Thursday, October 30, 2008

Circuit City Cross-Channel Pricing Strategy Strikes A Positive Note

Good news out of Circuit City has been tough to find of late. But maybe it’s onto something with its recently promoted “one price” strategy. Analysts have lauded the move as a positive and even essential cross-channel strategy.

The “one price” promise policy guarantees the same price for merchandise regardless of whether it is purchased online or in-store. It was announced in mid-October and is the focus of Circuit City's holiday marketing program. However, the policy has not been copied by any major retailer. In fact, Best Buy’s policy states that consumers will be given the lower price if they find that an online item is available in the store at a different price. Translation: Best Buy, and other retailers have priced in-store items differently than their website says.

Circuit City believes the policy’s need is backed up by research. SPSS, Inc. studies showed that nearly half of consumers surveyed (47%) believe retailers post different prices for the same merchandise in their stores and on their Web sites. Moreover, more than half of shoppers (51%) said they would place more trust in a retailer who offered the same prices on the Web and in their stores.

New research supports the consumer expectation of consistent cross-channel pricing. Greg Buzek, Founder and President of IHL Consulting Group, says his company will release a report in the coming weeks that quantifies it. According to IHL, consumer electronic stores over the past 30 days have seen 26% of their in-store customers leave without purchasing for various reasons. However, of that 26%, 21% left because the in-store price did not match online pricing, or other promotional pricing. That means 6% of all customers are leaving due to pricing differentials.

“Retailers who don’t align their pricing are hurting themselves,” Buzek says. “One of the most frustrating things a consumer will come up against is finding that the in-store price does not meet their expectations. It is completely within their expectations to get that, and retailers will lose sales if they don’t meet that expectation.”

George Lawrie, the Forrester Research Senior Analyst who wrote a study earlier this year on consumer cross-channel expectation, agrees that Circuit City is addressing a critical issue. “In general, guaranteeing the same price through all channels appears to fly in the face of common sense and even of customer expectations,” he says. “But there are good reasons that Circuit City and other retailers selling home computing and consumer electronics are obliged to offer ‘Internet prices in our stores.’”

Lawrie believes the “one price” strategy is a hedge against aggressive discounting by competitors. He says discounters use supply chain muscle to encroach on consumer electronics retailers’ territory, and then lack the in-store expertise to add peripherals or even enhance the customer experience. Smart consumer electronic retailers, will use the internet, he says, to drive in-store traffic because their competitive advantage is in the store.

“Consumer electronics purchases are complex and the decision making process is information intensive,” he says. “Consumers often spend hours understanding technical specifications and researching online even if they need to pick up the product for an urgent deadline such as a college start or a birthday. Window shopping now has an entirely new meaning: 54% of online consumers researched a product online and purchased it offline, and 37% researched offline and purchased online as long ago as 2005. Half of these consumers cited price comparison among retailers as the reason for researching online, more than any other factor. When it came time to buy, those who purchased offline cited immediacy, the ability to see an item in person, and shipping costs as the top deterrents to online purchasing.”

The pricing alignment will require infrastructure alignment as well. Any retailer who intends to promote their capacity to price consistently, and then have the ability to be agile with inventory, needs to be prepared on the back end.

“No doubt that Circuit City has raised the bar for expectations of consistency, and I give credit to them for that,” says Escalate Director Of Product Marketing Dave Bruno. “A lot of retailers would struggle with the need to have accessible information across all platforms. The technology is certainly available to accomplish that.”

Tuesday, October 28, 2008

Cross-Channel Retailers Realize “Need For Speed” As They Get A Jump On Holiday Promos

The holiday season is shaping up to be a game of high-stakes poker played at high-speed. According to experts observing the situation, the key players may call “all in” at any time with an aggressive slate of discounts, promotions, and cross-channel incentives.

“The big change this year is that retailers are moving their holiday campaigns forward in an attempt to close some sales early,” says Chad White Director of Retail Insights and Editor-at-Large for the Email Experience Council. “As of Oct. 19, 40% of the retailers I track had referenced the holidays in at least one email. Last year only 31% of retailers had referenced the holidays by that point. Last year we didn’t reach the 40% mark until Oct. 25, so retailers have moved their holiday campaigns forward by roughly a week. Based on this, I expect Cyber Monday to be huge again this year as retailers give customers another compelling reason to pull the trigger and not wait until the days right before Christmas. I also expect more Black Friday messaging this year.”

Some retailers have tried to take the high road as the season approaches, but most analysts expect speed and even desperation to rule the rest of the year. Circuit City, for example, has drawn some positive press for its “One Price” policy that guarantees the same price regardless of the channel it’s purchased through. Best Buy has pushed its ramped up mobile offerings. OfficeMax (see related story) has taken up cause marketing. But expect these all to be footnotes on Dec. 26.

“It is the nature of the economy to turn all consumers toward value,” says Lauren Freeman president of the e-tailing Group. “Expect them to look for deals across all channels. They will look for early season deals, and then look for late season deals. In the middle I expect to see a lot of limited time type of promotions and accelerating discounts.”

Last year, the main cross-channel issue was free shipping. This year most retailers would kill for that kind of simplicity. Consumers expected retailers to ante up free shipping for most any order regardless of value. This year, free shipping has not been promoted as heavily by e-commerce pure plays or cross-channel retailers. But it’s a tactic that can and will be broken out at any time.

Larry Freed, president of ForeSee Results, was one of the analysts that accurately called out free shipping as a competitive key last year. This year he calls it “a cost of entry” for e-commerce. “I expect it to be very important again,” he says. “Actually it has become more of an accounting issue than a business issue. It’s really part of the cost of goods online, and we all know the margins are much better for online sales. I think when gas prices were higher the potential hit for free shipping for retailers was bigger. Gas has come down substantially, so I say that if you can get customer to pay for shipping, all the better. But if you can’t, there are a lot of ways to accomplish it.”

Freed agrees that free shipping is among the aggressive tactics that will simply depend on who blinks first. After Halloween, he says, the game is on. Even the total number of e-commerce revenue is up for debate. Several reports issued over the past week call that number into question. Both Forrester and the e-Tailing Group expect 2008 to settle for a 12% increase over 2007. “Although US consumers are pessimistic about the health of the economy, they expressed a marked interest in the ability of the Web to save them money,” states the Forrester report. 48% of consumers surveyed, compared with 41 % in 2007, said that they can find the best values and deals online. Additionally, 36% of consumers said that they would be more likely to shop online due to high gas prices, compared with 22% who expressed the same sentiment last year. Forrester expects that the majority of holiday online sales will be driven by shoppers who have previously purchased online, rather than first time online buyers.

Freed says he expects a drive in online advertising and promotions to drive more web traffic and consequentially more purchases than is currently predicted. Brand Keys last week issued a report that warned of a possible five percent decrease in overall retail revenue, including online, based on the changing needs and expectations of key consumer groups.

Thursday, October 16, 2008

New Study Shows Simple Online Path To Purchases & Shopper Loyalty

Maybe one thing won’t be so tough this holiday season for retailers. A new report shows that simple web ads and loyal customers will be the main traffic drivers for both online and offline channels for the balance of this year.

That means that video ads and rich media applications, which are expensive and buzzworthy these days, may not need to drain retailer’s holiday ad budgets. The new report from from web analytics company iPerceptions collected user-generated feedback from over 14,000 visitors to leading media sites during the month of August 2008. The data showed retailers can reach consumers through text and banner ads most efficiently.

In fact, consumers visiting media sites are most likely to click on simple text ads (25% of respondents). Display ads follow in popularity, with 20% of respondents likely to click on right banners and 12% likely to click on top banners. Video ads are not very popular among most consumers; only 11% of consumers said they were likely to click on them. And tech-savvy 25- to 34 year-olds show no special affinity for video, being just as likely to click on video ads as text, right and top banners. The only consumers who seem to be engaged by video ads are under the age of 25, a group that accounts for nearly one-third of the video-ad viewing audience.

Jonathan Levitt, marketing VP for iPerceptions, believes some of the survey data goes deeper than affirming text and banners. “The voice of the customer can be expressed through web traffic,” says Levitt. “We suggest that rather than starting with the conversion rate or last click attribution that retailers find out why their customer arrived in the first place. They usually arrive with an intention. They have a task to complete and retailers need to know what that is.”

Brand value is still determined by experience at the retail website, not by the experience consumers have in getting there. The iPerceptions report showed that once arriving at a site, the key to brand value and sales is task completion. 67% of visitors who completed their primary purpose reported enhanced brand opinion (vs. only 18% for those who did not). 60% reported higher likelihood to purchase either online or offline (vs. 14%). Visitors who completed their primary purpose were two times as likely to refer a friend and two times as likely to make a repeat visit.

Just as loyalty can be doubled by understanding and completing the customer task and intention, the study also found that advertising clicks come from loyal audiences. In other words, users that are loyal to a media site, have a higher propensity to become loyal customers. 65% of consumers who are likely to click on ads are weekly or daily media site visitors. Only 15% of those likely to click on ads are first time visitors and only six percent of respondents were “sporadic” users.

Levitt believes the report shows that last click attribution, which has become something of a holy grail among internet marketers, may not be as important as once thought. In spring 2008 iPerceptions looked at first-time purchaser data for a top consumer electronics retailer. “We found major problems with the standard practice of last-click attribution,.” Says Levitt. While most purchasers were arriving organically (typing in the URL, bookmarking) or through search, the factors that most greatly influenced their decision to purchase suggested that offline vehicles deserved much more credit. Specifically, 30% indicated that their decision to buy online arose from word of mouth/credible referrals, 11% indicated that they bought as a result of a direct mail campaign, and 9% indicated that they were motivated by a print ad.

In a multi-channel retail study from April 08 through July 08 involving more than 10,000 respondents, iPerceptions found that, among visitors who did not execute a purchase online, 60% indicated that their website session had compelled them to visiting a brick-and-mortar store as the next step. “This represents a veritable army of potential buyers who were driven directly from the online storefront to the tactile storefront,” says Levitt.

Thursday, October 2, 2008

AMR: Don’t Let the Early Predictions Lull You into an Unprepared State During the 2008 Holiday Season

Written by Debbie Hauss

While some of the forecasts indicate consumers are planning to spend about the same amount of money during holiday 2008 as they did in holiday 2007, retailers should be on the lookout for sudden shifts and changes. A presidential election, war, natural disasters, rising gas prices and the volatile current state of the economy should have all businesses on their toes.

“Retailers have to be prepared both for a normal shopping season and a highly abnormal one,” notes Janet Suleski, research director, retail at AMR Research. “Given the volatility in the stock market and uncertainty about the economy, I believe consumers can and will change their strategies very quickly as their personal situations warrant,” Suleski adds.

Additionally, if consumers take the advice of financial experts such as Suze Orman, they may decide to pull back on spending this year. In a recent appearance on Oprah Winfrey’s talk show, Orman asked consumers: "People, stop living the financial lies that you have been living. If you don't have the money to pay for something, can you just not buy it?”

To date, though, consumers appear to be planning a similar spending season to 2007. In a recent survey of 130 shoppers, AMR found that 73% of respondents are planning to spend the same amount in 2008 that they spent in 2007. That adds up to more than $900 per person, according to statistics from the National Retail Federation.

Agility Will Be Key
While retailers must prepare their marketing and promotional strategies well in advance of the holidays, recent technology improvements may help them adjust plans if necessary, says Suleski: “Retailers have gotten a lot more agile in the last five to 10 years, aided by better access to real-time information, better demand forecasting tools, and expanded collaboration with their suppliers. I am sure that many have “plan B” in place in case of an exceptionally difficult shopping season.”

Smart retailers will get a jump on promotional and sales activity to pull at consumers’ heart strings before they feel too much of a crunch. Wal-mart, for one, recently announced a price cut on specific toys and will open its holiday ornament and d├ęcor shops nationwide by October 10, Suleski reports. Many retailers also are taking precautions by limiting their inventory and beefing up assortment planning, she notes.

Internet intelligence A Must
No matter what the total spending number turns out to be, more consumers will be researching products and shopping online, and retailers need to be prepared for that reality. The AMR survey revealed that 26% of respondents plan to do more or a lot more shopping online in 2008 versus 2007, and 16% are doing so to avoid the spending money on gasoline to drive to stores.

But the competition will be fierce because consumers are shopping smarter. “Retailers’ strategies need to take search and price comparison websites into account and be very aware of how their key promotions stack up to the competition,” says Suleski. “59% of the shoppers we surveyed plan to use Google, Froogle, Yahoo, PriceGrabber, Shopzilla or other sites to locate the best deals for at least some of the items on their holiday shopping lists.”

Once consumers decide on a product, they need to know their product will be available when and where they choose — in some cases by shipping and in other cases by picking up their online purchase in a local brick-and-mortar store. “Those (retailers) who have developed strong cross channel integrated capabilities will be able to shift their inventory where the customer wants it,” says Kevin Stemeckert, research director, retail for AMR Research. “Order online/pickup in the store and other capabilities will also be helpful in increasing sales and capturing larger shares of the wallet.”

As retailers focus on consumers’ wants and needs, they are making better use of available technology. “The role of technology in satisfying shopper demand is increasing and will play a key role in the success retailers have in meeting consumers' needs this season,” adds Mike Griswold, VP and content lead, Retail at AMR. “Assortment planning, lifecycle pricing, and inventory management and visibility (particularly cross-channel visibility) technologies will play key roles in creating successful shopping experiences for consumers.”