Survival of the fittest, that Darwinian credo, captures the state of the retail industry. In February, Borders—which has been in business since 1933, employs 17,500 people, and generated $2.8 billion in 2009 (its last fiscal year)—filed for Chapter 11 bankruptcy protection; the company planned to close about 30 percent of its stores and shift its focus to e-books and non-book products.
In April, Dish Networks successfully bid $320 million to acquire the assets of Blockbuster, which was founded in 1985, operated more than 3,000 stores, had 125,000 movie and game titles, and served 50 million consumers a year. Other well-known brands, such as Macy’s, Radio Shack, and Rite Aid, have struggled and have been linked recently to possible bankruptcy filings.
So, why are so many longstanding brands teetering on the brink of oblivion? Quite simply, the continued growth of e-commerce has dramatically changed how products are marketed, sold, and serviced. U.S. e-commerce sales grew by 12.6 percent, to $176 billion, in 2010, after an 11 percent increase in 2009, according to Forrester. Sales are expected to reach $279 billion in 2015, the research firm projects. In addition to gaining ground on brick-and-mortar options, e-commerce is changing how companies communicate with customers and what level of service is expected before, during, and after a sale.
While corporations like Borders and Blockbuster have stumbled during the transition from traditional retailing to e-commerce, other enterprises have thrived. Businesses such as Amazon.com, Cabela’s, Consumersearch.com, Dell, Drugstore.com, Fogdog Sports, Lands’ End, and South Cypress have raised the e-commerce bar. By interacting with consumers using simple presentations, product ratings and reviews, personalization, and consistently high-quality customer service, those companies have increased closure rates, grown their average sales size, expanded customer purchase frequency, and streamlined operations. As a result, businesses are thriving, not merely surviving.
A Simple Premise
In trying to deliver a positive online browsing and buying experience, where should a company start? “Consumers will not spend a lot of time sifting through long, complex sets of hyperlinks,” says Gene Alvarez, a vice president at Gartner CRM Research. “They want to find the data they desire quickly and easily.”
As a result, a major challenge that merchants face is taking their often-complex inventory and presenting it to customers in a simple way.
In general, companies should boil down all of their wares, so they are displayed in a click or two. This process involves developing smart interfaces and search tools that help customers find what they want fast—ideally even better than any sales clerk could have. For instance, on the Fogdog Sports Web site, a consumer can go from the main page to half-finger football offensive lineman gloves in one click.
Such simplicity needs to extend to other areas, such as the checkout process. One reason for Amazon.com’s success has been its 1-Click checkout. Once activated, customers can associate payment methods with a shipping address and complete purchases without having to fill out their name, address, and credit card details. The company extended that idea with its PayPhrase system, which lets shoppers enter a unique phrase and four-digit PIN to complete a transaction. With that system, shoppers don’t have to be signed into the site with an Amazon account, a step that is necessary with 1-Click.
Drugstore.com has taken this concept and applied it to coupons. Its customers can clip, click, and save quickly. As a customer hits the Buy button, a coupon’s value is automatically added to the shopping cart. Special promotion codes do not have to be entered.
Making the Most of Analytics
E-commerce retailers now can collect oodles of information about online interactions. They can examine when individuals arrive, how much time they spend on different pages, how often they click through, how many steps until they make a purchase, where they abandoned a transaction, and where they leave the site. Analytics help companies make sense of such information, and some of them are leveraging the data to stimulate sales.
Back in 1961, Dick Cabela devised a plan to sell fishing flies he had purchased while at a furniture show in Chicago. Using direct mail, he built one of the nation’s largest outdoor retailing chains, with 35 locations ranging from 35,000 to 247,000 square feet and $2.7 billion in sales in its last fiscal year. The outdoor equipment supplier considered using analytic tools bundled with its legacy e-commerce and CRM systems but ultimately decided against them. “The bundled tools focus mainly on how their application is performing; we are more interested in how the entire buying process unfolds,” says Corey Bergstrom, director of marketing research and analysis for Cabela’s.
To gain that insight, the outdoor product retailer consolidated its customer information in a Teradata data warehouse and built a series of analytics applications with SAS Institute tools. Cabela’s staff constantly collects and correlates the data to find the right presentation, a process that mixes art and science.
Because it can be difficult to pinpoint what motivates a customer, the outdoor retailer is cautious when changing its modus operandi. Once potential improvements are noted, the company tests and pilots the new releases before implementing them, frequently backing them out rather than moving them forward. The often-laborious process had led to some noteworthy successes, including shifting direct marketing inserts from Sunday newspapers to in-store flyers, resulting in a 60 percent increase in effectiveness.
Let’s Get Personal
Companies are constantly trying to gain more insight into site visitors and then tailor their content to the interests of participants. Ideally, a single visit would reveal a surfer’s areas of interest, previous purchases, gender, and age, and then present relevant information to that person. Personalization engines have emerged to help with the process. With the first systems, Amazon.com was again near the head of the pack. The company’s focus was on delivering information, such as “customers who bought this book also enjoyed this one” blurbs. Cabela’s followed a similar path and increased its add-on sales by 300 percent.
Recently, the presentation criteria have become more complex, the information more diverse, and the buying experience more personal. If a shopper wants to purchase a digital camera, for example, Consumersearch would give him three sets of recommendations, based on quality, style, and value. Next, it would ask whether he wants to be cheap, chic, or sensible, and finally it would refer the person to online and offline vendors.
Social Nets Gain Importance
Personalization has been a key building block in social networking systems, which have had a significant impact on the e-commerce market and promise to grow in importance in the coming years. “Just about every merchant is trying to figure out how best to leverage social networking information,” notes Gartner’s Alvarez. Many have at least stuck their toes in the social networking waters: Of the Gartner Top 500 retailers, close to 75 percent of them have added social networking elements—Facebook pages, YouTube videos, or Twitter tweets—to their online presentation.
However, many retailers are in the early stages of exploiting this channel. “We have more than 1 million Facebook fans but have not yet determined how best to use that information to drive additional sales,” Cabela’s Bergstrom admits.
For the moment, social networking best practices are most evident with the merchant on the outside observing conversations of consumers, rather than interacting directly with them. For instance, retailers understand that customers are willing to listen to others’ advice—even if it comes from a stranger. In fact, a nameless, random blog post sometimes carries more weight than a million-dollar commercial. Consequently, merchants are paying attention to rating systems.
Operating since 1952, South Cypress sells flooring materials to designers, home builders, and homeowners. Five years ago, the company supplemented its traditional retail sales with a Web site that directly links to a handful of rating services, including HGTV Marketplace, NextTag, Pricegrabber.com, Shopzilla, and Sortprice. “We use the rating services quite a bit,” notes Matt Dyar, CIO at South Cypress. “They provide us with a set of checks and balances that we can use to determine how well we are serving the customer.”
However, sometimes the temptation to use the technology to help a company leads to bad business practices. In January 2009, an employee for electronics manufacturer Belkin International was exposed for paying 65 cents each for positive reviews of Belkin products and ranking negative reviews as “not helpful.”
The case underscored the potential problems caused by the Internet’s anonymous nature. While the Belkin case involved an employee, it is possible that one or two individuals could use Web technology to create false impressions about a company, its products, and its service. To guard against such problems, vendors like Bazaarvoice and PowerReview have developed applications that let businesses monitor, capture, display, share, and analyze customers’ online conversations.
Back-Office Best Practices
Though much of the focus has been on front-end interactions with customers, changes also are evident on the back end. Customers now demand quick and easy access to various support functions. Starting by letting customers customize their PC orders many years ago, Dell has been a leader in self-service. Its Ask Dudley feature often answers a first-time customer’s technical questions, so the company does not have to spend money on customer service agents.
Another customer service star, Lands’ End, has a few interesting features on its site. With Lands’ End Live, online customers enter their phone numbers and receive a call from a customer service rep. A Shop with a Friend function allows two people in remote locations to get online, page through the site together, use text-based chat to compare notes, and then buy various items.
The Integration Conundrum
One of the most significant challenges retailers face in improving the buying experience involves information. To deliver consistent service, companies must provide a consistent view of customer data to their employees. While that goal sounds simple, realizing it is difficult because the information is generated and stored in many places. “Most organizations now house information silos,” says Ray Martin, product manager at MICROS-Retail, an e-commerce platform supplier. “One application has customer information but is not able to share it with other systems.”
The desire by vendors and users to address this limitation has created ripple effects. Vendors are moving to expand and integrate their product lines. In some cases, they are building out the entire suite themselves; in other cases, they are relying on acquisitions to fill product line holes (see “The Shifting e-Commerce Marketplace” on the previous page).
For customers, a best practice is buying integrated products. That criterion was one reason that South Cypress purchased NetSuite’s e-commerce solution, a software-as-a-service (SaaS) system geared to small and medium companies. Previously, the company had worked with Intuit QuickBooks and Microsoft Excel spreadsheets to track sales, inventory, and customer information. The NetSuite platform featured integrated enterprise resource planning (ERP), CRM, and
e-commerce capabilities. “We are able to track our inventory in real time and provide customers with accurate information about when their orders will be filled,” Dyar notes. The system is one reason the online unit’s sales have soared by 800 percent in the past five years.
However, larger companies might need to break down organizational barriers to reap some of those benefits. In some cases, individuals would not encourage a call center employee to direct a potential customer to buy online because their department would not get credit for the sale. “Organizations need to make sure that their internal business processes are aligned in a way so employees’ focus is on the customer,” MICROS-Retail’s Martin notes.
Recently, the retail market has undergone a series of dramatic changes, sparked largely by the growing influence of e-commerce systems. While the transition has presented many challenges to established businesses, it also has opened the door to new possibilities for forward-thinking companies. Many are using emerging technologies to increase customer satisfaction, drive sales, improve customer service, and streamline operations. In sum, retailers find themselves in the Dickensian paradox: “the best of times, the worst of times.” Indeed, it’s the best for those companies taking advantage of emerging technologies and the worst for their competitors.
Paul Korzeniowski is a freelance writer who specializes in technology issues. He can be reached at firstname.lastname@example.org.