Online Merchandising – The Base of the Business

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First things first – we sell things. They 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 to make the consumer 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 for others; those of us who 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 help you achieve your goals – but making use of social media requires a measured approach that aligns with the overall merchandising strategy.

So what exactly is a merchandising strategy? It can be broken down into 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, you can adjust the three components to present the most 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 discussing each of these three areas.

Offering

Your product/service offering is your representation of what you
want to be as a business. It can be summed up in two simple strategies that
will have many different variations, depending on the
breadth 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 a category as "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, providing the user the specialized tools, functionality and content they need. The depth of your offering is the most important aspect of this strategy; consumers will expect that you
are providing them access to an offering that not only meets their needs but provides them with innovative and hard-to-find products in the
space.

A successful Specialty Player will be able to service any
consumer request. This may not mean handling tens of thousands of products but
it means that you need to understand what your consumers expect of you and be able to meet these needs. A Category Killer will have a strong
breadth and depth in their space but the Niche Player will often have a
dominant position in the smaller space they play in.

Mass Market: In this strategy you will have a strong breadth 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
focused. The difference between a focused Mass Market player and a
Category Killer is the length the business goes to position 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 of your business. 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 effect 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; depending on what products you’re selling, many more can be asked. When defining
the value proposition it is key that you spend the time to answer all of these questions. Once you have the answers, then you can clearly
communicate them to the customer. When it comes
to defining the pricing piece of the value proposition, make sure you have answered
these questions 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. A Niche Player with a strong answers to the above questions will have customers willing to pay more for the offering as they will 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. Also, 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?". Online, content is more about 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 the product category, you will need to understand what different informational criteria are required. This can range from basic product information and specs, to detailed 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 necessarily 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 of 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, content is the 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 these three components, it is important to note that your online merchandising strategy  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 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: your internal and external business stakeholders and, most importantly, your customer.

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One thought on “Online Merchandising – The Base of the Business

  1. Stefan Eyram

    Simon, thanks for sharing this information. It’s easy to forget the basics and that you have to be good at these before venturing off into all the “new media” available.
    As someone in the email marketing space I always recommend you know your customers first, know what they want and how they want to interact with your brand. Not everyone online is into social networking sites. However, most people are online and most use email.
    That said, trying to develop good interactive programs that are integrated with your online programs is key. That’s why email marketing becomes so important to help build a relationship online. You can push targeted information that is relevant, pull people to your site and your stores, and drive interaction with your brand outside of purchases (e.g. product reviews).
    I know I always enjoy getting my HomeDepot.ca emails.
    Stefan Eyram
    ExactTarget

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