Online Retailers
Are Watching You

While sophisticated promotional targeting has been possible for years, it is becoming more widely available, with some analysts estimating that up to half of online retailers are using it. With new e-commerce platforms, companies are turning to it to stay competitive. Retailers say the promotions are more based on science than psychology; they choose which offers to target to whom based on real-time testing of what is most effective. The offers that generate the most sales stick.

"We don't want to show parkas on the homepage when someone comes in from Florida," says Patrick Byrne, chief executive of Overstock.com, which tests making various offers, like 5% discounts versus $5 off, to different customer segments based on factors like the type of Internet connection they use.

In recent weeks, Overstock.com Inc. has begun displaying one of several thousand promotions -- from free shipping offers to discounted merchandise -- to different visitors based on some 40 attributes tied to the shopper's session. These include the time of day, determined by the time zone indicated by a computer's Internet address, as well as the shopper's presumed gender. (The company says it can typically determine a shopper's gender after about five to 10 clicks.)

Using a similar method, merchants like eBay Inc. are displaying different homepages to shoppers based on their previous viewing habits while others are targeting by geography. Ice.com, for instance, is displaying specific homepages for cities such as Seattle, Chicago and Los Angeles, and is also experimenting with testing varying offers such as free versus discounted shipping in different parts of the country. Internet fashion retailer Yoox Corp. has begun reducing prices in select regions and for the holidays has created a special, password-protected area of Yoox.com for frequent customers to give them an early look at discounts.

Meanwhile, companies are examining keywords used on search engines such as Yahoo or Google to guess what offers are likely to be popular. Delightful Deliveries Inc., a gift and gourmet retailer, presents different customers with offers based on what search term they used to arrive at the site. Someone who arrived at the site by using Google to search for "gift basket" may be offered a 5% discount, for example, while someone who clicked through after searching for "Christmas cookies" may see a free-shipping deal instead.

Tabitha Eller, 19 years old, of New London, Conn., says she is faced with a different promotion almost every time she goes to shop on Web sites like UrbanOutfitters.com or Anthropolgie.com. "It's a challenge because I know it will only be a 'special' for a few days," she says. Ms. Eller says she used to find it "creepy" that sites would show items she has previously viewed, but now finds it helpful. Others say the constant price variation is irksome. Millie Ritz, 43, of Youngstown, Ohio, last week purchased a "DreamLife" TV game for her nine-year-old daughter and "Guitar Hero 2" video game for her son, both from Amazon.com. After paying around $30 for the TV game and $64 for the videogame package, she returned to the site last weekend to buy the same two items for relatives. The prices were up to $38 and $80, respectively, and she is holding off. "I might as well wait and see if they fall again," says Ms. Ritz.

Offers targeted at first-time buyers may also mean that repeat customers may end up paying more. Ice.com offers discounts sometimes targeted to first-time shoppers coming from a specific site like AOL. The company looks at so-called cookies -- data that are transferred between a Web browser and a server when a user visits a site -- to determine whether they previously visited the site.

Online merchants insist the data are only used internally and are not shared with other sites. They also say much of the information remains anonymous and is not necessarily pegged to an individual shopper. But the new practices are alarming some privacy advocates, who say retailers should better notify their customers that their actions are being tracked. "The public is totally unaware," says Jeffrey Chester, executive director of the Center for Digital Democracy, a privacy watchdog based in Washington, D.C., that is calling upon the Federal Trade Commission to investigate online-marketing practices.

Retailers that are reluctant to target individual customers are using Web data to tweak their site-wide promotions based on factors like peak traffic times. Outdoor retailer Sierra Trading Post Inc. will refresh promotions like site-wide sales or discounts on skis and snowshoes during peak traffic periods, says Doug Williams, director of e-commerce for the company, which tend to be earlier in the week.

But a growing number of retailers now believe there is a place for tactful and targeted offers on the shopping sites. Kiyonna Clothing Inc., an online fashion site for plus-size women, shows different customers different offers based on real-time information about their sessions. For customers who appear to be on the fence about a purchase (i.e., they have gone back and forth between the checkout page) the site often generates a free shipping offer valid only if the shopper completes the sale that day.

Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com¹