Friday, March 23, 2001

UK Online Retailers Must Return To Merchandising Basics

Larger ranges result in worsening user experiences and damage retailers' potential to grow revenues, according to a new Report by Forrester Research. UK retailers must limit apparent range sizes and address the needs of mainstream shoppers who lack product knowledge. Online merchants must return to basics and adopt merchandising principles that help customers make the best buying decisions.

"Merchants are making a mistake in rapidly expanding their Net ranges," said Forrester analyst Mike Honor. "They believe an absence of online space constraints lets them replicate the offline concepts of destination stores and category killers. This belief ignores the fact that large assortments in one place are less attractive online than off. The concept of a one-stop shop is rooted in the offline world, but the Web is poor for browsing masses of products. Low online switching costs make the Web the perfect comparison destination."

Winning retailers will derive competitive advantage from being constructive merchandisers. Forrester defines constructive merchandising as, "helping customers make the best buying decisions, by recognizing that customer needs differ, and by addressing different needs via configuration, content and choice". These techniques let Web sites adapt to the needs of different browsers, steering them through the buying process. Solution-based ranges help the needs-aware consumers, and user-defined ranges let the category-aware consumers serve themselves. Online content gives retailers another lever to differentiate product. Proactive recommendations suit the lazier needs-aware, and content on-demand lets the category-aware stay in control.

Average Web site conversion rates of 2% to 3% demonstrate that shoppers engage less with the retailer's offer online than off. Online, retailers need to replicate the salesperson's ability to articulate customer needs and provide comparative information. Decision-making frameworks convert needs-aware customers, and flexible comparison tools serve category-aware customers.

"But before merchants introduce constructive merchandising tools, they must understand how to integrate them into an easily navigable site," Honor added. "They must segment their range, let shoppers choose the way they interact with the category and make needs-focused browsing the default. They must gauge their current level of merchandising and prioritise appropriate improvements.

"Having become constructive merchandisers, retailers can consider continuing with range expansion plans. Having designed a site that can be easily navigated by all types of shopper, retailers can begin introducing more sophisticated merchandising techniques. The starting point is to evaluate current merchandising performance. Retailers must then plan for an overhaul of current merchandising, prioritising configuration."

Poor Online Service Drives Away Brick & Mortar Customers
Jupiter Media Metrix, a global leader in market intelligence, today reported that poor online customer service from a click-and-mortar retailer will drive 70 percent of U.S. online buyers to spend less money at that merchant's offline store. Additionally, a new Jupiter report reveals that only 18 percent of click-and-mortar retailers are capable of accessing a customer's consolidated account activity across all sales and service channels (online and offline). According to Jupiter analysts, click-and-mortar retailers must integrate their customer relationship management (CRM) capabilities if they are to retain customer relationships and meet consumer demand.

"Multichannel retailers have been treating their online and offline businesses as separate entities, but that's not what consumers want. Since e-mail customer service is a weakness among retailers, consumers want to be able to go to offline with their concerns," said David Daniels, Jupiter analyst. "Click-and-mortar retailers need to build their customer service infrastructure for the long-term, and changes in the market indicate that bringing those operations in-house is the only way to retain relationships across multiple channels."

Key findings and forward looking analysis from the latest Jupiter CRM report, "CRM Moves into the Check-out Aisle," - which will be discussed in more detail at Jupiter's Ground Zero 5 Forum, May 22-24 in Boston - include:

- While few click-and-mortar retailers can track customers' transactions across all channels (online and offline), 67 percent of online buyers said they expect store staff to be able to view their online account information, according to a Jupiter Consumer Survey. Jupiter analysts found that retailers should be using browser-based CRM applications that allow store staff to act as remote customer service representatives with access to consumer data across all channels.

- According to the survey, 83 percent of online buyers would like to be able to return online purchases at offline stores. Additionally, 59 percent said that they would like to order a product online and pick it up an offline store. However, Jupiter analysts found that only 18 percent of multichannel retailers offer in-store pickup of items ordered online. Jupiter analysts say that non-integrated product inventory is a leading reason for customers' dissatisfaction with online service.

- Jupiter analysts say that retailers must exploit their physical assets to satisfy customers across whichever channels they choose to transact. According to the survey, 43 percent of online buyers said they would always return merchandise to stores, while 95 percent said they would sometimes return to stores. Therefore, Jupiter analysts believe, there is only a very limited opportunity for companies that automate returns processing for online-only retailers.

"The demise of Internet-only retailers has allowed click-and-mortar operations to gobble up online market share," Daniels said. "Now they need to solidify their relationships with their customers because consumers expect special treatment, regardless of where they shop."

Advice for Multichannel Retailers
Jupiter analysts offer the following advice for multichannel retailers who want to integrate their CRM capabilities:

- Control new customer relationships by committing to move customer service operations in-house where it is easier to manage integration processes. Companies can cut the costs of an in-house operation by outsourcing infrastructure and deploying hosted CRM applications that allow business managers to focus on customers and staff instead of technology.

- Leverage browser-based CRM applications to allow store managers to add comments to customers' service history. This will help build a single, cross-channel view of customer's transactions.

- Incorporate stringent customer service representative quality inspection measures, including call monitoring and customer satisfaction scoring. Retailers have to realize that as products and price become more of a commodity, customer service becomes the product that differentiates them from their competitors.

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