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Sunday, January 06, 2008

Online Merchandising – The Base of the Business

First things first – we sell things, it could be products, services, ideas or access to a community but we are selling it, and the long term success of our idea, site or business depends on our ability for the consumer to understand what we are selling and believe (trust) our proposition enough that they will participate in a transaction. For many online players this is more of a reality than others, those of us that sell products and services online know that our success and survival depends on selling as many of the proposed offering as possible.

But how many online retailers build a strategy that surrounds the overall product offering? With all of the talk around social media, consumer generated content, viral videos, online advertising and interactive media it becomes difficult to understand that you need to support the process of selling online. I am not suggesting that you don’t do any of the above, in fact I would suggest that you embrace as many of the different tactics as possible that helps you achieve your goals but it requires a measured approach that aligns with the overall merchandising strategy.

So what exactly is a merchandising strategy? It can be broken down to three key components – offering (the products / services that you offer), value (value proposition to the consumer) and content (how are you offering the products / services to the consumer). Depending on your customer demographics and target market the three components will adjust to present the optimal offering to the marketplace. In this post I am going to focus on developing a strategy for a product based business at a very high level by going into a discussion on each of the three before mentioned areas.

Offering

Your product / service offering is your understanding of what you want to be and it can really be defined in two simple strategies that will have many different variations, but are really defined by the breath and depth of the product / service offering.

Specialty: In this strategy you are seen as an expert in a defined space, this could be as wide of a category like automotive or electronics (a Category Killer) or as focused as high performance tires or audio/video networking (Niche Player). With this strategy you are positioning yourself as an expert in the space, the more defined your product offering the more you should be positioning yourself as an expert and provide the user the tools, functionality and content. Most important is the depth of your offering, consumers will expect that you are providing them access to an offering that meets their needs and provides them with the innovation and the hard to find products in the space. A successful Specialty Player will be able to service any consumer request, this may not mean tens of thousands of products but it means that you need to have an understanding of what you are to your consumers and meet these needs. A Category Killer will have a strong breadth and depth in their space but the Niche Player will often have a dominate position in the smaller space they play in.

Mass Market: In this strategy you will have a strong breath and but a smaller depth of offering. If you choose this route you are telling the consumer that you are the single resource for the majority of their purchases but not all of them. Being a Mass Market player does not mean that you can't have a focused strategy but it will be very widely focus. The difference between a focused Mass Market player and a Category Killer is the length the business goes to positions themselves as experts in the space. For example Sears would be considered a Mass Market player focused on the Home but The Home Depot would be considered a Category Killer in the Home space because of the commitment to leadership in the space through know-how, customer service and brand leadership. In this space your strategy is defined by a multitude of products, a strong breadth of products across all categories and typically these business have hundreds of thousands of products available for purchase.

The one variation that is emerging in the offering space is that of the Hybrid Mass Category Killer. Amazon.com is a great example of this as they continue to build great breadth (with over 41 different product categories) and incredible depth within these categories. It is important to understand and watch this evolution as the mass of the business can be a threat to not only the other Mass Market players but the highly targeted Niche business as a business in this Hybrid Mass Category Killer can have millions of products available and incredible depth within their categories.

Value

Defining your value to the consumer is critical to the long term success. This does not mean price but the overall value proposition to the consumer. Price is a key component but value is the overall package you are providing your consumer and it is important to review the different aspects that change this proposition:

What is the return policy, how easy it is for a consumer to return a product that is defective or unsuitable, what risk is being put on the consumer?

How can the consumer purchase the product and what payment options are available to them?

Is it easy for the consumer to purchase the product, are services offered during the purchase process, do they fully understand what they are purchasing?

What warranty options are available for the consumer to protect their purchase, are these included or are they an additional charge?

How is the product delivered, can additional services like next day shipping, installation or white glove services be purchased?

Is the purchase / delivery process considered a positive experience, something that they feel that cannot get anywhere else?

These are some of the key questions and depending on what the products are that are being sold many more can be asked, when defining the value proposition it is key that you spend time in understanding the answers to all of these questions. If you do then you can clearly communicate them to the customer so they understand them. When it comes to defining the pricing piece to the value proposition it is key that these questions are answered first as they will influence the price that the marketplace is willing to accept.

At a general level the more mass your offering the more of a price leadership position you will need to take in the market place, as a Niche Player with a strong answers to the above questions customers will be willing to pay more for the offering as they place a value on the overall product offering not just the best price on the product. Again the Internet does present a challenge as consumers can quickly move from site to site to find the best price once they have determined the product they want to purchase but if you are providing a strong value proposition as a niche player you can overcome the price leadership that some of the Mass Market players offer, as well the depth of your offering will provide access to products that may not be available elsewhere which provide a considerable value advantage over other players. This is where the Hybrid Mass Category Killer can again show dominance as the size of the business combined with the breadth and depth of the offering can provide a power value proposition to consumers.

Content

This is akin to product / visual merchandising in retail stores, the "how is the product / offering presented to the consumer?", but in the online world this consists more of the level of information and other tools that are provided. When looking at the first two components it is critical that you then understand how your consumer will interact with your site and ultimately purchase the offering. Depending on what the product category is you will need to understand what different informational criteria are required, these can range from basic product information and specs, to detail product summaries, multiple images, 3D views, videos, and professional opinions as well as consumer generated content and reviews. This can begin to blur with the site's User Experience strategy which is not necessary a bad thing as it is the products and how consumers shop them that are critical to the overall success of the site and therefore the business. When defining this piece to the puzzle take time to understand how consumers shop your proposed offering, how the competitors are merchandising their sites and what innovations are going on in other product categories. Versus the other two components this is one that can change more often as you learn from your consumers and the overall industry and your site evolves.


Summary

Now that you have a basic understand of the three components, as the full discussion probably requires a book, it is important to note that this strategy is one that can evolve over time but should not be blown apart and rebuilt on an annual basis, it takes time for consumers to understand the strategy you are putting forward to them and changing it on a constant basis will only introduce confusion and even mistrust into the process.

In the end you are looking to clearly define the merchandising strategy so that it is understood by all and not only your internal and external business stakeholders but by that of your customer.





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