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Online Shopping and Buying (Part 6 of 9)

October 29, 2008

Online Shopping and Buying

Overview

Search, shopping, and purchase all 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 consumers find, consider, and select brands for purchase.

Anyone who has used a broadband connection at home or at work appreciates the speed and richness of the online experience, and the services now available, such as streaming music, video, and shopping. Broadband adoption, now mainstream, provides consumers with greater ease and convenience for researching purchases online and shopping across all channels.

We take the view that calling shopping or researching products and services “search” is really too narrow; it easily misleads us to focus on online search (a big player) and ignore offline sources that consumers routinely consult—Yellow Pages, catalogs, stores, newspaper or magazine ads, or trusted opinions. We overcome this bias by broadening the term “search” to “shopping research,” so we can be as inclusive as possible.

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 in 2005. From 2004 to 2006, retail sales grew about 7% year over year.

E-retail revenues command a small fraction of total sales but tell an exciting growth story. These, excluding travel, reached $114 billion in 2005, a 25% climb over 2004. Future prospects show continuing growth. (As we go to press, comScore reports a 25% increase in online sales during the 2006 holiday season over 2005.) After cracking $138 billion in 2006, Forrester Research forecasts dollars rising to $171 billion by 2009; these are healthy double-digit rates in the neighborhood of 18% year over year. Increasing revenues but slowing growth signals the switch to the beginning of a maturing and more competitive channel—a point that takes on added importance when we outline the size of the online shopping population.

Consumers Fuel E-Retail Growth and Shop in New Categories

From the early days of online retail, shopper purchases for computers and software, books, toys, and video games drove sales. These early successes, eMarketer forecasts, will continue. In fact, eMarketer expects computer hardware and software to capture more than half of the sales online. That’s a major milestone, reflecting consumer acceptance of manufacturers’ direct sales such as Dell, web-only superstores such as Amazon.com, and the online channels run by category retailers, represented by CompUSA.com and BestBuy.com. When you stop and realize that consumers spend an average of $500 for computer equipment  and assume that there’s little risk purchasing by typing credit card numbers into a web form, it’s a remarkable development.

Online sales do not live by gadgets and gizmos alone. Shifts in three categories—jewelry and luxury goods, apparel, and health and beauty—signal change ahead. What’s especially interesting and different about these categories? They require more purchase consideration and more research.

Online Travel Sales

Travel spending online for leisure and unmanaged business spending reached $65 billion in 2005. A combination of factors—including the growth of turnkey agencies like Orbitz, Travelocity, and Expedia; aggressive marketing by airline, rental car, and lodging supplier brands; broadband; and consumer acceptance—contributes to this growth. Travel analysts expect leisure and unmanaged business travel sales to rise markedly in the next couple of years and nearly double to $122 billion in 2009. Historically, Grau points out, online travel, an early success story, outpaced retail e-commerce. Expectations are that online 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 are aggressively moving to incorporate it into their complement of channels. Federated Department Stores’ Macy’s unit, for example, recently reversed its e-retail approach, changing from brochure-ware to sophisticated online operations. Why? Federated CEO Terry Lundgren explained to Internet Retailer: “Federated is more concerned with using the sites to drive multichannel sales rather than just boosting web sales”

Pure-play e-commerce business models have evolved into specialized channels with crystal-clear customer value propositions supported by disciplined business strategies centered around the “Treacy trio”—having the best product, best overall cost, or best operations (Treacy and Wiersema 1997). They have not become T. rexes devouring offline retailers as originally expected by internet economy proponents.

Today’s Online Shopper Profile

Today’s shoppers browsing online stores, researching and comparing products, cross the demographic spectrum, from age 14 on up. Nearly 118 million people, about four out of five internet users, shopped online in 2005. Due to the large numbers of people already online, growth will not be as rapid as in earlier years, but the numbers are impressive. For 2009, eMarketer  forecasts 133 million shoppers.

Shoppers like the anywhere, anytime convenience of online research and shopping. Most agree that online prices compete with offline costs, that sites are easy to use, that they have time to shop, and that they can get online. For these reasons, about 85% of internet shoppers 14 or older made at least one online purchase in 2005. Why doesn’t everyone buy something online, then? Shipping’s cost and delivery times can be showstoppers, but often the biggest barrier is that people want to see the product or be able to touch it. Does privacy matter? Concerns exist, but opinion varies on its extent (Copeland and Rogers 2005; eMarketer 2006i; Turow 2006). Online retailers, however, have generally taken steps to reassure shoppers of transaction security

Shopping Strategies

Shoppers research before they buy, firing up browsers for web work and combining them with offline advertising, catalogs, listening to word of mouth, or visiting stores or dealers (Forrester 2006; Freedman 2006; Yahoo! 2006c). Shoppers draw heavily on online research; nearly 90% conduct “some sort” of online research before buying from a web retailer or offline store (Reverse Direct Marketing 2005). This shopping activity is a major opportunity for online advertising.

Importance of User-Friendly Shopping Sites

Recognizing the importance shoppers give to manufacturer or retailer sites, we’re reminded of the need for top-notch site search. It’s often overlooked, but 80% of all internet-based purchases involve searching within websites, Why so little attention? Two reasons.

First, when we talk about search, it’s usually synonymous with internet search engines like the GYM trio (Google-Yahoo!-MSN), Ask.com, and others people use to find products and navigate to sites. About three out of four consumers use these search engines to find online shopping websites—much more than any other tactic . With search engines aggregating consumers and creating audiences around their specific interests, marketers zeroed in on search engine marketing for front-end demand creation, but thought less about the site experience, which is where the real shopping and possible purchase takes place.

Second, marketing and advertising groups usually advise on brand marketing requirements, but selecting and implementing site search typically falls to information technology (IT) specialists. Often the discussion centers on how to leverage existing technical functionality rather than making the site search as responsive to consumer needs as possible.

Checkout is Multichannel

Shopping is more like a journey than it is a series of discrete, orderly steps. Shoppers use multiple information sources and channels as they learn, consider, and decide to buy. Because of all the education, emotions, checking, and cross-checking, consumers take different routes to the checkout; sometimes it’s direct, sometimes it’s not. The concept of “path” captures this idea very well.

Yahoo! , with OMD, studied shopping paths in a richly detailed study that combined ethnographic techniques (depth interviews, shopping trips, journals, etc.) with online surveys conducted among a high-quality panel. Their research looked at people who intended to purchase or made a purchase in five major product categories: auto, finance, technology and electronics, retail goods, and consumer packaged goods. Four paths emerged:

Quick paths. Characterized by a short time frame, fast decision making, little or no research prior to purchase, and immediate gratification, this type of purchase path is most common for routine purchases like consumer packaged goods, impulse purchases, and when people are distracted or under time pressure. Grab and go.

Winding paths. Shoppers move between different shopping channels and information sources on the road to discovering the right item. Winding paths typify retail purchases. Confidence using technology assists purchasing as shoppers search, visit sites. and compare. Sales conclude within a relatively short time frame (a few hours to a week). “Winding paths result from consumers trying to make the best purchase decision among many options, price comparison shopping, coupon use, and/or advice from friends or family.” Educated, smart buys.

Long paths. This path emerges when consumers know what they want to buy, are determined to acquire it, and can wait weeks or months to do so after the start of search. Shopping typically takes place through only one channel, research is ongoing, and eventual purchase is very likely. “Long paths often result from waiting for the price on a specific product to drop, waiting for something (such as a new style) to become available, and/or waiting for delivery of an item.”

Long and winding paths. Long and winding paths are often used for high-ticket and/or technology-related items. This path involves product research, learning, and comparison shopping, as well as professional and user reviews. Yahoo! points out that “eventual purchase is not definite, and could go either way. This path often results from having no fixed purchase deadline, unexpected complications in the shopping process, and/or uncertainty regarding the exact desired outcome.”

Summary

  • Buying online is big and growing (133 million online buyers in 2006). Shopping online is even bigger and growing faster (85% of online users shopped online in 2006). Integrating advertising, online shopping, and offline and online buying into a multichannel experience strategy is critical for success. Multichannel shoppers often pick up extra items and spend more overall than single-channel shoppers, generating incremental revenue at little cost. Most offline retailers now have online buying, and even internet pure plays have adopted a multichannel approach. Determine how your brand can exploit a multichannel strategy.
  • It is critical to make your online shopping site as engaging as possible, as only 4 out of 10 consumers come to a shopping site with a committed brand in mind. Innovation and creative offers have proven to find new buyers during an online shopping trip. Whether directed immediately to an online buying site or encouraged to visit a retail store via ads, these newfound buyers purchase at a high level of probability.
  • Marketers are learning that online shopping and/or buying sites need to reflect a genuine commitment to the consumer. They need to reflect the brand or company personality and leverage in-depth knowledge of purchasing drivers. E-commerce afterthoughts don’t cut it in today’s competitive multichannel retail environment. The least effective shopping and/or buying sites are those designed just by the IT department that do not have a broader advertising plan to drive traffic to the shopping/buying site and do not utilize site behavior as strategic input for continuous improvement.
  • The key for success is for marketing and IT to work together to create a user-friendly, brand-building, and action-driven experience with minimal hassle for the customer or potential buyer. Just as a bricks-and-mortar retailer invests time, creativity, and money in maximizing the shopping and buying experience for its customer, online marketers must do likewise in order to grow the business.
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One Comment leave one →
  1. October 29, 2008 10:16 am

    A interesting read, I also be interested to read your thoughts on Social Commerce and the growing trend of using Social Networks to increase online marketing through organic methods. I think this ties back into several areas of your document including Shopping Strategies and Multi Chanel paths. I look forward to hearing your thoughts.

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