September 30, 2002, 12:00 AM

Learning from Leaders

The Top 10 techniques for online merchandising are always evolving, says the E-tailing Group’s Lauren Freedman.

Merchants have one goal in mind when it comes to online retailing just as they do in stores or with catalogs and that is turning browsers into buyers. Whether customers buy online or offline, today’s economic climate demands that retail web sites show a return on investment. The first step to a sale is getting the customer’s attention and making an impression. And that’s equally true online as it is offline.

Retailers already have a lever with which to drive e-commerce sales and it’s one they have plenty of experience with: Merchandising. The art of merchandising involves a good deal of fine-tuning of the shopping experience to engage shoppers once we understand their motivation. It is time-consuming and the processes that create successful merchandising are never set in stone. What worked once doesn’t necessarily work today, and as soon as you’ve executed a merchandising strategy you have to test it to make sure it continues to achieve the maximum benefits-i.e., sales-for the retail organization.

But retailing’s very existence depends on merchandising. And properly executed online merchandising programs can be financially rewarding.

The evolution

Merchandising online, once revolutionary, today has become evolutionary. In the early years, about 1994 and 1995, online merchants mostly functioned as nothing more than store creators, testing to understand how the medium could serve their needs and those of their customers. By last year, a few had truly leveraged the Internet from a merchandising perspective. Today, many others are simply copy-catting the pioneering category leaders’ techniques to deliver at best an adequate shopping experience for the consumer.

Though a small group of merchants has proven out the potential of the web channel, our research shows that many more retailers face obstacles in making the web a significant part of their overall business. The biggest challenge will be engineering the transition from a focus on the bells and whistles that make a web site exciting but that ultimately meet the needs of a few to a focus on better consumer experience that meets the needs of the masses. As one merchant so aptly described it in our survey, “We need to be moving from plumbing to merchandising and sales.”

To understand where merchandising is headed and how it is likely to evolve in 2003, it is always instructive to look back. The accompanying chart is a compilation of two research studies conducted by the e-tailing group Inc. to support It’s Just Shopping, a book we just published in conjunction with the Direct Marketing Association.

The e-tailing group identified 24 merchandising-related web techniques. Some are broader than what retailers typically consider to be merchandising activities because the Internet has changed how merchandising is identified. In fact, some of the merchandising tactics that retailers employ on their web sites cannot even exist in store- or catalog-based merchandising.

The second column reflects findings from the e-tailing group’s 1st Annual Merchant Survey, with responses from over 200 merchants to 38 questions on the state of e-commerce and merchandising online. The third column looks at penetration of that feature across 100 merchant sites in 16 consumer categories surveyed by the e-tailing group. The third column is my prediction as to the importance of each feature to web merchants next year. That prediction is based on the projects we see our clients working on, the growth of the technology, realizing that we are in an evolutionary and no longer revolutionary period with these features, and my experience in retailing and merchandising.

My goal with this article is to help online retailers understand why the feature set stands where it does and what will be the critical elements of merchandising in 2003.

The Top 10

These features reveal a number of important characteristics of online shopping today and for the future. Some of those characteristics are nothing more than applying what retailers do in the real world to their web sites. Others involve activities that are unique to the web. And yet others represent a convergence of the two worlds. Here’s the e-tailing group’s bottom line on the top 10:

1. Knowing your category is the greatest influencer of merchandising techniques. Determining one’s online merchandising strategy often starts by mirroring an existing selling strategy or the strategy found within a category where seasonality accelerates the process.

2. Mastering the art of temptation is essential. Merchants follow the lead of entrenched offline merchandising techniques where category dictates selection of a tool set. Some merchants are in the business of selling at full-price only and utilizing their outlet stores or sale catalogs to liquidate product. Others are promotional every day with sales and specials, couponing and rebates the norm for their shoppers. Merchants should aim to ensure that the merchandising that presents their image online reflects their offline merchandising and image.

3. New is what most shopping is about. When merchants fail to deliver on newness, their business tends to hit a downward spiral. It is interesting to note that newness and seasonality often go hand in hand as merchants replenish their stocks on a calendar basis. Because of the speed with which new products can be presented to e-shoppers, the web allows merchants to capitalize on newness very quickly. Successful online retailers understand that offering a new product on the web before it hits the stores-and then stressing that newness through the appropriate online merchandising techniques-can result in faster sales of the new product and possible movement of market share from retailers who were not so quick to take advantage of the timely opportunities the web presents. At the same time the web presents a new challenge in that it pushes merchants to always be looking for and promoting the newest and to constantly update the product assortment on the web.

4. There is not a merchant who doesn’t have product to liquidate. Testing of promotional strategies should enable efficient inventory liquidation and the web has proven a powerful force both in promoting excess inventory and in creating a channel to move that inventory.

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