PART IIevolving the Customer experience

Proprietary research conducted by the e-tailing group Sponsored by ATG

THE MERCHANT RULES

By lauren Freedman the e-tailing group

INTRODUCTION

Evolving the customer experience to suit both the brand and customers will be the focus for Part II

of The Merchant Rules series. The passion of retail merchants is unparalleled. More than ever before,

they are taking advantage of the science and tools made available through ecommerce. Merchants

are also making platform choices that should facilitate compelling category-centric merchandising,

as they strive for best-in-class execution and stellar shopping experiences. Seasoned and savvy

merchants will leverage both the tools and technology, applying the “art of merchandising” to serve

as the compass to guide their cross-channel business.

A. SEIZE THE DAY—MEET THE CUSTOMERS A truly rich online experience starts with a complete understanding of one’s customer base. As such

we inquired of our interviewees, “Do you believe that given all the existing science, retailers understand

their customers better today or did we know them better when we relied on store visits and customer

intercepts?” In Part I of this series, there was ample discussion of the tools and data available to

merchants. Despite such access to data, disparate opinions were shared where merchant insights

serve as an ideal transition to Part II of The Merchant Rules.

Most multi-channel merchants we spoke with believe that one can never replace human interaction.

In those scenarios they feel they know their customers better and will continue to rely on store visits

to connect and gain further customer insights.

Certainly, the size of one’s business matters and a seasoned department store veteran did wisely

emphasize that a retailer with a smaller footprint may know their customer better, but a larger

retailer would have difficulty establishing the same level of intimacy.

As a former buyer/retailer myself, I tend to side with those who relish the data, but give a slight edge

to the human element when it comes to knowledge of one’s customers. It’s not much different for

me in my role at the e-tailing group, as connecting with a client via conference call never quite

establishes the same connection, so I prefer face-to-face meetings. I fear most that e-tailers may

become complacent, believing that existing data provides sufficient input.

We should all heed the advice of an emphatic multi-channel retailer when speaking about the power of first hand experiences, “There isn’t a study that can make the impact of a first-hand experience”. Of course we should all utilize science but never walk away from customer visits and store interactions.”

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An interesting metaphor further sets the tone for this section, and comes from a 15-year veteran of

both multi-channel and pure-play merchandising, who sums it up, “We know our customers differently,

but it is still important to do store visits, as those interactions can’t be replicated, as casting out a big net

works similarly to a balance sheet or a single snapshot in time. Analytics do a better job of looking at a

period of time given their ability to aggregate data. Both together put merchants in a more powerful

position.”

Another merchant cautioned that the “science behind the desk is one dimensional.” While the web

merchant knows customers better in some ways, observing cross-channel behavior paints a more

complete picture. He emphasized that he visits every store at least once a year and that they also

keep a 250-person database for purposes of testing products and addressing other issues that may

arise. He shared a story about a jacket that had zipper problems which he couldn’t understand until

he saw the frustration on customers’ faces bringing to life what simply can’t be gleaned from bits and

bytes of data.

This mindset was supported by another individual who respects indicators seen via wish lists and

online behavior, but believes strongly that these are never the final answer, particularly as there is

only so much data one can absorb. Her ecommerce team still answers the 800# for two hours every

week in order to “touch” the customer and understand what makes them click. They also take

advantage of store visits to ask customers about their onsite experiences.

This sentiment was shared by another e-tailer who feels that merchants may have understood the

customer better when they could get closer to them. Spinning a familiar tale he stated, “Some parts

of the Internet are still a mystery to me after nearly 15 years.” His company made many changes to the

site from a visual and promotional point-of-view, then had their single busiest day, but could not fully

account for its success or truly pinpoint performance to specific initiatives. Despite all of the data, he

believes that it’s always better if you can be closer to the merchandise and talk to customers. Knowing

that this is not always possible, they continue to use catalog match-back capabilities and other means

to market most effectively.

Sophisticated Online Merchants Jumpstart Shopping Experiences

The final perception is that the best retailers have a better understanding of their customers.

Yet the question of what to do with the data and how to gauge the real intent of the customer

Online customers are not robots therefore any opportunity to get out from behind the website to talk to customers should be seized.

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remains. They imply, like many others, that data doesn’t always mean more in-depth insight,

since merchants must make time to properly massage the data. Interpretation coupled with the

appropriate actions matter most.

Taking advantage of this information for deployment in CRM programs should be a huge differential,

particularly for retention purposes. As one children’s brand with a few powerful stores noted, “We can

now see how deep our customer buying really is by looking at multi-channel patterns. Understanding

the similarities and variances between our direct business and retail channel is instructive; from there

we can optimize our merchandising and personalize customer experiences accordingly.”

Most honestly discussed the customer knowledge gap, sharing that while online numbers are interesting,

it is difficult to “visualize” these individuals. “The data doesn’t truly help us know individuals better,

but can be effective in understanding clusters of people in order to better bucket and target customer

types, thus directing more relevant merchandising strategies.” Retailers need to form mental images of

their customers, so it’s more about a point-of-view rather than a single data-point. That said, single

data-points have proven to be incredibly valuable, when secured via buy online/pickup in-store, as

this information is a real indicator of true multi-channel behavior.

As always, the devil is in the details. To truly know one’s customers, a discussion beyond just an

evaluation of channels is important. One merchant cited an exemplary cross-channel experience

with a specialty retailer where she is a frequent customer across all channels. She receives superior

service stemming from their full knowledge of her buying behavior, accessible as a result of robust

systems and a sophisticated database. Without such infrastructure, a multi-channel view would not

be possible. When properly optimized, this scenario is a win-win for all concerned.

Knowing these limitations, perhaps the real opportunity is to marry the best of personal service

currently being executed at retail via “clienteling” with technology that better facilitates connecting

with one’s customers. The adoption of such one-to-one outreach was cited by several retailers

referencing Brooks Brothers and others whose in-store personnel now use technology to better stay

in touch with their customers.

Multi-channel retailers have a unique chance of knowing their customers better given access to both store-based and online information, but work must be done to bring this information into a single dataset to best serve their needs.

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Online Information is Invaluable when Shared with Offline Counterparts

Significant discussion took place regarding the extended value of online information, specifically as it

is shared within the buying organization. From footwear merchants where searches indicate a need

for more extended sizes onsite, to search data that supports color requests for retail-only product,

this knowledge can serve up powerful clues to grow the business for the entire enterprise. A home

retailer added that insights gained regarding how customers are purchasing products not only impact

associated merchandising online, but also customers’ choices are already influencing in-store visual

merchandising.

A Contrary Viewpoint — Web Absolutely Knows Customers Better

One sophisticated retailer bluntly stated that most cross-channel merchants today should know their

customers better, given the improvements in available technology. His sentiment was a warning

retailers should probably heed.

Another merchant, in full agreement, echoed that “20% knowledge is still light years ahead of what

we knew at retail.” They, like others, have leveraged insights from surveys, user-generated content,

live chat logs, and email to find that all are providing statistically quantifiable information where

every product has a scientific story behind it. An added ecommerce channel upside is that they hear

from customers more often through email, and as such, are able to service them in a timelier manner,

contrary to delayed responses that stem from brick-and-mortar encounters. Web tools uniquely give

merchants the ability to pinpoint the exact behavior of their customers, including when they may be

confused and need more help. Discerning similar insights at retail would involve associates “trailing”

the customer which never provides a complete picture of their behavior.

Recent trends in technology have given us new vantage points from which to learn more about our

customers from a “behind the scenes” perspective by gathering information through social media

interactions on Facebook and/or Twitter. In the past, we relied heavily on word-of-mouth to gather

such knowledge. Of course, the website functions as a 24-hour suggestion box, adeptly assisting

merchants to better understand product needs and merchandising requirements that customers

hope to see from any given brand.

Despite all of these points of potential information, no matter the source, the challenge remains the

same. We must be careful not to generalize about our customers and to intelligently determine how

to optimize performance expanding relationships with each and every one.

“If you don’t know your customers better online, you as a retailer are behind the times and will likely become irrelevant to your customer.”

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B. TECHNIQUES FOR DIFFERENITATION All of this knowledge sets the stage for elevating our site experiences. Techniques for maintaining

parity start with relentless scrutiny of one’s own site experience, and much of this kind of review

simply cannot be automated. Retail 101 implies continuous competitive benchmarking, including

shopping the competition and best-in-class retail merchants from a merchandising point-of-view,

along with ensuring that one’s technology department stay abreast of ever-changing tools.

Interviewed merchants also advised looking beyond one’s own niche to observe winning strategies

across the industry. Those that are part of a bigger company are in a luxurious position as the parent

firm often shares information on best practices among all of their brands. An interesting twist on

the parity issue was revealed by an office supply chain, “Our enterprise brand has a huge influence on

us, which can be good and bad. Competition keeps changing, forcing us to be more agile, yet internal

controls make this extremely difficult given existing protocol and processes.”

Getting Tactical

Many merchants mentioned monitoring their competition’s sites. One even referenced a once-a-year

“deep dive” that has now been adopted by other parts of the organization. As part of that effort,

a merchant should have clarity around who they want to be. This determines who they should

compare themselves to and benchmark. For instance, this company feels confident they understand

their web model and can stay true to that positioning, although their financial model is based on

catalog roots. Other wisdom came via an understanding of the role of each medium or channel,

where rather than being first-to-market the focus centers on doing what is right for the brand. This

understanding of the landscape will help ensure that messaging via all channels within the company

supports the brand’s true differential. Especially for manufacturers, the brand voice must be carried

through and constantly monitored from wholesale to retail. “Such exercises are hard work,” as one

retailer acknowledged, “but all this information affords us an opportunity to force the issues with our

CEOs and we hope to remain vigilant in monitoring all of our marketing efforts.”

It is a competitive marketplace for merchants where “keeping up with the Joneses” and accelerating beyond the competition is a requirement to not only survive, but thrive.

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Avoid the Shiny Object Syndrome

It is critical to understand when your customer is ready to embrace a more evolved site experience,

so avoiding the bells and whistles is wise.

While delivering the latest functionality is always tempting to consider, discerning what you really

need is what counts, as customers can leave with a mere click. On the other hand, knowing they have

to convince their customers to pay a premium for what can typically be a commodity product, one

specialty retailer believes they need such an elevated experience to effectively compete.

The last piece of advice I heard from a footwear retailer was that “evolving the customer experience

must be a gradual effort.” While they are certainly interested in embracing more advanced merchandising

elements, they do not want to alienate existing customers. As a company they tend to be “fast

followers,” yet try hard not to adopt technology just because it is an industry standard. They ease their

devoted female customer more slowly online, having learned from past mistakes (such as eliminating

quick access to extended widths via navigation) that listening to their customers’ needs delivers the

right experience.

A Delicate Balancing Act

A balance must be struck as there is not one silver bullet or magic formula. For example, Anthropologie

may deliver a lighter experience than one might expect from a more conservative retailer such as Talbots.

Following along the lines of the KISS (keep it simple, stupid) mindset, it is more about value-based

execution that works and does not require a sophisticated interface, than about the fanciest technology.

A non-promotional retailer emphasized that they were reacting counter to competitive trends with

only a small window for a 5-7 day clearance. They have to plan sales and margins accordingly and

rather than feeling external pressure are actually more reactive to internal business needs.

Smart retail principles should be in place, with quality merchandise at fair values the standard. A

two-channel merchant and former luxury store buyer clearly understands the competitive challenge,

“Beyond offering one-stop shopping for fun products without forcing shoppers to seek multiple sources

for uncommon products, the best possible customer service must be present and customers should

always be treated with dignity and respect. Ideally the package should arrive in a timely fashion and

standing behind one’s product is a given. This all needs to be accomplished within the framework of a

profitable P&L.” She concluded the discussion by reinforcing that running a business today is difficult,

but still possible despite the many obstacles.

Differentiation is important yet merchants cautioned not to become enamored by “shiny objects” and to make certain that they work towards a goal of engagement and the right customer experience for the brand.

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C. THE COMPLEXITY OF CREATING RICH CUSTOMER EXPERIENCES Recognizing the challenges and complexity of competing, we asked each of the merchants to talk

about what makes for a truly rich customer experience online and many of the answers shared

support current site evolution strategies. One seasoned merchant glibly shared, “All retailers promise

richer experiences but the differential for the customer is what they feel when they first come to the

site.” Consistency and familiarity, no matter what medium you touch, with appropriate execution

by channel will be embraced by consumers. Of course, as another merchant suggested, “It’s easier to

begin with a solid brand as a foundation from which to build a great web experience, subsequently

capitalizing on one’s heritage.”

Customer-Centricity

Customers should be the focal point, with their needs paramount. It is imperative that you understand

who you are servicing and establish credibility in order to sell to them.

A veteran multi-channel merchant spoke of his own personal shopping, saying that trust is the

starting criteria for the stores he selects, after which many other elements become non-factors. He

shared that he would be willing to pay a few more dollars based on that trust, as adverse circumstances

were not worth any minimal cost-savings. Such trust should emulate from an understanding of your

customers’ mindset, factoring in merchandising that addresses both the novice and the expert, while

taking advantage of the opportunity to better connect with customers in a really relevant way.

A mentality that reassures shoppers by letting them know you will take care of them is also part of

the trust factor and should not be discounted. The merchant sets the tone for any and all customer

communications; from the customer service department to outbound communication around the

order, including the use of live chat. One interviewee explained that they conduct accelerated training

with the call center to guarantee that the customer is supplied with the right information in whatever

means customers choose to interact with the brand. By addressing immediate questions, they hope

to build lasting relationships.

Tactical Selection Starts with the Audience

Knowing your customer should also set the tone for evolutionary merchandising decisions.

A seasoned merchant who is responsible for merchandising across a variety of different brands,

with a cross-section of audiences, was clear that tactics must be addressed at the audience level. One

Trust was a word emphasized by a handful of retailers reminding all of us that when the customer truly trusts a company, there is never a doubt about consummating the transaction due to that merchant’s integrity.

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merchant suggested their conversion rate is acceptable at 5% but they are looking for 100%

engagement and that has meant the development of richer content. A hip brand targeting a younger

demographic, they have added music, videos, and editorial to create just such an experience. While

this younger audience may seek a fast-paced experience that embraces current social elements,

conversely a brand targeting the 50+ market may find those individuals do not respond to innova-

tions in video and interactivity in the same way. Additionally, the older customer may be surer of

their needs and more seasoned when shopping the category so recommendations may not have

the same impact, although the younger audience may readily covet what the community suggests.

For the younger market their experience with video on the product page shows conversion at four

times those pages where it is not present. This engagement is core to the value proposition, while on

sites with older demographics, the interest level was significantly lower. One brand went so far as to

discuss their investment in a media gallery to better deliver this kind of rich content, appreciating it

generates confidence that results in conversion.

Paying Attention to the User Experience

Savvy sellers know that the experience is what will ultimately help or hurt one’s brand. Several mentioned

putting teams in place to address usability for their customers, while educating from within the value

it delivers for the organization at large. A candid retailer acknowledged that in the past they had been

heavily store-centric, but now the user experience is finally an important priority. With new executive

leadership on board, changes are being seen. She does not believe it is the store’s job to fully

understand the web, but has learned that putting the right functionality in place online will reap

rewards for all channels, as well as respect from counterparts. Another multi-channel retailer

reinforced the importance of parity among channels by sharing an example of how Saturday delivery

is available at retail but not online. Such discrepancies cause concern for customers who increasingly

shop across all channels. Among those who are multi-channel, once the web reaches parity with the

retail stores, they take advantage of each channel’s uniqueness to evolve their customers’ experience

even further. In furniture retailing this can include custom upholstery and draping tools that are both

interactive and integrated. By monitoring their customers’ use of mobile phones in the retail

environment, merchants are also exploring how mobile can be a bridge between stores and the web.

The opportunity for retailers, as one cleverly stated is “to lead not follow whereby they beautifully use

technology to show product in an innovative way that will inspire.” Another merchant emphasized

that when she encounters such experiences she never misses a chance to make a purchase, citing

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Merchant-driven organizations lead with product and merchandising, subsequently wrapping brand around that powerful package.

the creative nature of a favorite specialty retailer’s gift guide encountered over the holidays, and as a

result spending significant dollars with that company.

Finding those things that surprise and excite your customers or wielding the wow factor can be

a result of technology’s ability to deliver a delightful, enjoyable experience. It is this kind of

execution that universally wins the heart of today’s time-starved consumer. One merchant cited an

example from Benjamin Moore where shoppers can take a picture of a pillow at home, upload it to

a mobile site, and color match in-store for the perfect paint. Their simple and powerful execution

served as a problem solver for her crazy life and forever differentiated that brand in her mind. This

level of execution is where today’s cross-channel leaders are headed, and such solutions pose real

opportunities for the merchant community.

Efficiency Empowers Shoppers

Concurrently “no hassle” customer service and clear communication are expected from today’s

demanding shoppers. Customers have little time to spare and coupled with a very short attention

span, both become tough to overcome. They will wait for almost nothing, so if pages load slowly or

image quality is poor, you should expect customers to abandon your site.

From the outset, the web shopper has been surgical in their shopping behavior. In most organizations

it is up to the merchant to be certain that customer tasks are completed as swiftly as possible. By

keeping abreast of new technologies, most merchants are able to create a more welcoming and

streamlined user experience. One pure-play focused on organizational products reflected, “It’s all

about doing work for the customer, making it easier to find product.” Their solutions included expanding

“shop by” capabilities, such as organize by color. On another front, the web team at a footwear brand

found themselves adding web-only attributes for height and calf, even though they were not readily

available from their parent organization.

Everyone stressed efficiency. Efforts toward seamless checkout were highlighted by one merchant,

where today, visitors can receive an estimate of shipping costs prior to final checkout, always a cause

of customer consternation. Following a growing online trend, they also added the ability to apply

promotion codes via one’s mini cart to immediately see the lower price. Lastly, several cited the need

to enable alternative payments with PayPal and Bill Me Later, seeing stronger adoption across the

retail landscape.

Despite the diversity of scenarios, every experience starts with the basics. In this report, we cannot emphasize enough that this means the right product, at the right price, and it must be in-stock.

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In regard to the stock situation, an in-stock position can be a challenge for merchants with a fashion

orientation, or for those with high inventory turns. Overcoming these challenges, one retailer turned

an in-stock position into a competitive advantage. By simply being in-stock, they were able to

consistently convert at a higher rate. This was feasible as a result of improved drop-ship turnaround

times, achieved via vendor partners. The CEO reported handling after-hour calls, where many customers’

first question concerned the stock status of a given product. Once he was able to confirm availability,

his close rate grew significantly, otherwise out-of-stocks account for 25% of their business.

Product Information Courts Confidence

Confidence builders were universally suggested as supporting online evolvement. Merchant-centric

information coupled with user-generated content is optimal for building a rich customer experience.

Holistic thinking can set merchants on the right course. When executed properly, it is engaging for

the customer as they have been served up all of the associated information to help them succeed

in making their purchase. It almost functions as a subliminal guide, directing shoppers based on

behavioral needs, just as a well-designed store delivers in-store inspiration. At the same time,

customers must always have choices that are easy and convenient. One merchant equated those

choices to, “peeling back an onion in any way they desire. It’s not just rich media and videos, but

something greater, that starts with clarity and consistency of presentation.”

Rich copy and robust content that supports picking the right product starts with comprehensive

product information and extends to more product views, view in a room, etc. where the presentation

provides the information that shoppers need to mitigate any risk in shopping online. A merchant

must accurately describe the product and provide a myriad of angles from which to view the product

(360°, alternative views; zoom). Everything from increasing the image size to properly styled

photography came into play for those we interviewed along with customer voices that share their

point-of-view from basic reviews to rich community participation.

Along these lines, one merchant struggled to emulate retail store selling that was grounded in building

outfits for the customer. While the AOV is very high at retail, they are finding it difficult to achieve

such strong results online, despite their buy-the-look tool. Better execution tops their list of future

road-mapped features.

Commerce/Content Integration

One of the early promises of the web was the blending of content and commerce in order to drive a

richer shopping experience. The challenge is mixing and blending that content for an appropriate

shopping experience, where ingredients may include everything from decision-making tools to

cross-selling product recommendations. It requires a combination of manual merchant labor coupled

with behind-the-scenes technology to support such efforts. Some of this content is created internally;

some is purchased from third parties or even better authentically secured via the merchant’s broader

community.

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The goal of all this remarkable technology is to facilitate an experience that might be received from

a knowledgeable and attentive salesperson at retail. Examples of such engagement in the selling

process were discussed including:

• bookmerchandisingwherepop-upsshowcasethefirstthreepages

• gardeningsolutionthatincorporatesakitchengardenplannerandother interactive tools

• privatesaleorinvitationonlymodels

Personalization is Poised for Growth

Those who have participated in ecommerce over the past ten years have seen initial efforts shift from

simply getting product in front of customers to a focus on customer intent and desire. Each category

has an obligation to try and deliver richer experiences and further merchandising evolution should

then be forthcoming. However, some we spoke with believe that this is certainly an area that has

seen fits and starts, where it has now hit its stride with penetration and performance realistic. In the

e-tailing group’s 2010 Annual Merchant Survey we asked, “What initiatives are being planned to

improve website performance?” Personalization/customization saw long-awaited attention for 52%

of the responding merchants versus 41% the year prior.

More evolved retailers have tackled or are looking to embrace relevance from a variety of perspectives

including product, messaging, and positioning. As part of those initiatives some merchants are

personalizing the experience based on the customer’s point-of-entry where the sophistication of

their selling accommodates such advanced capabilities. Someone who came direct to the URL does

not require significant branding, while those who searched for a product via Google should receive a

much different brand experience. At the same time, a number of more evolved merchants, who were

skeptical of opportunities in their early days, touched on personalization recommendations that are

being enjoyed by customers and bolstering their bottom-lines. An evolution of marketing efforts also

includes both onsite and email segmentation for more targeted selling, as well as triggered email

launched in response to abandoned carts.

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relevancy may ultimately become even more important than richness of presentation.

Admin Tools Give Merchants Desired Control

Now that merchants have a greater understanding of onsite consumer behavior, they are looking to

constantly merchandise their stores, using all available data to find the right placement to optimize

product assortments and sales. Tools have become a merchant’s best friend. One apparel retailer

cited recently evolved click-and-drag technologies that facilitate the merchant being able to re-assort

the website in 15 minutes versus what used to take a day to accomplish. Advancements in admin

tools can quickly impact sales and enable merchants to keep changing retail dynamics to better

personalize the shopping experience.

Social and Mobile Spark Latest Evolution

The last evolutionary area that was cited related to social and mobile which will comprise the third

and final part of this report. Both were seen as giving merchants a broader canvas and extended

customer reach. From iPhone apps and mobile commerce to Twitter and Facebook, these opportunities

are certainly on the minds of merchants and being embraced by shoppers in record numbers.

The implications of this new chapter imply that merchants today need a sweeping cross-channel lens.

Their expanded role as company communicator across channels must delicately deliver against a one

brand, one message proposition. While each channel has different technologies and strategies to

be merchandised it is up to the merchants to determine when and how to synchronize tactics or

alternatively take advantage of the unique qualities of a given channel to best serve today’s anywhere,

anytime customers.

ClICk heRe FORPART III - SOCIAL AND MOBILE SPARK LATEST EVOLUTION

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ABOUT US

the e-tailing group is a niche e-commerce consultancy that helps

merchants deliver the right customer experience on their websites

and across all of their channels while adeptly assisting technology

companies to create and execute go-to-market strategies that

simultaneously educate the retail community and deliver cost-

effective thought leadership and lead generation.

For more background about this research study or additional

information on the e-tailing group, inc. please contact Lauren

Freedman via email to LF@etailing.com or visit the e-tailing group

website www.e-tailing.com.

A trusted, global specialist in e-commerce, ATG (Art Technology

Group, Inc., NASDAQ: ARTG) has spent the last decade focused

on helping the world’s premier brands maximize the success of

their online businesses. The ATG Commerce application suite is

the top-rated platform by industry analysts for powering highly

personalized, efficient and effective e-commerce sites. The

company’s platform-neutral e-commerce optimization services can

be easily added to any Web site to increase conversions and reduce

abandonment. These services include ATG Recommendations and

eStara Connections.

For more information, please visit http://www.atg.com.