E-retailers investing more in web interactions

The recession is turning retail executive focus back toward e-commerce efficiency, with 61% of major online retailers investing increasing amounts in improved web commerce functionality, according to a research report by Aberdeen Group.

The report, entitled 'High definition retail e-commerce: Higher customer conversions through effective online merchandising', studied the business benefits derived from upgrading retail e-commerce performance as well as cost optimization among e-retailers.

While the internet has affected most businesses in some way, Aberdeen argues that retail is among the sectors most significantly affected due to new technologies above and beyond simple web browsing, such as mobile commerce and online social commerce, which provide retailers with more opportunities to grow their businesses.

However, along with these opportunities come significant challenges, such as keeping up with increased competition, and an increasingly tech-savvy and impatient consumer. These challenges are compounded by the economic downturn, in which customer wallet share is greatly reduced. Those consumers who are still spending are doing so only after conducting a great deal of product research, while at the same time their expectations are increasing of a good online shopping experience.

While there are many pressures on retailers (e.g. technology, speed, and customer expectations), Aberdeen has found that two factors stand out as the ones retailers are struggling with the most, and these are the two business pressures that are driving them toward new merchandising-based e-commerce processes.

The top business pressure is the low level of customer loyalty (40%) that the online consumer feels toward existing retailer relationships. In a traditional brick-and-mortar store, a product is on display for a consumer who has made an effort to physically visit a retailer. In such a situation, retailers have the advantage of an existing consumer located in a physical store. However, within the realm of web commerce, the convenience factor means that consumers have more information and more options in front of them, making loyalty to a specific retailer all that more difficult to establish.

Low customer loyalty online also has consequences for other channels. For example, customers who frequent physical stores or browse catalogues know that they have the internet at their disposal if they don't find what they want in-store. Consumers can therefore limit their exposure to physical shopping locations to destinations where they know there is a good chance of either having a superior customer service experience, or finding an item for a lower price than would be available online.

The second greatest pressure that online retailers are facing is the high expectations that consumers already have for fast and accurate product discovery (33%). Consumers have a surprisingly short attention span when it comes to searching for products, and the way a site is presented (in terms of product category trees, search result relevance, and personalised product offerings) has a clear impact on overall sales results. Given the importance that retailers place on this pressure, the need for accurate merchandising processes that tie together product placement, pricing, promotions and catalogue management is essential.

The third main pressure that best-in-class retailers report facing is the increased level of customer research before making a purchase (27%). Consumers are spending significant amounts of time researching products and services, and this relates not only to price but to product details, location, shipping costs, and delivery times, among other factors.

Traditionally, specific product information was left to manufacturers to provide. Now, however, best-in-class retailers are providing this information on their own web sites, weaving in high levels of product data with core product display strategies in a bid to supply the consumer's taste for detailed product information without forcing them to leave the e-commerce web site in the process. In fact, according to Aberdeen, the longer a customer stays on a particular web site to read about a product, the greater potential there is for increased selling.

Best-in-class online retailers are now employing process-supporting technology to control online merchandising strategies. Online merchandising, the process of preparing and selling products or services for sale in a retail e-commerce environment, is supported by a new commerce framework that includes content management, product display, pricing, promotions, and customer segmentation, all of which are enabled by personalisation, web analytics, and search optimisation techniques.

The study identified two key strategies that are currently employed by best-in-class retailers:

1. Introducing the online channel into a company-wide merchandising strategy (33%), and coordinating product placement for increased selling opportunities (33%). This is a small step toward becoming a more multi-channel-centric organisation. Most retailers have established merchandising plans for their physical locations, and it makes sense to incorporate the online space into a unified strategy.
    
2. Coordinating product placement, which includes not only text-based product listings but image placement as well, backed up by specific customer analytics for a personalised customer experience. A customer who has previously purchased a baseball glove online, for example, may be more likely than others to buy a bat and ball. Images and textual descriptions of those two products are therefore more likely to be relevant for that particular customer, and should automatically appear next time they visit the web site.

As e-commerce retailers try to improve their online merchandising performance, many areas of improvement need to be examined and addressed. Even those retailers with already successful e-merchandising practices can find ways to improve their processes. For example, Aberdeen recommends:

1. Focus on upselling existing customers as a key to increased sales;
    
2. Building organisation-wide, cross-channel e-commerce strategies;
    
3. Define the fundamentals of good online merchandising;
    
4. Embrace incremental change for cost-effective e-commerce improvements;
    
5. Establish a 360 degree view of e-commerce operations for full quantifiable visibility;
    
6. Integrate supply chain processes with online merchandising processes.