September 30, 2002, 12:00 AM

How to stimulate innovation in online retailing

The undisputed leaders in web site innovations--Amazon.com and Lands’ End--revealed to the Shop.org audience which innovations have had the most impact on their web sites and discussed how to encourage staffers to innovate.

 

Fewer areas of retailing demand more innovation than the web. In part, that innovation is fueled by the rapidly developing Internet technology that is at the heart of web retailing. But a good part of it is also driven by retailers’ continuous need to differentiate themselves in a medium that is rife with copycats. At the Shop.org Annual Summit last week in New York, the two speakers who addressed the topic represent organizations that are in the forefront of web retail innovation-Amazon.com Inc. and Lands’ End. Amazon early on established itself in a class by itself among web merchants, pioneering significant breakthroughs, such as affiliate marketing and one-step checkout. Lands’ End pioneered the use of virtual modeling of apparel, a technology used by 15% of the visitors to the site. Last fall, it also introduced individually manufactured custom-fit chinos and jeans. They now account for 40% of web sales of those items.

For both, the key to innovation on the web has more to do with organizational cultures than with technological expertise. A key part of establishing a culture of innovation is setting goals for developing breakthroughs. “Every year, we try to do one big new thing on the site,” remarked Bill Bass, senior vice president of e-commerce and international for Lands’ End. “We put a placeholder in the budget to fund it, and as the year goes on the pressure to find it builds until, POW! it just happens.”

Both also believe innovation lies in the entrepreneurial instincts of individual employees. “If we left it up to a committee, we would never have had any of our innovations,” declared Bass. Neil Roseman, vice president of retail technologies for Amazon.com, enthusiastically agreed. “We reward people who do things new without asking permission,” he remarked. “It was the company’s first award, but you can’t win it if you ask for permission.” And what new ideas get the most attention? “We really focus on one or two people who come up with new ideas,” said Roseman. “And the more people who say that the idea is crazy, the better the chance that it might be a good idea.”

It is clear, too, that Amazon looks to young software developers for new ideas. When asked how the company structures itself to encourage innovation, Roseman half joked: “It’s simple-pizza and a great quantities of Red Bull (for the software development team). There are laundry facilities on the premises, and we make the exits hard to find. But most software developers don’t have a life anyway.” His more serious response was more illuminating: “We try not to separate the IT people from the business people. None of these innovations can be accompanied without this team approach, because no one wants to be an order taker. You have to drive these two functions (IT and business) together in order to innovate.”

It is in the area of testing that Amazon and Lands’ End split in their approach to innovation. “We don’t test before we do it,” Bass said. “Some people want proof every step of the way, but this is stuff that you just know. If you really live in this space, you aren’t going to be far off (in picking the new ideas to implement).”

But Amazon has a pro-test mentality. “We have ways to test new ideas with multiple sets of customers,” remarked Roseman. “We do live A/B tests on the site, and we do lots of testing on lots of metrics.” But reading the results of those tests and projecting their long-term implications are clearly key to Amazon. “If you launch an innovation and the results are slightly worse than what you are doing on the site now,” advised Roseman, “you must keep in mind that it will take a year before it (the new idea) really works. Something new that is just about as good as what you have now will get a lot better over time. So don’t panic when things are slightly worse at first because today’s innovation will be vastly improved with modifications during the first year.”

Both Bass and Roseman answered quickly when asked to name their organization’s most important breakthrough. “Associates,” declared Roseman, using the term that Amazon uses to describe the phenomenon that others know as affiliate marketing. “It’s the simple idea that had the greatest impact on us.” Said Bass: “Going forward the most important innovation for us is going to be custom clothes.” Introduced last fall and enhanced last spring, the custom-fit feature takes a wide variety of individual measurements from the web shopper and puts them into an algorithm that it used to generate a pants pattern for each shopper. That pattern is then transmitted to the pants manufacturer to produce the custom-fit pair of jeans or chinos, the apparel items where custom-fit innovation is made available. In the space of just one year, custom-fit orders account for fully 40% of the company’s web sales of the chinos and jeans, and now Lands’ End is looking to extend the program to other apparel lines. Said Bass: “We’ve never done anything that’s had as big an impact as that.”

 

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