The Multichannel Marathon: Differentiation and Prioritization to Thrive in Challenging Times

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The Multi-channel Marathon Differentiation and
Prioritization toThrive in Challenging Times

• Prepared for the Acquity Group
• by Lauren Freedman
• the e-tailing group, inc.
• June 2008

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Todays Agenda

• Introduction
• The State of Buying and Selling
• Marketing Methodologies
• A. Acquisition Centers on Profitability
• B. Retention Spending Employs a Variety of
  Techniques
• The Customer Experience
• Evolving Technology Requirements
• Thinking Ahead-New Markets, New Channels
• Checklist Conclusion
• About the Companies

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Introduction

• 25 merchants interviewed on an array of issues to
  provide thought leadership about the current
  state of eCommerce
• eCommerce has moved from being a sprint to a
  full-fledged marathon finding ourselves in a race
  which will be won with patience, diligence, and
  dedication to understand todays demanding
  consumer
• Most multi-channel merchants are dependent on the
  eCommerce channel for growth as it is now a core
  component of todays retail
• Participants will have to employ the requisite
  functionality to succeed committing resources to
  win the eCommerce/cross-channel race
• While the marathon is a given, the paths to the
  finish line are as varied as the participants,
  where the economic times are a moving target
  making for many changing obstacles throughout the
  race

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II. THE STATE OF BUYING AND SELLING
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Changing customer dynamics
for a change the middle-class is
budget-conscious. Overstock attitudes
center on conspicuous conservation rather than
conspicuous consumption. Sport
Chalet consumers are simply spending smarter
to conserve cash. Golfsmith they continue to
buy what they bought before, its just that they
simply buy less of it. Bare Necessities desp
ite these times customer demands have not let up
they are changing the rules of doing business and
we as merchants must adapt accordingly. Staples
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The state of eCommerce Investment 70 intend to
invest the same or somewhat more in 09 than they
did in 08
Source 8th Annual e-tailing group Merchant
Survey, 2009
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Q. How has the current economic climate impacted
your eCommerce and cross-channel initiatives?
A. Despite the climates uncertainty, the
outlook is clearly positive relative to e-commerce
The economy may have impacted our sales but not
our commitment as we look to identify
opportunities and develop and deliver a superior
multi-channel experience. Barnes
Noble Our rate of growth continues to be least
2X the industry growth rate, so we find ourselves
in an enviable position as our business remains
solid. walmart.com
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Investments are predicated on the state of each
merchants eCommerce business
Optimization deploying a threefold approach
understanding and taking care of the customer
including turning up the dial on service,
reducing the operating spend and making
investments/innovations for the future including
social and mobile. 1-800-Flowers Unique
Category Circumstances .. the biggest comp
growth in two years we are still on-track to
continue a strong rate of new store openings.
Petco Cross Channel Opportunities Due to a
rich retail heritage and active shopper base, we
are able to benefit from that insight and
understanding to better serve our customers
online. walmart.com
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Investments are predicated on the state of each
merchants eCommerce business
eCommerce Late Adopter Our efforts in eCommerce
are relatively youngAs others scale back, we
believe we can continue to grow with on-going
strategic investment and focus. New York
Company Status Quo Were treading water to get
the same things done and working harder just to
keep the same level of sales. Orvis Timing is
everything. We are in the fortunate position
where much our eCommerce investment had already
been justified, completed, and paid for in
advance of economic difficulties. Thankfully,
maintenance costs are significantly lower than
the build-outs. Sporting Goods Manufacturer
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Working harder with less in 2009 merchants will
have to prove everythingProfitability is
strategically top-of-mind customer acquisition
retention are the next priorities then experience
and service are important.
Source 8th Annual e-tailing group Merchant
Survey, 2009
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The hurdle for ROI keeps getting pushed
Mindset speaks to caution versus risk taking
No ROI, No Project Its simple, we need to show
ROI for any projectIn the past we typically
spent some time on areas that didnt drive sales
but today, if no ROI is foreseen, theres no
funding and all existing programs are held to the
same standard. Patagonia scaling back or
putting on hold bigger initiatives that are not
sales-generating but moving forward with those
that have proven payback (i.e. In-store pickup as
it drives store traffic). Apparel Brand Proof
of Concept Required This is a time for many to
test and then spend, not for risk taking. We
have money to spend when we test and it works
were not afraid to spend money but we want to be
smart about it. Abt Electronics We continue
to stay aggressive on our Web marketing and
investment efforts, but those too have to prove
they can deliver ROI themselves this year.
Golfsmith
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A back to basics mentality prevails
From assortments to promotional pricing, product
and price relevance are top-of-mind
Inventory Optimization These times are forcing
us to be a lot smarter. They are looking at areas
such as inventory markup (IMV) along with
inventory control given its impact on cash flow
to ensure they are optimizing all efforts.
Appleseeds Pricing to Sell Holiday 08 we
started getting a lot more promotional and weve
continued that cadence with a nice mix of
different offers along with a variety of
gifts-with-purchase. Oriental Trading We
need to feature styles that are relevant at the
right price points with high visibility to ensure
they get added to our customers carts. Apparel
Manufacturer
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Taking an analytical approach to marketing spend
Focus cutting out testing of new unproven
channels and going after only focused
opportunities. Bare Necessities Apply Direct
Marketing Orientation using more integrated
analytics between Web/catalog to evaluate
cross-channel behaviors including looking at
twelve-month lifetime value for both new and
existing customers. Footsmart.com looking
to get additional email addresses and hope to
better understand the value of this more
cost-effective outreach. Golfsmith
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Marketing shifting from print to digital
Acquisition Goes Online The future of the direct
business is online particularly for customer
acquisition. Orvis less paper mailings as
prospecting performance has been poor with
customers being relatively risk-averse.
Oriental Trader Measurement Mentality The
economy has clearly forced this to accelerate
where we must move to marketing that is
manageable and measurable from a cost
standpoint. JCPenney
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Q. What were the top-three impediments
regardingyour ability to execute desired
initiatives?
A. People, particularly specialists dominated
the discussion
Limited Resources We have more projects than
bodies to execute so we still have to prioritize
everything. Petco The end result means doing
fewer, smaller projects those that are not a
high priority are simply not getting through due
to limited resources. Orvis Specialist-Challen
ged ...lack IT resources and development talent
knowing there is a very big field of what a
merchant must do to be first-class from an
eCommerce perspective. Overstock We
recognize its people that drive performance and
have focused on talent management and
development. walmart.com
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Reducing vendor and operational costs
Were partnering with printing, paper, and email
vendors looking for efficiencies and have
renegotiated our costs. Golfsmith looking
to package in as few boxes as possible It's all
in the margin as we look to squeeze out savings.
Barnes Noble Fraud monitoring is an
opportunity to save as its impact goes straight
to the bottom-line. Belk
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Organizational alignment issues
Executive Involvement often includes
education When youre building a new venture
inside a well-established and 80 year
enterprise, communication is critical. New York
Company Consensus building a challenge You
want to involve the teams but it takes longer for
decisions to be made and the subsequent execution
to be put in place. Petco Alignment must be
built into the organizational DNA so you don't
have conflicting approaches or competition for
dollars. There must be clarity of objectives and
financial metrics where everybody is grounded in
good performance. Sport Chalet
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III. MARKETING METHODOLOGIES
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A. Acquisition centers on profitability
Shifting dollars We try to get that first order,
then we work on ramping up customer spend and
subsequent retention. Staples Acquire for
cross-channel exposure The Internet is a
cross-channel traffic acquisition vehicle driving
customers store-to-Web or Web-to-store depending
on preferences. JCPenney Online marketing is
more cost-effective and drives awareness increas
ing advertising budget online 40 with two-thirds
spent on acquisitionthis supports strong growth
initiatives as more and more independents are
going under, thus its a good time to acquire.
Petco
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Creativity in acquisition strategies out with
the old in with the new
Circulation will actually be increased by adding
a catalog offer to drive customers to the Web.
Patagonia We have launched dynamic content
email based on customer purchases, preferences,
and site browsing. Were seeing significant sales
increases per email. Oriental Trading We
have to embrace social networking as it may be
the future way of marketing. We need to
participate to some extent, but not bleeding edge
where we address these differing, non-traditional
forms of marketing. Orvis
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Tactical trial and error
Biggest Bang for the Buck From a marketing
perspective many areas are over-priced such as
keyword search while others like the affiliate
model are under-priced. Overstock Analytical
Focus being highly strategic via paid search
programs tied to gross margin and return on ad
spend having built backend models to run product
level marketing specifically for a unique product
mix ranging from health to shoes.
Footsmart.com Testing New Channels Text
messaging added whereby customers receive a text
with a promotion code which drives in-store
traffic plays well to the audience and the store
channel sees more benefit resulting directly from
eCommerce. Apparel Merchant
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B. Retention spending employsa variety of
techniques
Service solutions We are discounting
installation for first time in our history and
while it has an impact on the bottom-line, we
need to keep business rolling Abt
Electronics Getting the brand message right We
measure retention based on list growth not if we
posted a blog and someone bought something but
more as a solidification of the brand.
REI Our objective is to improve overall
customer retention by educating them around our
new brands many of which are exclusiveWere
trying to keep customers interested and the Web
serves as the hub of activity. JCPenney
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IV. THE CUSTOMER EXPERIENCE
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Conversion rates in 08 appeared to be somewhat
lower than in 07 with consumers likely
researching products more
Source 8th Annual e-tailing group Merchant
Survey, 2009
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Holistic view of conversion - the pure number is
still significant but not the only barometer
being utilized to measure success
Customers are taking longer to pull the trigger
yet comparison shopping and research are up
customers are using the Web for many reasons
such as checking store inventory at their local
stores or locating a book for store pickup.
Barnes Noble
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Merchant perspective relative to 52 features

• Tactical performers most valuable to merchants
  and rated in the top-ten include
• keyword search
• promotional elements such as sales/specials,
  seasonal promotions, and free shipping

Source 8th Annual e-tailing group Merchant
Survey, 2009
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Sites are the hub of todays multi-channel
shopping world

• zeroing in on micro conversion by inquiring
  through exit surveys about why customers came to
  the site and if they were able to accomplish what
  they needed results are telling a story beyond
  I can't buy it today. JCPenney

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Promotions help merchants make the plan
When we have the right promotions were actually
beating last year. We find that customers will
convert if you have the right value proposition
and the right offers. Petco
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Multi-channel promotional tie-ins are a
differential
cannot offer free shipping across-the-board,
all the time have creatively partnered with
vendors, and thus customers benefit by getting
free shipping on their total order. REI
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Comprehensive information to support experience
working with those who know the books best, the
book sellers, participating in new blogging
features, coverage of a new book, and 2-3 minute
videos. Barnes Noble investing a
minimal amount to engage customers including
how-to-wear-it fashion tips and outfitting in
order to better sell by collection. Fashion
Apparel Company have initiatives in place
to expand product descriptions, such as
identifying the top-three attributes of key
product, moving beyond limited catalog
descriptions. Appleseeds
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Wishlists begin with the brand and the assortment
Q. If you won an extra 1 million (or more based
on retailer volume) from the CMO slush fund what
would be the top-three places youd invest that
money to differentiate your brand and why?
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Customer experience will drive home winning
results
Q. If you won an extra 1 million (or more based
on retailer volume) from the CMO slush fund what
would be the top-three places youd invest that
money to differentiate your brand and why?
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Investments in marketing and analytics would be
forthcoming
Q. If you won an extra 1 million (or more based
on retailer volume) from the CMO slush fund what
would be the top-three places youd invest that
money to differentiate your brand and why?
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V. EVOLVING TECHNOLOGY REQUIREMENTS
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44 plan to change eCommerce platforms within 3
years 42 have no plans to make such a change
but tweaking will be the order of the day
Source 8th Annual e-tailing group Merchant
Survey, 2009
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Internet as a testing ground
We create an internal prioritization by placing
an emphasis on top SKUs where we do more visually
with them Were being careful, looking for good
wins, and continually testing prior to making any
final investment. Golfsmith looking to
accelerate speed-to-market for getting products
onto the selling floor as well as the Internet.
It is more than product management where the
Internet serves as a testing ground before
committing to inventory. JCPenney
following a testing ground approach from extended
sizes to online-only, using the Web to buy the
right assortment. Furthermore this approach has
been instituted as a service to our own
merchants. REI

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Cross-channel execution

• accelerating multi-channel efforts is
  important including site-to-store as well as
  addressing easy returns and the store locator
  which customers are using as a shopping
  resource. walmart.com

• aggressively addressing multi-channel
  integration launched ship-to-store October, 2007
  and in-store inventory lookup this past February
  picking the best spots with kiosks likely playing
  a role given some customer interest in
  self-service. Staples

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VI. THINKING AHEAD NEW MARKETS, NEW CHANNELS
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Monitoring social
Q. What impact will either social marketing or
mobile have on your future marketing
initiatives?

• 44 of responding merchants to our Annual Survey
  indicated that social
• networking will be part of their 2009
  initiatives, yet mainly RD

We developed our spot a mom campaign for this
new world that is all about social
networking/bloggers. We see the waves of change
where were hosting blogger events and the
traditional press are attending.
1-800-Flowers customer service personnel are
shifting to use Facebook. We have people
dedicated and monitoring this medium but the
jury's still outwe need to be where our
customers are to purchase or to research so we
will continue to play in the space. Abt
Electronics
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Mobiles potential
Our Merchant Survey may underestimate mobiles
potential. Additional utilization will likely
range from coupons to in-store access to
reviews. As revenues and eCommerce grow and
retail turns more efforts will be invested.
Ones audience and their needs for mobility and
accessibility will likely accelerate that
decision-making as will consumer platform
adoption.
Source 8th Annual e-tailing group Merchant
Survey, 2009
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VII. CHECKLIST CONCLUSION
This is a marathon that will be won with pacing
and performance, diligence and resolve The power
of eCommerce is the constant of change but it has
also been its willingness to continually embrace
the ever-changing customer.
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Mile Marker 1-5

• Work holistically as an organization all who are
  involved must contribute to foster a robust
  cross-channel experience. That means ample
  dollars and a supporting cast of the right
  people.
• Investments must be forthcoming as eCommerce must
  be nurtured with supporting technology in place
  to cost-effectively market in this channel
• While we all will likely be working harder with
  more finite limited resources, the deployment of
  those resources should be strategic to optimize
  their effectiveness
• Efficiencies must always be addressed whether it
  be from a cost savings point of view, systems,
  process improvement or outreach opportunities
• Vigilance in cost cutting may last a number of
  years but the associated discipline will deliver
  value for years to come

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Mile marker 6-10

• 6. Maintain a roadmap of merchandising
  requirements to set the course for future
  initiatives when consumer spending bounces back
  and greater funds can be invested by the merchant
  community
• 7. Continue to assess ones evolution to know
  where those efforts can best be made whether
  that means tackling the basics or elevating
  category-centric needs
• Both broad acquisition and savvy retention
  strategies that cost effectively keep customers
  loyal should be forthcoming
• Analytics can be utilized where being diligent
  will pay off maintaining programs that perform
  while weeding out the underperforming
• 10. Be forward thinking but always looking back
  to ensure that current programs are profitable
  and achieving corporate ROI objectives

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Merchants must vigilantly listen, learn and adapt
Knowing things can always be done better, we
address feedback daily Orvis
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E-commerce will Grow--Train Hard!

• Lauren Freedman
• President
• the e-tailing group, inc.
• 1444 W. Altgeld Street
• Chicago, IL 60614
• p. 773-975-7280
• e. LF_at_e-tailing.com
• www.e-tailing.com

One thing Im confident of is that ecommerce will
grow and its role for the retail community and
the consumer will become greater over the coming
years. Though you do not have the dollars to
today to tackle all our needs, those who are
prepared for the race will be in the best
position to dominate and reach the finish line
first in tomorrows ever-changing economy.