eCommerce has evolved into a powerful business model for everyone from startup entrepreneurs to established retail businesses. And, while its roots are in traditional retail, eCommerce is an animal all its own.
In this post (and accompanying infographic), we’ll dive into 10 ways eCommerce merchandising is different from that of traditional retail. Use this post as a warning against shaping your eCommerce merchandising strategy based solely on rules and ideas built for traditional retail.
For clarity, when I use the term “traditional retail” in this post, I’m referring to selling products to customers in a physical store. You know…cash registers, salespeople, product displays, malls, etc.
eCommerce and Traditional Merchandising
First, let’s talk about how eCommerce merchandising and traditional retail merchandising are the same…or at least similar.
Both traditional retail and eCommerce are the same at heart. Really, eCommerce is just a new era of traditional retail, adapted to the new digital lifestyle we all live in 2015. The whole point of both traditional and eCommerce retail is to sell products to people.
Both models incorporate some versions of a “store”.
Both models require that you source, organize, price, and manage catalogs of products.
Both models deal with returns, fraud, and odd questions from customers.
In many ways, both traditional and eCommerce retail are measured using the same metrics: cost of goods sold, net profit, inventory turn, etc. (However, eCommerce adds a whole new level of measurability. More on that later.)
But, despite their similarities and shared history, merchandising strategies for traditional and eCommerce retail differ significantly. It’s important to understand those differences, especially if you’re a retailer who plans to (or already does) incorporate both models, simultaneously.
[bctt tweet=”Despite a shared history, #merchandising for traditional #retail and #eCommerce differs.”]
What do I mean by “merchandising”?
There are many places to find a dictionary definition of the term “merchandising”. I’ll save you a 5-second Google search with this one from About.com:
Merchandising is any practice which contributes to the sale of products to a retail consumer. At a retail in-store level, merchandising refers to the variety of products available for sale and the display of those products in such a way that it stimulates interest and entices customers to make a purchase.
In other words, merchandising is a good bit of what a retailer does.
You arrange products a certain way. You create visual appeal to your store to get attention. You source products you know your customers will like. You price them in order to maximize profitability. You build a brand experience from the ground up.
But, when you compare the merchandising practices of an eCommerce store and a traditional retail store, you see significant differences. The ideas are similar. The intent is similar. But, the execution proves to be quite different.
10 Ways eCommerce Merchandising is Different
Come time to design and execute your eCommerce merchandising strategy, consider these 10 ways eCommerce merchandising is different from traditional retail merchandising. Check out the end of the post for an infographic!
Store organization is a critical piece of merchandising strategy. How you arrange a store impacts the flow of potential customers, what products are brought to their attention, and their overall experience with your store. Major retailers put a lot of time and energy into store arrangement, because the right arrangement can have a huge positive impact on sales.
In a traditional retail sense, organizing the store is easy to understand. What products go where? How are you displaying them in the front or back of the store to encourage different behaviors? How do you arrange tables, displays, and other physical objects in ways that funnel people to specific parts of the store?
Grocery stores often use very targeted store organization strategies. For example, grocers will stock the “in and out” items that people want (like milk) in the back of the store. Or, they will stock beer next to diapers to appeal to stressed out new parents.
But, what if your store isn’t a physical location?
An eCommerce retailers “store” is their website–often called a “webstore”. They face the same challenge: arrange the store in ways that optimize product sales. But, in a digital store, the merchant’s tools for doing so are very different.
eCommerce retailers must spend a great deal of effort on content strategy, information architecture, and linking strategies. In other words, they must design a webstore that is easy to navigate, that encourages people to view profitable products, and flows nicely.
Customers who can’t find what they want will click out of your store just as quickly as a frustrated or lost customer will walk out of your brick & mortar store.
Store branding is right alongside store organization in the merchandising toolbox. It’s all about how you ensure your store adheres to your brand, evoking the correct emotions and impulses. Brand is a big part of retail and your store must represent it well.
Traditional retailers use things like lighting, paint colors, music, and signage to represent their brand. How you use those things can really change the customers feelings when present in the store.
Consider Victoria’s Secret stores–often attached to a sister-brand Pink stores–as an example.
Victoria’s Secret uses many dark colors, slightly dim lighting, and almost club-like music. It’s very clear they are trying to put out an empowering, sexy atmosphere for customers. But, when you cross the threshold into a connected Pink store, which sells basically the same kinds of products, the atmosphere changes. They use brighter colors, peppier music, and brighter lighting to create a fun, bubbly atmosphere. The difference is clear when the stores are juxtaposed against one another.
When branding your webstore, your goal is basically the same–use branding as a way to elicit emotion–but you are a bit more limited with what you can do.
A website doesn’t provide the same kind of immersive experience that a physical store can provide. You can’t surround someone in a website. If you play music you’ll just annoy your site visitor (1998 calling). So, you have to work with what you’ve got.
Colors and fonts are even more important on the web than they are in a physical store, because they are the primary brand vehicle. You can also make use of imagery to a greater extent than in a physical store, because your space for pictures is less limited.
Take a look at how Fossil and Skagen–two brands owned by the same company–use fonts, colors, and imagery to elicit very different brands, even though both brand sell very similar kinds of products.
Creating product kits–arranging assortments of congruent products–is another often used merchandising strategy. For example, maybe you sell sporting goods. Around early spring, when Little League baseball is starting back up, you could sell a glove, bag of baseballs, and a mega-pack of Big League Chew gum all as one package.
While this strategy can be used offline and online, the way you execute it is different.
In your physical store, you have the luxury of spacial association. You could simply put all these items together in the same display, adding some signage to explain the deal. You might even be able to physically package them together.
In your webstore, you have a different set of tools to work with. You can using linking to tie separate product pages together. You can also use popups, emails, and other notification tools to make sure the customer knows about the kit deal.
Many eCommerce platforms also support the concept of kit-based items, where you create one SKU that represents the combination of multiple SKUs. But, be careful. All of your systems need to be able to deal with the order and inventory implications of grouping SKUs in this way.
One of the most important things you can do to sell a product is describe it. People rarely buy things without understanding what they are buying and (more importantly) how it will help them. But, describing products is very different online and offline.
In your physical store the product is in many ways “self describing”. You could add some signage to provide data like exact sizes, but for the most part the person can see, touch, and sometimes try the product right there. You also have the luxury of salespeople who can describe the product in a friendly, customized way.
Online, your product description tools are more static. All the customer can do is ingest the information you provide on your product site. Therefore, it becomes really important to thoroughly describe items, provide multiple high-quality images, possibly provide videos, and provide all relevant attributes a customer might look for. To make up for the lack of an actual salesperson, you could consider adding live chat to the site, as well.
Whether eCommerce or traditional retail, you need to be able to sell to customers who are in that “I’m just browsing” mode. You need to entice them into your store, to your products, and to the register.
Traditional retail makes use of visual indicators, like signage, story displays, etc. This is also the driving force behind the mall and the shopping center. People can browse through many stores in a short time. But, if you can’t get them into your store, by offering them an attractive experience, it does you no good.
Your eCommerce store is a little different, because there is no “digital mall”. Your tools for attracting shoppers are online ads, search engine optimization, social media, and finding online influencers who can link people to your site. The idea is the same–get them in the store–but the execution is different.
Customer management is one of the areas that is most different across eCommerce and traditional retail, largely because of the nature of each medium.
In traditional retail it is difficult and expensive to build a consistent customer profile for a person. You don’t have much data tie a customer’s activities together. You don’t have that one identifier. Some retailers try to do this with credit card numbers, but many customers carry multiple credit cards or don’t pay with them at all. Other retailers attempt to do this with loyalty cards, but these vary in success, depending on how they are executed.
Customer management isn’t just challenging offline for the sake of data collection. It makes customer service harder, too! When someone buys from your store, then calls in with a support question, how do you know who they are, when they bought, what else they bought, etc.? Your only good source of information is the customer.
Online, the customer management process is much different. Data collection is inherent in the eCommerce channel.
At the very least, your customer gives you an e-mail address upon checkout. That immediately becomes your single unifying identifier to tie customer behavior together. But, often customers will also register with the site, where they provide an entire profile of information. You can use this profile and their purchase history to market more effectively and to provide better customer service.
Inventory must be managed very differently across eCommerce and traditional retail, again because of the physical attributes (or in this case, limitations) of the brick & mortar store.
With traditional retail, you can only sell what you have in the store. Yes, you can have the item shipped to the store for a later pickup. But, that’s not the same experience for a customer who wants to walk in with cash and walk out with new stuff.
Therefore, hyper-localized inventory forecasting is critical. Big box retailers, especially apparel companies, spend millions trying to make this into a science–forecasting exactly how many of what item in what color and what size each store requires. Send too much and you have excess. Send too little and you miss sales.
When you sell online, you aren’t limited by a physical location. You can ship from a warehouse. You can drop ship orders directly to your suppliers. You can utilize third party fulfillment platforms. You can even ship from your stores if you have both eCommerce and brick & mortar stores!
The customer never knows, and frankly doesn’t care. As long as they receive the item when you promised, they are happy. With eCommerce your inventory management options are much broader.
Fraud & Loss
Fraud and loss prevention is an not-fun, but necessary part of retail. Unfortunately, wherever there is a successful business, there is someone trying to take advantage of it. And, the ways you have to deal with fraud and loss are different between traditional retail and eCommerce.
In the store, your salespeople must be on high alert from your typical nonsense, shoplifting in particular. They also have to look for bait and switch return scams, stolen payment methods (mostly credit cards), and even counterfeit currency. The physical store is somewhat advantageous for crooks who know you can only watch them so closely.
Your eCommerce store faces a different set of challenges regarding fraud and loss. Obviously you can’t shoplift a webstore. But, online stores collect sensitive payment information from customers. By law, it is your responsibility to ensure that data is protected–and, can bet someone is trying to steal it.
The best way to sell someone a product is to personalize their buying experience. Everyone has different challenges, different circumstances, and different preferences. If you try to talk to, sell to, interact with everyone the same way, you won’t sell much product.
Offline, in the traditional retail store, you provide a highly personalized experience, and you probably don’t even acknowledge that you’re doing it. It’s just selling!
Your salesperson will listen to the customer’s needs. They are knowledgeable about the product assortment. They are probably a similar demographic (not many men in their 80s working at Forever 21, for example). They are able to personalize the shopping experience to sell more products.
With eCommerce, you don’t have nearly the opportunity to create that one-to-one engagement. Newer technologies are getting closer, but online retailers have a long way to go.
The best you can do is to make generalized assumptions based on collected data points. You can’t have a conversation with someone and tailor specifically to them. But, you can see that they came into your store through a specific AdWords ad. And, you can see that 80% of the time people who did that bought product x.
So, you try to sell them product x.
Personalization isn’t just product selling, though. It’s the conversation. It’s the interaction. It’s the brand experience. Again, the offline salesperson can be hyper-focused on the individual. Online, you have to be more sweeping, based on generalizations.
Product recommendations–a type of personalization–is a highly effective strategy for increasing basket size. If a customer buys one product, and you can often coerce them into buying another congruent product that they didn’t originally intend to buy.
Much like with personalization, this happens through the salesperson, offline. And, a good salesperson can be really good at this. You also have some opportunity to make recommendations with your store displays. Bath and Body Works is really good at this, mixing different lotions and candles and scented goods in specific ways. You see a lot of full bags walking out of that store.
It is possible to provide product recommendations online, but you have to approach it more strategically. Recommendations are often provided through platforms specifically designed to do so. But, they also depend on your product data being set up appropriately.
You must quantify how different products relate to one another or there is no way a computer system can make good recommendations. (A human brain can do this, hence the salesperson.)
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Credit for the icons we used goes to http://dryicons.com.
What To Do Next
This post was a lightning round through the differences between online and offline merchandising. Each of these 10 could be a post on their own!
If I’ve convinced you to reconsider your eCommerce merchandising strategy, you should definitely check out our new eBook that describes how you should approach your product content strategy. It’ll help you understand how to merchandise online more effectively.
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