Breaking Out

FROM INTERNET RETAILER

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Connecting with online shoppers through effective management of web merchandise
By Julian Chu

The Internet channel continues to show healthy growth—an estimated 18-20% for both the recent holiday season and all of 2007, according to multiple studies. That’s encouraging at a time when economic trends bode ill for the overall retail industry. Squeezed by a mounting debt crisis and declining asset prices, the American consumer appears to have lost steam—at least in the offline channel.

Not surprisingly, more and more retailers are focusing on the Internet as a key source of growth, and the fight for consumers’ attention and shopping dollar is certain to be fiercer than ever. Online retailers that are poorly prepared to compete are likely to be disappointed with their performance.

Under the covers of every successful retail operation are the secrets of how to create and present product assortments that engage the consumer and encourage her to purchase time and time again. The basic formula is simple: figure out customers’ needs and aspirations, understand how they prefer to shop, and tailor the offer and experience accordingly to drive sales.

It’s about getting into the minds of consumers to understand what presentations and messages are most relevant as they go through different shopping processes. In some cases, the customer is looking for ideas and inspiration, and may want to see products from different categories presented as an ensemble (think apparel and furniture). In other cases, he has purchased or is about to purchase a core product and wants to understand what complementary products are available (think electronics). Savvy multi-channel retailers are leveraging these insights on their web sites to deliver a more enjoyable and relevant customer shopping experience and to capture market share from competitors.

Merchandising for now
In the early days of e-commerce, retailers hurried to put up a site that offered the basics, which often amounted to a skeleton offering of products and a choppy checkout experience. As e-commerce technologies have matured, online merchants are increasingly able to put into practice the tried-and-true merchandising practices that have served them well in traditional store environments—and even improve upon them by taking advantage of the unique capabilities of the Internet medium. Now online retailers can offer sophisticated product browsing, search and comparison features—which today’s consumers increasingly expect as standard.

Unfortunately, many sites today are still running on antiquated technology, offering simplistic presentation of their product assortment and forcing all shoppers to shop in the same one or two ways. They need a more advanced merchandising system that enables the retailer to present products in multiple contexts that are relevant to specific shoppers and shopping occasions. Underlying technology platforms must have the flexibility to address the needs of different customer segments, product categories and selling models within a retail enterprise.
Leading online retailers are showing the way, employing more sophisticated online merchandising practices such as the following:

1. The matrix approach. Different consumers will have their own preferences in how to browse through online product catalogs. Some might be focused on a particular brand, others on a particular style, and still others on meeting needs for a particular life event. The dimensions can be as numerous as there are different product and market segments. Thus, online retailers must be able to merchandise any given product in multiple ways to maximize the likelihood that customers will find it regardless of how they are shopping.

On The Timberland Co.’s U.K. site, Timberlandonline.co.uk, which is a client of my company, a shopper can access a given pair of shoes by browsing a collection (e.g., Outdoor Performance) as well as through the traditional product category hierarchy (e.g., Men’s Footwear). The site intelligently displays the right “breadcrumb” trail to indicate how the customer got to that product to ensure a consistent shopping experience.

The ability to make real-time changes to the product classification matrix helps support marketing programs that drive traffic and sales. For example, a merchant may want to create a special collection of products related to a special event, such as the Red Sox winning the World Series. Products bearing the Red Sox logo thus need to be assigned to both their original categories and the new special collection. The retailer should be able to make this happen within the catalog management system without having to duplicate product content or create multiple SKUs.

2. Shopping by product set. Retailers with strong “merchandise authority” can actively tell the consumer what products go well together, as is often the case in fashion-oriented categories such as apparel or home furnishings. For example, Gap Online’s Gap.com makes extensive use of an engaging “shop-by-outfit” approach. Gap.com artfully presents complete outfits (e.g., top, bottom, shoes and accessories) to inspire shoppers and make it easier for them to obtain a certain look. While each of the products can be browsed and bought individually, there are special ensemble pages that enable the shopper to choose size and quantity for each item in the set and send them all to the shopping cart with a single click.

Through this strong “suggestive selling” approach, retailers can boost average order size and conversion rates. The key is to enable your merchants to decide how to mix-and-match products in the catalog to create these ensembles and get them onto the site quickly and easily.
3. Context-relevant product recommendations. Cross-selling and up-selling as a combined merchandising strategy is one of the retailer’s best tools for increasing basket size and margins. But too many sites treat this as a generic activity, presenting other suggested products without specific messaging that make them more understandable and appealing to the consumer.
In contrast, at U.K.-based House of Fraser, on the web at HouseofFraser.co.uk, another client, context-relevant cross-selling is central to the product presentation. From the product detail page for a dress, the shopper is given multiple ways to explore related products: other dresses that are similar, other products from the same brand (across different categories), and the option to see just a few or an entire page of related products.

Similarly, Circuit City Stores Inc. delivers at CircuitCity.com a variety of product and service recommendations depending on the type of product. When viewing a large-screen television, for instance, the shopper can also choose among compatible accessories, specially priced package deals, and value-added services such as warranties and installation. The question to ask is whether your merchandise managers have the ability to define and present product recommendations in multiple, distinct ways, not only at a product level but also in other areas of the site (e.g., category/department pages, campaign landing pages).

4. Interactive shopping tools. Certainly one of the most notable advantages of the Internet channel is the ability to provide shoppers with a wide range of interactive, information-rich tools that help them find or create the perfect product to meet their particular needs. Whether it’s the “Cushion Solution” for outdoor furniture at Gardener’s Supply Company’s Gardeners.com, which is also a client; Timberland’s custom boot builder at Timberland.com, Blue Nile’s “Build Your Own Ring” at BlueNile.com, or any number of product comparison tools on other e-commerce sites, leading online retailers have come up with many innovative ways of helping customers shop more effectively, thus earning greater loyalty and repeat business.

What’s key is the ability to define the right product attributes—which may be unique to particular products and thus require an easy way to make changes to the catalog’s data model—and the ability to feed up-to-date product and inventory data to these web tools, so that the online experience reflects the most current products, options and availability.

The customer experience
The merchandising tactics described above not only require flexible, easy-to-manage product catalogs, but also have implications for other core e-commerce capabilities. For example, how should merchants handle product sets in search results? Do you show both the product set as well as the individual items? When refinement filters (e.g., price, brand, color) are selected, do the set-level or the item-level attributes apply? The answer may vary for different types of products, so the retailer needs the ability to control the customer experience appropriately.
When online retailers merchandise products in different categories and contexts, the shopping cart must handle these differences intelligently. For instance, in some cases where the product image may vary depending on the category in which it was viewed—the shopping cart needs to select the right image. If shopping cart cross-sells are based on category assignments, the system must understand the category context to determine which products to display. And when the shopper wants to navigate back from the shopping cart to the product detail page, she should be able to return to the same context in which the product was originally viewed.
Bundled product pricing presents challenges for both front and back-end systems. If “package deals” or other pricing promotions are based on a set of multiple products being purchased, the shopping cart must recalculate the right price dynamically if one of the items is removed. Later on, if the customer returns one of those purchased products to the retailer, the retailer must have defined business policies regarding the appropriate refund amount and have the ability to accurately execute the transaction.

Delivering on the brand promise
Unless you’re simply competing on price, the quality of your online shopping experience, in terms of ease-of-use, richness, and relevance, is paramount. To meet the expectations of today’s well-informed and discriminating consumer, online retailers must have the capability to execute the online merchandising practices described above. With this foundation in place, they can then look forward to taking the next step in areas such as dynamic merchandising (where site content, offers, products and presentation change based on multiple rules and analytics) and personalized merchandising and marketing (where these aspects of the site change based on the profiles and behavior of the individual customer).

Today, leading-edge adopters are learning what works and doesn’t work in these more advanced forms of online merchandising. The marketplace will continue to evolve, and meanwhile the enabling technologies will change even faster. In general, however, a fundamental need will remain constant: To provide merchants with the ability to easily and quickly change how products are merchandised on their sites, so they can respond to shifting customer tastes and competitor strategies.

Julian Chu is director of client success at Demandware Inc., a provider of on-demand e-commerce technology. He previously led strategy and business development at IBM Corp.’s multi-channel retailing practice. He can be reached at jchu@demandware.com.