February 1, 2005, 12:00 AM

Working together

Lauren Freedman details how lifting sales starts with a coordinated approach to marketing and merchandising.

Holiday 2004 will go down in Internet history as the season that the channel matured. Now merchants will be continually tested and tasked to maintain the growth curve. However, as merchants remain focused on tactical issues in their quest for ROI, the ultimate promise of the web--a truly personalized shopping experience--is still elusive.

With the majority of conversion rates in the 1-3% range--and the easy days of getting conversion rates to go up a point simply by increasing marketing long gone--customer segmentation and personalization of the shopping experience are becoming imperatives.

Retailers now must focus on such techniques as showcasing certain products to customers based on customers` interests and completed onsite customer profiles. Knowing the customer better and targeting the customer more effectively are naturals in terms of driving conversion rates.

Explore opportunities

As conversion rates are the driving force behind greater revenues, merchants must explore all opportunities to improve upon existing rates. Among the most prudent and cost effective initiatives are:

  • investing in converting shoppers to buyers
  • minimizing cart abandonment
  • generating repeat purchases and more frequent site visits
  • growing the average order size

There is an approach that can achieve those objectives: marrying marketing and merchandising. Many retailing organizations have not married those two functions yet; the marketers drive traffic to the site and the merchants independently decide what`s on the site and how it`s showcased. That often creates a disconnect between what the customer expects and what the customer actually sees on the site. The marketing and merchandising staff are the hands-on everyday people running the business, yet they are very siloed. Getting the two disciplines thinking together could be very powerful.

Creating "sticky" relationships and giving shoppers every opportunity to buy through more personalized and better integrated merchandising and marketing are the next moves for merchants to truly differentiate themselves online.

Late last year, the e-tailing group and Exmplar, a provider of marketing services, surveyed merchants to determine their insights and approaches to marketing and e-mail strategy, marketing benchmarks, and personalization and segmentation. The 150+ merchant responses indicate that we are just scratching the surface of segmentation and personalization. The e-tailing group and Exmplar are now working with merchants to elevate the multi-channel experience with a marketing and merchandising boost.

Coordination critical

Strong conversion rates start with coordinated efforts behind the scenes. Only 35% of companies surveyed reported their marketing and merchandising efforts are very coordinated. The majority--60%--reported that their marketing and merchandising efforts are somewhat coordinated. 5% said they are not at all coordinated.

That lack of coordination is likely one of the central reasons that 42% felt their marketing plans left much room for improvement. Is the fact that 54% of respondents indicated that their marketing plans were performing at or above plan simply a reflection of non-aggressive plans or are seasoned merchants collaborating behind the scenes? The current level of coordination coupled with performance results suggests that retailers have set their sights too low with their marketing efforts, basing their expectations on what they`ve achieved in the past and not on what they could be achieving. That further suggests that an obvious opportunity exists for better integration of marketing and merchandising initiatives.

Considering that 36% of the source for e-commerce demand comes direct to a site via its URL, it behooves merchants to focus efforts on site visitors, including past and present customers as well as browsers who haven`t bought yet. The number of visitors who come directly via the URL is up significantly from 27% in a similar survey of over 350 merchants conducted by the e-tailing group in the first quarter of 2004, underscoring the growing importance of appealing to customers while they`re at your site.

We believe one of the secrets to engaging customers and converting browsers to buyers lies in segmenting your customer base to deliver the most targeted message possible to each shopper constituency. There is much work to be done there: Merchants are in various stages of targeting their customers, relative to the evolution of their overall e-commerce business, with limited segmentation taking place across the merchant landscape. 47% of respondents define their level of sophistication regarding customer segmentation as rudimentary and 36% report only some use of segmentation.

For those using segmentation, the primary elements that come into consideration are product category (63%) (the customer has chosen a product category of interest or purchased products in that category) and transaction data (61%). More use of standard research measurements (demographics/geographics/psychographics) and shopping behavior (cross-channel activities/cart abandonment) will contribute to the merchants` goal of improved ROI.

Primary elements

The survey also confirmed that the implementation of personalization and segmentation functionality relative to web sites or e-mail is limited. Just 7% of the merchants are dynamically showing products based on customer behavior and 60% have yet to deploy any personalization. These results, with only a few merchants capitalizing on the potential of personalization, indicate many upside opportunities.

In support of the personalization factor, some of the top initiatives ranked for "planning to improve web site performance" are enhanced onsite merchandising features and more targeted e-mail programs.

As the e-tailing group`s business has been built on the fundamentals of merchandising, we are encouraged that merchandising will be core to smart selling strategies in 2005. Better integration and innovation in this area extends to the use of segmentation as it aids delivery of a more personalized experience that should foster loyalty and its associated behavior.

According to the survey, the primary use of e-mail is to drive incremental revenue. The greatest challenges found relative to e-mail programs are increasing list size and creating compelling messaging.

Better segmentation (69%) heads the steps being taken to improve e-mail performance, followed by better creative (57%) and improved merchandising (57%).

A checklist for marrying merchandising and marketing

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