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133
CHAPTER 7 
Online Shopping and Buying
S
earch, shopping, and purchaseall go together. No matter the purchase—car, airline tickets, camera,or camisole—shoppers research products throughout their buying journey. Online search plays a central role today, helping consumersfind, consider, and select brands for purchase.Anyone who has used a broadband connection at home or atwork appreciates the speed and richness of the online experience, andthe services now available, such as streaming music, video, and shop-ping. Broadband adoption, now mainstream (Pew 2006), providesconsumers with greater ease and convenience for researching pur-chases online and shopping across all channels.We take the view that calling shopping or researching prod-ucts and services “search” is really too narrow; it easily misleads usto focus on online search (a big player) and ignore offline sourcesthat consumers routinely consult—Yellow Pages, catalogs, stores,newspaper or magazine ads, or trusted opinions. We overcome thisbias by broadening the term “search” to “shopping research,” so wecan be as inclusive as possible. We do the same with buying, em-phasizing that customers shop online, but usually complete theirtransactions offline through stores, toll-free calls to catalog callcenters, or mailing an order form. Customers routinely use multi-ple information sources and retail channels for shopping, thencombine them in their own ways. And they follow their own paths,which may be quick and direct, as they are for low-considerationpurchases like consumer packaged goods; for other products theroute to the cash register often takes time and travels along roadswith numerous twists and turns.
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Retail Sales and E-Commerce
Overall Retail vs.Online Retail Sales Growth
Stores and all retail outlets rang up sales of roughly $3.5 trillion in2005 (U.S. Census Bureau 2006b). From 2004 to 2006, retail sales grewabout 7% year over year.E-retail revenues command a small fraction of total sales buttell an exciting growth story. These, excluding travel, reached $114billion in 2005, a 25% climb over 2004. Future prospects show con-tinuing growth. (As we go to press, comScore reports a 25% increasein online sales during the 2006 holiday season over 2005.) Aftercracking $138 billion in 2006, Forrester Research (2006c) forecastsdollars rising to $171 billion by 2009; these are healthy double-digitrates in the neighborhood of 18% year over year. Increasing rev-enues but slowing growth signals the switch to the beginning of amaturing and more competitive channel—a point that takes onadded importance when we outline the size of the online shoppingpopulation.
Consumers Fuel E-Retail Growth and Shopin New Categories
From the early days of online retail, shopper purchases for comput-ers and software, books, toys, and video games drove sales. Theseearly successes, eMarketer (2006i) forecasts, will continue. In fact,eMarketer expects computer hardware and software to capturemore than half of the sales online. That’s a major milestone, reflect-ing consumer acceptance of manufacturers’ direct sales such asDell, web-only superstores such as Amazon.com, and the onlinechannels run by category retailers, represented by CompUSA.comand BestBuy.com. When you stop and realize that consumers spendan average of $500 for computer equipment (Google 2006e) and as-sume that there’s little risk purchasing by typing credit card num-bers into a web form, it’s a remarkable development.Online sales do not live by gadgets and gizmos alone. Shifts inthree categories—jewelry and luxury goods, apparel, and health andbeauty—signal change ahead. What’s especially interesting and differ-ent about these categories? They require more purchase considera-tion and more research.
134THE ONLINE ADVERTISING PLAYBOOK
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Online Travel Sales
Travel spending online for leisure and unmanaged business spendingreached $65 billion in 2005 (Grau 2006, reporting eMarketer data). Acombination of factors—including the growth of turnkey agencieslike Orbitz, Travelocity, and Expedia; aggressive marketing by airline,rental car, and lodging supplier brands; broadband; and consumer ac-ceptance—contributes to this growth. Travel analysts expect leisureand unmanaged business travel sales to rise markedly in the next cou-ple of years (PhoCusWright 2005) and nearly double to $122 billion in2009 (Grau 2006b). Historically, Grau points out, online travel, an earlysuccess story, outpaced retail e-commerce. Expectations are that on-line retail growth rates will be even faster from now on.
The Multichannel Marketplace
Today’s retailers fully grasp online retail’s potential, of course, and areaggressively moving to incorporate it into their complement of chan-nels. Federated Department Stores’ Macy’s unit, for example, recentlyreversed its e-retail approach, changing from brochure-ware to so-phisticated online operations. Why? Federated CEO Terry Lundgrenexplained to
 Internet Retailer 
: “Federated is more concerned with us-ing the sites to drive multichannel sales rather than just boosting websales” (quoted in Punch 2006).Lundren’s multichannel focus is well-placed. Trade magazine
 In-ternet Retailer 
classifies retail websites into four categories and trackstheir revenues. Retail chain websites, like Neiman Marcus, WilliamsSonoma, and JCPenney, claim the largest share, nearly 40% of sales.Catalog/call center operations like L.L. Bean and QVC (the TV and ca-ble shopping network) took 15% of sales; and direct manufacturerslike Dell and Sony garnered nearly 20%. Internet pure-play online re-tailers such as Amazon.com, BlueNile.com, Overstock.com, andNewEgg.com account for 25% (eMarketer 2006d).Pure-play e-commerce business models have evolved into spe-cialized channels with crystal-clear customer value propositionssupported by disciplined business strategies centered around the“Treacy trio”—having the best product, best overall cost, or bestoperations (Treacy and Wiersema 1997). They have not becomeT. rexes devouring offline retailers as originally expected by interneteconomy proponents.
Online Shopping and Buying135
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reply08 / 25 / 2010
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