July 30, 2003, 12:00 AM

State of the Industry

(Page 2 of 3)

Similarly, retailers are getting smarter in their e-mail marketing. In fact, with the concerns earlier this year over e-mail spam, they’ve had no choice but to get smarter. Among the techniques: targeted e-mail newsletters. ShopNBC, for instance, uses an e-mail newsletter to keep in touch with watch enthusiasts. In spite of a perceived general antipathy toward unwanted e-mail, consumers are signing up for e-mail newsletters. “The watch newsletter is growing at a phenomenal rate,” says Lyn Mueller, senior vice president of ShopNBC Interactive.

Closer scrutiny

And affiliate marketing, too, is coming under scrutiny as retailers seek to focus their affiliate networks. Some retailers have recently started trimming back their affiliate networks, believing that there is in fact an administrative cost to keeping on the books affiliate partners who don’t produce revenue. But at the same time, affiliate marketing continues to be effective. “It continues to be a major source of customer acquisition for us,” says Holtan. Drugstore.com recently turned over management of its affiliate network to LinkShare Corp. after managing it in-house and expanding to 30,000 affiliates. “It’s a very steady and reliable channel for us,” Holtan says.

And then there are the shopping aggregator sites, which are a hybrid of affiliate and search marketing. According to a recent poll by BizRate.com Inc., site aggregators drive a significant amount of traffic. For one thing, customers are taking advantage of the power of the web in permitting comparison shopping. In a new survey from BizRate, 54% of consumers said they are focusing more on deals than they did last year and only 4% of respondents said they never comparison shop when they shop online. 44% said they do so most of the time and 20% said every time. The remaining 32% said they comparison shop some of the time.

That comparison shopping adds up to a lot of page visits, BizRate says. An online buyer visits four sites before making a purchase and visits the site where she buys 2.6 times before purchasing. “There’s a deal-centricity going on and it has been since the economy got bumpy,” says Chuck Davis, CEO of BizRate. “Rather than walking into deals, consumers are proactively seeking them.”

That focus on deals is further illustrated by shoppers’ starting points. 47% of online shoppers start at shopping aggregator sites, with 18% starting at search engines, 17% at comparison sites, 7% at shopping portals and 6% at auctions. The balance--53%--start directly at a merchant’s site. “Two years ago that was 70-30 merchants,” Davis says. “Shopping on the web is so fragmented that aggregators will continue to play an important role. There will eventually be an equilibrium, but we’re not there yet.”

Shifting attitude

While retailers are trying out all manners of marketing, they are more cautious about technology. “‘Make do with what we’ve got’ is still the theme out there,” Okamura says.

As the economy starts to show little signs of improvement, however, that attitude may be changing. In fact research company IDC reports that information technology spending in the retail industry this year will reverse last year’s decline, setting the stage for five years of growth at an average compounded rate of 5.4%. IT spending in retail last year fell 3.4% from the year before.

“The retail industry ended 2002 much weaker than it began the year," says Christopher Boone, program manager for IDC’s United States IT Opportunity: Retail and Wholesale program. “IT budgets were negatively impacted as the year progressed and retailers struggled to manage costs and meet profit goals. Despite the setback in 2002, we expect retail IT spending to resume growth in 2003 and beyond.”

Boone says retailers’ IT spending will focus on improving margins and will favor technology that can be implemented in a short time with a measurable return on investment. By 2007, retailers will be spending nearly $30 billion a year on IT, IDC projects.

The Yankee Candle Co. Inc. is a good example of a retailer spending to get a return on investment. It invested in a revamp of its custom-candle section and immediately experienced a 70% reduction in calls relating to custom candles, as well as a 25% increase in orders and a 25% increase in the average order size. “The day the new custom features went up, the calls went down,” says Darryl Gehly, vice president of Molecular Inc., the company that redesigned the section and, subsequently, the entire site. Yankee Candle obtained a six-month return on investment, Gehly says.

While Gehly will not reveal how much Yankee Candle paid for the revamp of the custom candle section, he says similar technology would have a list price of $250,000.

Yankee Candle, a $450 million-a-year multi-channel retailer with about 200 stores, hired Molecular to make the custom candle section of its web site more appealing and less cumbersome. Molecular solicited feedback from 150,000 customers and got responses from 30,000. From them it learned that customers wanted to see their finished candles before they placed an order. “It’s not profound, but sometimes it’s the simple things that really make a difference,” says Bob Stetzel, director of development at Yankee Candle. “If you give customers better feedback, you increase their confidence in buying and reduce returns.”

Before the redesign, 96% of custom candle orders were handled by call center reps, Gehly says. “The lengths of time were incredible,” he says. “Customers could take 20 minutes to talk about what a finished custom candle would look like.”

With the redesign, a customer who clicks on the custom candle portion of the site gets a choice of candles, then a pop-up window that starts the customization. Customers choose a label, a fragrance, a message, and, if desired, a wrap, a ribbon and a flower. Each element is displayed on a candle and a customer can change any element without having to start over. Before the redesign, customers simply checked off the element they wanted from a list but did not get to see the finished product. Sales of extras like wrap, ribbon and flowers also went up with the redesign, Gehly says. Now calls to the call center are brief, in the nature of a customer wanting more specific description of a scent, for instance, and most customers return to the web to complete the order.

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