Lec13_Personalization

Lec13_Personalization - IS and Business Integration:...

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Unformatted text preview: IS and Business Integration: Web-based Personalization and Privacy ISMT 101, Spring 2011 Lecture 13 HKUST Business School Overview What is “personalization”? How is it different from customization and what is the relevance of IT in this? What is the MAJOR implication of Web-based personalization? How does it affect consumers’ and firms’ choices? What are “cookies”? How do they work and what are their roles in Web-based personalization? ISOM 101 Raymond G. Sin © 2 HKUST Business School What is “Personalization”? Personalization Tailoring products/services to the specific taste and preferences of an individual How is it different from “customization”? Customization “Mass customization” – tailor to groups of individuals Examples? Where do we see personalization in traditional markets? ISOM 532 Clothes, coffee, iPod, notebook computer Luxury goods (e.g. exclusive clubs, high-end hotels, designer clothes) But in e-commerce, various levels of personalization are being offered to the average Joe at no cost online Raymond G. Sin © 3 HKUST Business School Why Personalization? Question: Why do firms invest in something that consumers may not be willing (and often not asked) to pay for? Profit maximization Define “Profit”? Profit = Revenue – Cost Not a very helpful answer for your boss Try this: Profit = the gap between what people are willing to pay and what it costs to offer to them What is the “trick” of widening this gap? Why are consumers willing to purchase a vehicle at a price that is much higher than the total cost of the auto parts? It’s ISOM 532 all about “value adding” Raymond G. Sin © 4 HKUST Business School Personalization: Value Creation So, the broad question is: How can firms create values to their customers on the Internet through personalization? Examples? ISOM 101 Raymond G. Sin © 5 HKUST Business School Web-based Personalization (1) Both customization and personalization rely heavily on knowledge of the market/consumer preferences; but it’s even more so for Web-based personalization (WHY?) No physical contact/interactions Need to “infer” as opposed to “ask” However, we can now observe what they have “looked at” in addition to what they have bought The good: LOTS of information about customers There are different types of information – what are they and what are their respective roles in personalization? Much lower cost Implications of digital products and services ISOM 101 Raymond G. Sin © 6 HKUST Business School Web-based Personalization (2) Types of consumer information Anonymous Does not involve any personal information Examples? Applications? Personally unidentifiable Can be used to understand groups of consumers, but cannot identify a particular individual Examples? Applications? Personally identifiable Can be used to identify the specific individual Examples? Applications? ISOM 532 Raymond G. Sin © 7 HKUST Business School Web-based Personalization (3) Business values of personal information? To better serve your customers Better “fit” between existing products/services and customers To better understand your customers R&D, More new product development effective advertising Generic e.g. ads delivered to your email account, cell phones, etc. Price discrimination e.g. ISOM 532 vs. “targeted” advertising Amazon Raymond G. Sin © 8 HKUST Business School Collaborative Filtering (1) A method of making relevant recommendations or search results (filtering) based on preference/taste information of other users in the past (collaborative) An alternative (simpler) approach: assigning an average score for each item of interest (i.e. “since 70 out of 100 customers liked this, I should recommend it to the next visitor – no matter who he/she is”) ISOM 532 Raymond G. Sin © 9 HKUST Business School Collaborative Filtering (2) Underlying assumption: what was true about (other) users in the past (about their taste/ preferences) will hold true again in future Problems? 1. Preferences/tastes change over time 2. People who share common interest in one product may have very different feelings towards another product ISOM 532 Categorization becomes crucial (e.g. Rock vs. Classics; Poems vs. Science fictions) Raymond G. Sin © 10 HKUST Business School Collaborative Filtering (3) Usually involves two steps: 1. Identify preferences of the “right” users based on comparison with the profile of the active user 2. Using predefined algorithm, predict the needs of the active users based on ratings from the control group identified in step 1 A more sophisticated alternative: Item-based collaborative filtering “users who bought x also bought y” Correlation-based analysis requires much more data to accomplish accurate predictions ISOM 532 Raymond G. Sin © 11 HKUST Business School Strategic Values of Personalization Is there any tool that we can use to understand the strategic advantage of personalization and analyze this type of competition? Recall: value chain analysis Good to understand how a firm creates values through efficient business processes and new technologies But does not provide a complete picture in understanding competition Solution? Competitive ISOM 101 Forces Model Raymond G. Sin © 12 HKUST Business School Competitive Forces Model (1) Also known as the “Five Forces Model” The “5 forces”: Rivalry among existing competitors The threat of new entrants The threat of substitute products/services The bargaining power of buyers The bargaining power of suppliers ISOM 101 Raymond G. Sin © 13 HKUST Business School Competitive Forces Model (2) How does it relate to value chain analysis and business strategy? Value chain primarily concerns with factors internal to an organization Competitive forces model deals with external factors Both contribute to understanding the business values of an organization, strategic positioning, and competitive advantages ISOM 101 Raymond G. Sin © 14 HKUST Business School Extra Credit Question How does personalization create strategic advantages to a firm based on the five forces? Example: countering the threats of substitute products/services by adding a “personal touch” to an otherwise generic product or service ISOM 101 Raymond G. Sin © 15 HKUST Business School The Challenge So far so good? It costs $0 to offer personalized services to one (or one million) additional consumer And, it is a good differentiation + value adding strategy; even allowing for possibilities of price discrimination and more effective marketing Remember: new business opportunities always come with new issues/challenges So what is the major challenge in personalization strategies? ISOM 101 Raymond G. Sin © 16 HKUST Business School Privacy Issues Privacy! Consumers are concerned about who collect what information (and when) from them for what purpose The 3 types of information Contextual sensitivity Some information may become more sensitive under certain circumstances e.g. smoking habits, investment portfolio, purchase history Consumers tradeoff between personalization and privacy… Cannot ISOM 532 enjoy more personalized services without “paying more” Raymond G. Sin © 17 A Short Clip: An Illustration (Pizza Palace) HKUST Business School Possible (and Scary) Future… What did the Pizza shop know about Kelly and from which sources? ID number, addresses, phone numbers Health (medical history) Something you may not want a stranger to know about Travel history Budget Shopping history even waist size! (and some other more private purchases) ISOM 101 Raymond G. Sin © 19 HKUST Business School Discussion To what extent would you (not) like to be identified? Convenience? Privacy intrusion? Wouldn’t it be nice to not have to repeat your address and credit card info every time you place an order? Recall the Amazon example – why the difference? Perception of privacy: Is it the same for everyone? Is it the same in every situation? ISOM 101 Raymond G. Sin © 20 HKUST Business School Aggregation of data can be extremely powerful Firm’s tradeoff Customer information is valuable, but… Liability – protection of customer information Security Who governs the collection and usage of personal information? ISOM 101 Raymond G. Sin © 21 HKUST Business School Are We “Protected”? Technologically: We can reject “cookies” (to be discussed) Install Spyware/Adware scanner Be extra careful in giving out personal information online, use SSL and Phishing Filter Legally: Fair Information Practice Principles (U.S.) Developed by the Federal Trade Commission (FTC) in 1997 ISOM 101 Raymond G. Sin © 22 HKUST Business School Fair Information Practice (1) FIPP 1. Notice/Awareness 2. Choice/Consent 3. Consumers should be given the options as to how any personal information collected from them may be used Secondary Uses Opt-in/opt-out Access/Participation ISOM 532 Consumers should be given notice of an entity's information practices before any personal information is collected from them Consumers should be able to access data about him or herself and to contest that data's accuracy and completeness Raymond G. Sin © 23 HKUST Business School Fair Information Practice (2) FIPP (cont’d) 4. Integrity/Security 5. Enforcement/Redress ISOM 532 Firm should be responsible for making sure the data is accurate and secure. Security involves both managerial and technical measures to protect against loss and the unauthorized access, destruction, use, or disclosure of the data Mechanism should be in place to enforce the principles; including industry self-regulation; legislation that would create private remedies for consumers; and/or regulatory schemes enforceable through civil and criminal sanctions Raymond G. Sin © 24 HKUST Business School Extra Credit Questions 1. Do we have a government agency in HK that performs similar functions? Which agency? 2. Do we have the corresponding principles in place? How are they different from FIPP? When were they introduced? 3. Do we have any enforcement mechanism? ISOM 101 Raymond G. Sin © 25 HKUST Business School Cookies Rule Cookies can: provide capabilities that improve Web- surfing experience gather accurate information about the site's visitors A “cookie” is: Something delicious A piece of computer code An automated program that can gather information from your computer – what you do, what you see, etc. Potentially dangerous, because it can be virus or spyware in disguise ISOM 101 Raymond G. Sin © 26 HKUST Business School How “Cookies” Work (1) “Cookies are programs that Web sites put on your hard disk. They sit on your computer gathering information about you and everything you do on the Internet, and whenever the Web site wants to it can download all of the information the cookie has collected.” – definition based on an article in a major newspaper ISOM 101 Raymond G. Sin © 27 HKUST Business School Cookies Rule Cookies can: provide capabilities that improve Web- surfing experience gather accurate information about the site's visitors A “cookie” is NOT: Something delicious A piece of computer code An automated program that can gather information from your computer – what you do, what you see, etc. Potentially dangerous, because it can be virus or spyware in disguise ISOM 101 Raymond G. Sin © 28 HKUST Business School How “Cookies” Work (2) Cookies are not programs they cannot “run” They cannot gather any information on their own They cannot collect any personal information about you from your machine A cookie is a piece of text From Web server, stored on a user's hard disk (where exactly?) Cookies allow a Web site to store information on a user's machine and later retrieve it They are stored as name-value pairs ISOM 101 Raymond G. Sin © 29 An Example: Amazon HKUST Business School How “Cookies” Work (3) a Web site might generate a unique ID number for each visitor and store the ID number on each user's machine using a cookie file. e.g. Amazon.com session-id-time 1143273600amazon.com/ session-id 103-8515027-0007003 amazon.com/ ubid-main 430-8674879-0249824 amazon.com/ session-token Q9BUFjs8jd1tI5A880vsnLTn…WH9dKy3ypfisK80HAvh4=amazon.com/ ISOM 101 Raymond G. Sin © 31 HKUST Business School How “Cookies” Work (3) a Web site might generate a unique ID number for each visitor and store the ID number on each user's machine using a cookie file. e.g. Amazon.com session-id-time 1143273600amazon.com/ session-id 103-8515027-0007003 amazon.com/ ubid-main 430-8674879-0249824 amazon.com/ session-token Q9BUFjs8jd1tI5A880vsnLTn…WH9dKy3ypfisK80HAvh4=amazon.com/ ISOM 101 Raymond G. Sin © 32 HKUST Business School How “Cookies” Work (4) A name-value pair is simply a piece of data with a name Not a program, cannot "do" anything Can a Web site retrieve information from cookies planted by other sites? Can a Web site retrieve information from your machine using cookies? ISOM 101 Raymond G. Sin © 33 HKUST Business School How “Cookies” Work (5) 1. After you enter the URL of a Web site, your browser contact the server and request the page 2. Your browser check whether there is a cookie that had been set in a previous session by the Web site If so, the browser will send all corresponding name-value pairs to the server 3(a). The Web server receives the cookie data and the request ISOM 532 Raymond G. Sin © 34 HKUST Business School How “Cookies” Work (6) 3(b). if no cookies are received, the server knows you have not visited before and will create a new ID for you in its database 4. The name-value pairs are sent along with the Web page to your machine, which are stored on your hard disk 5. The Web server modifies name-value pairs or adds new pairs whenever you visit the site, request a page, or click on links ISOM 532 Raymond G. Sin © 35 HKUST Business School How “Cookies” Work (7) What else can be stored? Expiration date Path So that the Web site can associate different cookies with different parts of the site Type of connection Specification on when the cookies should be sent Do we have control over the process? You can ask the browser to reject/accept/prompt whenever a cookie is sent However, the functionality of Web sites may be affected ISOM 101 Raymond G. Sin © 36 HKUST Business School Cookies, anyone? Cookies are useful to the Web site because they help in: 1. determining the number of visitors, new vs. repeated visitors, frequency of visit, etc. 2. learning about and remembering consumers’ preferences 3. Improved shopping experience, personalized recommendation implementing shopping carts and “one-click checkout” ISOM 101 Statistics, developing marketing strategies, shaping business focus Information is stored in the database and you can always come back later to complete the transaction Raymond G. Sin © 37 HKUST Business School So Useful… yet, so not Problems with cookies usage 1. People share machines (e.g. in libraries, labs, etc.) Paying for something you didn’t buy? Corrupted user profiles/histories 2. 3. How does the Windows OS help? Cookies get cleaned up Your preferences may be erased Use of multiple machines e.g. office machine, laptop, home computer ISOM 101 Multiple identities/personalities?? Different profiles of the same person may be generated Visitor statistics exaggerated, while value-adding ability decreases Raymond G. Sin © 38 HKUST Business School Any alternative? That is why “registration” becomes important Storing your info in the main database while only a user-id on your machine ISOM 101 Raymond G. Sin © 39 HKUST Business School Bad~~ Cookies! Information selling Telemarketing, junk mail/calls Some people do not like being “targeted” Some infrastructure providers can create cookies that are visible on multiple sites e.g. DoubleClick It serves ad banners on sites with small (1x1 pixels) GIF files, allowing DoubleClick to load cookies on your machine Tracks your movements across multiple sites potentially see the search strings you type into search engines Forms ISOM 101 very rich profiles on users – still anonymous, but rich Raymond G. Sin © 40 HKUST Business School One Step Further DoubleClick then went one step further In 1999, DoubleClick acquired Abacus Direct Corp – a direct-marketing services company maintains a database of purchasing patterns of most American households DoubleClick intended to link these rich anonymous profiles back to name and address information (cross-referencing); to personalize them, and then sell the data This caused public uproar and multiple lawsuits against DoubleClick ISOM 101 Raymond G. Sin © 41 HKUST Business School Settlement? A fine ($450,000 to the 10 states that had been investigating DoubleClick since 2000) and made its online tracking activities more transparent by giving consumers access to their online profiles through a “cookie viewer” DoubleClick had the ability of cross-site profiling since they serve ads on multiple sites Scary, ISOM 101 isn’t it? Raymond G. Sin © 42 HKUST Business School ISOM 101 Raymond G. Sin © 43 HKUST Business School ISOM 101 Raymond G. Sin © 44 HKUST Business School ISOM 101 Raymond G. Sin © 45 ...
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This note was uploaded on 01/10/2012 for the course ISOM 101 taught by Professor Chanriki during the Spring '10 term at HKUST.

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