Wake up call

Their flashy websites may look the part, but many e-tailers' strategies and techniques often fall short of consumer expectations. Scott Thompson reports on a sector facing changing times

The latest e-Retail benchmark study from eDigitalResearch shows that multi-channel retailers are now outperforming pure plays online. Four out of the top five overall performers were multi-channel outfits, with Asos excelling online (but more of that later). "This was most noticeable during November and December so postal strikes, bad weather and delivery uncertainties were influencers. Also, the High Street guys have fully woken up now and have a natural brand awareness," observes James Roper, chief executive at e-retail industry body, IMRG.

Many traditional retailers were indeed slow to come onboard with the development of websites, treating e-commerce as distinct from their core bricks and mortar stores and brand. Their business strategies have changed, however, and e-commerce is now integrated and joined up with their total strategy and buying and merchandising plans. Moreover, they have been taking full advantage of benefits not available to their pure play rivals. They have bricks and mortar stores in high profile locations, catalogues and websites, boosting the ease and frequency with which they can engage with new and existing customers and enabling them to cross promote between channels. The likes of Argos, Halfords and Next are proving particularly adept at this.

But is the High Street fightback and dip in e-tailer fortunes a blip or something worthy of more serious attention? Poor customer service has plagued online shopping since its inception because many companies had little incentive to improve as long as the customers kept rolling in. But it couldn't go on forever. E-commerce has matured and it was no great surprise when the IMRG Capgemini e-Retail Sales Index recorded the lowest annual growth rates in its history, with like-for-like growth rising by five per cent from January 2009 to January 2010.

With spectacular rises now done and dusted, it's all about retailers getting more out of existing customers. Yet some pure plays have perhaps been guilty of concentrating on flashy websites at the expense of the basics - checkout, delivery etc. Recent research released by Hostway and Zeus Technology shows that online retailers are potentially losing up to £5.65 billion per year in lost sales as customers abandon transactions due to poorly performing websites. Eighty two per cent of those surveyed said that, if a business' site performed badly, it would dissuade them from buying goods from that organisation. The survey of 2,033 consumers highlighted that on average they had abandoned 5.5 online transactions per person over the last 12 months.

Problems can arise due to the fact that many of today's websites contain a lot of multi-media content. Retailers have used online images and video to make their offerings more attractive and interactive, but this has also led to them seeing more performance issues. Seventy per cent of those surveyed said they were frustrated by how long it takes many websites to load images, and by the start-stop nature of multi-media web content. When asked what was the biggest user frustration when visiting websites, 'web pages taking too long to load' (46 per cent) was cited as the biggest complaint. This was followed by 'online advertising' (24 per cent), 'poor website navigation' (16 per cent) and 'bad web links' (13 per cent).

"I think the mistake many pure plays are making is to assume that retailing starts and begins with a stunning site. This is critical, but only a part of a successful e-commerce site," says Andrew Walker, CEO at e-business consultancy, Portaltech. "I have had several issues with online sites that display product well and look great, but when you get to the point of actually purchasing, this is where they fall down - with no stock availability (or worse, advising they have stock when actually they don't), slow delivery times, high charges for postage and packing and poor customer service."

"Navigation through to payment is one of the most important factors, along with great end-to-end customer service. The interface and engagement with the customer must not finish until the customer receives their product and is happy with the overall performance of the site. There are some sites that are doing this well and are successful, such as Amazon, and others that need to catch up," he adds.

We have the technology

Where consumers' experience of an e-tailer was once confined to a single website, now they expect micro sites for entertainment, applications for their iPhones, HTML direct marketing with vouchers and offers and the possibility to link directly to social networking sites such as Facebook and Twitter, to join groups, blogs or become a fan. Are the necessary tools available to online retailers as they address a myriad of opportunities and potential problems?

They generally perceive higher funnel engagement of users to be more important than down funnel abandonment and few have discovered what their challenges are in this area, argues David-Joseph Brown, CEO at Ve Interactive, which has launched a patent pending software called VeCapture, addressing the issue of online abandonment. Brown believes that it's now time to embrace failure-based metrics like abandonment rates, especially when the industry average is so high (60 per cent and upwards).

"Our software does just this, capturing abandoned data at field level in real-time. This means e-tailers can not only discover where their pain points are within their sites, (which can be a great source of actionable insights alone and can support existing analytics tools), but more importantly brings rich aborted
transaction data that can then be shepherded into CRM pipelines for remarketing purposes. It's far easier to attempt to convert a qualified sales-ready lead who already knows your products or services," he says.

The key to any successful e-commerce platform is stability of the site, notes Frank Lord, VP EMEA at e-commerce software solutions provider, ATG. However, abandonment can happen - for many reasons - and there are solutions available, such as automatic saving of the customer's cart. "This enables the customer to not only return after having abandoned the site, but go to review and continue purchasing without the need to begin all over again. This can also be taken advantage of when using a multi-channel approach, making the same shopping cart available on the consumers' various computers and mobile devices, at the click of a button."

Customers only finally make the decision to buy when they are truly convinced that a product or service is right for them. Anything that will help them to feel confident about their decision (product information, videos, guided selling, community ratings) should be a key feature on the site. Yet confusion starts if
customers see incomplete, wrong and missing information about their preferred product or if they are not sure that a product solves a problem or fulfils a particular need. "I believe this is the main reason for transaction abandonment. Yes, performance does count but is not the main reason unless performance is really bad," says Ariel Luedi, CEO at multi-channel communication and
commerce software vendor, hybris.

Technology vendors need to support and take advantage of the capabilities of modern IT infrastructures, he adds. "Only a few, like hybris, really use multiple cores (multi-threading processes), can benefit from large memory (64bit OS) or can scale linearly both horizontally and vertically. Also, advanced multi-level caching is not supported by every platform."

"Most websites perform adequately during normal traffic periods. The issue is when you have peaks of high traffic following special promotions or after a new print catalogue is published or due to seasonal peaks like Christmas. That's when the more modern platforms shine," Luedi continues. "Unfortunately, not all retailers either want or are able to permanently run an infrastructure geared towards supporting these peak traffic periods, so they either make compromises resulting in low performance during peaks or they have a high fixed cost. Luckily technology providers like hybris have an answer to this problem by supporting the new virtualised, cloud-based computing environment which allow
retailers to tap into additional resources as and when needed, automatically, using features available in public or private clouds like Amazon EC2 and Microsoft Azzure."

The future

Online retail in the UK will grow at a 10 per cent compound annual growth rate over the next five years, according to a recent Forrester report looking at the future of e-commerce in Europe. It will hit Euro 40 billion by 2014 and the number of online shoppers in Britain will increase from 31 million to 40 million. Forty eight per cent of UK consumers use the net to make a monthly online
purchase - the highest number in Europe, with the European average being 32 per cent.

The future is bright but the online landscape is changing rapidly. It is more competitive than ever. Customers are now more demanding and savvier and e-tailers must step up their game if they are to meet their needs. What, then, will be the dominant trends, challenges and issues in the coming years? "Loyalty and competition will remain the dominant challenges for e-retailers in the coming years across all platforms, but also differentiation, because many smaller businesses are now able to compete in the same virtual space thanks to the lower costs of hosting, technical services and open source products," says Ve Interactive's Brown.

"With a more optimistic outlook for the economy in 2010, we will hopefully be seeing more brands committing to digital innovation in the near future," observes Fadi Shuman, co-founder at digital agency, Pod1. "What we currently have is an online world where everything looks the same. Every website has the big image on the homepage, each site has the catwalk videos, the same lookbooks; they're all cut from the same cloth. The next phase of e-commerce should be thinking beyond the obvious, to look again at creating sticky, engaging content."

Shuman believes that, in the next year or so, we will see more luxury brands jumping on the e-commerce bandwagon. "Chanel recently made the decision to start selling its products directly to consumers via its website, and other brands such as Burberry and Faberge have been particularly innovative online, and are paving the way for the others to follow. All that needs is the time, resources and budgets to now move in line with this growing interest."

"The iPad, in particular, is a new category in media consumption and something that brands should be looking to lead with for advertising. It's a new and immediate technology, and one that people are likely to use in the comfort of their own home. Add that to the fact they are consuming that media by choice, any targeted advertising is going to be more effective," he adds.

Expect the mobile commerce and social media revolutions to continue apace. M-commerce has already become a strong trend in the retail market, fuelled by an explosion of apps and increased numbers of iPhone and smartphone customers. "What the retail industry has seen so far has just been the tip of the iceberg - in the future consumers will not only use their mobile devices more for shopping and browsing, they will expect more in terms of accessibility and choice," says ATG's Lord. "Mobile will also be used in a completely different way to traditional online shopping. Consumers on the move will be looking for different items, have different browsing patterns and will respond differently to
marketing techniques. Understanding this new breed of user will be a huge advantage to brands."

"2010 will arguably be the real breakthrough year for social commerce such as peer reviews, online advocacy and ratings," he adds. "We have seen that 2009's recession-hit shoppers have needed more reassurance from friends and colleagues before buying, particularly high-value items such as holidays, cars and designer goods. The rise of social networks means more people are acting as brand advocates online by posting links to products and services on Facebook and LinkedIn pages, as well as Twitter. E-commerce platforms that provide customers with easy-to-use and integrated social networking tools such as 'tweet this' or 'post link to Facebook' buttons will make it easier for individuals to promote products and services online and for retailers to potentially reward them. User-generated content is one of the most cost-effective tools in a marketer's toolbox, and it is sure to be a growing trend in the next 12 to 18 months. Consumer confidence is returning. However, it is unlikely that social commerce will disappear, as it continues to add a 'community feel' to the shopping experience and increase customer loyalty."

In the recent BBC Two programme, Inside John Lewis, it was noted that last year John Lewis Direct produced £330 million in turnover from a team of fewer than 200 people, whereas it required over 2,000 people to generate £300 million from its flagship Oxford Street store. The message is clear: online still has legs. The days of spectacular growth may be over, but significant opportunities remain and an array of innovations are being developed to make online shopping better, quicker, easier and more convenient.

Technology has a huge role to play, but what really counts is how e-tailers use it and many appear to be falling short in this respect. With abandonment rates so high and a growing number of traditional retailers taking a firm grasp of multi-channel, there has never been a better time to address this heftiest of challenges.

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