Web personalization is a form of customization in which content and recommendations on the internet are offered to consumers based on their preferences. Personalization can have a huge impact on retailers by creating value. This study aims to demonstrate that web personalization influences the shareholder value of a company directly through the reduction of cash flow volatility.
Personalization allows retail companies to build stronger relationships with customers by analyzing their preferences and using them to provide offers and communicate with customers to meet those needs and preferences. Companies offer transaction flexibility, target online advertisements, adjust website appearances, and offer product recommendations through personalization. For example, the online streaming company Netflix spends roughly $150 million annually on personalized recommendations.
The market value of many companies relies heavily on assets that are not incorporated on accounting balance sheets, such as brand value and customer satisfaction. These intangible assets contribute to more than seventy percent of the market value of Fortune 500 companies. By capitalizing on web personalization, companies can acquire new customers at lower costs, allow firms to charge higher prices, establish entry barriers to competitors, and increase switching costs to other companies. Therefore, these intangible assets help stabilize cash flows and have a positive relationship with profits and shareholder value, even though these assets are not represented in accounting metrics.
The impact of web personalization was researched by analyzing eighty firms over the span of six years. This research concludes that web personalization stabilizes cash flows by enabling companies to acquire new customers at lower costs in order to compensate for the revenues lost by customers leaving for other companies. For example, the mobile service provider Sprint PCS estimates new customer acquisition costs to be roughly $315 per customer. Web personalization creates a higher level of online trust and outreach to potential customers, which generates a more stable cash flow. Stable cash flows lower risks and provides greater investment opportunities, which in turn increases the shareholder value of that company.
Kalaignanam K., Kushwaha T., Rajavi K. (2018). How Does Web Personalization Create Value for Online Retailers? Lower Cash Flow Volatility or Enhanced Cash Flows; Journal of Retailing, 4 (3) , pp. 265-279.