariate campaigns that span across multiple physical pages. Our AMVO engine is able to deliver predictably positive end-to-end results throughout your e-commerce funnel, while preserving the consistency of your visitors experiences. Breaking Down Technical Barriers One major barrier to multivariate content experimentation is the technical complexities of setting up the optimization campaign. Since IT resources are constrained, any online marketing software solution that requires IT resources is likely to be dead on arrival. In order to overcome these barriers, HiConversion has invented and patented a generic pixel integration method and an easy-to-use, point-and-click visual editor that grants even non-technical marketing professionals the ability to set up and run optimization campaigns.

14 erpm: Beyond Personalization 12 The Golden Opportunity: Get More Revenue from Existing Web Traffic According to Shop.org, the average e-commerce conversion rate is only 1.83%. Despite this low number, many independent market studies show that in reality, 20% of all visitors are actually ready to buy. Predictable Revenue Growth How can marketers explore and tap into that potential? e-optimizer allows you to glean additional revenue from your e-commerce site without increasing your traffic. We combine math and science to generate predictable revenue growth outcomes, provide you with actionable insight into your visitors reactions, and dynamically customize the sales funnel all in real time. The e-optimizer platform has 'cracked the code' to delivering predictable revenue growth. At its heart, e-optimizer uses an adaptive optimization method that leverages artificial intelligence and multivariate modeling to reliably predict visitor reactions and grow revenue in real time. Operators can view real time reports to see how much revenue a campaign is generating. Actionable Customer Insight e-commerce professionals have heavily relied on traditional web analytics to make inferences about website visitor behavior and what to do to grow revenue. Although these tools provide rich and valuable information, their reach stops at the level of a single web page. Web analytics can reveal shortcomings on your site, but they cannot tell you which element changes are useful or harmful. e-optimizer has a much broader scope and depth. It allows you to explore a wide spectrum of content, applications, and promotional changes while getting precise feedback about the revenue impact of each individual component change. By using easily-accessible reports, e-commerce professionals can understand their visitor s reactions to their website on a granular level. This knowledge empowers marketers to make data-driven decisions. Often, this process also uncovers surprising outcomes that can lead to a deeper understanding of visitor preferences.

15 erpm: Beyond Personalization 13 Example: Directly Measurable Results The campaign below is producing a % lift in RPV (revenue per visitor). This has resulted in $66,481 in new revenue using only existing traffic over a two week period. Resource Allocation and Empowerment Once e-commerce managers can see which campaigns have the most revenue impact at each stage of the revenue cycle, they can make informed decisions and allocate resources to the demand generation campaigns that achieve the highest revenue per visitor. Reveal Unexpected Visitor Reactions The Variable Importance Report below shows that a change in main menu navigation has created an average -2.99% drop in RPV (revenue per visitor), while the removal of a search box results in a +4.39% RPV lift.

16 erpm: Beyond Personalization 14 At first, this result might seem irrational. However, closer analysis might lead to the conclusion that focusing visitors on a product that they have already seen is more effective than giving them an option to continue searching and increase the probability of them leaving without converting. e-optimizer provides actionable insight into the end-to-end revenue impact of different demand campaigns. By doing so, e-optimizer empowers executives to pursue different budget allocation strategies. For example, one might decide to shift dollars towards demand-generation campaigns that accelerate sales but result in smaller average deal sizes, or they can choose to run onsite optimization, merchandizing, and performance optimizations that produce increased revenue and higher profitability from existing traffic.

17 erpm: Beyond Personalization 15 Conclusions This paper s purpose was to shed light on the evolution of the e-commerce Revenue Growth software category, and to evangelize the need for a comprehensive and sustainable erpm solution. erpm is more than a new marketing buzz word: it s a key evolutionary step that bridges the gap between the art of online marketing and the science of e-commerce revenue generation. e-optimizer s advanced capabilities deliver a powerful benefit: predictable, sustained revenue growth. There is nowhere for gimmicks to hide - typically, our clients discover that this technology delivers on its promise within days. The value of erpm is deeper still: with actionable insights into your customer s preferences, your team can continually optimize for better results and allocate resources in the most efficient way possible. As erpm gains market share, it is quickly becoming an e-commerce best practice. Give yourself a head start by ensuring that you have a strategy in place for achieving predictable revenue growth from your e-commerce site. To learn more about erpm, be sure to download the free 2012 erpm Industry Solution Guide. If you would like to discover how e-optimizer can help your brand realize sustainable revenue growth, please contact HiConversion at info@hiconversion.com or call for a live demonstration.

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