I recently attended an event in Amsterdam which gathered together senior etailers from across Europe (kindly sponsored by Fredhopper – I owe them at least that plug…).
For me the most fascinating talk was by the VP Merchandising & Buying at a major European multi-channel retailer. It reminded me just how much we still have to learn about how online selling works, and how much we can apply from offline.
The focus of the talk was about (offline / in-store) Category Management.
Now this a BIG topic. There is even a “Category Management Association” focused on “Advancing professional standards in category management”. Within category management you have all sorts of sub-areas e.g.:
- Category Definition
- Category Role
- Category Scorecards
- Format Management
- Assortment Breadth & Depth
- Customer Decision Trees…
We were talked through this supermarket’s key categories: “Destination”, “Traffic”, “Routine Volume”, “Routine Assortment”, “Impulse”.
Have you ever really thought about the real value in selling milk if you’re a supermarket? Is this a destination, traffic or routine volume category? How many categories, or sub-categories do you need for wine to provide the optimal customer decision tree?
For every category there is a very clearly defined purpose and role, very clear guidelines for store managers on the in-store promotional strategy, tactics, placement and pricing for each category.
And this is all before even thinking about shelf and space planning etc.
We in the internet world worry about a site’s “information architecture”. Let me tell you – we should see how nailed some of our offline brethren have this. They know in precise detail not just what they are selling, why and how, but also have a very clear idea of the *role* or *purpose* of a particular product within the overall proposition and strategy of the supermarket (in this case).
A store’s key success metric is sales per square metre. Perhaps online we should be challenging ourselves to think about sales per pixel? How best do we use the screen real estate to sell? And can we nail down the *purpose* of each page better? E.g. this is a “Traffic Driver” page (e.g. an SEO-ed category/directory page), this is an “Impulse” page (e.g. an ‘inspire me’ blog from a buyer)?
Here are some further fascinating gobbets of insight from this particular multi-channel retailer:
- The ratio of Frozen to Fresh buying is 50:50 in store but 78:22 online. They see 'Stocking Behaviour' online (i.e. buying stuff online that they can stock up the freezer with and so on).
- The average online order is Euro 125 whereas offline it is only Euro 15
- A big-ish supermarket has around 20,000 different items for sale (SKUs – Stock Keeping Units) but, on average, any customer will only buy 200 SKUs per year (1%)
- The average time spent in store is 23 mins; online it is longer.
And on this final point the speaker added “The longer someone spends in store, the more they spend”. This they know for a fact. And this is a very useful thing to know to help maximize sales. I don’t think we have any real idea yet whether (or how) this might apply online?
(as an aside, another large UK retailer there also noted that, for them, by far the most reliable leading indicator of future customer value is the value of their *first purchase*. If the first basket size is >£120 then they will be a profitable customer; if it is < £50 then that customer will never be profitable. Again, do we know how/if this applies online?)
All of this left me initially a little depressed at how little we in the online world appeared to really know compared to the rigour and science that clearly exists offline. For all our online data we aren’t really understanding, or applying, it that well yet. We don’t truly understand the dynamics of what makes people buy online.
However, as this exec also pointed out, there are a great number of opportunities that online holds out (apart from the obvious extended range ones) which just aren’t possible in the real world e.g.
- Personalisation. It’s a little tricky to optimize a store in real time to suit every customer, but it can be done online.
- Product Bundling. Online it is easier to sell bundles (e.g. buy an entire recipe with all the ingredients in one click, buy an entire outfit etc.) than offline.
- Automated Recommendations. e.g. an online sommelier to advise you what wine you should buy to go with what meat. This can be done offline but can’t be scaled.
So lots to learn and lots to do if we’re to become serious online merchandisers.
Lucky E-consultancy is shortly to be publishing details of its newest professional qualification – The Diploma in Internet Retailing – then?