The document discusses the importance and benefits of building a recommendation engine for ecommerce businesses. It explains that recommendation engines analyze customer purchase histories and behaviors to suggest additional products they may be interested in. This increases sales by personalizing the customer experience and exposing them to new products. However, the document also notes some common issues with recommendation engines, such as the "cold start problem" of suggesting items to new users with no purchase history. It emphasizes the need for recommendation engines to recognize uniqueness and diversity among customers.

1. Why Building a Recommendation Engine
is a Good Strategy for Your eCommerce
Business?
Back in 1988, a British mountaineer penned down a book named, “Touching the
Void,” narrating his real-life experience in the Peruvian Andes. The book was not
much of success then. In a strange turn of events, when another writer came up
with a similar book named, “Into Thin Air,” the sales of the former started to
elevate, that too more than before.
How did this happen?

2. The credit goes to Amazon’s recommendation engine. The avid readers who
searched for “Into Thin Air” were suggested “Touching the Void” too. The positive
reviews and feedback, in turn, became the reason behind the surprising success of
the book that was long forgotten. That is the power of product recommendation
engine.
This technology invention has proved to be a blessing for eCommerce retail stores
as it is a proven tool for adding up and multiplying sales like never before. In simple
words, it is a tool for maximizing profits by personalizing the user experience.
This is a simple success story of any eCommerce store in a few words: Do not ask
the customers what they want, instead, show them!
What is a Product
Recommendation Engine?
A product recommendation engine is a system that helps offer a personalized
experience to every individual customer. It mines data and filters the product
listings in accordance with what they would like. It is pure calculated science and
no hit-and-trial here.
Talking of Amazon alone, 35% of purchases are a result of their recommendation
engine – McKinsey
On the technical side of things, a product recommendation engine algorithms are
used to mine customers’ purchase histories, browsing data, and reviews &
feedback data to get a perspective of their mindset. Based on this information, the

3. online recommendation engine delivers content that aligns with the customers’
wants and needs, instead of trapping them in the paradox of choice.
This intelligence is the key to analyzing customer behavior to drive conversions in
the end. Contrarily, if you avoid its importance, you are likely to lose out on
business.
The Goals of Building
Recommendation Engines
The four goals of recommendation engine that should be your ultimate agenda,
include:

4. 1. Relevance
Recommendations made should be relevant to the user, i.e., they should invoke
their interests.

5. 2. Novelty
Your business will create more value if the customers are recommended items they
have not seen or used before, but are similar to the items they have bought before.
3. Serendipity
Your business will create more value if the customers are recommended items they
have not seen or used before, but are entirely different from what they might have
bought before. Only the concept is the same. Here, the probability factor steps in.
4. Diversity
Recommending similar items to users is not always helpful. Consider giving
recommendations that do not relate to their past purchases.
Difference Between
Recommendation Engines and
Personalization
A recommendation engine is merely a tool that facilitates personalization. Where
personalization denotes certainty, a recommendation is a prediction.

6. For example, a user buys groceries from Amazon every month. The next time they
log-in the app, the usual grocery items get suggested. That is personalization, which
means reducing the customer’s effort to look for and add items to the cart.
In short, user experience personalization is the result of their preferences, and
there is no surprise factor in it.
On the other hand, if the same user is suggested an item related to their previous
purchases, but something they never bought before, but are likely to show interest
in, equates to a recommendation.
A recommendation is a result of predictive modeling that suggests something that
users might like. It is similar to surprising the customers and making them feel
empowered and boosting sales in turn.
How Do Online
Recommendation Engines
Work?
Here are three approaches that are followed for building recommendation engines.
1. Collaborative Filtering
If a person with similar profile and preferences bought “this,” it is likely that you
will like and buy it too. So, lets’ recommend it.

7. Collaborative filtering is about clustering groups of profiles with similar
preferences, search histories, and buying habits into a single set and analyzing their
behavior. Let us take an example.
Assume there are two different shoppers X and Y. X has purchased a table, a chair,
and a lamp in the past. Whereas Y has bought a table and a chair in the past. Their
purchase history puts them in the same group. So, the recommender system would
analyze the data and the pattern and would suggest a lamp to Y as well. This is
collaborative filtering.

8. 2. Content-Based Filtering
Focuses on the individual buyer. A customer’s likes and preferences are mapped
with product features to offer recommendations.

9. In content-based filtering, two things are essential, i.e., data about the product and
a customer profile. The product should have tags such as a name, description, and
relevant keywords attached to it. And, a user profile should exist that is created
based on their likes, purchase history, and browsing data.
Finally, the respective product and user repositories are mapped to recommend
what a user would like.

10. 3. Hybrid Recommendations
Combining the power of both Collaborative Filtering and Content-Based Filtering,
i.e., the CB-CBF approach
A hybrid recommendation engine merges the inputs from what it gains from
collaborative filtering and content-based filtering, to offer a better and a fool-proof
recommendation that would not go “unclicked.” It is a product recommendation
engine that is best suited for eCommerce platforms that deal with massive volumes
of data and need to deal with scalability issues.
Collaborative Filtering helps form a reduced dataset of users who like and buy
similar products, and content-based filtering helps match the products’ feature
tags with the deduced set of user profiles. In short, there are no loopholes.

11. Product Recommendation
Engines – Making Money or
Creating Value?
What Should be: The purpose of an eCommerce recommendation engine – Bring
value to the customers while making revenues in turn.
The Reality: Do what everyone else has been doing, recommend products that
customers may or may not need, who cares unless we are making money.
So, if you own an eCommerce business or are thinking of building one, you need to
do things differently. In simple words, do not follow the herd, be your own kind of

12. unique while keeping track of the best recommendation engine practices. Because,
when you empower the customers, revenue growth follows without you having to
stress about it.
To get a broader picture, here are some common issues with the online
recommendation engines today.
1. Reading the Minds of New Users
You have a newly registered customer, who maybe has heard about you from a
friend or maybe has clicked on your carousel advertisement on social media
platforms. What would you recommend them? There is no prior data on the user,
and their preferences are unknown. In technical terms, this is known as a cold start
problem.
You see, first impressions should always be right, and ignoring these first-time
customers can be a massive mistake on your part.
According to a Statista report, 2.58 percent of eCommerce website visits converted
into purchases as of Q2 2019, which is less as compared to Q1 2019 conversion rate
of 2.72%. Have a look for yourself.

13. So, how do you address the cold start problem?
The basic strategy is to recommend your best-reviewed products, or let’s say the
best selling products to these new guests. In this case, the probability of them liking
it is high. Another approach could be to take advantage of the season & festivities.
Like, if it’s Christmas time, the chances are that they might be interested in holiday
shopping.

14. Related Article: 2019 Holiday eCommerce Website Checklist to Boost
Sales
Or you could build a recommendation engine that goes about tracking the
geolocation data of users, such as their location and device used to personalize
product results. Once you realize these factors, you will notice how effortlessly
visitors get converted into buyers.
2. Missing the Fact that Everyone
is Unique
A customer is scrolling through prom dresses on let’s say some X eCommerce
platform. While she is scrolling through, a collaborative filtering result pops up,
which says;
“This is a popular dress, 1000 something people have already bought this.” While
the lady was looking for some unique dress, would she want the same dress that
has already been bought and worn?
The problem with the product recommendation engine is that the
recommendations are based on how people are like each other, and not on how
they are unique in their own way. Everyone has a different taste and preference,
and presenting them with similar suggestions might not be a good idea.

15. The solution is simple, focus on building a user-centric or a personalized
recommendation engine that celebrates uniqueness over commonality. That might
be a long journey down the road, but offering this kind of customer
experience would be worth it. Think about it.
3. The Toilet-Seat Problem
Yeah, it sounds absurd, right? But, it is a real problem that an Amazon customer
reported. See it for yourself.
Dear Amazon, I bought a toilet seat because I needed one. Necessity, not desire. I
do not collect them. I am not a toilet seat addict. No matter how temptingly you
email me, I’m not going to think, oh go on then, just one more toilet seat, I’ll treat
myself.
— Jac Rayner (@GirlFromBlupo) April 6, 2018
If a customer searches toilet seats on the on-site search bar and buys it, that
doesn’t mean they need it again after a week. Such eCommerce recommendation
engines make a customer doubt your credibility. Why commit such a mistake after
all.
So, the simple fix would be to set a time interval for the recommendation so that
they stay for a particular period and fade away automatically.

16. Or, a better approach could be to stop suggesting the items that have already been
ordered. Instead, unique items should be more of a focus, like suggesting items that
would even surprise the customers. That would make them feel empowered while
bringing more value to your business in turn.
Tip: If the customer has bought an ordinary toothbrush, recommending them to try
an electric toothbrush would be valuable, i.e., same product, but different
technology.
Conclusion
A practical recommendation engine is the one that mines accurate customer data
and presents them with products that have a high chance of making it to their
shopping cart. Therefore, it is a prerequisite to building a recommendation engine
to stay ahead in this competitive landscape. It is the best and the latest technology
that helps build strong relationships between businesses and customers.
And, in a world where the fifty-nine percent of 16-36 year-olds head to
Amazon before any other eCommerce website, you need to start thinking
differently. It is high time to build a recommendation engine that causes disruption
and proves to be a game-changer. Only then can you think of making a difference
that would count.
Lastly, remember to conduct a thorough R&D before you approach any
recommendation engine builder. And, a builder who knows that there is always
room for improvement and helps your recommendations get better day by day.

17. Source - https://www.netsolutions.com/insights/building-recommendation-engine/