Today’s Internet savvy consumer has any number of options to find, compare, price and buy products, from cars to clothes to computers and more. It’s this shopping smorgasbord, and the online computing that enables it, that is transforming buying habits. But in order to capture wallet share of the new consumer, retailers need to rethink and refine online sales functions, order fulfillment and distribution models and visibility into and management of their inventory and supply chain processes.
For the better part of the 20th century, brand loyalty played a major factor in retail sales. Big retailers, automakers, and consumer goods companies became household names that attracted buyers often on the sheer power of their brand names. But the dawn of ecommerce and the phenomenal growth of online retailing have changed fundamental characteristics, such as brand loyalty, of the retail market. Online retail continues to boom; spending reached $44.3 billion in the first quarter of this year – the tenth consecutive quarter of positive year-over-year growth, according to Comscore. Internet retailers claimed 7 percent of the U.S. retail market last year, with sales totaling almost $200 billion, according to Forrester Research Inc.
“We are hearing that brand loyalty – meaning where and who I buy my products from – seems to have faded from what older generations experienced,” says David Verette, VP of Partner Sales with SPS Commerce, adding that there are a few retail sectors where brand still has impact, such as apparel. “Consumers are more interested in shopping for what they want. They are interested in finding products from companies that are knowledgeable about a product, can provide details about the product, and if the price point is attractive and in stock. It really matters less if the label on the shoebox says Sears, Zappos, or Shoebacca.”
Not only are consumer less likely to be swayed by brand, they also have an increasing appetite for what Verette refers to as the endless aisle. There are a few online retailers, such as Amazon and Zappos, who have been able to carry a vast array of products well beyond their initial market plans. Amazon started with books while Zappos was a shoe etailer, but both now carry products representing numerous other categories, and do so by carrying large inventory and closely partnering with manufacturers and even other retailers to expand their product lineups. But not many retailers, especially the traditional brick-and-mortar companies or smaller online stores, currently have the means to support those business models.
Additionally, shoppers today have gotten used to the convenience of online shopping, the ability to more easily compare prices, and in particular the ability to shop anywhere, anytime. Using their smartphones and other mobile devices, consumers can research products and prices while in a store, and if they find something better than what’s being offered on the shelf in front of them, can order it online or hop in their car and purchase from another store. Order fulfillment models continue to improve, with many companies now offering a variety of shipping methods including one-day delivery. Amazon reportedly is pursuing a new strategy that would enable it to offer one-day delivery at much more affordable prices than currently offered, and in some cases may even be able to offer same-day delivery service. According to an article in mid-July in the Financial Times, Amazon is setting up more distribution centers across the United States; in particular in locations that are insisting on collecting sales tax. This is a shift in strategy, the Times reports, because Amazon has traditionally focused on placing distribution centers in states that don’t collect sales tax on Internet purchases. But Amazon now thinks shoppers are more interested in speed and convenience than the lack of sales tax, according to the article.
With a clearer picture of the new consumer, there are several areas retailers need to focus on in order to win them over. Verette says retailers should develop marketing strategies that lean less on branding. Unfortunately, he says, “retailers are still trying to market the brand, and that is in contrast to the way today’s consumer is buying. Yet retailers still want to keep that brand experience in front of them as much as possible.”
Verette says retailers would be better served to focus on providing as much value-added content as possible to give shoppers an information-rich shopping experience. In addition, retailers need to leverage that content using Search Engine Optimization (SEO) strategies so when consumers are out surfing for goods, their online sites appear near or at the top of a search results list. To drive shoppers to an ecommerce site, “companies can put an ad on television during the Super Bowl, or make sure their site shows up on the search engine whenever a potential customer types,” Verette says.
A focus on content – such as customer reviews, ratings, rich image libraries of products that are indexed and found on image searches, and even video (such as product demos) can improve SEO. In addition, it is important to focus on the basics such as good title tags and sitemaps and make sure content is readable on smart phones, tablets and desktops.
One of SPS Commerce’s customers has embraced the SEO-driven business model so much that rather than run operations from a single site, the company – a major retailer that specializes in residential and commercial lighting – has created at least 10 different sites with different looks. While the inventory is replicated across the different sites, the company offers products at various price points, all within just a few dollars of each other. Each site is SEO-rich. “The retailer has embraced the fact that customers when they want to buy lighting, they are going to google the type, a description, or a manufacturer’s brand and then find what they want,” Verette explains. During a search for lighting, invariably several of the retailer’s sites will come up, and the consumer can then find the product that best fits their needs. “The retailer is giving the feeling that they have done their due diligence.”
Creating an endless aisle is more challenging. Carrying a massive load of inventory is costly and risky, and few companies can afford to do that. But there are ways to create the appearance of a well-stocked inventory. Retailers can use drop shipping, which involves manufacturers or distributors fulfilling and shipping orders directly to the end customer. Only a small number of vendors are doing drop shipping, according to a new research study from Retail Systems Research. In its “Executing on the Promise: Retail Fulfillment 2012 Benchmark Report,” only 28 percent of respondents said they are currently leveraging or planning drop ship capabilities.
Drop shipping does mean less control. To compensate, merchants need to have high visibility into product availability, order fulfillment and shipping processes. “In order to do vendor to consumer fulfillment models, it requires a level of order visibility that many traditional brick and mortar retailers just haven’t built into their systems,” says Verette. “These antiquated legacy systems are a hurdle because they can’t handle the level of data that goes back and forth in a true vendor fulfillment model.” Retail Systems Research, in its report on retail fulfillment, found that while nearly 40 percent of respondents put a lot of value into visibility of drop ship vendor inventory, only 6 percent report they actually have that visibility. Verette notes that new etailers and startups, which do not have any of that legacy system baggage, make support of drop ship models easier.
Verette says the amount of data in a drop ship model is ten times that of traditional models. For example, he says, there can be a dozen or more different transactions going back and forth with a vendor on just one order. Retailers also need extensive exception reporting, including information as which orders have not been acknowledged as received by the vendor within the allotted window of acknowledgement or which orders did not ship within the required time, and which orders shipped without a tracking number. With visibility, retailers can head off problems. For example, knowing all the orders that didn’t ship by a required time for on-time delivery, retailers can alert the customers and even ease their dissatisfaction by offering a gift certificate for a future order, Verette explains.
To help improve visibility, Verette says retailers can outsource drop ship fulfillment to companies such as SPS Commerce. “We can review the customer’s systems and determine what they are capable of, and we can show the customer how to fill in the gaps. It may be that they can leverage outsourcing services to enable more visibility, or a retailer may ultimately decide to build new systems in-house. CIOs can see what kind of investments they might need to make, or whether outsourcing pieces of it makes more sense.”
Capturing the attention – and therefore the wallet-share – of the modern shopper cannot rely on the marketing strategies retailers tried, tested and have come to rely on in the past. Instead, retailers need to aggressively pursue smart and tech-savvy sales, order fulfillment and distribution models that give customers want they want: an easy and well-informed shopping experience. And to ensure that experience doesn’t falter, retailers need systems that provide real-time visibility into their inventory and fulfillment operations.