March 27, 2008, 12:00 AM

The Internet star rises in a down economy

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Segmentation will thus become an important part of an Internet strategy this year. And while many retailers have segmented their customer bases, most don’t do it often enough. “It’s easy for marketers to segment their customer lists, but then many live with the results a little too long,” says Tiffany Riley, senior vice president of marketing at MarketLive. “They need to take stock of what’s happening in 2008; they can’t rest on their laurels from 2007.”

But basic site enhancements are also important. The state of the economy has pushed Gaiam to speed up implementation of improvements, Marshall says. The company is implementing customer reviews and ratings faster than it had expected to. Just last month it decided to implement product videos on its web site, and the first went up by the end of the month. “We’re hoping that will increase our conversion rates pretty quickly,” Marshall says.

In addition to such enhancements as Gaiam is undertaking, retailers should pay attention to merchandising, especially looking at ways to re-merchandise existing products, says Jay Sullivan, head of Internet strategy at MarketLive. She cites the case of a gift basket retailer where the average ticket was $175. “We wanted them to make sure the customer saw the full depth and breadth of their products,” she says. “We encouraged them to make some of their price points under $50 and even under $25.”

Quick inventory expansion

In addition to front-end enhancements and marketing, the back-end will also become more important as retailers compete for the online customer. In addition to the always-true practice of making sure inventory, fulfillment and shipping are up to par, this might be the time to consider expanding inventory as a means to capture more customers and sales, Dougherty says. “Online retailers have a lot more options than offline retailers because it’s easier to put products on a virtual shelf than on an actual shelf,” she says.

One of the biggest advantages that having a strong online presence provides, according to some experts, is the ability to react quickly to market developments. “An online operation gives you an edge in your ability to see trends and move very quickly,” Kugelman says. “We can put an image on the site and see immediately whether people will buy that item.”

Other back-end elements that should receive attention are basic picking, packing, shipping and customer service. “Many of the big chains have outsourced those operations and some have orphan warehouses where they process Internet sales,” Antall says. “They need to get serious about how to operate those efficiently and cost effectively.”

Retailers should also be looking overseas, a path that most U.S. retailers, for a variety of reasons, have been reluctant so far to take. “The weak dollar has made American goods much more attractive to overseas consumers,” Kugelman says. “We’re doing a very large business in Europe and the Persian Gulf.”

The bottom line is that the economic factors that have developed in the past six months add up to opportunity for online sales. The question is: Can retailers take advantage of that? “Most retailers are not very good at change,” Antall says.

But the good news is that some very large retailers have blazed the trail and others can take inspiration from them. “Best Buy, Wal-Mart and Target have all done a really good job of making the transition to online,” Antall says. “Even pure-play e-commerce retailers should keep an eye on them.”

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