Forrester: Predictive Merchandising to Become Ubiquitous in 2009 (They’re Wrong)

I somehow missed Brian K. Walker’s excellent end of year post Ten Themes for 2009: eCommerce Technology. It’s a good read and, given our focus, this prediction jumped out at me.

Predictive merchandising becomes ubiquitous, and the crowd begins to separate. “Predictive merchandising” is also referred to as “automated merchandising” or “personalized product recommendations”. Whatever term you like (or are marketing) we will see this area are the “product reviews of 2007”, where we go from stepped up interest and demand to a default feature. The incumbent concerns and cultural hesitations of merchants and marketers will be replaced with an enthusiasm for the improved customer experience and ROI.

I disagree wholeheartedly.

Actually, that’s a little extreme. I think Brian is right given the way he’s defining the market. The use of recommendation engines and predictive merchandising on e-commerce sites is rapidly being embraced by leading retailers and etailers, and 2009 may very well be the tipping point. But for the vast majority of retailers - the long tail and bulk of the market - are a long way away from implementing this type of technology. Why?

• The amount of sales volume they do is too small to make the investment pay off. Current predictive platforms are expensive and require lots of seeding of the predictive database (the so-called cold-start problem). If a predictive platform increases demand by 20% but requires a 3 month sales and setup cycle, as well as lots of ongoing attention, will the incremental revenue outweigh the hassle? In our experience the answer is no for most small and mid-sized retailers.
• Many retailers are disinclined to trust the “black-box”. Recommendation engines are designed to manage the entire cycle of data collection, analysis, modeling, implementation, and presonalized content delivery. Handing that kind of control over to a computer is just a little too scary, at least for now. Leading retailers have the first-rate brainpower and backoffice resources to provide peace of mind when managing a recommendation system. The long tail does not.
• Smaller retailers are still heads-down in operations. There is a lot to be said for how what concerns employees day to day influences company initatives. For most smaller operations, top of mind is inventory management, order processing, pick and ship, IT issues, and general firefighting. Using whiz-bang technology to drive incremental revenue does not chart and is therefore unlikely to get attention unless an order to implement it comes from the top.

Tags: predictive marketing, predictive merchandising, product recommendations, Recommendation Engines

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This entry was posted on Wednesday, January 28th, 2009 at 9:39 am and is filed under Predictive Analytics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.