The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
With new data to track ROI, e-retailers roll out the welcome wagon to online communities. What do they get out of it? Loyalty, sales and great word-of-mouth. But watch out--communities can be a touchy crowd.
If you build it, they will come. Ah, but will they click and buy? E-retailers taking a new look at the power of online community and attempting to harness it to marketing goals are betting the answer is yes. To improve the odds, though, e-retailers will have to go beyond the purely aggregation models of earlier times. Borrowed from advertising-driven media and content sites simply out to acquire eyeballs, visitor aggregation models have yet to score big at the check-out counter. For while history has shown community to be a mighty traffic builder, it hasn’t necessarily been a spark to sales.
Just ask Garden.com-that is, if you still could. The Austin, Texas-based e-retailer shuttered its doors in December though it had assembled one of the most active communities of garden enthusiasts-or even of any kind-on the web. “Their traffic and the number of people who used the site as a resource or for communication with other gardeners were great. But they didn’t do such a fabulous job of nudging the people who were there for community or content into buying,” says Elaine Rubin, who chairs Shop.org, the association of online retailers that’s a division of the National Retail Federation trade group.
Stories like this one illustrate the opportunity and the challenge of community for web retailers. It’s not enough for web merchants to simply attach or assemble a community of users on their site-even a big one-and expect that alone to boost sales. Without the right tools to leverage community members’ affinity for the site into purchases-or mine other value such as market intelligence-the building and maintenance of communities can drain limited resources with little return. When New York-based dELIA*s Corp. closed down iTurf.com, a teen community site, in November, it cited the high cost of running the community in relation to the small percentage of traffic it generated for its network of sites.
In an age when the path to profitability must of necessity be shorter for e-retailers, a poorly managed or unmanaged community can be hazardous to a retail site’s health. The danger is that visitors get hooked on using the community features of a site for free, either for the information or resources offered, or for the people they meet, without ever hitting a buy button.
But coming on too strong poses risks for e-retailers as well. When visitors enter an online community in an information-seeking mode, pop-up ads and click-to-buy buttons can annoy rather than entice. Push too hard, and sales efforts can backfire, says Steve Glenn, president of PeopleLink, Santa Monica, Calif., which builds and manages online communities for e-businesses. “The community is amorphous, without a collective intelligence,” Glenn says. “But it’s remarkable how sensitive it is. When people get the sense that the community is too engineered or too censored they stop participating and go elsewhere.”
Today, smart e-retailers are looking at community differently from a few years ago. They’re realizing that community size alone doesn’t guarantee sales. They’re sifting through community data and linking findings more selectively to personalization tools and promotions in pursuit of what consultants regard as the Holy Grail of e-retailing-contextual selling. They’re taking a closer look at performance metrics like transaction size among community members versus site visitors who don’t use community tools. And the larger retail players who’ve invested in understanding and not simply massing an online community are beginning to realize quantifiable benefits.
A late 2000 study of online communities by PeopleLink looked at Amazon.com, 800.com, Barnesandnoble.com and eToys.com, using Jupiter/MediaMetrix data from 50,000 users of those sites. The study found that regular users of community tools were up to two times more likely to purchase online than non-community users on the sites. They also were likely to return to the sites up to nine times more frequently than non-community users. More to the point, they buy more. “There’s been an implied belief that, as in a store, if you can get people in and they spend longer you have more of an opportunity for sales, but there haven’t been a lot of hard metrics to validate that,” Glenn says. Until now: the study also found that though community members made up only about one-third of all visitors to the sites, they were responsible for two-thirds of online sales.
A well-managed community can deliver similar results for smaller players, too. Auto parts retailer Wrenchhead.com, a client of Participate.com, a Chicago-based provider of online community services, tapped into a dynamic that’s no news to anyone who’s been to an auto show or racetrack: weekend mechanics like talking to each other about their cars as much as they like working on them. Its online message board, member spotlight and volunteer “Pit Crew,” all community features, have helped build site visits at White Plaines, N,Y.-based Wrenchhead to an average 20,000 per day since the site launched in March 1999.
And community members don’t just stay on the community pages. Though the most active community members make up only 5% of Wrenchhead’s total customer base, they drive 30% of all sales on the site, says Joseph Cothrel, vice president of research at Participate.com.
Adds Glenn: “E-retailing sites that use community features as part of their sales strategy benefit from higher customer purchase and retention rates and from increased visitor frequency.”
But understanding the effective use of community for e-retail has been a long time coming. Web sellers early on adopted the model of ad-driven sites which were out to build as big an audience as possible, buyers or not. “In the mid-90s, there was a tremendous focus on the idea that first you needed to aggregate a community of loyal users and visitors, and then the next step would be to get them interested in purchasing from you,” Rubin says.
And there’s the first hurdle for those seeking to sell to existing online communities, or to create communities specifically to support retail goals: commerce must integrate seamlessly with content.