Back to Basics With Online Retailing

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It is an understatement to say it is a different online world from a year ago. The exuberance behind the Internet and online retailing has quickly dissipated into a cloud of dust.

Value America, and, once thought to have novel business models, are no longer alive. The competitive landscape has changed. Capital markets have dried up for almost all e-commerce players, and many dot-com entities - once considered leaders of the new economy - are desperately searching for traditional, bricks-and-mortar partners.

As a result, online retailers, be they multichannel or online only, need to re-evaluate their business plans, strategies and investments. In many cases, the result of this evaluation is a back to basics strategy, as last year showed what straying from the norm holds.

Online retailing, though a relatively new concept, still falls back on basic retailing concepts: customer service, merchandising, marketing and financial management. To succeed, e-tailers need to remember the following:

Focus on increasing ring and frequency. There are two basic ways to increase a retailer's revenue from existing consumers: Get consumers to spend more every time they come to the store or get them to visit the store more often, or both. E-tailers need to approach these goals with a unique angle compared with a bricks-and-mortar retailer, as online competition is always a click away.

To increase a consumer's ring, or per visit dollar spend, e-tailers need to focus on basic merchandising concepts. Leverage cross-merchandising, such as displaying socks with shoes and batteries with flashlights. Recommend relevant products based on purchase history, other consumer behavior or product detail.

Though widespread and more advanced personalization (such as providing a unique, tailored site for each loyal consumer) is still off in the near future, e-tailers must start to think about how a personalized experience fits into their site offerings and drives consumer behavior.

Will consumers appreciate a personalized product offering, with relevant product, site tools and stored online behavior? Or would they prefer a more anonymous shopping experience, with simple product recommendations based on an aggregation of other shoppers' behavior?

Lastly, understand basic consumer demographics, both existing and desired, and tailor product assortment and site design accordingly.

To get consumers to visit a site more often, provide them with a reason to return. Creating a relationship with a consumer is essential to encouraging frequency, as consumers will not want to return to a site with which they had a negative experience.

Provide a personal account area with stored credit card information, addresses and order history. This information should be easily accessible during the checkout process to provide the ultimate convenience for the consumer.

Encourage repeat visits by offering e-mail alerts or loyalty programs. If applicable, emphasize multiple touch points.

Entice the best customers to visit frequently by offering specialized treatment through access to new or exclusive products, relevant content or product discounts.

Carefully manage assets. One of a retailer's greatest assets is its owned inventory. Retailers have learned, especially during the past decade, the value of tightly managing inventory turns, minimizing in-store merchandise and investing in systems and processes to efficiently cycle inventory.

Many leading retailers have integrated their systems with their vendors, enabling more accurate forecasting and lower inventory levels. Successful retailers work to have vendors assume the bulk of inventory carrying costs. E-tailers must bring these strict disciplines to the online world.

Tightly related to inventory management is effective merchandise planning. E-tailers should be focused on target consumers and their purchase behaviors to identify what they will buy. Hoard information to merchandise items most effectively. Gather search inputs to understand what products consumers are looking for, monitor product click-throughs or place a survey on the site to gather consumer interest. Information can help determine product assortment, placement and cross-sell opportunities.

Leverage technology. In the offline world, leading retailers realize the benefit of investing in technology to reduce operating costs.

Investing in faster cash registers means fewer salespeople are required to maintain speedy checkout lines. Since the Internet is still in its commercial infancy, there are almost too many technology providers trying to provide convenience for the consumer and reduce costs for the retailer (though the leaders will quickly reveal themselves).

Though these options should be considered carefully, areas such as e-mail (i.e., using e-mail alerts for calendar reminders and to notify of in-stock status, price reduction or new product introduction) are relatively simple yet effective implementations.

Lastly, and perhaps most importantly, invest technology dollars in site performance. If a site does not download quickly and without errors, customers will be frustrated, will abandon their shopping trips and will not return.

Retailers have learned how to merchandise effectively, generate in-store value, market to target consumers and effectively manage costs. It is almost ironic that despite all the new economy hype in 1999 and 2000, successful online retailers execute on these traditional core values.

Though there are many new challenges online, such as customer acquisition, retention and merchandising on a flat page, online retailers first need to hone their basic retailing aptitude.

Once the basics are mastered, firms can address online-specific issues, such as succeeding as a pure play (most likely requiring traditional partnerships, such as Amazon and Toys 'R' Us) or tightly integrating a catalog, store and online presence.


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