Playing to your strengths
As internet retailing grows, positioning your e-commerce channel effectively can help you stay ahead of the game
Growth in internet retailing is incontestable. Retail analysts Verdict reported that, between 2006 and 2007, the e-retail market grew by 35%. This was faster than at any time over the past six years and significantly faster than the total retail market, which grew at 3.6%. This growth looks set to continue, with forecasts indicating that the online sector will triple in value over the next five years, to account for 14% of the overall retail sales market by 2012 – a substantial increase from its current 5% share.
Retailers cannot afford to ignore such a trend, and are responding by rapidly developing or improving their transactional websites. But in making these investments, do they risk simply replacing traditional offline sales? Or can a successful e-commerce offering actually increase overall revenues, albeit with some inevitable shift in the channel mix?
The answer to this question depends on a number of factors: market dynamics, customer preferences, product characteristics – but how you choose to position your online offer will have a huge impact on the outcome.
The holy grail: multi-channel retailing
Many retailers would argue that successfully adding e-commerce to an existing mix of stores, phone and catalogue channels moves you ever closer to the holy grail of multi-channel retailing: seamless, near real-time interaction between you and your customers via any channel they choose. Satisfying your customer’s need for choice and convenience in this way builds loyalty, which in turn encourages them to spend more with you. One retailer we have worked with indicated that this expenditure could be up to ten times more than can be generated via the e-commerce channel alone.
Positioning your e-commerce offer
If your overall objective is growing revenue, then you will need some degree of differentiation between offline and online channels. Broadly speaking, there are three positioning strategies you can adopt: enhanced, extended or differentiated positioning.
‘Enhanced’ positioning
This approach essentially replicates the core offer available in other channels; however, it also plays on the advantages inherent in internet commerce.
Through a website, your product becomes accessible 24 hours a day in any corner of the world. The ’convenience factor’ is one of the key drivers of the growth of internet retailing, but your service proposition must be able to back this up. Delivery policies must be competitive, both from a pricing and lead time standpoint. Customer Service is also important, especially when it comes to queries about payments, expectations of lead times and returns handling.
An online storefront frees you from the constraints of a physical environment. You can present the entire product range that your company offers, rather than making choices that are influenced by your store’s square footage and format. Many retailers take this further by deliberately moving ’fringe’ products (those that cater to small segments of the customer base) online to free up precious space in store for faster-moving, possibly higher-margin products.
Online, you can be more creative in product presentation, using ‘in situ’ or aspirational settings. Complex products can be backed up with readily accessible technical information to allow more informed decision-making. Clever use of product combinations – dynamically generated or linked by looks or themes – allows customers to put together complete solutions.
In adopting this position, you are emphasising product availability and evoking its usage, elements that your current store environment may be constraining.
‘Extended’ positioning
You can further extend the online proposition by introducing elements of exclusivity. For example, you could create product and service packages from your existing range that are only available through the internet. But beware of putting your channels into direct conflict – if customers can easily break down and price compare the package, the more expensive channel will lose out and an associated channel positioning will be cemented in their mind. If that’s a concern, consider introducing service elements from a third party. An example could be offering a plasma television with installation by an accredited service provider. This again plays to the convenience angle, allowing your online customer to purchase a complete solution in a single transaction. As before, ensure that the operational complexities are well thought through. Customer Service issues are often exacerbated when third parties are involved.
Another extension approach is tailoring your offer to different customer segments. Understand their motivations and buying patterns and adapt the online experience accordingly. Allowing customers to opt in to push marketing or access areas designed specifically with them in mind (think new mums or ‘back to school’) can add to the experience that they get online and serve to complement, but not replace, the in-store experience.
‘Differentiated’ positioning
A third option is to offer a product and service proposition that is completely exclusive to the online channel.
Personalisation and customisation – features that are facilitated by online interaction – can help deliver this exclusivity. For example, we helped one retailer set up a customised-shirts capability, requiring only four key measures to create the right fit. The customer can custom-design their own product online, without having to visit a store. The average price point was moderately higher than that in traditional channels, creating an opportunity for customers to find purchase reasons both online and offline.
Similar opportunities exist around product visualisation. The use of online configuration tools (such as kitchen design programmes and ‘to scale’ renditions of your living room to help visualise furniture ranges) is becoming more mainstream. As is the ‘try before you buy’ concept, allowing customers to download a sample of the product before purchasing.
These features encourage your customers to shop in one channel depending on the offer and experience they are after. It is less about competition between channels and more about broadening the range of experiences that you can offer overall.
Whatever you do, be clear on your position!
Bringing an online channel to market is always going to alter the channel mix and is likely to cannibalise sales in other channels to a degree. You can, however, control the extent to which this occurs. Your channel strategy has to be clear; customers should understand the value proposition that sits behind each channel choice that you present to them. You will have to plan for some degree of overlap, as your customers will want to exercise their ability to choose. However, if you carefully construct your channel strategy to play to its strengths and communicate clearly with your customer so they understand these inherent advantages, it should ultimately deepen your relationship with your customer base...and maximise revenue potential accordingly.