By Steve Rowen, Partner
8/19/2008
Each of the past few years, online sales have been predicted to grow in double digit percentages, while general retail – particularly in the current down economic climate – seems barely breathing. And as consumers, we’re familiar enough with buying goods and services online that we may often forget how new the technology really is. For retailers, however, much of the challenge still lies ahead.
Apart from a few early leaders, the majority of online retail sites offer a routine, if not altogether boring similarity. For those operating in multiple-channels, integration and compatibility issues between the online and physical worlds remain a tremendous challenge. Further, eCommerce itself is at a tipping point: in 2008, online stores rated higher in customer satisfaction than stores. As a result, many have entered the online arena with claims to “know all,” conjecturing conclusive solutions as to how retailers can master the eChannel immediately. But with so much noise surrounding a technology that is, quite literally, still in its very early days, how can retailers know who to listen to?
For this reason, we recently conducted our first ever benchmark study in the world of eCommerce: Playing Well with Others. Our intent was simple - not to make grandiose predictions declaring the future of how online sales should be performed, but rather, to gauge what retailers are doing right now with their eChannel, and how they plan to win customer loyalty. What we found was surprising on a number of levels, but one conundrum jumped to the top of the list.
An Issue of Basics
Our respondents, even Winning Retailers, are challenged to find their way out of product-centric behavior. While customers are turning to the online channel for increased functionality, service AND product availability, retailers’ understanding about how consumers use eCommerce sites and how to accommodate them remains foggy, at best. As a result, many have adopted what they perceive to be a logical first step: ensuring that their product mix is accurate and up-to-date.
The top-rated business challenges relate to retail basics: keeping product information and availability up to date, and creating a compelling merchandise mix online. Personalization and the customer experience – the things that online typically gets a lot of credit for – rank much farther down the list. Even shopping cart abandonment, something that gets a lot of press as a top online retailer concern, falls far below concerns about products.
Our respondents’ survey answers reveal very different challenges based on the volume of total sales that the eChannel provides. For analysis purposes, we broke them into three groups: Store-based multi-channel retailers (those that derive less than 10% of their revenue from eCommerce), eCommerce pure-plays (those the derive more than 70% of their revenue from eCommerce), and balanced multi-channel retailers (those that derive 10-70% of their revenue from eCommerce). We looked at splitting up the 10-70% group, but there were very few differences in their responses, so we were able to consider them as one group. The biggest differences were at the two extremes of store-based and pure-play:
· 58% of pure-plays are worried about maintaining high growth rates vs. 32% overall – but none of this group is expecting significant future growth from other channels over the next three years. In fact, all pure-play respondents expect to maintain or even increase the % of sales derived from the online channel in that time.
· 42% of pure-plays are worried about cart abandonment vs. 22% overall. This makes sense given that this is this group’s bread and butter - they are not using the eChannel to drive sales anywhere else and have no other way to capture the sale.
· 31% of store-based respondents are worried about keeping up with evolving consumer behavior – 38% express this concern specifically about providing a unique shopping experience. But they’re not that worried about personalized experiences (17% of store-based vs. 26% overall and 31% of pure-plays).
Pure-plays tend to believe that their offerings are already unique – driven mostly by product selection, and so are more focused on “personalizing” their experience. Store-based retailers are still relying on stores to deliver the “personal” aspect of their offering, but are concerned that consumers are beginning to value this less as their comfort with multi- and cross-channel shopping increases. Our recent Finding the Integrated Multi-channel Retailer Benchmark Report also points out that Winners and large retailers tend to view the online channel as a “lead generation” engine for their stores, and therefore the focus of their efforts is to drive people to the stores.
This eCommerce Benchmark Report was just released last week, and tackles a great deal more in the realm of the challenges retailers are facing in their eChannel, the opportunities they perceive both near- and long-term, as well as the technologies they see most fit to help realize those opportunities. As always, the report is available free-of-charge for all members of the retail industry to download.
But because our respondents (especially larger multi-channel retailers) seem to have grabbed on to all things product, one suggestion we offer within the scope of the report is as follows: While product is certainly a cornerstone, it is time for larger retailers to recognize that if they maintain this pure-product course, small retailers with good product mix will be at an advantage. It is also worth noting that store-based retailers should spend less time trying to emulate pure-play eCommerce sellers: they have an entirely different goal set. But for both parties, the time has come to swing attention back to the evolving customer.
We look forward to conducting this study again in early October, 2009, and hope to see some very good progress from the data our respondents provided this year.
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