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Making Online Shopping (And Investors) Happy

It's hard to get really excited about shopping online. Which is not to say that there's not a lot to speak for the experience - the $1.5 trillion Forrester forecasts Americans will spend online this year (an amount pegged to swell to $2.1 trillion by 2019) certainly speaks to a world where digital shopping is becoming increasingly routine.

But, as Noam Javits told PYMNTS in a recent conversation about making eCommerce a little more sticky, there’s a reason that the vast majority of commerce take places in a physical store. Buying in the real world is simply much more of an actual experience than buying online.

“There is something about an investment of effort, and something to the journey itself,” Javits told us. “You got in your car, you drove, you parked, you went into the store because you wanted that jacket. And just by entering the store you are having an experience - with the smells and the sights - physical retailers work hard to build welcoming, pleasant environments. If you find the jacket, great, but if you don’t, you are already in a mindset to buy. And that makes you more like to decide that you are not leaving here empty-handed. You may not be getting a jacket that day, but you see those shoes you also wanted to buy. And gloves to match.”

Javits is the CEO and founder of Personali, a software platform that helps retailers better build a distinct eCommerce journey. Right now, Javits noted, the eCommerce experience is a little on the chilly side — which means online merchants are mostly competing low price, which creates two problems for retailers.

The first is that it is not effective - Javits told PYMNTS that some of the firm’s larger retail partners note online conversion rates of 2 or 3 percent, as opposed to the 25 percent they see from the same customer base in-store.

The second is that it is not a cost effective way to do business, especially if making sales is actually costing a retailer money.

“Anyone can give aggressive discounts to generate sales, for example, giving 30 percent off on women's shoes — that is good and the consumer wins, but you’re necessarily giving up money. In the worst case, if the profit margin on most of what you sell is 25 percent, you’re actively losing money. We think we can do this better, and we’ve generated over the past couple of years about $200 million in revenue for our clients.”

And, Javits noted, that $200 million is a number he is fully comfortable with since their business depends on actually generating sales.

“We charge 3 percent of the revenue we generate. And what makes us unique is we are fully accountable and responsible for actually generating sales,” Javits explained. “We aren’t talking about click or conversions - we are talking about actual straight revenue.”

So how does Personali work?

Javits says their platform is flexible to the needs of each customer, but that generally the service works first by intaking a series of “rules” from the merchant partner. Those rules can be on various things - what the maximum discount can be, what types of customers are eligible for discounts, what types of products are available for what discounting, etc. - and those rules then govern an interaction stage that happens between the consumers and Personali (acting as the merchant’s representative - guided algorithmically by their rules) then directly interact to “make the customer happy.”

“When the customer sees the checkout button, Personali allows them to add a new button. That button might say 'special deal,' or 'best price guarantee' or 'make an offer.' Our favorite is when the button says 'make me happy,'” Javits explained. “We basically open an anonymous real-time dialogue in a private window. We then mutually agree on a different price and deal terms.”

And that simple interaction, Javits notices, has already shown big results. Merchant partners report that within a few months of enabling the “make me happy” button, they are seeing an uptick in revenue of around 10 percent.

And, Javits notes, they are seeing that with actually straight discounting that is usually declining. Customers like saving money, he explained, but customers are actually much more complicated than simple savings seekers. Which is why Personali is always testing those incentives - with a high degree of scientific method mixed in.

“If you give us 10 percent to manage we will try 9 percent, 8 percent, free breakfast, points, rewards, everything that has a value to a consumer," Javits said. "And we are constantly running three groups on the same page. Group A is controlled with nothing - they do not see the “make me happy button at all. Group B will get the 10 percent that the merchant has authorized as their maximum to protect margin and Group C will run variable configurations or incentives and messages.”

And what Personali has discovered is that depending on context, consumers value things over price quite often. For example, when it comes to booking hotel rooms,  a free breakfast — which might cost a consumer $15 cash and a hotel $3 to offer — has a value to the person who does not have to leave their hotel to find food that far outstrips its literal cost. Offering that $3 free breakfast is often more conducive to booking rooms than a 20 percent discount, even though its financial value is far less.

“We want to give consumers a better deal, but what happens is that we invite the consumers to choose their deals. We know retailers are competing for consumers' desire for better deals, but just cutting the price is shutting down retailers,” Javits told PYMNTS. “We have a vision where if we actually just invite the consumer to participate, asking them to name their price and their incentive and we bring it into the notional space, which actually is much more about better quality service than just price.”

And that vision is gaining traction. Last week Personali announced it had snapped up $12 million in Series B funding. Norwest Venture Partners led the round, which also saw participation from Cedar Fund, Gemini Venture Partners and private angel investors. Since launching in 2012, Personali has raised a total of $15 million - this is Norwest’s first investment in Personali.

Javits says the company is approaching break-even status and expects to be profitable soon, meaning his firm hopes that this will be the last round of financing they ever announce. However, for the time being, he says the firm plans to use half of the newly raised funding to improve its technology platform and the other half to continue its global expansion.

“We get buyers involved, we get them emotional and we get them excited. We have found that when you make the deal, you own it and now you are in a mindset to finish things off and buy. The conversion rate from using our service on the upside is between 30 and 40 percent; can we bring all commerce up to that level? I doubt it. But we can make a hell of a lot of progress between the in-store 25 percent and the online 2 percent — and if the digital commerce revolution or omnicommerce is really going to change retail, that gap has to close.”

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