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Ever thought what happens behind the curtains before a new product hits the shelf? Or what makes customers decide they love product A but definitely hate product B, although they are almost identical? Or what makes great products … well … great?
Many have and there is no clear answer to these questions. What works when Apple launches a music player may not work when Microsoft does it (Remember Zune?). There are many variables involved and no matter the size of your R&D budget, sometimes things are not going to go right.
But there’s only one way to see if the product is really fit for the market. That way used to be simple and a bit risky. Teams including marketing, product development, engineering and manufacturing experts would dream, design and build products. They would test the products on selected customer groups and if the results would look good, they would push the product to the market.
However even involving budgets, experts, consumer insights and marketing bucks, sometimes products flop.
Two things changed this: crowd-sourcing and crowd-founding. Together they’ve formed a type of customer experience previously unknown: the pretail.
In the past, teams were involved in trying to guess what customers would want. Now we can just go ahead and ask the them.
Pretailing is a term describing any activity introducing customers to brands or products, before the retail process. It assumes that using crowd-founding sites such as Kickstarter, inventors and innovators can test their concept before involving big budgets. Essentially they are asking potential buyers to invest their dollar-power in their product.
This, in turn, creates an experience previously unknown to the consumer. The consumer is effectively buying into a vision. Pretailing creates a new type of sales channel that works before the product is even manufactured. Unlike traditional retail, this type of commerce can shed light on what the market wants at any given time.
Online stores such as Quirky, Threadless or Japan-based Muji have one thing in common. They use their communities to find the right ideas and products to design and develop. Quirky is focused on inventing cool gadgets, Threadless leverages its designer community to create t-shirts and Muji sells home&deco products designed by the consumers.
They all engage in pretailing. By tapping into the collective minds of their communities they can ask for the type of products most customers would purchase. Before they manufacture and sell, they ask what to manufacture and sell. This in turn creates a sense of belonging to the community for the customer. For the retailer, it decreases the risk of manufacturing and stocking up on lousy products.
Crowd-founding is another way of tapping into the market and pretailing. We all know Kickstarter but other, more product-oriented crowd founding platforms fare even better for this concept.
CrowdSupply and OutGrow.me are just two places where you can see what customers have backed before manufacturing. The products we can see there range from open source toothbrushes to one-wheel skateboards.
The results are amazing. With unlimited creativity comes an unlimited supply of innovation. And by tapping into a large market of early-adopters, only the products that are really fit for distribution get funded and survive.
Big retailers have picked up on the trend and are now using pretailing to test new products and improve their logistics to fit the estimated demand. Apple, for example is one of the companies that showcases products before they are available in retail stores, interacting with developers and customers to improve the experience.
Beyond the crowd-founding and crowd-sourcing, pretailing can come from anything involving large numbers of potential customers. By tapping into online traces, retailers can get insights on potentially succesful products.
Pretailing can start with a simple research with Google Trends. It can be an analysis on the search trends on your own web store.
It can just as well be an overview of the most popular trends on Instagram. For example Crane & Canopy releases new high quality duvets basing their decisions on Pinterest and social media trends.
The conclusion is that in this highly competitive market, retailers need to engage their customers before they start the retail process. Pretailing means tapping into the wisdom of the crowds and extracting the perfect products before competitors do. It is not only a matter of product development but a matter of understanding the customer and providing the best experience on the market.
They say a picture is worth a thousand words. Add a cool filter in Instagram and it may be worth more. So luxury retailers have taken up on the chance of showcasing offline products in the most popular photo-sharing app in the world.
It’s definitely worth it. With more than 300 million Instagrammers, the social network is a colorful powerhouse, just waiting for fashion retailers to tap into it. And it’s not just the numbers. From Taylor Swift to Robert Downey Jr everyone who’s anyone is walking the red carpet of Instagram.
Along these stars came the most popular and desired luxury brands in the world. With social incentives, aspiring fans can become customers and customers will become brand lovers. So photo sharing on Instagram is a go for brands looking to connect online and offline sales and marketing.
Let’s have a look at these three most effective brands on Instagram:
Hermes is unconventional and creative, focusing on outlining the brand identity without being too pushy. It’s rather “modest” fan base of just over 670k followers shouldn’t be bigger either. After all, Hermes addresses a special kind of audience – the kind that doesn’t come busting doors in look for discounts. They discreetly shop online for $11.300 leisure bicycles and $7.600 bags.
You’ve spotted that special kind of turquoise and the must-have diamond ring that’s globally recognized. 1.8 million Instagrammers are constantly connected to the stylish social media outlet Tiffany’s employs.
The Instagram page is a mix of colorful illustrations, products showcased in glamorous yet simple and stylish photos and fashion advice from models and designers. The whole philosophy is outlined by Francesca Amfitheatrof, Tiffany & Co. design director: “I believe there is great power in simplicity.”
Just like its brick and mortar stores, as well as the online store, the Instagram page is a stylish, simple and elegant work of art.
Burberry is almost unbeatable in terms of using technology to connect to its esteemed audience. Digital retail is so important to Burberry that they’ve designed a flagship store that resembled their website, in 2012. Talk about omnichannel.
Digitally connecting to their customer has been the main ingredient to Burberry’s recent growth and Instagram was not bound to be left behind. The 2.4 million followers can get a glimpse in the lives of the rich and beautiful through Burberry’s Instagram channel.
Models, carefully crafted products and celebrities all mix to give followers, customers and aspiring Burberry product owners, that warm “I’ve got to have this” feeling.
And once that feeling kicks in, the monogramed scarf is just a step away in the online store, ready to be picked up in the closest store. Or sent home. Worry not, there’s free shipping and returns.
So why not bet everything on ecommerce? Why change direction again and include those “old” brick and mortar stores, and warehouses and such? Why build omnichannel retail facilities?
Short answer: because the customer is not a robot. The customer does not have to shop online. It will shop online when it feels better.
Ecommerce is indeed a revolution in the way we do business and indeed it has changed the retail landscape but consumers still exist in the physical world. Consumers do spend time online but they also walk by store fronts, they like to touch the products they buy and they like to see how fashion items, for example, look like in real life.
That means that real life stores will continue to exist. But so will online stores, sales call centers, interactive kiosks and marketplace outlets.
Retailers need to figure out how to connect all these channels. This new wave of customer centric retail is called omnichannel retail. The term means that no matter the sales channel, everything behind the scenes is connected. The inventory is universally available to all stores. The customer info is available on all channels also, so he or she can be instantly recognized and offers personalized. Product info is also available cross channels but most important – Fulfillment can be managed on all possible points so as to serve the customer in the timeliest and most effective manner.
One of the biggest challenges in omnichannel retail is fulfilling orders cross channels. Today, retailers that deal with both online and offline sales have to split fulfillment in two separate areas, each with specific operations.
The first is offline fulfillment, namely what happens in brick and mortar stores. Offline sales have been optimized to run on a pretty specific supply chain, not very flexible. It starts with the manufacturer, continues with forwarding merchandise to the wholesale buyer and then products end up stored in the retailer’s warehouses and stores.
Because ecommerce came as an addition to existing sales channels, it was added to the existing supply chain as a type of extra store, with its own specific operations.
However things got complicated when the web store had to split into the mobile store, the interactive kiosk, the marketplace outlet and others. Then customers wanted to buy online and pick up offline. But they didn’t stop here: they wanted to order in the store and receive home, ask for inventory info in the offline store and more. Pretty soon they started demanding it so now omnichannel retail is a question of customer service.
Retailers realized that what the retail world is facing is both a huge challenge in terms of customer demands and a huge opportunity. Those companies shifting their business strategies to fit the new, empowered consumer, will be the leaders of tomorrow.
But to do that, retailers need to develop new order management software hubs. These order management hubs need to connect all fulfillment options to all sales channels. That means that all stores, all warehouses, all suppliers, all drop shippers need to be connected and managed by an order management tool that filters orders from all stores, both online and offline, interactive kiosks, call centers, mobile apps and others.
Some companies are handling omnichannel orders just great. Others need to improve their policies and most of all their IT infrastructure. To do that they have to figure out what factors need to be taken into account when fulfilling orders. Here are the top 6 most important:
1. Proximity to customer – this obvious indicator will track which is the closest fulfillment outlet that can ship orders to customers.
2. Inventory levels across all fulfillment outlets – that includes inventory levels in the warehouses, stores, goods in consignment, drop shippers or even supplier and manufacturers. Yes, sometimes it can be more effective to ship directly from the manufacturer or the supplier than it would if the goods were shipped from the store or the warehouse.
3. Order split costs – orders that have more than one product per customer sometimes need to be split to multiple locations that have the products in stock. Products can be shipped individually or shipped to a single fulfillment facility (store or warehouse) and then shipped to the customer. Ideally, orders are fulfilled from the same point but sometimes that is not possible. In this case, the order management software should recommend the most efficient route products should take to the customer.
4. Information on customer history – fulfillment has to factor in the customer previous purchases and behavior. Retailers have loyalty programs that offer better costs and features to more loyal customer. A speedy fulfillment, complimentary gifts or just a thank you note may be outputs from the customer history.
5. Fulfillment capacity per location – estimating the maximum fulfillment load for each location can help prevent overload situations where store associates have too much orders to fulfill and can’t manage their day-to-day tasks. It can also prevent overloading several warehouses and leave others with zero workload, just because a specific area has placed more orders.
6. Seasonal fluctuations – stores get really crowded on holidays and store associates are way better answering customer questions than they are packing orders. Seasonal fluctuations need to be taken into account when implementing omnichannel retail.
A customer journey map can be a real useful instrument for retailers. It helps better understand how customers interact with the company’s touch points. It makes complex numbers easy to understand in the form of a diagram.
The customer journey can be simple and easy or complicated and frustrating. Usually it’s somewhere in the middle for most companies. Few, such as Apple or Amazon, stand out when it comes to A-class customer experience .
What most companies don’t really have yet figured out is how customers use the omnichannel retail touch points. What exactly do they want and how they use the multiple channels the company has set-up. Are customers buying online? Probably. But what do they do afterwards? Or before that? How is the offline shop integrated in the customer journey? Is the customer satisfied with the current sales process?
All these questions and more can be answered with a few carefully crafted studies and journey maps.
To do so, omnichannel retailers need to build customer journey maps for separate customer types. These maps have to take into account the customer profile, different purchase scenarios and possible bottlenecks.
When customer journey maps are developed, several key issues need to be taken into account:
Once you’ve done the research, integrate the customer feedback on separate customer journey maps, focusing on different paths customer take.
Here are some examples:
Bellow you’ll find two of the most popular examples of customer journeys in the omnichannel world. Such maps outline the integration of four channels: the offline store, online operations, mobile apps and devices, the call center and social media. Of course, brands can choose to expand their omnichannel operations to include other channels such as interactive kiosks, smart home appliances or technologies not yet discovered. But the five mentioned above will do just fine right now.
Example no.1: The customer travels across four channels to finish the order and at the end shares his experience with his peers on social media.
Example no.2: The customer discovers the product in the offline store, researches the product on the smartphone (showrooming), pays the product on the web store and the product is shipped home. After the purchase, the customer contacts the call center to activate the purchased product.
Of course, such customer journey differ from retailer to retailer. If you need to outline your company’s specific customer journey map, you can use the example below and ad specific customer journeys to it. Click the photo below to open the diagram in a new window and download the full resolution image.
While customer support is one of the most important aspects of running your ecommerce business, it is also one of the most expensive and hard to manage.
When you’re talking customer support, you probably picture people with headsets in a huge open space, taking phone calls and answering questions. Maybe you picture something a tad relaxed, somewhere along the lines of a Zappos call center. Either way call center involve human resources, technology to set up, management and others. If you think that gets expensive – you are right. Fortunately, there is a growing alternative to this.
In a recent study by BoldChat customers worldwide responded to the question “Have You Ever Engaged in a Live Chat?”. Results showed that more than half the respondents did engage in live chat, with more 65% respondents in the US saying yes.
One of the most prominent companies to use live chat is UK based Virgin Atlantic Airways Ltd. The company reports a 23% conversion rate for customers using its live chat feature. That is approximately 3.5 times higher than the conversion rate for users not engaging in live chat.
Virgin also reports that live chat also tends to increase average orders value, with customers spending 15% when chatting with an operator. Not only is live chat useful when trying to increase sales but it can also boost productivity, with one live chat operator doing the work of 15 email operators.
If you’ve ever happened to look for live chat support software, you’ve probably stumbled across dozens to hundreds of different solutions. Some of them free, some open source, some paid. To help you get through the noise, I’ve put together a list of 7 of the most reliable live chat software solutions, from the easiest to implement to full-blown enterprise software suites.
The list is based on the clients size and profile, data regarding cost of implementation and solution reliability. Let’s start with number 7:
Zopim is probably the youngest company on this list and a very promising one, for that matter. Its live chat application is easy to setup, light and very customizable. It offers a wide array of options and reporting information and can be used to integrate fully with sales operator teams.
The company, based in Singapore, has recently been acquired by Zendesk, a leading customer service solutions provider.
Among its many features, Zopim lists:
Pricing ranges from free (demo account, one chat agent only) to $20 / agent (unlimited chats, departments, widget customization etc.)
Website Alive features live chat, mobile chat and click to call solutions to retailers. One additional service that stands out is the “Concierge” service that includes the live chat software but also dedicated operators by Website Alive, for retailers willing to outsource customer care. So it is a great way to outsource live support.
The Live Chat app is feature packed and allows integration with the “click-to-call” option, allowing customers to ask for support on the phone. Retailers can customize their widget look and feel, aligning it with the store’s branding.
Pricing starts with the basic pack of $50/month, with 2 operators included, and goes up to $100/mo for the full pack.
You can evaluate the product for free for 30 days. Registration takes less than 30 seconds so you can surely give it a try.
BoldChat, a product of Bold Software, features the usual live chat support systems as well as some other, more advanced tools. Among them – multiple customer support interactions, click-to-call services, co-browsing and SMS communication.
In 2012 the company was acquired by LogMeIn, a company focused on providing online support for computer, smartphone and tablet owners. Price tag: $16.5 million.
BoldChat invests heavily in research, some of its resources being available online. The company is focused on midsize to larger online retailers, making it one of the more reliable tools out there.
Among others, Boldchat lists some features targeted at larger online retailers, such as:
Pricing starts at $599 / year / agent.
Moxie Software is a provider of integrated customer support systems. It’s enterprise products are integrated and used by companies such as Dell, 3M, Epson, Crocs and others. Its Live Chat system allows text dialogues, co-browsing, reactive chat and proactive chat.
The company extended its products to handle social media requests, mobile browsing, click to call features and others. One very important aspect of Moxie Software is its Knowledge Base support center and self-service applications.
The live chat solution can be integrated with company CRM solutions such as Microsoft Dynamics, Salesforce.com or Nuance.
Pricing varies by project
In 2011 Oracle acquired Right Now Technologies, for $1.5 Billion. At the time Right Now Technologies was handling over customer relationship management systems, as well as call center software, for over 2000 SMB’s. After being acquired, the company was integrated to Oracle and rebranded as Oracle Rightnow Cloud Service.
The division handles live chat, among others for some well known multichannel and online retailers, such as Overstock.com, BeachBody.com and others.
Oracle Rightnow handles many critical aspects of customer service, among which larger companies can find:
Varies by project
LivePerson is one of the leading companies providing online customer care solutions. Its LiveEngage platform integrates live chat, social media, voice, content applications, mobile customer support, CRM software as well as advertising and marketing.
The company boasts more than 1.8 billion web visits observed each month. To handle this kind of traffic, the company also launched LP Insights, monitoring a complex set of customer analytics, such as behavior, sentiments and buying patterns.
Its live chat interactions allow contextual customization, so visitors can have meaningful interactions with operators.
The company handles communication needs for some of the largest online retailing brands, such as The Home Depot, IBM or Virgin.
Pricing ranges from $500 / mo for small and mid-size companies to $5000 – $15000 / mo for enterprise users.
Oracle made heavy investments in the ecommerce area. Before Oracle acquired no. 3 on our list, it had already bought ATG (Art Technology Group) for $1 billion in 2010. Recent moves show Oracle Live Help on Demand moves toward integration with Oracle Rightnow. Until that happens, Oracle’s Live Help technology still powers some really big retail brands such as Costco, The Home Depot and Procter & Gamble.
Oracle Live Help features live chat, voice and email integration, providing tools for multichannel integration.
The Live Help solution tracks customers, analyzing data left behind, thus improving chat support by personalizing the experience.
As you can see, whether it is the Live Help solution or the Rightnow environment, Oracle is leading the way in online retail live chat and customer support systems. The others, however, are moving fast, are flexible and companies such as Liveperson are soon to challenge the big red.
It’s likely you’ve heard brick-and-mortar stores are not doing great. With eCommerce on the rise, it just doesn’t make sense for large retailers to keep up their existing stores. Expanding the network is out of the question, especially in established markets. While there is still space for growth in emerging markets, they are not really fond of blindly adopting the brick-and-mortar model.
China, for example, is likely to skip the large store networks and jump directly to eCommerce. Its fast growth in terms of online retail will bring $655 billion in online sales by 2020. The secret lays in the large disparity between the brick-and-mortar reach (13%) and online retail reach (51%).
US, on the other hand, provides a larger brick-and-mortar coverage (30%). US is also the leader in terms of store square feet per capita: 43. That is probably one of the biggest issues in brick and mortar retail: it has outgrown its limits.
As a result, a drastic change in the large retailers strategy had to happen. The likes of Sears, JC Penney and Staples (which is also the second largest internet retailer) started closing shops and decreasing store footage. Jobs were cut and loses reported. Here are the five most prominent cases:
After a disappointing 2011 holidays sales ($2,4 billion in losses) , Sears Holdings Corp., the corporation managing Sears and Kmart decided it’s time for a change. They’ve set out to close 100 shops, providing no details wether jobs will be cut.
Sears competition, Walmart and Target have been eroding the company’s sales. Its stores are deteriorating, sales are dropping by the month and even the store closure / selling won’t probably do any good.
Two years after the announcement and the company has hardly seen any improvement. Sears Canada is laying off 1600 people, as a result of store closures, and there is no clear strategy in sight.
The saddest thing: Sears started off as basically the grandfather of eCommerce. 125 years ago, the company was but an mail order by catalogue operation. Talk about going back to the roots.
Blockbuster was “just around the corner” not long ago. The company that introduced a new way of spending fun time at home, watching movies, is now about to close its remaining 300 stores.
Heavy competition from digital streaming from Netflix, iTunes and RedBox, made Blockbuster’s model obsolete. After closing the DVD-by-mail operations, the company will have cut its links with the past.
“Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.” said Joseph Clayton, CEO of Dish Network, Blockbuster’s parent company.
For Blockbuster, this is definately not a happy ending. In 2004 the company ran a network of 9000 stores and reported $5.9 billion in revenue. After all is said and done, RedBox may be the real winner here, with the potential to attract an additional $300 million in revenue after Blockbuster is bust.
JC Penny has had a rough couple of years. Main reason: its former CEO Ron Johnson implemented the wonderful strategy of keeping costs down as opposed to promotions and discounts, in response to lower costs online. Revenue has plummeted and the company, with its margins already stretched thing, needed a change.
Current CEO, Myron Ullman III, expects these closures and lay-offs to save $65 million a year beginning in 2014.
Unfortunately, just like Sears, JC Penney has no strategy but survive long enough for a miracle to happen.
Barnes and Noble may be just another sad case of “ran-over-by-digital”, just like Blockbuster. In July, 2013 – CEO William Lynch Jr. stepped down without any additional information. Suspected reason: net loss doubled to $119 million. Suspected reason no.2: The Nook is taking a plummet, which accounts for the previous stated net loss.
The fact is Barnes and Noble has no chance of continuing without a clear check on its business model. Its competition is not some previously defunct Borders-like company. It is Amazon – the biggest online retailer and the fiercest retail competitor.
Chances are that even if Chairman Leonard Riggio, owner of 30% of B&N stocks, does take the company private, it will not do much. He is no Jeff Bezos and the company is really late to the web party.
One of the saddest entries on the list is of course Borders. At peak, the company employed 19.500 people that handled each and every customer with great care. People loved the company. They loved visiting the beautiful stores, browsing the books, chatting with store associates. They would than buy the books online.
The harsh truth is Borders was killed by showrooming, Amazon, iTunes and to a certain degree – its own inability to adapt to the web.
The company was everyone’s friend: people would see and feel the books, even buy once in a while. But when it came to the big shopping lists, orders went online.
In 2011, despite an offering from an investing company, Borders failed to find a buyer acceptable to its creditors. Its last 399 retail outlets began liquidating on July 22. Competitor Barnes & Noble acquired Borders’ trademarks, customer databases and the borders.com domain.
Radioshack is an American classic. It operates 4500 stores nation-wide and it’s now closing 500 of them. Although the news seem gloomy – there is still hope for the company.
Nah, just kidding. The company is awful. It’s shares plummeted in the past years, it barely refinanced its $625 million in debt and is now trying to figure out where its headed.
Radioshack bet big on tablets and smartphones, a move that somehow misfired. These low-margin categories caused a decrease in net income by aprox. 300% . Ouch!
In October 2013 Radioshack secured a $835 million loan from a group led by GE Capital, that freed up some cash and managed to get the company back on track, at least for now.
Clothing retailer Jones Group will cut approximately 800 jobs and close 170 retail stores. The group handles sales for some well known brands such as Nine West, Stuart Weitzman, Easy Spirit, Gloria Vanderbilt and Givenchy.
As of last year expected revenue was slashed to $3.8 billion, as opposed to 2006 $4.7 billion.
Global competition, recession and an increase appetite for brands bought online pushed the company to change its overview on brick and mortar retail. A special factor in decreasing sales have been flash sales sites such as Gilt or Ebay’s RueLaLa. Brands bought online on these sites have an increasing customer-base and will continue to put a dent in traditional fashion retail.
Pretty hard to figure how these closed stores would be good thing for anyone. After all retailers are sure to suffer from decreased sales and customers will find it hard to get good deals. Jobs are lost and the economy will be. Unfortunately, that is partly true.
It is also true that most brick and mortar retail chains are a waste of money. The brick and mortar superstore is an over-bloated concept. With 43 square feet per capita in terms of retail footage, something is surely wrong.
A change in retail is needed as both logistics and store operations are hardly at their most productive. Online retail is a revolution that will improve retail. It will clear the old and bring in the new.
Retail chains closing stores means customers better served online. It means remaining stores used as logistics hubs. It means better showrooming facilities. It means change and here are some:
Yes, retailers are closing stores. But not all. Those that will survive will be smaller, more flexible, showroom-first facilities.
A customer by any other name would spend the same. At least that’s what Shakespeare would say if he were to try to sell his plays online. But that’s not always the case and some customers are better than others. Some customers are also harder to engage and sell to.
How do we differentiate and how can we make a good medium and long-term decision about customer acquisition costs and returns? The answer lies in using two indexes well known two marketers: Lifetime Customer Value (LCV) and Customer Acquisition Cost (CAC).
Let’s take Lifetime Customer Value (LCV). The corporate world is often focused on quarterly and in best practices yearly results. That means that returns on investment have to happen quickly or they are useless. When short-term tactics prevail, customers are often mistreated. The innovation halts, marketing and customer relationship investments drop. Customer service is lousy. On short term executives may see a rise in profits but long term results are often slashed.
A lack of focus on LCV is often trouble for ecommerce companies and companies at large. Those employing the above mentioned short term tactics miss opportunities. The client base is often unimpressed, growing slowly or even decreasing. Let’s see why:
Say we get a new potential customer by encouraging him to visit our shop. John Doe likes what he sees, registers for a newsletter, but he’s not yet convinced to buy. Later on, next month, a product on a weekly personalized offer catches his eye. He clicks, goes online, buys the product – he is now a customer. But wait. John will hopefully continue buying from us, won’t he?
He’ll keep coming back, buying something every month, say for a period of two years or so, until one day – something happens. He stops receiving his weekly personalized offer. Somewhere along the chain of command somebody decided personalized offer are too expensive. The overall operational costs dropped but so did mr. Doe’s orders. His Lifetime as a Customer is over.
In this scenario we can identify the following:
Any customer demands to be treated as a human being. That’s easy to say but when companies such as these handle millions of customers, that takes hard work to get done.
First, it takes a change in perspective. You have to understand and quantify probably the greatest asset any retailer has: the customer relationship. Ecommerce has made it easier for dissatisfied customers to jump boats. The leaders know this and they use it to their advantage.
For instance – Amazon is not making any profit when it sells a Kindle. The company supports costs so they can get more customers aboard. Those customers turn to happy customers and get to spend roughly $2400 during their lifetime as customers. So what Amazon loses in hardware sales, makes up in eBook sales and other product sales. Such a strategy is not possible without a clear understanding of Lifetime Customer Value and Customer Acquisition Cost, two of the most important indexes online retailers have to work with.
Previously we had an example of Lifetime Customer Value and how we could better understand the concept and estimate the customer’s value. Those numbers being a crude model, we have to reevaluate and get a new perspective on this value. Here it is:
We have some variables (such as customer expenditure value or purchase cycle) and constants (such as retention rate or profit margin, which are less likely to change dramatically). But don’t worry, once you get the hang of it you’ll have a great and easy way to understand wether you’re spending too much or not enough on keeping your customers happy.
Let’s start with the variables. Feel free to adapt these to your own company metrics:
These variables are defined here as weekly variables but you can change those to monthly values, if it fits your business model better. You will obtain the values above by estimating median values for all your existing customers.
When you have estimated your variables you will have to take into account some constants. They will help you predict your estimated customer lifetime value. These are:
So now we have the variables, we have the constants, let’s get busy with the equations, from simple to complex.
We will be using 1 year as a reference timeframe and we will be estimating how much will we be making in a year on any given customer. There are two main variables involved – the average customer value / week (a) and the average customer lifespan (t), expressed in years.
Limitations: this is a pretty crude estimate so it will only serve as a base for further examination. It does not take into account the retention rate and attrition (loss of customers), the discount rate, not even the profit margin. It just tells us – how much would we be expecting our customers to spend with us, during their customer lifetime.
The formula is:
So now we know roughly how much will our customers will be spending with us. But that’s not actually our money, isn’t it? That’s the revenue, not our profit. So let’s step a little further and take into account our profit margin and double check the figures, by using the Customers expenditures per visit (s) and the Purchase cycle (c) value.
Remember – this is the not the final form – we will still have to think of a future projection of our lifetime customer value. However, the second formula would be this:
This formula has it all – Gross Margin per Customer Lifespan (m), discount rate (i), retention rate (r). It is also one of the oldest and simplest ways to estimate customer value (well, as simple as it can be).
Let’s have a look at it:
You can see there that this is directly proportional with two of the values. First – Gross Margin per Customer Lifespan (how much will you profit from your customers during their lifespan as customers). Second – retention rate. So do what you can to extend your customers lifespan and the retention rate.
So now we have three formulas. Each outputs a different value. Which is the right one?
Answer: all. And none. Remember – this is an estimate. The best you can do with these three is find an average and try to stick with it. Once you have a number you now know how much should you be spending on your customers. You want an example? Head over to this info-graphic and see these formulas in action with a fine aroma of roasted coffee. Starbucks has a Lifetime Customer Value of $14099 so as long as its spending less than that to turn you into a customer and keep you one – they’re profitable.
What is LCV good for? First off – telling you which customer to keep and which not. When it comes to ecommerce data is anything but scarce. You have the info – now use it. Find out who are your best customers. Analyze your data, split customers into marketable groups and … action! Drop the marketing on unprofitable customers (that doesn’t mean you should treat them worse – just spend less on acquisition). Engage your profitable customers.
But be advised – you have to have a long enough timeframe to analyze data. Sometimes those negative LCV’s might turn out to grow in time. Use predictive analytics and extend your search to see where are your customers going, not just where they are right now.
If you enjoyed reading this post as much as I’ve enjoyed writing it go ahead and share it with those you know might want to read it. Comment on it. Like it. Anything as long as you can show me you wan’t to know more about it. Next stop – Customer Acquisition Land. How much, where and how would it be better to spend on new Customers.
The holidays are coming and for most online retailers ’tis the season to be jolly. With shoppers starting their Christmas purchases as early as september, the holidays season starts earlier for those that really want to take advantage of this opportunity.
Most retailers expect 20-40% of their yearly sales to happen during holidays. Here are some things you should keep in check to insure optimum online store performance and increased sales:
It would be quite unfortunate if your sales would increase tenfold and yet you could not ship in time for everyone to get their presents. Say Little Timmy was due to receive a brand new toy but you can only deliver on the 27th of December. Too late.
Even worse – say you have one bestseller your pushing out there on the market and demand is so big that you’re left with no stocks after Black Friday?
These things and many others can happen and can leave a big impression on your sales, profits and customer retention so make sure you check your supply chain for any problems. Here is a brief list you should have in mind when preparing for the holidays:
Have a look at last year’s analytics and see what products were most likely to convert users into buyers. Round up the total sales per product and increase that figure so you make sure you’ll be ready to supply the demand.
After you’ve optimized your inventory – make sure the supplier won’t bail out on you if you’ll still run out of stock. You never know when you’ll get your big hit.
Everyone will expect their purchases delivered by the 25th of December. If you can’t fulfill that – you’re likely to lose a lot of customers. As such – make sure your shipping supplier is ready to deliver on time. Push for shorter delivery terms. After you’re done with that you should also…
Remember – the objective is fast delivery. The fact that the shipping supplier delivers the next day may be useless if it takes you 5 days to pick (or order) and pack an order.
The Holidays will likely increase activity in the warehouse so make sure your fulfillment team is ready to handle a lot more work than it’s used to. If not, scale up temporarily. Can’t scale up? You can outsource your fulfillment operations to a third party logistics (TPL) supplier such as Fulfillment by Amazon.
Of course – that doesn’t mean you have to post Santa Claus pictures, snowflakes and Christmas Carols on your Facebook page but being prepared long before your competition can work out miracles. Here are some things you should get ready for, things that usually take quite a lot of time to prepare:
Great products need less marketing and bundles are great ways to insure your customer feels he’s getting more for the buck. Your best-selling products are usually bought with other smaller accessories. You can find out which are these by having a look at last year’s purchases and analytics.
Have a look at what people bought and how they bought it. Try to look for patterns in these purchases but don’t stop there. If you see that customers bought an Xbox, two extra controllers (one to play with and one to replace the one they’ve previously smashed against the wall) and the latest GTA – make it a bundle. Go beyond that and bundle up for a Playstation gift.
Remember that ” ’tis the season to be happy ” part at the beginning? Well – turns out that’s kind of a lie. People feel depressed and anxious during holidays. Among the reasons – media overload, crowded places and a pressure to find appropriate gifts for those they hold dear.
Of course you can’t shut down the media overload but an online store is a great place to avoid the crowd and a gift card can be the perfect gift for anyone. Have a look at what customers are preparing to buy as Christmas gifts:
• Gift Cards: 59%
• Electronics (ex: TV, Computer, iPad/Apple products): 38%
• Apparel: 35%
Gift cards are not a maybe – they’re a must.
How will you get customers to your site? Of course – they are buying, but are they buying from YOU? If you’ve planned to increase your sales during the Holidays you can be sure you’re not the only one. However – you can improve your results by:
Your Black Friday program will likely increase traffic by more than 800% . Most online retailers have an larger increase and the trend just gets better by the year. That means that in order to have your store open during the surge in traffic you should:
This short guide covers some of the most important basics. If these areas are fully covered – you should do fine during the holidays but make sure you come back to Netonomy.NET for more information.
eCommerce has really picked up pace in the last ten years and is on its way to becoming a really serious competitor to classic retail. Needless to say, many companies jump the ecommerce wagon. Some are internet savvy, some are retailers with many years of experience or, in the most fortunate case, both. However, that most fortunate case is usually rare. The internet and the classic commerce are still, for most of us, worlds apart.
The main reason ecommerce is still a pretty damn hard thing to do is it takes a lot of know-how regarding both commerce and the internet. When starting or expanding an ecommerce operation you will be faced with decision regarding management and sales platform, marketing (“do I do Social Media, should I go for Search Marketing or maybe Affiliate marketing?”) but also more real-world issues such as “What are the products I will be selling?”, “How do I store these products?” or “How is my product going to reach my client?”.
While there are many, many variables and data you will be faced with, you still need to keep an overview on the most important factors that will make your ecommerce business successful or not. Here are the most important 7:
As you notice I have not mentioned marketing. Marketing makes a difference when all those above are working well together. That is not to say marketing is not important. It is. Unfortunately marketing cannot save you when your store isn’t performing its base functions.
Further on, keep in mind that as an eCommerce company you are first and foremost a technology company. If you are a classic retailer this part will be the hardest thing to wrap your head around. You use technology to deliver products at the best price and with the best customer care possible. As such you need to stay constantly focused on market changes (your product market) and technology changes (think how important search engines are for online-first businesses) and adapt those changes to your 7 pillars of ecommerce excellence, as follows:
What makes Amazon such a great business? One might argue things like “Wide variety of products”, “Great prices”, “Fast delivery” or “Great customer experience”. All these, and probably more, are true. All these make Amazon the leader in US’ largest online retailers but I would like you to focus on the following screen:
What you see there is my recent history on Amazon (I am quite fond of eCommerce, as you’ve probably noticed). Now if you would be Amazon you could basically market anything to anyone (well, almost anything to almost anyone). Why? You can show your customer a version of your product choice based on his or her particular interest, particular history of browsing and buying.
So with Amazon basically each customer gets his or her own version of the store.
But you are not Amazon. You don’t have the same product choice, the same data, the same infrastructure. You will need to create a specific product choice and focus on your specific niche.
Ex.: Say customer X wants to buy a computer. Where would he go? Probably to an IT related online store. Say he needs to buy a mouse after he bought the computer. He would, if the first shopping experience was good, go to the same place and make an additional purchase.
If you are not Amazon you will need to make a clear choice regarding your product range. You cannot be a fashion retailer and also deliver groceries. It just doesn’t makes sense. It doesn’t make sense business wise and it doesn’t make any sense for your customer.
After you have chosen your product range you will need to expand it. Say you started by selling clothes. There are a few product categories that would go great with that type of products:
Once you got that settled you will notice that there are specific ways you will need to display your product. As a fashion retailer you will need models and show your customers how those clothes would look on them. Such a choice of display won’t make too much sense if you would be selling, say, laptops. No one actually cares how they look when typing, unless they own a Mac and they are typing in a Starbucks.
Picture this: you are shopping in your favorite brick and mortar store. You’ve just tried on a couple of jackets and you’ve found that one, great looking, discounted, jacket. You have it in your hands. You have the money. You head over to the cash register and take out your credit card. Surprisingly, even though you’ve spent the last 20 minutes searching for it, trying it on and then deciding to purchase it, the item is not actually in stock.
That is not very nice, isn’t it?
Customers feel tricked when they try to purchase something that is not actually in stock. That usually happens when your warehouse stocks system aren’t synced with your ecommerce site. It’s really frustrating and you need to make sure that never happens to your customers.
Key take away: Keep your stocks updated real time.
Pricing – how do you do it? Do you just go ahead for the smallest price possible? Should you rather adjust your price according to the market and the other competitors?
Pricing should take you in the shortest time to a profitable operation. The pricing operation is mostly an internal decision (the price should first depend on your OWN resources and costs) while still trying to keep up with the market. Here are several things you should consider while looking at your pricing options:
Shipping is an important part in your business. Doh! It is, for best or for worse – the most important physical contact your customer has with your company, unless you also have brick-and-mortar stores. You should make the best of it.
Here are some ways of making a great impression with shipment:
This is one of the most important pieces of building a strong, reliable eCommerce brand and, unfortunately, one of the hardest to manage.
While CRM (customer relationship management) systems and technologies have improved greatly, most of what your customers would call customer care still relies on people answering calls, people delivering merchandise, people in charge of packaging. People, people, people. Customer care is about bringing the right kind of people on board, making sure they understand what makes your company great and making sure they always do their best in handling customer needs.
It’s a hard thing to build. Good customer care is subjective. However, there are a couple of things you can do to improve your chances at keeping your customers happy and returning:
In the end customer care is actually treating your customers friendly, polite and helpful. If you can manage that , you will build a great shopping experience.
While it could be a little awkward to add search, basically an ubiquitous and often overlooked eCommerce feature, it actually is one of the most important tools in helping your customer reach its desired product as fast as possible, without hassle.
How many items are listed on Amazon? Millions. There are so many products that Amazon decided that it didn’t need just a search engine “feature”, but a search engine program. At launch A9, Amazon’s Search platform, was rumored to be a competitor to Google but it turns out Amazon just wants to guide its customers as efficient as possible to the products they are looking for.
Don’t underestimate the importance of search. We live in a search-engine era where we need to find what we are looking for in matters of seconds. If your search feature doesn’t do that, maybe its time to work a little bit more on that.
Remember: as an eCommerce company, you are a technology company. I will say it again. You are a technology company. Get used to it. Now – as any technology company, you need not only keep up with market developments such as mobile commerce or social commerce, you need to lead the way.
The largest eCommerce companies lead by innovation. Weather it is Amazon’s Kindle, Ebay’s Market Place or even AliBaba.com’s online payment system, Alipay – they all innovated their way to the top and continue to develop to stay there.
These are the top 7 most important factors that make or brake eCommerce companies. Focus and improve each one of them but remember that commerce has always been about a) delivering products, b) at a great price, c) before and better than anyone else. It still is. We’ve just added a layer of technology on top of it.