Promotions: The New Profit Frontier
Without question, the woes of CDNow, Toysmart and others show that e-tailing has fundamental problems. However, there's an important and exciting opportunity taking root amid the gloomy landscape. This opportunity is based on the proven success of online promotions, such as coupons and discount offers. More specifically, promotions are breaking through to a new dimension that we call "Web-wide." Web-wide promotions will launch an innovative stream of targeted offerings that can revitalize the e-tailing business model and benefit consumers and online merchants alike.
Before we describe this opportunity, let's review where the online promotional world stands. Web sites with attractive selections of merchandise, promotions, coupons and discounts are enjoying robust growth. Key metrics are increasing, such as registered membership, completed transactions, dollar values of transactions and total offerings.
The online shopper is smart, resourceful and relentless in seeking value. Forrester Research, Cambridge, MA, in its April 2000 report, "The Promotion Commotion," estimates that though value-focused buyers make up about 55 percent of online buyers today, "their ranks will swell to 70 percent of online buyers by 2002."
There's more good news: Changing demographics will further increase the popularity of promotions. According to Boston Consulting Group, Boston, Internet users are starting to resemble the broader population in terms of gender, income and education. No longer is the Internet solely for the high-income, well-educated niche shopper. As e-tailing moves to mass market, the general public's love of discounts and money-off specials will move with it.
That's where the Web-wide concept comes in. The consumer wants offerings from many merchants. Brand loyalty counts for less on the Web than in the bricks-and-mortar world. Forrester's research estimates that three-quarters of satisfied online shoppers are likely to buy from a different site when they next shop online.
Simply put, the online shopper's credo is "Don't fence me in." For the individual merchant, a presence on a well-designed, multivendor site is the best way to capture prospects and expand visibility. These Web-wide sites are both vertical -- focused on a particular category, such as health and fitness or home and garden -- and horizontal -- across many shopping categories.
This new model will have a ripple effect throughout e-tailing. Actual transaction data, now being gathered and sifted painstakingly on a site-by-site basis, will be gathered from multiple sites. New technologies and tools will enable merchants to understand how consumers shop and buy across the Internet -- from an electronics outlet to a gourmet cheese site.
In this Web-wide era, everybody wins. Consumers get compelling value for the merchandise they really care about. Merchants, meanwhile, have a rich database for enormously effective promotions. An individual merchant can analyze its own sales data exhaustively, but these efforts reveal only a small slice of the total picture. Unilateral data tells you nothing about people who don't shop at your site, nor does it help you reach those potential customers.
Web-wide data, on the other hand, allows important and unexpected insights to emerge. The mail-order catalog industry has been doing this, on a basic level, by exchanging its mailing lists. What e-tailers have only just started to explore is the power of Web-wide data mining.
Promotions will increasingly be tied into actual purchasing behavior, rather than old extrapolations of surveys, questionnaires, focus groups, demographics and guesswork. This, in turn, will reflect the merchant's demands that promotions be more and more targeted -- the right promotion at the right time for the right person. Instead of measuring traffic in terms of clicks and eyeballs, shopping sites will measure their success in terms of the richness, depth and breadth of customer profiles and how well their data shows recency, frequency and other key data.
Ironically, just as e-tailing pessimism is pervasive, we are at the cusp of a breakthrough, in which knowledge of actual purchasing behavior will trump demographics or preferences. Merchants will be able to design targeted promotions with precision and efficiency. For example, the correlations between a consumer's purchasing baby clothes and books about parenting -- when aggregated from various sites and clearly presented on a data matrix -- will enable personalization that will be extremely powerful and profitable.
Online promotions will cease to be a "cast-your-bread-upon-the-waters" model, in which the coupon is distributed to the masses in hopes of an eventual and low percentage return. Web-wide promotions will let you market to people who have already demonstrated a keen interest in hearing from you. Promotion will be the way to build a merchant-consumer dialogue and make it a positive, collaborative relationship.
There are still three big challenges to making this happen. First, the industry needs to deal actively and energetically with the privacy issue. We need to respect the intelligence and common sense of the American consumer. The public understands the economic trade-off of personal data for purchasing value. After all, millions of people avidly partake in frequent flier programs and supermarket club card programs, both of which capture personal information. According to a study by McKinsey & Co., New York, "Most consumers have shown that they are willing to release personal information if they can profit by doing so."
What the consumer detests are unwanted intrusions into personal data, which result in spam or worse. The opt-in, permission-based style of marketing -- combined with full disclosure of and strict adherence to privacy policies -- must remain standard operating procedure.
The second challenge concerns the quality of the shopping experience. Those of us in e-tailing must continue to work to make online shopping even more convenient, enjoyable and accessible. User surveys indicate that many shoppers are still frustrated by complicated navigation, dead links, confusing terms and conditions, distracting graphics and other obstacles. Some sites make registration so difficult that you wonder why anyone bothers.
Finally, there's the post-shopping experience, which has been largely overlooked by e-tailers. This is everything that happens after the transaction has been made. A strategic advantage will accrue to sites that provide useful post-shopping services that enhance the consumer's complete end-to-end shopping experience.
For example, purchase confirmations from different merchants currently come to the consumer in various formats and must be stored individually. This is cumbersome and difficult. Online shoppers can benefit from a site that provides automatic, personalized formatting which puts all confirmations, regardless of merchant, into a simple-to-read table. With the purchasing data organized this way, shoppers can track and archive all of their online purchases.
So let's hold off on the obituaries. The future of e-tailing remains bright. Online shoppers love promotions, and their passion for value shows no signs of fading. The dawn of the Web-wide era opens up a new frontier for e-tailing profitability.