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 ...
Five years ago, on-demand software accessed through the Internet was a tough sell to e-retailers who were content to stick with the technology model they knew best: licensed e-commerce platforms customized for their business, or proprietary platforms built in house from scratch.
The on-demand model made sense even back then from a cost perspective because it eliminated up-front implementation expenses and ongoing support costs since every user on the platform received standardized features and functionality. But the thought of running the same platform as their competitors struck marketing and merchandising executives the wrong way. In their minds, sameness in a technology platform managed by a third party would not allow them to differentiate their business.
Today, retailers are recognizing that on-demand technology platforms provide them with tools to take direct control over their marketing and merchandising and enable them to provide unique and personalized shopping experiences for their customers-all while improving operating efficiencies.
“On-demand applications go beyond a technology play and open the door for retailers to become more creative in how they manage site content and customer communications, and to integrate those marketing strategies into their other sales channels,” says Luis Colon, director of Internet product R&D; for CDS Global, a provider of information and data management marketing platforms. “On-demand platforms are making it possible for retailers to maximize implementation of their marketing messages.”
What makes it possible for retailers to take a hands-on approach to managing promotions, incentives, site content and customer communication strategies in real time is that within the architecture of on-demand platforms lies a set of rich features that retailers can use to personalize the shopping experience.
“These tools represent about 20% of the platform’s features and functionality, but it is that 20% of the platform that drives the relevance for the shopper and conversion for the retailer,” says Jeff Max, CEO of e-commerce platform provider Venda Inc.
The other 80% of the platform is core functionality every retailer uses, which means all users have the benefit of a consolidated platform as opposed to individually built applications. The payoff from this approach is a resilient infrastructure, customized front-end capability and universal upgrades across the user base.
“What retailers have come to understand is that even though a custom platform may be a point of differentiation, it is essentially frozen in time because they have to request the vendor or an I.T. staffer to write the code to make even basic changes to the site and then implement them,” Max says. “The transparency of on-demand architecture gives retailers the flexibility to make changes to the site themselves, while leaving platform upgrades to the vendor.”
With so many applications feeding into the multi-channel platform, such as CRM, point-of-sale, order management and customer service, knowing the vendor is constantly upgrading the platform is a huge plus, since performing that duty in addition to managing the site itself stretches the limits of most retailers’ resources.
“In the current economy retailers have to make sure that every dollar spent either generates a sale or reduces operating costs,” says John Marrah, CEO of e-commerce platform provider ProfitCenter Software Inc. “Retailers need to run their businesses more cost efficiently in this economic environment. The on-demand model makes that possible by eliminating the up-front cost to build the infrastructure and the ongoing cost of hiring a dedicated I.T. staff to manage the platform and deliver regular updates.”
Implementation cycles for upgrades occur as often as once a month, compared to every 12 months or longer for licensed applications. Changes to homegrown platforms are slower, too, as I.T. personnel must be shifted away from their core duties.
“On-demand platforms allow retailers to focus on their area of expertise while providing them with the tools to get the most out of the application, rather than keeping it up and running,” Marrah says.
For instance, ProfitCenter Software allows retailers to establish promotion stacking rules that govern the order of precedence of processing promotions that run simultaneously, a level of technological sophistication that many retailers don’t possess in house or that they will pay dearly to have. For example, a retailer may be running a promotion for free shipping on orders of more than $100 and one for 10% off select items. The retailer would want the 10% off promotion applied first, reducing the order value before evaluating to see if the order meets the $100 threshold to qualify for free shipping. “This kind of control over promotions can have a big impact on profits,” Marrah says.
Direct control over marketing is prompting retailers to look more closely at using on-demand technology to support personalization strategies that extend beyond the web site to include customer communications.
A shopper that has logged into an account, viewed an item and leaves the site without making a purchase, for example, can immediately be sent a follow up e-mail promotion created using purchase information gathered from all sales channels and touch points.
Retailers can personalize the e-mail by leveraging customer behavioral data to provide insight into what may trigger a sale, such as whether the customer uses the web site for research before purchasing through another channel.
If the data indicates some other type of incentive such as free shipping might prompt a sale or that the shopper needs to see customer-generated product reviews, the retailer or the technology provider can write rules to instruct the platform to include that data in the follow-up message.
“On-demand technology makes it possible to apply personalized direct marketing concepts to real-time communications,” says CDS Global’s Colon.
Behavioral data can also tell the retailer a shopper’s preferences, such as whether the shopper likes to receive marketing messages via e-mail or direct mail. CDS Global integrates analytics into its on-demand applications that allow retailers to create marketing strategies based on customer behavior patterns across all sales and service channels.
“Understanding customer preferences for how they receive marketing messages and the level of information in those messages can drive a specific result and improve conversions,” says David Murken, national sales executive, on-demand communications, for CDS Global.