The Trading Intelligence Quarterly

Issue 6

Contents
• Catalyst 1: The future of consumers • Catalyst 2: The future of distribution • How brands are creating new strategies for customer engagement • Retailers: Think like brand owners! • Brand owners: Think like retailers! • Metail is the new retail 04 05 07-10

11-12 13-21 22

Retail revolution: Manifesto for a ‘metailer’

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eCommera

Welcome to the sixth edition of The Trading Intelligence Quarterly
The distinction between retailers and brand owners is blurring. Retailers are becoming brand owners (think John Lewis televisions and Biba at House of Fraser); and brand owners are becoming retailers (think Apple and Burberry). A great convergence has already commenced. Although the speed of change remains uncertain, we are clearly at an inflection point in the evolution of retail. From both a business and consumer perspective, retail will look very different in the future.
At the heart of the change is understanding how retailing business decisions are moving from the store to the individual: location, location, location is giving way to customer, customer, customer. The great catalyst, the Internet, has transformed the way consumers shop as well as the traditional symbiotic distribution strategies between retailers and brand owners. For both retailers and brand owners to succeed in this new world, they need to

03

learn from each other and, in many ways, become more like each other. In the process, they must rethink some fundamental aspects of their business. Emerging from the maelstrom of converging retailers and brand owners will be a completely new type of player – the metailer. This issue explores the arrival of metailers – why it is happening and what it means: 1. What are the catalysts for change? • The future consumer • The future of distribution 2. What is the impact on existing businesses? • Research: How brands are creating new strategies for customer engagement • Retailers need to think like brand owners • Brand owners need to think like retailers. 3. What does the future look like? • Metailing We hope that you find this issue thoughtprovoking. We would be delighted to have the opportunity to discuss our products and services and how we can help you position, plan or develop your eCommerce business.

Andrew McGregor – CEO and Co-founder, eCommera

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Catalyst 1: The future of consumers
Michael Ross – Co-founder and Director, eCommera

Online and mobile technologies are transforming consumer behaviour at an extraordinary rate. Most recently, it was the relative freedom given by widespread car use that was the greatest innovation to the way people shopped. Today it is the use of computers and mobile phones to price check, browse and purchase which is driving the change.
It is interesting to reflect on the recent drivers behind consumers’ shopping habits, and the scale of change they have catalysed: The use of cars Consumers have traditionally been forced to make a trade-off between access to range and price versus convenience and distance to the store. The ubiquity of car ownership certainly forced retailers to up their game by widening the area within which they needed to compete, but this fundamental tradeoff remained. Whilst customers were captive to a physical place, retailers could think: location, location, location. Geography was the guarantor of footfall. With the right range, price and availability this could translate into sales.

The use of online The unshackling of customers from location has broken this model. Consumers now have access to an almost unlimited set of brands and products, and retailers willing to sell to them. For most categories, consumers are voting with their mouse. Online is now a large and growing part of the retail mix. The use of mobiles The consumer of the near future, armed with a standard issue smartphone, can just as easily turn footfall into an online sale for either the store they are in, or for a competitor. Location is no longer a guarantor of footfall nor footfall a guarantor of sales. To help speed up the trend, Amazon in the United States recently offered a 5 per cent/$5 discount to any customer who scanned a barcode and subsequently made a purchase. As mobile payments become the norm (particularly using a smartphone as virtual credit card), the transition will be complete. Mobiles are now effectively a digital extension of the individual and will provide information and opportunities not available to retailers today. *** Consumers now have more choice – and when incentivised, willingly create more data about themselves than ever before. The availability of this data enables retailers and brand owners to gain an understanding of individuals never before possible. The corollary is that acquiring and retaining customers is becoming the key driver of profitable growth. The retailer of the future needs to think ‘consumer, consumer, consumer’.

Catalyst 2: The future of distribution
Michael Ross – Co-founder and Director, eCommera

04–05

By allowing direct access to customers, the Internet has dramatically changed distribution strategies for brand owners. The traditional distribution model
Many brands have built very successful wholesale businesses - from Mulberry to Burberry; Dockers to Kickers; Fiorucci to Gucci. For the last 100 years, brand owners have evolved a clear strategy based on: • Wholesale distribution – to get to scale and to access customers • Selected flagship stores – in cities where there is sufficient demand • Outlet stores – physically separated outlet stores for clearance. Distribution evolved with the brand As a brand grows and evolves, its distribution challenges change: 1. Launch: A brand is simply trying to secure retailers to get scale and pay the bills. Finding a store which will take a new brand is the challenge 2. Growth: The focus is on ‘doors’ – the number of individual stores that sell their products so they can get access to customers. All brand owners are desperately trying to get into the ‘A’ stores, and have to work out whether to hold out for them or compromise by selling through a ‘B’ store instead 3. Scale: Open concessions and selected flagship stores. The risks are higher, but the reward is more control and higher profits 4. Internationalisation: Build up a patchwork of agents, distributors and licensees depending on the risk appetite of the brand and the global appeal of the products.

The retailer-brand margin structure Retail prices and gross margin structures have evolved to support this traditional distribution model, necessitating a high end-to-end margin to ensure profits for both retailer and brand owner. Figure 1: Premium brands’ margin structure
100 55

End-toend margin 45 25 80% 20

Retail price Ex VAT

Retailer gross margin 55%

Retail COGS Brand owner wholesale price

Brand owner gross margin 56%

Manufacturing cost

The distribution model of the future
The Internet has changed everything. Brand owners no longer need rely on retailers and can now adopt a radically different distribution strategy based on online, flagship stores and very selective prestige wholesale distribution. The future distribution model will comprise of: • A global online shop – to serve a global customer base (which can also be used for clearance) • Selected flagship stores – in larger cities to bring the brand to life • Wholesale distribution – selected online and offline retail partners will be useful in raising awareness and building the brand. Increasingly this will be considered marketing rather than sales. • Web-based distribution – selected affiliate partners, marketplaces and social platforms will be used to generate both brand awareness and sales.

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The Trading Intelligence Quarterly. Retail revolution

As a result, the evolutionary cycle of distribution will become shorter: 1. Launch: Brands will no longer need to focus on opening wholesale accounts. Launch will be via an online store network supported by online and offline PR 2. Growth: The old focus on ‘doors’ will be replaced by a focus on channels. In order to scale, brands will make their products available across multiple touch points and may at this stage look for physical retailers to carry their products 3. Expansion: To expand, brand owners will look to acquire new customers in new markets via online channels. The focus will not be on finding distributors, but on local fulfilment and delivery partners who help execute the global proposition. This could include drop-ship models with brands retaining title and despatching product directly to consumers. ***

How are luxury brands changing their distribution strategies? Aspiration is part of the allure of any luxury brand. Exclusivity plays a central role in creating this allure and has typically been achieved via limited distribution. This is changing. Brands like Burberry and Gucci are embracing online, not only as an opportunity to bring the brand to life, but to sell direct – controlling the entire brand experience. This trend is inexorable given the compelling benefits to brand owners: greater brand control, less reliance on retail partners and ‘double margin’. Moreover, the likes of Apple and Burberry have demonstrated the opportunity if one gets it right. For brand owners with products that customers want, the future looks bright. The key right now is for brands to experiment and learn.

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Research findings
How brands are creating new strategies for customer engagement
Debbie Bond – Director, Retail Services, eCommera

06–07

This quarter’s research takes a close look at how brand owners are taking advantage of new digital channels to engage directly with customers. Selling direct to customers using online channels requires investment in infrastructure, human resources and organisational change. It is also a risk: if sales do not grow online, the lost investment has to be justified to the board; and if sales do grow online, retail partners may stop stocking your products as they become resentful of being relegated to the role of brand ‘showroom’. So why are so many brands from toothpaste manufacturers to premium watchmakers selling direct? And how are they engaging customers?

Research methodology
This article is based on 50 detailed interviews with major European brands. All of the interviews were undertaken via telephone in December 2011 and January 2012. All respondents have a senior eCommerce role within their respective organisations.

Background
Research findings: Amongst the brands that were interviewed, online trading has been undertaken for some time. Forty-six per cent of the organisations have been actively trading online for more than 3 years and only 16 per cent have embarked more recently on their eCommerce venture.

“I believe in this world of eCommerce, it is just a matter of trust, most people don’t trust the Internet. However it is becoming easier to build a relationship online. Sooner or later everyone will be online; when people’s problems start getting resolved after they communicate with the website and they get similar or better service, then their trust builds and then most businesses [will] look at moving online entirely.”

Figure 1: Time trading online

Less than 6 months Between 6 months and 1 year Between 1 and 2 years Between 2 and 3 years Over 3 years 4%

12%

26% 12% 46%

0

10

20

30

40

50

60

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The Trading Intelligence Quarterly. Retail revolution

Although the companies surveyed have been trading online for some time, online still represents a low proportion of sales. Forty-four per cent of brands report that online trading accounts for up to 10 per cent of annual sales only and a further 36 per cent say that it accounts for between 11 per cent and 20 per cent of revenues annually. Only a minority of firms report that the online channel accounts for more than 30 per cent of annual sales revenues. Figure 2: Annual sales revenue – online
50 40 30 20 10 2% 0 0% 2% 16%

Figure 3: Reasons for selling direct
% 45 40 35 30 25 20 15 10 22% 20% 40% 38%

% of turnover

44% 36%

5 0 Increase reach/ customer base Drive business expansion Improve brand image Increase margins

What is your strategy for engaging directly with customers?
Research findings: Brand owners are planning a multi-pronged online approach. The majority have an online flagship store and use multiple social media channels to engage customers. Figure 4: Strategies for customer engagement
60 50 40 30

1-10% 11-20% 21-30% 31-40% 41-40% Over 50% % of total revenue

Why have you decided to sell direct?
Research findings: Most brand owners perceive eCommerce as a cost-efficient way to reach more customers and to expand into new regions. One eCommerce Director summed it up: “With online we are not restricted to any country or region, now anybody can buy our products from anywhere in the world.” eCommera comment: More channels, more reach and more customers makes it much tougher to provide a consistent customer experience across web, mobile and store. Managing delivery on promise across multiple channels and countries requires the coordination of myriad systems and partners from product inventory management, to fulfilment and delivery. Getting it wrong once can devalue the brand. Getting it right each time can mean new and loyal customers.

56% 52%

20 10 0

20% 14% 10%

Use of Affiliations Flagship social media with other stores platforms like etailers/ Facebook, websites/ Twitter stockists etc/blogs, around the newsletters globe

Creation Creating of multiple ‘members sales areas’ or channels memberships

*Flagship stores include both physical and online stores.

The Trading Intelligence Quarterly. Retail revolution

08–09

“We have made a flagship store and we are also on Facebook. These are the only channels so far. Slowly we plan to expand our presence on other networking sites too as we see this as critical to expanding our image and reach.”
eCommera Comment: Brand owners now find themselves managing bi-directional digital communications intended to drive customer action. This is a radically different approach for businesses that have traditionally managed mono-directional, broadcast communications aimed at instilling a perception. The gap should not be underestimated. Whilst many brand owners take an extremely analytical approach to measuring the effectiveness of offline marketing and promotions, the challenge online is an order of magnitude more complex. The data online – every view and click of every customer – can lull brand owners into a false sense of determinism. In reality, we are at the early stages of understanding the interaction between digital marketing touchpoints.

Figure 5: Incentives for direct purchase
% 80 70 60 50 40 30 20 10 0 Discounts online Specialised customer services Exclusive Social products media based promotions Other 16% 14% 10% 36% 74%

“We offer relatively heavy discounts on products which are available online, this makes [customers] want to buy from online channels.” This is not a universally accepted approach. Some brand owners feel that discounting products would devalue their brand: “. . . we are a high quality luxury brand that does not need to entertain discounting or anything like that. If people want our product, they are willing to pay the right price for it”. eCommera Comment: Simply discounting is a dangerous game to play. Brand owners need to add value, but subtly. Invest in technology that inspires customers. An excellent example is the Beauty Consultation on Clarins’ online store, which advises users on a personalised cleansing routine. See the article ‘Brand owners think like retailers’.

How do you incentivise customers to buy from you directly?
Research findings: A significant majority of brand owners (over 70 per cent of those surveyed) use online price discounting to encourage direct purchase. Other tactics include offering exclusive products, free samples and specialised customer service.

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The Trading Intelligence Quarterly. Retail revolution

How, if at all, do you ensure there is a balance between your traditional distribution channels and your direct activity?
Research findings: The majority of brand owners segregate their channels in an attempt to maintain a balance between traditional and new direct channels. Promotions, and even product availability, are often segmented by channel. “We contemplated introducing ways to maintain the balance between traditional and direct when there is a significant increase of online sales. We keep promoting different attractive offers at stores and on the website to regulate the sales activity. Some offers are available only on the web and others at the stores. The customer eventually decides what they really want and end up either at the store or on the website.” Most of those surveyed do not yet perceive a problem with one channel cannibalising sales from another. Many felt that it was too early for this to be a concern and were adopting a ‘wait and see’ attitude. eCommera comment: Customers choose which channels to interact with, not the brand owner or retailer. By default customer are promiscuous across channels. For brands, not providing a consistent experience will at best reduce sales and at worst damage the brand.

“We are currently focusing on going online; we are not looking at maintaining a balance right now. We might have to in the future, however, we will cross that bridge when we come to it. We want to maximise the online activity for the investment we are making.”
While it is early days for brands selling via the online channel, now is the time to get the basics in place. Too few brand owners are focusing their attention where it should be – ensuring consistency across the channels to optimise the customer experience. *** If it is early days for traditional retailers selling online then it is fair to say that brands selling direct via eCommerce is in its infancy. When asked for final comment on the experience of selling online, the word ‘potential’ came up time and time again. How to be successful online is a work in progress, but by all accounts, one well worth the effort. “From start to finish there are many challenges in going online and huge amounts of investments involved. However once everything is in place, the profits are worth every bit of time, effort and money invested.”

Retailers: Think like brand owners!
Eric Fergusson – Client Consultant, eCommera

10-11

In the past, retailers with a margin. Now retailers are creating brands as geographical exclusivity on a highly well designed and articulated as brand owners, but exclusive to themselves. John Lewis washing demanded set of products could machines, Biba at House of Fraser and the ASOS build a successful business. Retailers clothing brand are fantastic examples of how today, particularly those selling retailers should nurture and develop their brands to drive long term profits, rather than maximise other people’s products, face a dual short term gains. threat: consumers with unlimited information and purchasing To create own brands that don’t look like own options; and brand owners brands requires a new set of skills and disciplines. That’s why many retailers are now hiring rethinking their distribution. For retailers to both survive and thrive in creative directors. this new world requires rethinking core elements of their business. Customers: Retailers need to prioritise customer insights
In particular, there are lessons retailers can learn from brand owners around: • Product – developing retailer-specific own brands • Customers – understanding and acting upon customer insights • Operations – perfecting all aspects of the customer experience. There is no longer a local monopoly on customers either. Customers are not guaranteed by location. They have access to a global array of retailers, and can switch as the mood takes them. Understanding and driving customer loyalty is now critical. Customer insights from brand attitude surveys, panel data or EPOS data have always had a central role for brand owners because they have not historically had direct relationships with customers. While retailers have had these relationships, they have normally been anonymous. Retailers now need to make customer insight a key part of their thinking and develop the necessary skills to understand questions such as: • Who are your customers? Which customers make you money? • How are you driving growth? How can you drive customer loyalty? • Are customers loyal or fickle? If fickle, where else are they purchasing?

Products: Retailers need to develop their own brands
There is no longer a local monopoly on products. As brands rethink their distribution strategy, some retailers may find themselves without access to the products they want to sell. One premium brand recently told me that they are spending much of their time resigning from retail accounts. As a result, successful retailers are learning to create their own brands. In the past, retailers’ private label was simply about putting their name on someone else’s products as a way to drive

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The Trading Intelligence Quarterly. Retail revolution

A classic example is the retailer that relied on gut instinct to understand its customers and evolved its range based on a perceived wisdom about its core customers. Unfortunately, these customers actually made them no money. Their profitable customers were alienated and the business went bust.

Operations: Retailers need to perfect customer service
Operations (uniting a customer with a product) is much more complex in online retail. The prevalence of multiple channels offers a whole series of potential customer touchpoints to take advantage of and align – from the website, packaging, phone and email to delivery, returns and order processing. Physical retailers have often succeeded by having ‘good enough’ stores and staff. They now require a new set of customer service skills to succeed in a less forgiving retail environment. Brand owners have long obsessed over customers’ ‘moments of truth’, ensuring integrity at every touchpoint – from the advertising to shelf experience to opening the packaging. Retailers now need to apply this discipline to their online and multi-channel operations. How orders are packed and how emails are answered matters. This has a fundamental effect on how you choose and develop your staff. Hiring store staff for a traditional retailer is often about filling shifts; hiring store staff for a brand owner is about ensuring you find people who are ‘on brand’.

One of Amazon’s inspired metrics is ‘first contact resolution’. If a customer sends an email, the aim is to have their issue resolved in one interaction with customer service. If not, it’s doubly bad: the customer is annoyed and additional cost is incurred. Amazon has instrumented its business so that for all second enquiries, the customer service contact can identify and flag whether it is because the customer is being difficult or the original customer service person simply failed to answer the question. This provides a wonderful metric to Amazon which enables them to constantly improve their service – resulting in lower costs and a better service experience. *** “The big move over the next five to ten years will be to figure out what your business model does at which part [of the buying cycle]. The [product] research part will move out of the store and into some form of online or community forum. People will do their thinking and dreaming in other places. And the challenge for us as retailers is to make sure that we don’t get cut out of that loop by our friends say at Google or elsewhere who can take the value added part of it and reduce the retailer to being simply a functional commoditised delivery point of widely available goods.” Ian Cheshire* Group Chief Executive, Kingfisher

* Excerpt taken from Think X-Platform hosted by Google 2011 http://bit.ly/xMMkx0

Brand owners: Think like retailers!
Michael Ross – Co-founder and Director, eCommera

12-13

With the Internet catalysing a fundamental shift in their distribution strategy, brand owners need to recognise the impact on every aspect of their business. A successful brand owner today will think very differently about all aspects of its business, not just distribution, and will adapt or reinvent everything from pricing, organisational structure and metrics to trading dynamics.

eCommerce retailing represents an unparalleled opportunity to bypass complex, costly and potentially brand-damaging wholesale models, and to drive international expansion. However, for brands, their lack of retail DNA can be challenging both strategically and economically. In this article we use our 10P framework to examine how brand owners can leverage new channels to transition from brand owner to multi-channel retailer.

Figure 1: The 10Ps for a brand owner turning retailer

Vision

Enablers Proposition
The consumer offer: product, price, availability, content, service and experience What are you going to be famous for?

Delivery

1

3

Place
The online store: customer journeys, wireframes, usability, functionality and hygiene

6

Promotion
Acquisition and retention: managing channels, acquiring customers and CRM

Trading

7 4
Platform
End-to-end technology: Product, image, order management and analytics

Planogram
Merchandising the store: visual merchandising, searchandising and taxonomy

2

Plan
A clear vision for the business: revenue, geography and timing

8

Promise
Delivery to consumers: customer service, fraud, fulfillment and returns

Operations

5

People
Team and organisation: the internal and external skills required

9

Process
How things get done: the daily, weekly and monthly processes

10

10

Performance

How performance is managed: Frequency, granualrity and visibility

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1. Proposition.
What is it: The consumer proposition is the mix of product, price, availability, content, service and customer experience. Successful online retailers – such as ASOS, Net-a-porter, Amazon and House of Fraser – can all point to one or more distinctive elements of their proposition. The brand owner’s challenge: How to develop a compelling proposition without upsetting, damaging or ‘killing’ their retail partners. (See the article ‘How brands are creating new strategies for customer engagement’). There’s no easy answer. Simply putting up a website or launching an app may or may not succeed. The key is for brand owners to add value, but subtly. Success will be determined by the three critical factors of range, price and service/ experience of its proposition compared to retail partners: • Range. The availability of the brand owner’s products from alternative online and offline retailers (e.g., Gucci vs. Gillette). Brand owners should: n Sell the complete range – be the authority for your products (e.g., subsidise the photography/ publishing cost of niche products) n Allow customers to customise products – shoes (Nike) or engraving (Apple) n Sell exclusive products or colourways only available through the brand owner’s site n Accept pre-orders and backorders – the brand owner will typically have better visibility of its own supply chain than retail partners. • Price. The extent to which the products are discounted or promoted in the retail channel. One UK brand owner found that its top 20 viewed products were available at 20 - 30 per cent discount on the high street. Whilst brand owners have the margin, they rarely want to compete directly on price. Figure 2 shows how a premium brand can offer significant discounts and still drive very high gross margins. Figure 2: Achieved gross margin at different discount levels
Example based on a brand with 80% end-to-end margin
80% 70% 60%
71% GM at 30% off 60% GM at 50% off

Achieved margin

50% 40% 30% 20% 10% 0% 10 20 30

33% GM at 70% off

40

50

60

70

80

% Discount to retail

This is important as a 20/30/50 per cent effective discount will typically catalyse customers to shop. Brand owners should think about how to use their margin to build in added value without explicitly discounting, such as gifts with purchase (Boden), samples (Clarins) or product subscriptions.

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2. Plan.
• Service and experience. The delivery, returns and service proposition of retail partners. For example, one brand owner who supplied Zappos (free next day delivery) should not have been surprised when customers didn’t buy from its own site ($5 delivery for 5-7 day delivery). Brand owners should think about: • VIP services – Net-a-Porter’s same day delivery in London • Innovative services – Nike+ FuelBand • Beautiful packaging – Burberry. What is it: Plans must be based on understanding customer acquisition and retention – the fundamental drivers of growth in online channels. Successful online retailers plan by modelling customer growth, and aligning with channels and categories. The brand owner’s challenge: In the early days, estimating the sales potential for a brand online is difficult. Brand owners’ online channels typically account for between 1 per cent and 30 per cent of a brand’s sales. Accurate planning is critical for brand owners selling direct to customers as they start taking stock risk. This risk can be mitigated by having a direct channel to clear stock. But the complexity of modelling growth online means that it is easy to get forecasts very wrong. Understanding the sales potential and how to deliver it requires looking at the online pie from a number of angles. Brand owners first need to take a top-down approach: • What is the size of the market and how is it growing? • What is their current share, and value at retail? • What is the online propensity for the category and brand? • How attractive is the brand owner’s site versus retail alternatives? • Does the brand want to achieve its fair share or use online to drive market share? This then needs to be reconciled with a bottom-up analysis to understand: • Customer acquisition and retention to deliver the plans • Channels to deliver the customers • Categories to ensure there is something to buy. www.ecommera.com

The Trading Intelligence Quarterly. Retail revolution

3. Place.
What is it: The customer touch points: the online shop, the mobile store front, the in-store kiosk and apps. It is the combination of functionality (what it does) and usability (its ease of use). Successful retailers inspire while facilitating the shopping experience. The brand owner’s challenge: Bring the brand to life but recognise that customers want to buy the products easily at the same time. This requires understanding the respective roles of a brand site, online shop, mobile site and app. Each has a role in enhancing the brand experience whilst encouraging customers along the path to purchase. A brand store that drives customers to retailers is clearly failing to do its job. It’s easy for creative directors – often the power in the brands – to mandate that ‘digital’ is primarily about brand experience and an extension of marketing. But the data suggests otherwise: most consumers who visit a brand’s website actually want to shop and preventing this may damage the brand. No brand would build a flagship store and hide the till, and yet that is the essence of what many are doing online. The watchword is ‘constrained innovation’ – deliver something that inspires consumers but don’t reinvent checkout or create a site or app that looks pretty but is unmanageable. Like the best products, digital assets should be beautiful, but functional.

4. Platform.
What is it: The platform is the ecosystem of technology found in all mature digital commerce operations. This technology includes the webstore, web analytics, order management, image management, fraud, payment and product data management. Successful multi-channel retailers focus their energies on the boring bits. The brand owner’s challenge: Invest in the necessary ‘back end’ ecosystem of technology, rather than focusing effort on the front end. ‘Post traumatic platform selection stress’ is a common ailment of brand owners who have invested in a web site only to find this was not the hard part. The reality of commerce platforms is that a complex ecosystem of technology is required and it is the boring bits – payment, fraud, order management, backend integration – that make the difference. Brand owners will often obsess over whether the technology enables or constrains creativity and interactivity but eCommerce platforms today have few (if any) constraints on design and interactivity. The devil is in the detail. For example support for internationalisation is critical for most brand owners but it’s easy to make poor choices in how to do it. One brand owner’s RFP/selection process had 50 questions on internationalisation. They chose a vendor who had answered “yes” to all the questions. Three months after launch, the brand realised that the platform was woefully inadequate in terms of its international capabilities. Their conclusion: they had asked the wrong questions!

The Trading Intelligence Quarterly. Retail revolution

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5. People.
What is it: Getting the right organisational structure and people with the right skill set is more difficult than it sounds. There is a dearth of talent and good people are expensive, particularly in immature eCommerce markets. Good multichannel retailers balance which functions to manage in-house, which to outsource, and how that will change over time. The brand owner’s challenge: Developing a new set of skills, re-thinking the organisation and accessing expertise while sub-scale. The new skills required by online retailing challenge the traditional organisational structure of brand owners, requiring tough trade-offs between commerce and brand. In addition, trading across channels and geographies requires careful thought on what should be done ‘once’ across the brand, and what needs to done separately by market and by channel. Moreover, many of the skills required for multichannel retail are still in their infancy. The best people have a rare combination of analytic and creative skills – able to navigate the tsunami of online data (in order to focus on the right things) as well as the creativity to come up with an on-brand solution. Brands often hire multi-channel directors who claim to know everything; few do.

6. Promotion.
What is it: Promotion is how to acquire and retain customers. Customer acquisition is achieved by building brand awareness and capturing transactions through the wide range of online channels. Customer retention requires deep understanding about what CRM actions to trigger, and when. Successful online retailers use a wide range of channels and spend a lot of time worrying about attribution, incrementality and marketing spend allocation. The brand owner’s challenge: Effectively using direct response marketing and developing new CRM skills. Although advertising and marketing are core skills of brand owners, traditional brand advertising is about creating awareness and intent to purchase. The challenge online is that the distance between advert and sale is reduced to the point where most online advertising (paid search, affiliates, email) is designed to drive immediate action – a purchase. These ‘sales’ adverts are completely different and require different skills, approaches and performance measurement. The complexity and skill lies in recognising how to manage the inherent intertwinement of sales and brand campaigns. A brand awareness campaign (online or offline) will increase clickthrough and sales via Google. Fail to understand this relationship and you simply make bad decisions. Equally dangerous is over-simplifying performance measurement. A brand banner campaign should not be held to the same return on investment (RoI) as a Google keyword. Brand owners also need to engage in the dark arts of CRM. Online growth is driven by customer acquisition and retention, and brand owners need to understand customers’ lifecycles: how and when to communicate with customers. There are also opportunities to invent new social relationships: Nike+ is a wonderful example of a very clever way to understand who your customers are and what they do. It also creates a platform for Nike to market, and hopefully sell, some trainers along the way.

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The Trading Intelligence Quarterly. Retail revolution

7. Planogram.
What is it: The planogram is the discipline of managing site navigation to unite customer with SKU, through the site’s taxonomy, facets, sort orders and product recommendations. It is visual merchandising online. Successful retailers recognise the complexity and importance of the planogram and continuously evolve their approach (balancing data and inspiration). The brand owner’s challenge: Getting the basics right, and managing the trade-off between brand and sales. Many of the planogram decisions require complex trade-offs. However, it’s important to actually make informed decisions rather than accept a default. For example: • In what order should products be presented? – By newness, margin or overstock? • Should this sort order be personalised? If so, for new/repeat customers; men vs. women; or by size? • Should it vary by geography? Burberry has the same sort order in every market although it is hot in some places, and cold in others. • How should the online and mobile planogram be aligned? And the devil is in the detail. The nature of online stores makes it very easy to drive customers to products that are unavailable or inappropriate. In particular, when internationalising, it is important to understand what people call things in different countries. Figure 3 shows what not to do – failing to use country specific language is a sure fire way to annoy local consumers.

Figure 3: They don’t call them “pants” over there… Search for “pants” on TopShop.com (US site)

The Trading Intelligence Quarterly. Retail revolution

18-19

8. Promise.
What is it: Taking an order online necessitates making a ‘promise’ to customers on when they should expect to receive their goods. Delivering on that promise requires managing fraud screening, payment, picking, packing, shipping and customer service. Successful retailers recognise that the postorder customer experience is critical to success. The brand owner’s challenge: Maintaining control over customer touch points that are less visible online. Brands are typically good at obsessing over every customer touch point. Offline, these touch points are clearly visible in products, staff, advertising and shop fits. Online, they are every bit as important but not so easy to observe. One brand owner found that hundreds of orders were not meeting their delivery promise because they sat for days in a fraud check. The warehouse was delivering on their SLA because it was being measured post fraud check. The key here is to measure the right things and recognise that the end-to-end customer experience is critical. Figure 4 shows how figures can mask the reality – a good experience for 90 per cent of customers may sound positive, but actually it means that after five purchases, 50 per cent of customers have had a poor experience. Repeat customers drive growth, and good service drives repeat customers.

Figure 4: Don’t get it wrong too often Probability of a poor experience after a number of purchases

70% 60% 50% 40% 30% 20% 10% 0% 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Number of purchases 90% Good customer experience 98% Good customer experience

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The Trading Intelligence Quarterly. Retail revolution

9. Processes.
What is it: While the processes of retail are well recognised, the core processes of eCommerce are still evolving. Successful retailers have codified good practice and embedded them into their businesses. The brand owner’s challenge: Become highly disciplined in codifying knowledge, and recognise exactly what you know and don’t know, and what is not yet knowable. There is a huge amount to codify around everything from: product publishing to packaging, fraud to FAQs, surveys to sort orders. The online industry is 15 years old so it is much too early to talk of best practice. Moreover, there are few eCommerce executives with deep experience of all the areas required for eCommerce success [see figure 5]. The challenge for brand owners is navigating a wide range of new and unfamiliar activities – understanding what is new to the industry, versus what is just a new activity for the existing organisation.

Figure 5: Lots to do There are 100+ processes required to run a modestly sized multi-channel business

• Channel optimisation • Customer acquisition • Customer retention • Activity

• Content/landing pages • Search/navigation/ browse • Checkout • Hygiene

• Order processing • Fraud • Fulfilment • Customer service

• Range • Price • Stock and availability • Content

The Trading Intelligence Quarterly. Retail revolution

20-21

10. Performance.
What is it: eCommerce is data-rich but often information-poor. It is paramount to track profitcentric outcomes, with a wide range of input measures that drive action. Successful online retailers focus on measuring controllable inputs. The brand owner’s challenge: Instrument your business around input metrics that drive action. The online world is awash with data. The challenge is measuring things that (i) matter to customers, and (ii) drive action. Common online output metrics such as conversion rate and average order value do neither. A good example is product availability – it’s no use being 95 per cent in-stock if customers are looking at the 5 per cent of SKUs that are out of stock. Page-weighted availability measures the customers’ experience of availability. And it drives action: increase stock or redirect page views. Brand owners are used to measuring brand perception, and using these surveys to drive action. This discipline now needs to be focused online.

10Ps eCommerce Appraisal
An expert, end-to-end review of your online business
eCommera offers a comprehensive appraisal of your eCommerce business. Using our proven 10Ps framework, we can examine the ten fundamental areas of your operation and ensure you have a competitive business model and the correct strategic framework in place to enjoy sustained growth. Our experienced consultants can help you: • Learn your strengths and weaknesses • Understand the challenges and risks you face • Discover opportunities for growth • Pursue the best strategy for winning and retaining customers • Gain a competitive edge.

To find out more about our 10Ps eCommerce Appraisal, call us on: +44 (0)20 7291 5800. Or visit: www.ecommera.com.
www.ecommera.com

Metail is the new retail
Michael Ross – Co-founder and Director, eCommera

Retail is moving from the store to the consumer. In the past, you understood retail by looking at ‘profit per store’ and took action by store – opening, closing or refitting, or by hiring a new manager.
We are now moving to a world where all retailers and brand owners will have the (theoretical) capability to have insight and take action at the individual customer level, see figure 1. This is not necessarily just about personalisation or loyalty, though it could be. It is simply about recognising that profitable growth is driven by the cost effective acquisition and retention of customers. So understanding individuals – their purchasing patterns, their behaviours, their wants and needs – is critical to optimising your business.

Failing to do so is simply a recipe for suboptimisation. And, in a competitive market, sub-optimisation is a recipe for failure. We have moved from a world of anonymous and captive customers, to a world where they are known and unshackled. Responding to this fundamental and seismic shift is the emergence of a new breed of ‘customer-centric retailer-cum-brand owner’: a metailer. So what will this metailer look like? • A culture of metrics and data, with data scientists at the heart of the business • Strategy driven by consumer insight • Business planning driven by customer acquisition and retention dynamics • Organised around coherent customer groups • Measuring things that matter to customers • Relentless focus on experience. Metailers understand that modern customers believe ‘it is all about me’ and align their strategy accordingly. ***

Figure 1: From store to customer

Individual

Online

To understand what is going on in a world of ‘stores’, retailers simply need to be good at stores. It’s easy to identify good and poor performing stores and understand what is working and not working. But in a world of hundreds of thousands, if not millions, of customers, one has to be good at statistics. Understanding how to make sense of large quantities of transactional data requires a different skill set. It requires new types of thinking, new models and new equations. And the successful metailers will be the ones who embrace this new world. The battle for customers is just beginning.

ACTION Aggregated

Physical retail Aggregated UNDERSTANDING

Catalogue Individual

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22-23

www.ecommera.com

eCommera is a pioneering provider of intelligent eCommerce trading solutions, enabling brand owners and retailers to sell efficiently and intelligently across multiple channels. A selection of our clients includes Asda Direct, Hamleys, House of Fraser, Magasin Du Nord, Horze, the official London 2012 store, T.M. Lewin and Space NK.

eCommera TradingEdge solutions optimise multi-channel growth and profit potential for our clients. Take control of your eCommerce business with our flexible, multichannel platform: • Delivered on-demand for speed to market and in-life flexibility • Extensible with pre-integrated best-in-class partner products • Continuously innovated and upgraded. Built, managed and evolved rapidly and cost effectively by our eCommerce technology experts. Transform your wealth of eCommerce data into actionable insight and optimised business performance with our data navigator: • Operational dashboard makes sense of the vast amounts of data • Rapid means of diagnosing the drivers of retail performance • Recommended trading actions, with a profitability-impact score. Backed by strategic advice, planning and operational consulting from our retail experts. Transact your brand online and internationally through our fully managed eCommerce service: • Strategic framework for planning and deployment • Integrated end-to-end eCommerce operational infrastructure • Dedicated team of retail practitioners to manage and optimise all aspects of your online operation, from marketing to fulfilment. Our multi-skilled team use best practice methodologies and leading edge technology to deliver optimised customer experience and online growth.

eCommera Limited 1st floor, Wells Point, 79 Wells Street London W1T 3QN www.ecommera.com Tel: +44 (0)207 291 5800 Email: trader@ecommera.com

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