Online Retail Trends to Watch

The future is difficult to predict. But the following trends are in progress and will continue to pick up steam as time progresses. Some, like CRM, will become a condition of doing business in the future rather than a trend.

1. One-to-One Marketing/Loyalty Programs

One-to-one marketing programs or customer-relationship management programs (CRM) are the latest trend in retailing, web-based marketing, cataloging, and manufacturer relationships. Retailers have jumped on the bandwagon, looking for new ways to create connections with individuals.

One goal of CRM programs is to provide singular insight of all customers and every interaction they have with a retailer. The main goal, however, is to act with this information in mind every time a customer visits a store or makes a transaction. That will be the major transformation in retailing in the future. Any loyalty strategy, of course, will need to employ offline and online marketing. In the future, customers most likely will refuse to provide their information to more than one agent in the same company. This will force businesses to integrate customer information.

2. Customized Programs and Services

As an adjunct to their CRM programs, retailers will be adding customized programs and services, and manufacturers will be creating customized products. As a result, retailers will have to modify their supply-chain processes to meet the demand. Logistics and warehousing will need to evolve to remain competitive.

The demand for customized products will result in shorter product lifecycles and smaller production output. Because it will require more flexibility, retailers will need to respond as well. The cycles for resetting the stores may need to move from the traditional fixed dates and seasonal planning to responsive, just-in-time planning. The store of the future will have to be very different to accommodate real-time consumer demands.

3. Aggressive Differentiation

In the past 20 years, retailers were very aggressive in expanding their chains through the building of new stores and consolidating with other companies to become larger and more powerful. In their haste to build new stores, some stores have almost become clones of one another. Warehouse-type superstores, for instance, all tend to look like one another. Other "big box" formats and club stores are hard to tell apart as well.

Now retailers realize they must close some of the stores they built so quickly and differentiate the rest of the stores in their chains. They will be adding more interactivity and special services. In order to be successful, retailers will need to help the consumer associate a unique benefit with their stores that is different from their competition.

In the future, customers will want to be able to experiment in the store, enjoy face-to-face interaction with a variety of demonstrations, and participate in entertainment. Retailing will need to become more active than passive. Stores will incorporate interactive technologies and offer instant training rather than classes. Of course, retailers will have to conduct research to determine which technologies customers prefer. Some shoppers dislike using a handheld scanner that tells them which product matches their personal profile. But the same shoppers would like handheld scanners to conduct price checks, verify sizes, or place orders. Just because a tool is electronic does not guarantee its acceptance.

Increased differentiation will include these new tools and new techniques. But the main emphasis will be on building brands to gain recognition of store value and service.

4. Channel Blurring

Channels aren't as distinct as they once were. Drug stores sell milk, and grocery stores have pharmacies. More than 40,000 products are now sold in supermarkets. Consumers just want convenience and shopping speed. Retailers know that if they are able to satisfy most consumer needs in one shopping trip, there will be less need for the consumer to shop at another store. Retailers would like to capture as many of the day's shopping dollars as possible.

Watch for this channel blurring to continue. While consumers today favor European-type shopping, being able to purchase fresh foods daily or satisfy other needs without pre-planning, retailers may replicate the hypermarket concept to provide all needs under one store roof.

Customers are also moving toward using more than one channel to make their purchases. While online sales are just a fraction of traditional retail sales, the web complements all sales by providing supporting information for purchase decisions. Retailers will increasingly rely on the web to learn more about their customers and offer specialized services and promotions. It's important that the customer has a consistent experience across all of the channels.

Channel blurring has extended to the Internet as retailers have pushed customers online with web-specific promotions. Many companies still pursue web sales for the immediate cash return and low overhead dollars, rather than building the channel or contributing to a brand. The Internet customer relationship in the future will be perceived as a long-term asset, not a short- term sale.

One retailer can span channels within its own organization. Kroger owns chain drug stores, convenience stores, supermarkets, and mass merchandisers. Wal-Mart has its conventional mass stores, supercenters, Sam's clubs, and Neighborhood Store supermarkets. The future may include more blending among these.

5. Security/Trust Focus

Over the past several years, there has been an increasing issue with security and trust of both merchants and manufacturers. When appliances break before their time, when services cost more but provide less, or when fashion designers force new fads on the public without alternatives, the retailer is often the one to take the blame.

Cybercrime is also rising. An unprecedented number of websites have been infected with some type of computer virus. Other attacks have ranged from defacement of a site to disabling a site entirely. Victims include e-merchants, manufacturers, and financial institutions.

Higher costs, more self-service, and crowded checkout counters don't contribute to furthering trust. Retailers are trying to re-establish themselves as trusted advisors and service providers. Both resellers and manufacturers have dedicated resources to ensure that the products they sell and the environments in which they sell them are safe and secure. This trend will become more critical to conducting business.

6. Problem Solving Programs

Home discount centers used to be merely warehouses stocked with remodeling materials like countertops, sinks, and faucets. Now these companies provide a consultant to work with the consumer not only to select these products but also to recommend entire remodeling services. In addition to the products, home discount centers offer contracting services to install the new kitchen fixtures.

Retail solution centers will increase in virtually every store. Instead of staffing with sales associates, retailers may add category experts to their stores in major metropolitan areas. The trend will extrapolate to virtually every type of business.

7. Category Expansion

Over time, categories tend to divide as more specialized products are developed. The paper category used to consist of writing paper and typing paper. Then the advent of the computer created the need for printing paper. Now, the category has expanded to include specialty printing paper as well—glossy, resume, and brochure paper to name a few.

While companies are merging and integrating, they may mistakenly believe they have gained synergies in categories. The opposite is true. More categories are being offered in each store, and more categories are being created as they divide and multiply.

The result—for traditional as well as online stores—is the ultimate capping of product assortment. Offering too many types of products only confuses the consumer. The retailer will have to carefully prioritize even more in the future.

8. Store Expansion/Remodeling

Stores are running out of room. It is always a struggle for the retailer to determine which products go on the shelf due to space constraints. There are now more than 50 versions of Crest toothpaste, and other brands offer nearly as many. Only consumer-preferred variations will be placed on the shelf.

But store expansion is limited and not merely focused on making more space for more products. Retailers are updating their stores to create meal solution services and interactivity. Grocers feature more prepared foods and have expanded the perimeter—the most popular area of the store—to focus on high-profit, interesting products and services.

Catalog Lessons for E-commerce Sales

Is the Internet merely a distribution channel for catalogs? So many e-commerce sites are nothing more than line or alphabetical product listings on a page, but as we have seen here, that's not what constitutes a catalog. That's why the web, in order to gain parity with catalogs, needs to add sophistication in presentation and efficiency in delivery.

Today, customers are fluid. They will shop in a store, online, and through a catalog all in the same week. While they purchase `safe" products on the web—those that they are sure will materialize exactly as they envision them—such as books, CDs, and tickets—they are also somewhat willing to experiment as long as the result is in their favor.

Convenience is the major driver for web-based sales, but the desire to touch a real product is the main reason for shopping at a store. If convenience and simplicity are the catalysts for non-traditional sales, web resellers can emulate the catalog industry's success. But for home consumers, it's often easier and faster to pick up a phone and place an order than it is to log on to the Internet. The selling proposition must enhance the channel because the web, by itself, is no longer so compelling that customers will try it just for fun.

Shoppers love the web when they have a product in mind. They can run a search function for a specialized item and find a supplier. But the Internet is not conducive to browsing. Searching for common items will bring thousands of hits. This is like_ being confronted with an index for a catalog that is twice as large as the catalog itself. And it has no sorting capabilities, presents itself in random order, can be several years old, and may not even be functional.

But more than 30 percent of the U.S. population goes online every day, and well over half of all Americans have used the Internet during the year. There are nearly 130 million people in the U.S. connected to the Internet—representing a substantial pool of prospective buyers. The opportunity is huge for e-tailers who want to remove some obstacles for the common consumer.

Identifying the Obstacles

Unless the customer has a relationship with an e-retailer, he has to search through a maze of providers to find someone to take his order. But ordering through a catalog is a fairly standard procedure. And if a cataloger can afford to produce a glossy mailing, the company is most likely not a fly-by-night operation. Not so on the web. Anyone can set up a site, and the company may or may not be reputable. Before sending someone money or sharing a credit card number, customers want to be sure they will get their order.

Customers believe quality of service is critical when selecting a catalog provider. Yet, they actually expect a higher level of service when shopping on the Internet than in traditional retail stores or through a catalog. Most e-merchants do not have a holistic e• service program that is integrated throughout their companies. The future will require a "live" person to help select merchandise and place orders 24 hours a day—as many catalogers now provide.

1. Catalogs take advantage of imagery and have mastered the use of photographs. Photos are mandatory for selling products but often take too long to materialize on the web. They are usually too small to see a product in detail, but catalog photos are large enough to view and enjoy. If speed can be overcome, the opportunity for web resellers is to provide full-page photos with a click. Their progress will be hindered by inadequate consumer equipment, such as slow modems.
2. Production diligence is the hallmark of catalog success, The intimacy of the printed page can be replicated on the web using the right techniques. Each web page requires micro-management to ensure that no detail is overlooked. The speed of the Internet should not translate to throwing a site together quickly.
3. Cross-selling is a technique that catalogers adopted with relish. Web retailers can maximize sales by encouraging customers to add to their shopping carts. These sales cost lessand bring in more revenue than art original sale. Rather than enhancing sales with banner ads, try adding a valued service with recommended compatible products from a "personal shopper."
4. Catalog companies have become proficient at managing their catalog businesses and unifying them with their e-businesses. E-commerce must also close the gap by creating seamless websites and smooth transactions. Integrating all aspects of the business and delivering dependable fulfillment will ensure that there are no inconsistencies in operations for the customer.
5. Trust is a major factor in catalog sales. Catalog firms have already predisposed customers to watch for marketing tricks. For example, a well-known floral company sent out a catalog that proclaimed there would be no delivery fees through a set date for any item ordered out of that particular catalog. Unfortunately, the price of nearly every item in the catalog had been raised an average of $10. "Free delivery" wasn't exactly free, and customers are not fooled easily. This sort of deception is not as common in the catalog world as in the Internet arena. E-merchants have to work even harder to regain consumer trust.

Catalogers have learned how to present merchandise in the most effective ways. The interactive nature of the web lends itself to some unique capabilities that are under- used. For instance, clicking on an image could produce a video clip of the product in operation or a common application in use. One click could bring up an image of the packaging, another could show the product unwrapped, and still a third could picture the back of the product. Furniture could be presented in a mock room setting that the customer designs to replicate his own home. The possibilities are unlimited—but information, speed, and excitement must offer the customer more than a printed page, or there's little advantage to using the internet over a catalo. The web offers the possibility of movement and sound two sensory delights that catalogs will never be able to offer. Interactivity will drive websites in the future, and static environments will be passé.

Integrated Businesses

Because customers don't differentiate between separate divisions of a company, it's critical to integrate catalog, retail, e-commerce, and direct marketing functions. If these divisions are competing with each other, they are unlikely to share sales and customer information that will be essential to establishing a lasting relationship.

A customer may be acknowledged as a loyal customer on the web but may be ignored in a

store. In order to build a Ware relationship,every point of contact must be reinforced through con._

sistency. The customer should be "recognized" wherever she chooses to shop. Click-and-mortar companies have unique advantages. A customer's web history can be shared with the retail store nearest her home. Promotions and service should be the same, regardless of whether she conducts her business online or in the store.

Building Competency

Catalog companies have built competency over the years and have spent time perfecting their craft. They have a loyal following and offer consistency and compelling product presentation. When e-merchants fail to deliver basic services, confuse consumers with awkward ordering methods, or don't provide enough information to make a purchase decision, consumers walk away with their pocketbooks intact. Some not only stop shopping or purchasing at the website where they experienced problems, but they also will cease shopping online entirely. Building competency in the channel should be a concern for all online companies.

Many websites have been built in stages and lack the flow of a continuously designed site. Because they appear fractured, customers have difficulty following through the entire site with coherency. Designing and promoting are two different disciplines but must be. integrated on a website. Conducting online research will help build expertise and customer knowledge. Bench- marking other companies with expertise in critical competencies will give insight into best practices and highlight success factors as well. Reading and critiquing catalogs will help provide the focus for competency basics.

Prospecting and Promoting

E-mail is a form of direct marketing and also a technique used by catalogers to provide lead generation. Online merchants are using e-mail as a prospecting tool. In fact, direct marketers of all types are using the vehicle as well—and most expect to increase the practice. The majority of direct marketing efforts are targeted toward acquiring new customers. In addition to e-mail, they're using traditional direct mail, direct response promotions, and other aggressive methods to both build their markets and retain existing customers.

The list is key, and catalogers manage their own databases and purchase names from select lists. These are widely available, but in order to choose the appropriate list, catalog firms must be very familiar with their target and potential customers.

Special offers and coupon insertion in catalogs bring in additional orders. Internet coupon use has grown by a third, even though only half of all coupon redeemers have Internet access. E. customers go to the web expecting to find bargains. These tools and others help remind customers of the opportunities awaiting them on the web or through a catalog.

Retaining customers may take different tactics than acquiring new customers. Of course, it's less expensive to keep loyal customers, but it will be necessary to broaden the customer base if e-tailing is to grow. Keeping the ordering process simple will ensure repeat sales. Customers should be reassured at each ordering step and given final confirmation for their orders. Otherwise, customers wonder if their orders really did go through or wound up in a "black hole."

The online population is changing and becoming less technical. Early adopters loved the technology, but today's customers are more concerned with convenience and are less technically. sophisticated. The newest opportunity focuses on late Internet adopters. Techniques that e-merchants used two years ago may be outmoded today. Today's consumers have new needs and less patience for technological glitches. These customers want to emulate store shopping in the convenience of the home. They don't surf; they browse. That's why learning from catalogers, who have perfected selling to this same audience, is important.

Some Internet companies are promoting their websites through traditional methods such as FSIs, the freestanding inserts found in Sunday papers. With the website address printed for customers along with information and a coupon, new prospects are enticed to give the web a try.

Online stores Product Placements

Online stores lack the observable physical start and finish structure of a retail store. At retail, a customer can clearly see aisles and shelves filled with products and the checkout counters waiting to total their purchases. Online, there is a virtual space that is unseen and unclear as the customer "steps" through the store entrance and onto the home page. Once there, the shopper knows there are lots of products, yet he can't see how many. He also can't see the structure of the aisles or how products might appear on the shelf. And he can't tell the size or the depth of the store. This can be disorienting because the customer doesn't know if the store is a big operation or a small one—the tip of an iceberg or only an ice cube.

As the shopper starts clicking choices and wanders through the e-aisles, he can be confronted with virtual pallets full of random products (long line listings). Or he can be presented with structured, organized shelves filled logically with an assortment of products that are easy to select.

Some products are better suited for online sales than others. Multi-channel shoppers will choose to purchase products based on convenience and proximity to their businesses or homes. And this depends on the product itself. Many people shop online, regardless of where they actually purchase. They may research information for a higher priced or larger item online, but they make the purchase in person at retail. More routine, commodity, and low involvement products make ideal online purchases.

A strategic retail shelf-management technique determines product shelf placement. Typically, placement is determined by the number of turns—volume of product sold during a month—and value of the specific product. Unfortunately, key areas on web pages are sold for advertising space instead of reserving them for prime products. Also, dynamically generated product listings are often sorted by the database rules—such as alphabetically by product name or numerically by product number—and not by product value to the merchant.

Above the Pack and Above the Fold

Online products most frequently purchased or products that have other strategic value should be placed "above the fold." This is the viewable part of the web page as it renders in a conventional 600 x 800 resolution screen. It is analogous to placing the product on the retail shelf at eye‑level. This placement makes it most convenient for people to find. Customers stop searching if they have to scroll too much or click to other pages, which is similar to putting products on the top or bottom shelf.

Considerations must be given to emerging technologies and adoption of Internet devices I such as handheld PCs and net or web TV so that prime products are displayed first.

Limiting Choice with Conscious Intent

Even with the ability to offer a limitless product mix, there is a point where the law of diminishing returns comes into play. Unlike a retail store and catalog that have physical limitations, the online store has depth, limited only by the system storage space and servers running the we bsite. The more products in the database, the harder it is to organize and merchandise them.

Limiting choice is a strategy employed to manage the structure to ease product selection and minimize warehousing and fulfillment transactional costs. Too much choice can actually be an inhibitor to purchasing and a reason for abandoned shopping carts. This occurs when the product comparison and selection tasks become too overwhelming. Even with the mistaken perception that online shelf space is limitless, customer considerations and business drivers must be taken into consideration.

Online shoppers look to their online merchants as experts in the products they sell. Many online resellers feel that providing customer choice equates with providing them every product that is available. This view forces shoppers to compare and make choices from long lists of possibilities with limited information. Shoppers often don't bother and shop somewhere else instead.

What better service to your customers can you provide than making recommendations to them? To start, this can be simply identifying products as "good, better, and best" for the shopper's need. These recommendations can be based on price and quality of the brand. These designated products can be placed above the fold for those shoppers who don't know where to begin to comparison-shop. Then, additional choices can be listed or featured for those customers who would like more choices and have more time to browse.

Product and category long-term value factors must be considered in developing the good, better, best model, however. Customers will develop trust for your store if their experience with the product matches your recommendations. They will continue to see you as the expert in the products you sell.

Increasing Cash Register Ring

Many techniques can influence the number of items purchased or the total value of the she cart. Three of these successful retailing techniques to leverage online are cross-selling, up ing, and purchasing spares. In fact, there is more opportunity online through virtual mess to attach these to products than in traditional retail or catalog phone orders.

Cross-selling products are a method by which the online store recommends complex items for customer purchase. This technique drives incremental sales and is typically innate. These "add-on" products can also provide a fuller solution for the customer. Some impel recommendations could be jewelry and shoes with dresses, cables with printers, batter- with electronic devices, or salsa with chips.

Relevant and complementary items work best for cross-selling. These items might belong to the same category or they might belong to a completely different category. Conduct a holistic evaluation on your website to put together recommendations for key products. Make it convenient and easy for the customer to add the item to the cart. Complementary products are good items to consider as bundles and "e-kits," a tool.

Up-selling is a method by which a product within the same category with varying degrees functionality is recommended that may better meet a customer's longlterm needs. This method replaces a less-expensive product purchase with a more-expensive product purchase, while cross-selling adds additional products to the cart.

Another cross-selling technique is to recommend that the customer buy "spare" products.

It is technique is best for consumable, repeat purchases. It's never convenient to have to go to retail store when you run out of a product. This can be an incentive to increase the number of products in the shopping cart, especially if your online store offers free shipping or other delivery options for a designated sale amount. This technique also keeps customers coming back as repeat purchasers making more frequent visits to your store. Many customers return to the original store for repeat purchases if their experience was positive.

Using valuable cross-sell merchandising space for non-relevant products doesn't work. Many online stores currently make the mistake of "down-selling," which happens when stores believe they are offering customers "choice." This practice can recommend a lower-quality product at a lower price, which may not be in the best interests of the customer. The store's perceived value of choice may conflict with the customer's perceived value of the recommendation. As one customer put it, "It's like going to a premium store, and being offered flea-market items."

Down-selling often occurs when webpage space is sold as manufacturer advertising or the product manufacturer offers "spiffs" (sales representative incentives) attached for the merchant. While seemingly harmless, this practice may cause you to lose credibility with customers due to the recommendations you make. As an online merchant, customers see you as an expert. If this is compromised by non-relevancy, customers may lose faith and trust in your judgment.

Customers look to online stores to recommend the right products, not to merely list products for sale. Used effectively, these techniques increase the total cash register ring and provide customers with complete and best solutions.

Increasing Frequency of Purchases

Increasing the frequency of purchases is an online technique that considers customers' purchasing behaviors. It is somewhat related to cross-selling when follow-up products are offered to customers at a designated time after an initial purchase is made. This is essentially a "postponed" cross-sell. For this technique, it is imperative to understand your specific target customers and have a thorough understanding of product-related categories and other categories as defined by retail customer segment clustering techniques.

Online sales data is analyzed for trends. For example, a trend might identify that customers who purchase a new desktop PC also purchase a new printer two months later. The store can provide printer information to the PC customer as a follow-up a month later.

Tracking customer purchases and integrating the information into your CRM database will allow you to customize messages to your customers when they enter your website. You can greet them personally and acknowledge past purchases. If the customer buys routine supplies from you at regular intervals, give the customer the option of placing a standard order. Even small companies take advantage of this technique. One pizza chain keeps records of each take-out pizza ordered linked to the customer's phone number. When the customer calls in an order, he asked if he would like the same as his last order. The same concept applies online. But it must be non-intrusive and with the customer's permission.

Taking this a step further, the company can recommend, based on ordering history, what it thinks a particular customer might like to purchase in the future. This technique must be very customized to be on target and should be linked to a personal shopping service. Otherwise, it may be perceived as an annoyance.