Is Personalized Shopping Private?

Personalization at scale seems contradictory. It’s like having a party with several million friends. Yet at its best, ecommerce personalization drives conversions anonymously.

How can merchants balance customer personalization and privacy? I asked that question to payment and security pros.

Personalizing ecommerce shopping drives sales. Maintaining privacy is the challenge.

Balancing Act

Robin Anderson, vice president of acquiring products at Tribe Payments, an open banking facilitator, has seen ecommerce personalization evolve from simple tracking and recommendation systems to sophisticated, artificial-intelligence-driven experiences. He believes all commerce channels, from online to in-person, will become more personalized.

“Hyper-personalization is on trend in payments and the flipside, which is privacy,” he said. “It’s not only about the data you capture and leverage to drive engagement; it’s also about the mechanisms to allow consumers to call back that data later. It’s a real balancing act, and I don’t think anyone has quite cracked it yet, but certainly there has been a lot of rapid innovation.”

Compliance

Keeping up with privacy regulations, which vary by region, is critical for ecommerce merchants, stated Sandra Tobler, co-founder and chief customer officer of Futurae, an authentication platform.

“Privacy guidelines such as Europe’s GDPR and PSD2 have a profound impact on ecommerce merchants, requiring them to handle customer data with greater care and transparency,” she said. “Compliance with these regulations is crucial to avoid hefty fines and to build customer trust.”

Tobler recommended using advanced authentication to verify legitimate customers. Multifactor authentication, biometrics, and behavioral analytics can help protect customers’ accounts, build trust, and decrease churn rates. Advanced solutions use data collected during authentication to tailor security measures for each user. A key aspect of this approach, continuous authentication, assesses a user’s behavior and context throughout the shopping journey.

“If users are shopping from a familiar location and device, the system can allow them to proceed with minimal friction. However, if the system detects an unusual location or device, it might prompt for an additional authentication step to ensure security. Recognizing returning customers and allowing them to move through the shopping journey without repeated prompts contributes to a smoother experience, increasing customer satisfaction and loyalty.”

It is also important to separate nonsensitive data, such as behavior patterns, geolocation, and devices, from sensitive, such as credit card numbers and other personally identifiable information.

“Decoupling sensitive data aligns with privacy regulations by minimizing the amount of personal information processed during authentication,” she said. “The end-to-end encryption of sensitive data, such as credit card numbers and personal identification information, protects the original, even if intercepted.”

Sensitive Data

Jason Howard, CEO at Caf, an identity authentication provider, agreed that collecting only required information for specific transactions is foundational to regulatory compliance.

“Many jurisdictions around the globe have created consumer data privacy laws, and running afoul of these regulatory statutes can be costly. That’s why we recommend incrementally collecting information from users only as needed. Such an approach creates a better customer experience, thus leading to less abandonment and quicker time to revenue.”

Howard additionally noted that decentralized identity solutions enable secure and transparent transactions without relying on intermediaries or data storage. These solutions also simplify the authentication process and eliminate the need for repeated verifications when customers access different platforms.

“With robust biometrics, merchants can be assured that users are who they claim. Biometrics help protect against stolen identities, impersonation, and account takeover attacks.”

Embedded commerce — selling products on external channels — has created new revenue channels and opportunities for attackers, Howard added. Fraudsters exploit the refund process within embedded payment systems in various ways, such as requesting refunds for products or services they never purchased or falsely claiming that the goods they received were defective.

Ecommerce companies need technology to detect that behavior. Behavioral analytics can identify suspicious patterns and fraud. AI models can uncover patterns in large datasets that may previously have gone undetected. AI can also detect manipulated images or documents.

Checkouts

Peter Karpas, CEO of Bold Commerce, a customized checkout provider, observed that personalization has thus far stopped short of the checkout experience.

“Personalization in ecommerce is less about who one specific customer is and more about the experience,” he said. “For example, a shopper that lives 20 miles from a store should be offered a checkout with options for pickup and delivery, whereas a shopper farther away should just see shipping.”

Rather than creating millions of unique customer experiences, Karpas suggested that brands tailor shopper journeys and segments. Checkout, for example, could be two or three versions, depending on the segment.

“Retailers realize personalizing checkout isn’t the same as everything else,” he said. “They’re finding it disproportionately impacts conversions, average order value, and customer lifetime value.”

Turn Shoppers into Brand Advocates

Turning shoppers into brand advocates transforms the customer lifecycle into a profit-generating flywheel.

An ecommerce customer lifecycle is a process with steps. It’s different from a flywheel, a model of continuous improvement. Combined, they create a reinforcing loop that produces customers and revenue.

A customer lifecycle flywheel drives sales in a loop that improves with every rotation.

Ecommerce Customer Lifecycle

A customer lifecycle generally has five broad steps — from discovering a brand or product to becoming an advocate for the business.

Ecommerce marketers often focus on one or two of these steps. For example, some marketers spend most of their time engaging and acquiring shoppers. This is essential work but unending.

Marketers relying on advertising to engage customers will never eliminate paid acquisition or reduce its cost. Growth will be proportional to investment.

In contrast, the same marketers could develop brand advocates and soon find steps one (Engage) and two (Acquire) filled with referred shoppers.

By no means should ecommerce stores stop advertising. But they should think of customer lifecycles as flywheels.

Connecting Stages

Business flywheels have rules. First, the virtuous cycle means each flywheel step moves smoothly to the next. For example, many marketing teams are good at moving shoppers from engagement (Engage) to purchase (Acquire).

Each step in a business flywheel should flow smoothly into the next.

A prospect moves from the Engage step to Acquire when she has enough context to make a purchase. Ecommerce marketing teams are usually very good at this part of the wheel. They run ads, monitor clicks and visitors, and measure conversions.

Moving a shopper from Acquire to Nurture should be just as smooth. Perhaps this requires a post-purchase email sequence encouraging the shopper to join a newsletter. Or it may be a thank-you note from the store.

Each step should lead to the next. Encourage Advocacy becomes the final step, leading back to Engage. The store’s advocates have become marketers, exposing potential customers to the business. Thus Engage now includes both referred and purchased shoppers.

Encourage Advocacy, the last step in a business flywheel, restarts the cycle.

Ease

The second rule of a business flywheel is each rotation is easier. This becomes true when marketers focus on the entire cycle and encourage advocacy.

Here is a hypothetical example. What if every brand advocate produced one prospect for each rotation of the flywheel? Assuming the company ordinarily obtains 100 engaged shoppers each cycle, advocacy could lead to 47 more engaged shoppers by the fifth rotation.

With brand advocates, the top of the cycle (Engage) is growing because customers beget customers.

Effectiveness

The third rule for a business flywheel is each rotation is more effective.

This, too, is true when marketers consider the entire lifecycle.

In the example above, more prospects are entering the Engage step, and thus more into Acquire, Nurture, Retain, and Encourage Advocacy.

Flywheel

A linear conversion process implies an ending. Marketers often focus on the steps that conclude with immediate sales. But transform that process into a flywheel, and suddenly advocacy is not the end but the beginning of greater opportunity.

Develop promotional tactics for each step in the cycle. The increased flow boosts revenue and profit without more investment.