Thursday, September 14, 2006

Internet retailing, still not asking the customer

First published in Marketing magazine in September 2006, this piece looks at how rudimentary research is on online consumers' behaviour instore, compared to the sophistication of research on physical retail.  It's still the case now, though things have certainly improved; and the obsessive attention to conversion and customer journey displayed by operators like Amazon is still bafflingly rare across online retail in general.

We’re getting used to hearing how internet retailing is growing faster than a panto beanstalk, and the latest report from retail analysts Verdict adds grist to that mill.  The effect of internet penetration growth has been boosted by an increase in online spending per capita, up 28% from 2002, and this was blamed for the fall in high street sales. 

Tesco now has over 750,000 regular web shoppers, and reported over £1bn in online revenue last year.  Argos home-delivered internet orders grew 46% last year, and Next Direct now have 45% of their sales online.

It’s not just the high street that’s feeling the pressure.  In financial services, Aviva announced last week plans to cut 4,000 jobs across the UK, citing changing consumers’ buying habits due to technology, and adding that over 50% of their direct motor insurance is now sold online. 

This has spurred a flurry of acquisitions and strategic moves, as retailers move to boost their investment in the online channel and direct businesses ramp up their web retail efforts.  BT recently acquired, a technology retailer, and the Dixons brand has moved entirely online.

So things are pretty good if you’re in retail online, and the outlook’s even better.  The IMRG predict that 20% of UK retail will be over the internet by 2010 – that’s £60bn.

Of course broadband (as ever) is behind all this growth.  It’s simply easier when the computer’s always on and there are no dialup charges to buy online, and the advent of “free” broadband is set to accelerate this.

But all’s not rosy in the web shopping garden.  As consumers, we all know how frustrating buying online can be – bad web design, broken links and inaccurate description of products erect barriers to purchase completion that exasperate us as we strive to hand over our hard-earned.

Despite the huge strides that have been taken in customer service, logistics and marketing in recent years, the sites themselves are often the weakest link.

Consider the effort and rigour that goes into retail design – especially in the supermarket world.  This is science – customer experience research and hard data on footfall patterns and purchase triggers are combined with in-store trialling to create customer-centric development.  Rolling programmes of consumer research monitor attitudes, views and concerns of shoppers, giving early warning of changing demand and the impact of competitive activity.

Online, this is practically non-existent.  The little research that’s done is sporadic, and fails to connect the business objectives to the consumer’s objectives.  An example of this is the usability study, widely conducted, but flawed in two ways.  Such a study presumes what’s on the site is the right stuff – it’s merely a question of arranging it in the right order to boost sales (a dangerous supposition).  It also fails to accommodate the impact certain key sales have on high margin sales – a usability study would tell a supermarket to put the milk by the front door, as it’s the most highly demanded product and this is the easiest place to find it.

So websites rarely conduct end to end research, following both the user’s journey through the site and their thoughts and feelings about this as they progress.  It’s this lack of qualitative understanding that’s the biggest shortcoming – online stores use weblogs like offline stores use EPOS data, but the difference is that offline stores also talk to customers to find out why they act like they do.

The difference it makes is huge.  According to Fireclick, who monitor conversion rates across retailers, these vary wildly even within sectors with average conversions for instance in apparel ranging from 2 to 15%.  Those that get it are a country mile ahead – the problem is that those at the bottom end are still experiencing massive sales growth driven by market expansion, so they often don’t know how badly they’re performing.

All this means we’re still underestimating the potential for online retail growth.  Most of the market is benefiting principally from the expansion of usership – for the winners though this is just the jumping-off point.

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