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How Online Retailers Get You to Spend More

Geoff Williams
How Online Retailers Get You to Spend More

You've probably heard about how grocery stores stock essentials like milk in the back, so you have to pass by every other food item imaginable to get it, and more likely than not, make other purchases. And you've probably read how shopping malls, stores and restaurants consider everything from the music they play to the scent one smells while shopping to the colors they paint the walls, since studies have shown that certain sounds, scents and visual cues may create an environment in which patrons spend more.

It would be easy to think you're safe from all those retail tricks in the comfort of your own home, office or wherever you do your online shopping, but of course, you're not.

[See: 10 Ways to Cut Your Spending This Week.]

The online retail industry has thought long and hard about how to entice you to open your wallet just a bit wider. You're probably somewhat aware of some of the following techniques, but especially if you're an impulse buyer, or if you just find this type of inside baseball interesting, it might helpful to know how online retailers try to get you to spend more.

Retargeting. As you've probably noticed, if you window-shop online for a certain outfit or look at a hotel in a particular city, later, as you're reading a newspaper online or catching up on your favorite blog, you just may well find that - wow, amazing - there's an ad for that very outfit or hotel you were looking for. But the sales tactic called retargeting goes beyond that.

"They're not just retargeting the same item, but a group of items. You buy an outdoor dining set, and you get an ad for a barbecue," says Guillaume Lelait, vice president of North America at Fetch, a mobile advertising agency headquartered in San Francisco and London that works with a number of retail titans including eBay, Krispy Kreme and Hotels.com. "Clever retargeting uses algorithms to group items together and deliver relevant timely and valuable ads to users who have been tagged as likely to purchase."

[Read: Beware of These Online Retail Pricing Strategies.]

Special treatment for customer A, but not so much for customer B. Some stores will offer coupons to a customer they believe is likely to use the coupon - but the same store often won't send it to another active customer, who the retailer is confident will probably buy the product anyway. That's according to Jerry Jao, CEO of Retention Science, a predictive marketing company headquartered in Santa Monica, Calif., that specializes in helping businesses retain customers.

Jao says his company can predict how customers will behave, but it's never certain. "The key word is predict, because at the end of the day, if we knew exactly how to get customers to buy a product, that would be a billion-dollar formula," Jao says, adding that there are some clues that data scientists can nonetheless pick up on, that at least provide a probable road map for how a customer will spend.

Jao observes, for instance, that if a consumer looks at a pair of pants for two minutes, and then reads the reviews and clicks and zooms in on the pair of pants, "we'll know that you're fairly interested - versus if you spend two minutes at the site but looked at four different trousers and quickly browsed through."

Jao observes that retailers can actually learn more about an individual customer's behavior online - at least in a sense - than how the same individual shops in a brick-and-mortar store. "After you buy milk in a grocery store, do you walk down the aisle to get coffee or cereal? We don't know," he says. At least, not yet.

What you see on the website might depend on where you live. If you are in Miami and go to a website to buy clothing, "you might see swimwear advertised on the home page, but someone else logging in from another state might see something completely different," says Kartik Hosanagar, an associate professor of Internet commerce at the Wharton School of the University of Pennsylvania.

If you're a smartphone user, it may not be a coincidence if you get an ad emailed to you for a store that you just happen to be near. "Incorporating location-based data into mobile advertising has generated an overwhelming excitement among retailers," Lelait says. "Brands now have the ability to physically target consumers when they are in close proximity to a store location - reaching users at a time when they are most likely respond to an offer and take immediate action." He adds that bringing foot traffic into a store "becomes even easier when the ad offers a 'map to nearest location' element where you can redeem a coupon or discount."

While stores probably won't begin tracking our every move with a security camera, it will probably become commonplace for an emailed offer to come to us via our smartphone when we're in the store, Jao says.

Of course, there is a Big Brother quality to how much retailers know about us, even if it's simply a matter of computer algorithms figuring us out, versus a bunch of people in a room looking at our purchases and making judgments on whether we have lousy taste. And data analysts are keenly aware of that perception - which is why retailers need to strive to "be helpful, not creepy," says John Healy, COO of Montetate, a Conshohocken, Penn.-based website optimization and analytics tech provider. (In other words, the company takes a lot of customer behavior data and helps companies make predictions on how online customers will behave.)

[See: 10 Signs You Shop Too Much.]

And Hosanagar, who is also Monetate's chief scientific advisor, adds, probably spot-on: "Stores have a lot to lose if they violate the customers' trust."

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