Online retail will explode

Mark Freidin

23rd May 2009

 Online Retail in Australia – what’s held us back (and why it’s about to explode)

by Jon Bovard

 Online retail was a $130 billion USD industry last year in the US.

Moreover the industry has consistently grown in the order of 21-26% yearly since 2002. It is only in the last 12 months that US eCommerce growth has been seen to flatten out.

Why is Australia behind?

Why then does Australia seem to lag in terms of the sophistication, availability and advancement of online retail? Why are so many of the big Australian brands recalcitrant?

Attitudes, expertise and logistics costs have all been contributed to slow uptake. It’s also no secret that substandard broadband speeds and penetration within Australia have been a contributing factor.

Perhaps a slightly less well understood concept is that of our population (and our neighbours population) and its contribution to the underlying “viability economics” of ecommerce.

Scale and market size

Roughly put – the eCommerce model is built on the concept that build costs are fixed and the margin comes with scale. So whether you are processing a hundred orders a day or a thousand a day – either way its almost going to cost the same to setup a serious eCommerce operation. Amortising this fixed cost is what makes eCommerce worthwhile.

With a market 1/15 of the US and 1/3 of the UK (and that’s not counting mainland Europe), you can see why the model of big volume eCommerce has simply not made sense to big Australian brands… yet.

However We see things changing and changing fast. The tipping point is coming.

Growth

eMarketer research reports that eCommerce in Australia is scheduled to grow 25% and 22% in 2008/09 respectively. Additionally, brands are now realising the true “multiplier” effect that the web has on traditional Retail centre sales. Research from eMarketer indicates that a retailer’s web presence influences its offline sales by a factor of approximately 3.5

With increasing uptake of broadband, greater consumer trust in the web and the success of multicategory retailers like Dealsdirect – the bigger brands are beginning to take notice. Suddenly commercial pressure and the economics of eCommerce-with-scale is triggering the response we have been looking forward to.

What then are the most important factors that brands must consider when moving from a traditional retail store sales model to a multichannel ‘bricks and clicks’ setup?

The entire user experience – from the moment the visitor visits your site – to the moment the product is delivered, reflects completely on your brand.

Let’s consider some critical elements

* Website. It must perform. Not just technically but it must be an efficient sales and merchandising tool that moves groups of users with highly differing intent and needs, along a simple and effective journey towards a common goal.

* Customer service. Just because you cannot see your customer does not mean you can treat them as if they were invisible. Response times and communication must exceed expectations. Additionally, communicating customers across retail and web channels effectively needs a lot of thought and planning.

* Online marketing. It is simply not enough to rely on “build it and they will come”. Search marketing, Email marketing, Affiliates, Merchandising and content optimization all contribute directly the bottom line. It is critical to get the efficiency and balance between these core areas right. Not an easy task.

* Branding and aesthetics. The age old struggle between beauty and function is clearly apparent when it comes to building an efficient web platform. The closest analogy is a Ferrari. Something incredibly beautiful yet powerful and sophisticated. This is the challenge for a top usability and design specialist.

* Analytics. What works and what doesn’t?
Websites – perhaps more so than traditional retail – are incredibly measurable. Measuring, profiling and understanding the visitor is so much easier and efficient on the web. Keep in mind that treating online analytics in isolation of the traditional offline data is substandard. Connecting online and offline analytics is key to true multi-channel marketing efficiency.

And lastly, but most importantly..

* The Multichannel aspect. Websites do not exist in isolation of your retail presence.. and vice versa. Research from eMarketer indicates that a retailer’s web presence influences its offline sales by a factor of approximately 3.5. In simple terms if your website generates a million dollars a year, then a good website will generate 3.5 million in additional offline sales. It is strikingly obvious that the principal of brand leverage applies massively to the Multichannel space.

So what does that mean for a business that engages an agency to assist them?

What should brands be looking for?

Key questions to ask your Multichannel agency:

* Multichannel. Really? Do they work with both online and offline brands?

* Online marketing. Do they “really” specialise in the core areas of Search marketing, Email and Affiliate marketing. Do the key staff they have employed have real world experience in these areas within big brands? Or are they just pretenders..

* Technically are they competent? What are the more complex projects they have worked on? How successful were they?

* Analytics. Do they have key people in house that understand the underlying metrics and systems that guide enterprise commercial decisions. (or do they outsource this to a web analytics or BI vendor)

And my personal favourite:

* Performance. Are they really an accountable metrics and performance driven agency? Do not be fooled by imitations..

In this rapidly growing world of multichannel marketing, it is critical to engage an agency that works across all your channels, be they web, direct or retail. In having visibility across all these fundamentally different, yet interrelated areas, your agency partner will be in a much greater position to measure, understand and improve efficiencies across all areas of your operations.

Jon Bovard is a senior strategic analyst at Kineo. Jon’s role is  to analyse and optimise digital operating models to maximise the efficiency across multi-channel marketing activities. Jon seeks out cutting edge strategies to increase conversion, acquisition and retention across all digital channels.

Kineo is a premium strategic consulting service helping marketers unlock the potential of innovation for their brands and business.  Their team of senior strategists provide on-demand expertise in delivering ROI via online marketing and the new digital marketplace. {bookmarks}