Learning from Leaders

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.

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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.

5. Making things faster and easier is what counts for the customer. Search and quick-shop both play formidable roles on e-commerce web sites. Successfully executed searches provide a way for the customer to find what she’s looking for and the chance to buy it right away, while quick-shop features facilitate browsing offline and buying online, which produces a formidable combination for retailers.

6. Up-sells and cross-sells online offer great potential. More merchants are placing greater emphasis in this opportunistic area, though today up-sells and cross-sells are not a standard practice. As word gets out about successful automated cross-sell and up-sell techniques, their use will surely spread.

7. The web is an ideal gift-shopping medium. Increased interest among consumers and the web’s excellent capability as a gift-shopping medium create great emphasis in this area. But even more than in other tool sets, gift-shopping techniques function on a category-by-category basis.

8. The strong presence of multi-channel players results in continued and innovative use of features that drive traffic to offline channels. Information intensive categories are heavily focused on delivering robust content where customers respond by purchasing both online and via store channels. Comprehensive content that is well integrated throughout the site positions the merchant as a voice of authority and trusted expert. Because retailers can present much more of this information online than they can in stores or catalogs and because customers can view this information at their own pace, the web becomes much more powerful in this regard than other channels.

9. Merchants continue to focus on providing more comprehensive customer information to facilitate self-service shopping. Since the revolution of self-serve retailing 100 years ago, customers have shown loud and clear that they prefer the self-service mode. The secret on the web is to make it efficient for shoppers to use self-serve while addressing the different needs of repeat and first-time customers to a site.

10. Once considered essential to online retailing, community features are fading from retail sites. The reason: poor return on investment and limited interest among consumers. A number of merchants told us that over the past five years they tested many community features, but found they were often a distraction to selling. These features tend to attract browsers rather than serious buyers.

What’s ahead

Having surveyed retailers and their sites to determine the use of merchandising tools online, the e-tailing group is making some predictions as to the future of merchandising over the next year.

1. Given its utilitarian value for shoppers, there will be a greater emphasis on improving search functionality and the product attributes that customers can search on. Making product and information easier to find is essential. Customization of search must be executed on a category basis to ensure that the parameters mirror consumers’ behavior. For example, a department store or specialty store that features many categories must allow shoppers to use the search function to find products by price, brand, color size and as the holidays approach, by gift recipient or occasion.

2. Product enhancement tools will enable merchants to show all critical elements of any product. Vendors have implemented significant improvements in techniques that assist shoppers to make the best selection including color change, zoom and 3D technology. Further improvements are expected in this area given its influence on product selection and impact on reduced return rates. It is important to note that many of the early technologies were expensive and unable to make a financial case for merchants to test them. Today with pricing more reasonable, merchants can test technology to better understand the user experience and expected lift in sales.

3. Multi-channel players will leverage their web investment in-store. Chain retailers in particular will work to optimize their Internet investments, encouraging web shoppers to visit stores and in-store personnel to use the web for ordering, product inquiries and training. For example, Macys.com encourages couples who use the online bridal registry to visit local stores for consultations, thus giving store personnel the opportunity to up-sell and cross-sell the couple. Thus Macy’s achieves the economies of an online registry while not forgoing the opportunity to increase customers’ spending.

What this all boils down to is that merchandising in the new era of retailing will change as retailers’ and consumers’ experience with the web grows. Just as retailers thought three years ago they had the answers, only to find the landscape quickly shifting, so retailers today need to be alert to what’s coming. Some of these techniques will become the classic practices of online merchandising that set new standards. Others will be passing fads.

The key to successful merchandising online is the same as offline—be alert to what’s new and what best of breed merchants are executing effectively, keep testing to make sure what you’re doing still works and be quick to change as a technique’s efficacy fades. The twist that the web adds is that it’s so much easier to adopt, test and change a merchandising technique than it is offline. Retailers who fail to take advantage of that may find no need for merchandising techniques either online or offline.

Lauren Freedman is president of the Chicago-based e-tailing group Inc. and author of the new book It’s Just Shopping. She can be reached atlf@e-tailing.com.