November 29, 2008, 11:52 AM — The holiday shopping season, which retailers rely on to bring joy to their bottom lines, resembles a nightmare this year.
As economic conditions deteriorated in recent months, online retailing had been expected to fare better than its brick-and-mortar channel because it lets shoppers compare prices, read product reviews, scope out deals and save on gas. However, as the economy sinks deeper, the outlook for e-stores has worsened.
This week, comScore issued a dire forecast: U.S. online retail spending will be flat this holiday season -- November and December -- compared with last year's. Although U.S. online retail spending grew 9 percent in the first 10 months of 2008, spending in the first 23 days of November actually dropped 4 percent, compared, respectively, with the equivalent periods in 2007, comScore said.
It's clear that consumers, worried about jobs, Wall Street and home values, will be militant and merciless about finding deals and convenient shopping online.
"People will shop but they'll be extra diligent about finding value for every dollar they spend," said Ron LaPierre, president of comparison shopping engine PriceGrabber.com.
Online merchants can improve their lot by following best practices and acknowledging this season's unique realities.
It's key to recognize consumers' demands for rebates, discounts and deals of all shapes and sizes. Merchants seem to have heard that message. The National Retail Federation's Shop.org Internet division reported this week that on this year's Cyber Monday -- the vibrant e-commerce day after the U.S. Thanksgiving weekend -- almost 84 percent of online merchants will offer special promotions, up from 72.2 percent last year.
Merchants must also make the shopping experience convenient. For example, PriceGrabber launched a site section featuring only products that ship free, after its annual holiday shopping survey revealed that 45 percent of shoppers will only buy items with no shipping costs.
EBay's Bill Me Later, a provider of financing and online payment services, also launched a special section on its site. It's called Holiday Express Lane and offers popular products, deferred payment options and free shipping offers from among its more than 1,000 e-commerce partners.
Acknowledging shoppers' emphasis on deals, Bill Me Later for the first time is marketing products, not just merchants. "It's the way our customers want to shop this holiday season," said Carolyn Groobey, Bill Me Later's vice president of consumer marketing.
Bill Me Later is also rolling out to its subscribers a new user interface that is more customizable and designed to simplify tracking deals and managing accounts. "Anything a merchant can do to help relieve the stress customers are feeling, whether it's finding or affording the gift, can really go a long way," Groobey said.
Merchants can also gain an edge by sharpening customer support via technologies like click-to-call, in which shoppers can trigger a voice call with a vendor representative right from an e-store Web page, said Bill Zujewski, vice president of product marketing at e-commerce services provider ATG. "This can be of great use during the checkout process to prevent a shopper [who has a question] from abandoning their shopping cart," he said.
As consumers compare prices and hunt for deals, e-stores must adapt in real time to remain competitive, reworking offers, crafting e-mail promotions, tweaking marketing campaigns and coordinating with their partners and suppliers.
"Online retailers are having to be very reactive this holiday season, more than ever," said Fiona Dias, executive vice president of partner strategy and marketing at GSI Commerce, a provider of e-commerce services.
For example, PriceGrabber does a complete relaunch of its site five to six times per day -- a frequency it has increased over time -- to accommodate real-time, intraday changes from its merchant partners, LaPierre said.
Of course, being nimble and flexible is impossible if online merchants lack good data collection, reporting and analysis tools for granular tracking of everything from Web site usage and fluctuating inventory to historical sales data and search advertising and e-mail campaigns.
With good data analysis, merchants can protect their profit margins by segmenting incentives and promotions and offering them selectively and strategically to different types of customers, instead of across the board, Zujewski said.
For example, deep data analysis allowed eBay to further refine its marketing technology this holiday season, said Matt Ackley, eBay's vice president of advertising and Internet marketing. By crunching data, eBay launched a system to offer rebates, coupons and special offers to buyers it has identified as valuable, and fine-tuned its search advertising campaigns to improve traffic quality to its site, he said.
During the holiday season, Google increases its frequency of reports about popular product keywords and categories to its advertising customers in retail, said Google's retail director John McAteer.
E-stores must also have strong capabilities to recommend products, a feature that, when well implemented, can convert prospects into buyers. A recent survey from ChoiceStream, a provider of personalization and recommendation services, found that 71 percent of shoppers either rely on recommendations or consider them when choosing products.
Baynote, which makes recommendation technology, has seen a spike in interest in its products during this economic downturn, said Scott Brave, the company's CTO. "People want to get the best deals and retailers want to serve those customers effectively. So there has been a lot of emphasis to get things up and running in terms of recommendation engines," Brave said.
Merchants can benefit from adding social shopping features that let shoppers e-mail friends links to products, write reviews and post product notes on their social networking profiles. These features are especially effective with young shoppers, according to a recent survey from Guidance, which designs and maintains e-stores.
Last week, the National Retail Federation reported that blogging influences 6 percent of the average population's electronics choices and 3.3 percent of their apparel purchases. However, social networking sites themselves remain ineffective for e-commerce. "What sort of shopping opportunities are there in social networks is something that everybody is trying to figure out," LaPierre said, adding that applications PriceGrabber created for Facebook remain dormant. Ackley shares a similar opinion about eBay's Facebook applications. "It's very early days," he said.
Nifty features amount to little in Web stores that go offline under heavy traffic so online merchants must have enough server capacity to handle usage peaks. While sales may remain flat, this holiday season may generate the most e-commerce site traffic ever, said Ken Godskind, chief strategy officer at AlertSite, a vendor of Web performance products.
This is something Google has noticed, since queries related to holiday shopping started appearing earlier than ever this year, McAteer said. "That doesn't mean they were necessarily buying, however," he said.
Thus, merchants must do broad capacity checks for their Web sites, not just for their home pages but also of their shopping cart, search engine, checkout process, product catalog and the like. "It's critical to monitor Web transaction performance for all of the key store processes," Godskind said.
Merchants must have good fraud detection policies and technology, especially this year, when the economic woes might trigger a rise in scams. "In the Christmas rush, everyone is very busy, there's a frantic pace and that's when it's easier to get taken advantage of," said Andre Edelbrock, CEO and co-founder of Ethoca.
"Fraud managers are in a very challenging spot right now," he added. "They're asked to make sure they let every good order through, and quickly, in an environment in which fraud is getting more frequent."
Edelbrock advocates harnessing the power of the merchant community as his company does with its Collaborative Fraud Management platform, to which merchant partners contribute data on good and bad transactions. Ethoca loads that data into a central database and, using algorithms, evaluates individual orders and issues risk assessments on them.
Tony Gao, a marketing professor at Northeastern University's business school, said merchants improve their chances of doing well if they sell essential merchandise, because necessities will be favored over fancy items this holiday season.
Merchants further dilute risk by offering a variety of product categories, selling in different geographies and operating via various sales channels, as well as by nurturing a good reputation with customers and suppliers, Gao said.
Also effective are one-day sales and anything that creates a sense of urgency among shoppers, Dias said. "Deadlines seem to be driving action this holiday season."
In the end, maybe the most important thing to keep in mind is that the economic climate is unique and requires merchants to be nimble and creative.
"Whatever you did last year won't be good enough this year," Dias said. "Don't be afraid to make changes on the fly."