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November 2000 |
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First You Gotta Crawl
As more shoppers go online, older and wiser e-retailers are reflecting a maturing marketplace
By Mary Wagner
When the Super Bowl rolls around again, TV viewers will once more find the action on the field served up alongside some of the cleverest advertising ever to issue from Madison Avenue. But don’t look for many e-retailers to be shaking their pom-poms at halftime—most will leave that to portals, content providers, and other Internet companies still trolling the mass market for as many eyeballs as they can find.
The smart e-retailers, analysts say, have moved on to newer and more targeted tactics that reflect an evolved marketplace strikingly different from that of last year’s pre-shakeout high. And if they haven’t, chances are they won’t even be around for the next Super Bowl.
Where maximum exposure was once the goal, online merchants have learned that eyeballs are one thing and customers are another. And they’re learning to switch focus accordingly. “Advertising is the way to build a brand, but not necessarily the way to get people to buy,” says Rebecca Nidositko, analyst with the Boston-based Yankee Group. “Everybody knows the Pets.com sock puppet by now, but to get a Pets.com customer to go back, they need a different type of tactic and strategy. And that involves knowing the customers and marketing the right things to them, either before or after they buy.”
A new wave of users on the web and the increasing expectations of experienced users have changed the rules for e-retailers since the first shoppers started ordering online a few year ago. Despite the buzz surrounding broadband access and wireless communication, analysts say changing demographics will have a much greater impact on e-retailers than any technology changes. “Existing online merchants who designed their business models to attract early adopters will have to adjust their strategies,” says Barry Parr, director of consumer e-commerce research at IDC, a Framingham, Mass.-based research firm. “They’ll need to expand their offerings to attract lower-income households while making sure they don’t overlook the growing number of high-income households.”
Stepping back from oblivion
And Parr’s words don’t even address the impact of the biggest earthquake to shake the e-retail marketplace in the past several months. The capital sources whose wide-open coffers sent e-retailers on spending sprees have largely clamped the lid shut, looking for returns on existing investments. That means web merchants who staffed up and spent big in the expectation they’d go back for additional funding won’t be doing so.
For most of the merchants present at the beginning of Internet shopping and still here today—and those who aspire to be here tomorrow—the takeaway is clear: the ball game has changed, and their approach to the marketplace must change with it. Like the size-38 man who insists on struggling into the size-34 pants that he wore in college, e-retailers must face up to the fact that there’s been a significant shift.
The dawn of web shopping was characterized as an age of younger, male techno-geeks at home with the medium and captivated by bells and whistles on sites where they went to buy books, CDs and gadgets. “Two years ago, all of the marketing campaigns were about free shipping, discounts beyond belief, can’t get it elsewhere. They were very focused on price because that’s what the early Internet shopper expected,” says Elaine Rubin, president of Shop.org. “And while there’s no one kind of shopper or retailer online today, now it’s much more about convenience and value than lowest price, so marketing programs are reflecting that as well.”
Programs launching now are less inclined to promote price and free services. For example, supersite Buy.com—now playing No. 2 to Amazon in online retail—launched four years ago with ambitions to beat the competition by offering the lowest prices on the web. Analysts said it wasn’t a sustainable model—and they were right. After nearly discounting itself into oblivion with below-cost pricing, Buy.com has raised its prices on most items—it gets another revenue stream from advertising.
Today, surviving e-retailers are moving emphasis away from customer acquisition and toward customer retention. “Everyone has learned the lesson about spending so much on branding,” says Jupiter digital commerce analyst Heather Dougherty. “A lot of retailers are now looking to keep the customer base they have. With repeat purchasers, the value of the average order goes up.” That means greater use by e-retailers of tactics like email marketing programs, loyalty programs and personalization features—things they didn’t do two years ago because they didn’t yet have solid data on customers—and didn’t yet realize the importance of retention marketing.
Recent moves by eToys provide an example. In September, eToys emailed favored customers from last year with the news that the holiday season’s hottest toys were already in stock and offered them the first opportunity to buy them. As every holiday-harassed parent knows, the holiday’s hottest toys get scarce as Christmas gets closer. That makes the first option to purchase a reward for loyal customers.
Web merchants also are tweaking programs to reflect a much broader audience that’s expanding in several different directions. Shoppers are both older and younger than in the past, and more likely to be women. More of them have less disposable income than did first-movers on the Internet. The changing demographics are more in line, in fact, with the U.S. population as a whole than was the early web audience.
According to Jupiter Media Metrix, New York, new online buyers comprise the bulk of the market; this year, about 45% of those shopping online have been online for two years or less. New users include adults 55 and older, the fastest-growing sub-group online. Their numbers are expected to more than triple from 11.1 million last year to 34.1 million in 2004, when they’ll account for 20% of all online shoppers, says IDC. Forrester Research projects that by next year, half of all new online users will come from households earning less than $35,000 annually.
With new and different users coming online, retailers are changing the way shoppers are required to interact with their sites to make purchases, analysts say. Features such as site design are becoming more important to the extent they make it make it easier for shoppers to navigate the site and buy. That’s why—unlike in the early days—shoppers can now store their information on sites like Jcrew.com, and why online merchants like Lands’ End have added live customer service.
Online circulars
Some multi-channel retailers are going even farther to make new users comfortable online. In April, Minneapolis-based Target started putting its familiar deal-touting Sunday newspaper circular—which ranks second only to the comics as the most-read item in the paper, according to Neilsen ratings—online at Target.com. Target says its primary in-store customer—female, 42 years old, with a household income of $49,000 and children at home—is the same as its online shopper. But that’s just the point. While not new to Target stores, she’s just the sort of customer who’s apt to be relatively new to online shopping.
The approach, says Rubin, is an example of how smart retailers are using the web in new and different ways in response to the changing market. “Putting a circular on the web may not seem like rocket science, but those consumers at Target are accustomed to getting that circular every Sunday in the paper,” she says. The circular goes on the web on Sunday to correspond with when the newspaper version hits the homes. Interestingly, Targets’ web activity gets a big bump on Sunday and on into Monday, as the circular reaches shoppers through both channels.
The more the web can tap into established consumer behavior, the more successful it will be in marketing to those consumers, industry watchers agree. That’s true at the higher end of the scale, too. While Middle America may never be bread-and-butter business at high-end web stores, “It’s unwise for anyone to ignore a demographic shift,” says Jim Williamson, IDC senior research analyst. “Just because it’s not 80% of your business, it doesn’t mean you can’t try to capture the other 20%. Having a product line that allows people to start shopping with you is a good idea.”
Enter here
It’s the same strategy that works in offline retailing. “You need to make sure people have an entry point to your business,” he says. “If you go into Tiffany’s you can buy the key chain—almost everything else is out of the budget for the average person. Feature some of those things on the site, make sure people have that entry point and when they want to make a special purchase on which they’re going to spend more than usual, you’re there for them.”
But lower-income shoppers aren’t regulars at higher-priced stores, online or offline. And it’s getting those repeat customers to return and buy—whatever the e-retailer’s targeted market—that’s key to profitability.
Where better to look for prospective online regulars than an existing in-store or catalog base? Unlike earlier times in which channel champions saw web, store and catalog operations as competition even when under a common corporate banner, retailers are no longer worried that migrating store customers to the web will dilute in-store sales. In fact, research suggests the opposite. A recent Jupiter study found that multi-channel marketers can expect per-customer spending to be about 30% higher among customers who shop across the merchant’s various channels than can retailers who operate in a single channel.
That’s why Seattle-based Nordstrom.com recently put its entire catalog online. Nordstrom.com shoppers can answer the quizzes and engage the zoom and rotational close-ups and other features of the highly interactive web site—or they can simply click on the catalog icon, which pops up page by page, a digital clone of the familiar paper catalog delivered to their mailboxes.
“It’s important to have that offering of merchandise accessible through the web for customers who may be more familiar with shopping in the catalogs, or in the store,” says a Nordstrom.com spokeswoman. And partly in a bow to new shoppers less familiar with the site or with Nordstrom’s brands, Nordstrom.com has made a powerful site-wide search prominent in an upper corner on each web page. “We’ve found that even for customers new to Nordstorm’s, the search feature is probably one of the most important ones. Some people aren’t as familiar with our brands or how we merchandise them in our stores,” she says. Nordstrom.com also had new web shoppers in mind with a site enhancement it’s working on now: a more prominent placement for the live help button.
Bigger than ever
Department stores, catalogers and big box stores have been online long enough to see web shopping evolve and to adjust their approaches accordingly. But what about the true pioneers of e-retailing? They, too, are marketing to a broader base of shoppers than in the early days. Amazon started life as book retailer, but now it’s followed the market and expanded into a virtual online department store. “I guarantee you that the early customers of Amazon were quite different from their later customers, who are more likely to be women, parents, or family people responsible for buying holiday gifts for others” says Rubin.
If last year was the year of broad-spectrum advertising and this one the year of more targeted one-on-one marketing, what’s the theme of the future? Integration—even if it means going outside the company’s own channels, and in fact, beyond its own borders—is one way for e-retailers to ensure that they have a presence wherever the customers are, whether young, old, web newcomers or veteran users.
Outpost.com, which started life as Cyberian Outpost, has taken a diversified, Amazon-like approach by adding onsite retail partners from related but non-competing lines. It’s leveraged its infrastructure to drive sales without expanding its owned inventory. The recent deal between Amazon and ToysRUs is one more example of retailers capitalizing on their position to drive business to other businesses in return for a share of sales. “We’ll see further integration between multiple channels—and they don’t even have to be wholly owned channels,” says Rubin.
Though e-retailers may have to scramble to adapt to a rapidly evolving marketplace, she adds that it’s important to remember the bright spot amidst the second half’s gloom-and-doom news of dot-com closings. Wall Street may have turned its back on dot-coms, but the party’s just starting on Main Street, where all projections show consumers are flocking to online shopping in increasing numbers. “The opportunity,” she says, “is bigger than ever.” That is, if retailers’ marketing tactics and business strategies evolve in the right direction. 
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