Retail in a Google World

Retail in a Google World

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Once decried as the doom of bricks-and-mortar retailing, the Internet is now the backbone for a technology-driven retailer’s competitive strategy, whether or not that retailer sells online.

In this story we’ll examine how the Internet and its search engines have changed the fundamental relationship between retailers and their customers, and how retailers are working to attract and maintain customers in light of that change. We’ll step outside the imaging industry to look at examples of how SEM and SEO have lifted retail to new heights.

The rise of the Internet search engines has been steady: Google moved out of beta in 1999, Yahoo! launched its own search engine in early 2004, and MSN Search launched in January 2005.

In particular, local search options—introduced by Google and Yahoo! in 2004, by MSN.com in 2005 and by Ask.com last month—opened a more direct conduit between Internet searches and brick-and-mortar retailing.

Americans conducted 6.8 billion searches online in October of last year, up 3 percent versus September, according to comScore Networks. Google remains the search engine leader, with 3.1 billion search queries performed in October, followed by Yahoo Sites (1.9 billion), MSN-Microsoft (796 million), Ask Network (392 million), and Time Warner Network (366 million).

“The last few years have seen significant growth in the importance of search for both online and offline purchases,” says Tom Oliveri, Google’s group product marketing manager.

Oliveri declined to reveal Google’s own data, but quoting data from Shop.org/Bizrate and comScore/Google surveys, he says, “we have seen data suggesting that 37 percent of all online purchases start with search, and 25 percent of search queries result in a purchase directly related to the query.”

Tom Tsao, senior product manager for Yahoo! Shopping, says, “Probably the Internet’s biggest impact on consumer behavior is that it has certainly made it easier for shoppers to compare prices across multiple merchants to find the best deal. There is no need to run from store to store placing items on hold or waiting in long lines to get the lowest price. In addition, even when they are making purchases in store, many consumers are more informed than ever. Many are conducting extensive research online before they make purchases, especially on high priced items.”

To ensure an online connection with consumers, retailers of all sizes and formats are faced with the need for search engine marketing (SEM) and search engine optimization (SEO) of their Web sites. Pay per click advertising can be prohibitively expensive, so companies are optimizing their Web sites’ natural search performance. Those who can afford it do a mix of both.

In the middle ground, Yahoo! operates a pay-per-click XML feed program, called Search Submit Pro, that does not guarantee a Web site’s ranking within user searches but ensures that the search engine has relevant information about what is contained on the participants’ sites.

Yet, for multi-channel retailers especially, an SEM-ed/SEO-ed Web site alone is not enough. The whole Internet approach has to be intimately connected to a retailer’s entire operation, so the customer experience is seamless and satisfactory, online or off.

“Ten, twenty years ago, we were very product-centric. All the decisions we made were based on products and brands,” recalls Vann’s CEO, George Manlove. “Now our model is technology-centric … A technology-centric business model allows you to be consumer-centric. A technology platform allows us to be scalable, very efficient and very predictable in everything we do.”

For the retailer that is not a national chain, securing the skills and technology to execute these strategies, in particular the Internet/search engine component, is no small challenge, but not impossible, as examples from Vann’s and a retailer outside the CE industry will show.

Clicks Before Picks

The stakes for successfully connecting with one’s customers via the Internet are extraordinarily high. Tim Herbert, senior research director at the Consumer Electronics Association (CEA), says a joint CEA and Yahoo! Study, conducted in July 2006, found that, “Of the total $32.5 billion spent on the CE products tracked in this study, online research influenced a striking 77 percent or $25.1 billion.” (The totals represent the amount spent January to June 2006.)

Online spending is making quantum leaps. ComScore Networks reported that during the first 35 days of the holiday shopping season last year (2006), total online retail spending reached $13.7 billion, marking a 25 percent increase versus the corresponding days in 2005. This continues a trajectory of growth that comScore observed from January to October 2006, when growth of online spending was 24 percent higher than the same period in 2005.

The CEA/Yahoo! Study estimates that consumers’ online searches influenced approximately $15.2 billion spent on consumer electronics products in the first six months of 2006 alone.

The study found that as the price of a product increased so did the amount of time a consumer spent researching that product. The least amount of time spent researching was on cell phones at nine hours and the most times spent researching was 15 hours on televisions. For those who purchased, the average amount of time spent researching online was 12 hours.

More than half (55 percent) of respondents reported they reached manufacturers’ Web sites using a search engine. And 46 percent knew the Web sites and typed them in.

However, the keywords consumers used to search were “very generic terms,” says Herbert. “They were not typing in a specific brand of flat plasma display. They were typing in ‘TV.’ That really tells us there may not be as much brand loyalty as manufacturers and retailers would like to think.

“There’s so much information available, consumers are more comfortable taking a chance on a brand that may not be familiar.”

Tracking the Outcomes

For Vann’s, retail marketing has “really become a science rather than an art,” says Vann’s Manlove. “It used to be all about creative; now it’s all about probability.”

Vann’s approach to marketing became “radically” influenced by the Internet about three or four years ago, Manlove says. “We had a breakthrough and realized that you could measure an outcome of a campaign.” Vann’s CPA helped the company better understand the financial outcomes of its various Internet campaigns. “That opened up our eyes,” says Manlove.

The company learned how to track and control its outcomes. “We were spending money unwisely before. We had no idea whether it was working, and we were spending lots of money. With click-based, you’re paying per click and there’s no guaranteed transaction,” Manlove added.

Vann’s launched a catalog and direct sales marketing program, and learned from a director on the company board (a head of a 100-year-old lifestyle products company) how to measure results.

Vann’s catalogue campaigns started about three years ago. The company mails two different catalogs: A CE/major appliance version for retail customers, and a CE-only catalog for e-tail customers.

Overall, Vann’s has improved the benchmarking of its marketing, especially on search engines, shopbot sites, and aggregate e-commerce sites such as Amazon.com and CNET’s Shopper.com.

“The Web is actually quite predictable from a marketing standpoint,” says Manlove. “There is technology available that allows you to predict outcomes. I cannot predict outcomes of a newspaper insert or a television campaign—it’s impossible. But I can predict the outcome of an e-mail or catalog…. If it doesn’t (give) ROI, then we don’t do it.”

Measuring outcomes enabled Vann’s to begin to budget more accurately. The company also shifted towards a “more organic search strategy,” beyond paid search, and invested heavily in optimizing its Web site.

“We’re putting in tags and indexing our site appropriately to be able to get up high on search engine results and not have to pay for keywords,” says Manlove.“ If we had to pay for keywords, it would just be cost prohibitive.”

However, he adds, the search engine is “definitely not” the end all and be all of Internet marketing.

For his part, Manlove believes other options are viable including emerging social networks like MySpace and YouTube, catalog prospecting, vendor sites (“they’re becoming more and more proficient in driving relevant content to our sites”), and national advertising in consumer magazines.

Web Work: Outsourced or In-House?

What Web and search marketing skills should be developed in-house and what skills or functions should be outsourced is a huge question for small to mid-sized retailers.

To develop and strengthen its Web site, and integrate it into the rest of the company, Vann’s has done much of the work in-house, says Manlove. “We’ve created an entire new work force of people and talents: software engineers, creative and content people, operations and distribution people, mathematicians, and we’re currently looking for a statistician.”

We’ll step outside the imaging industry to provide an interesting example of a “search engine-driven” approach. Since 1998, Vintage Tub and Bath, in Hazelton, Pa., has used the Internet to sell reproduction cast iron tubs and bathroom fixtures and accessories at www.vintagetub.com. The company’s Web presence has grown gradually over time, and it has worked hard, from the very beginning, to build the in-house skills it needs to optimize its Web site.

With only a tiny showroom open by appointment, Vintage Tub’s business is search engine driven.

General Manager Allan Dick says, “This year we’ll do $10.3 million and push into the Internet 500, pretty much based on search. We wouldn’t be here if it wasn’t for search engines. We’re a company that uses modern technology to sell a product that’s more than 100 years old.”

Allan Dick’s brother started the business as an aside to their property management business. At first, they drove into New York City to sell salvaged tubs to customers. Then they began using eBay.

In charge of posting the eBay auctions, Dick noticed that different descriptions of the same auction would get different results. Some wordings were more successful in attracting bidders than others, and resulted in higher prices. So he experimented with the auction descriptions, doing a/b testing to see which item got the most hits.

What Dick learned on eBay he applied to VintageTub.com. At a Search Engine Strategies Conference in Boston, he networked with attendees and learned about price-per-click, average return on ad spend, etc. Home from the conference, Dick began optimizing VintageTub.com based on recommendations from contacts in the search engine marketing industry. He learned to create specific landing pages for popular keywords, for example.

“We’ve always taken a white hat approach to it,” he says. “We don’t want to appear (as a search result) for things that aren’t relevant to what we’re doing. We’re playing this as cleanly as we can, and it’s very rewarding.”

Along the way, Vintage Tub hired several companies for SEM/SEO expertise. “They helped us in certain ways, and in certain ways they didn’t,” says Dick. “When you’re a smaller company, you don’t get the attention paid to you as much as the big companies do.”

“Many (SEM/SEO) firms go out and oversell. They try to get everyone in. Once they capture those clients, if it’s between us and a Wal-Mart and they have only one person to work on something, Wal-Mart is going to get done first.”

“I’ve actually been told this by firms and people that we’ve hired,” Dick says. “Even though we might pay as much as a large company, the large company is always going to get better service. (With the larger company), there’s more potential for a longer potential relationship. Plus there’s more prestige.”

As a result of that kind of treatment, Vintage Tub’s “general SEO/SEM work is done in-house by our staff,” says Dick. “We have a search manager, an affiliate manager, graphic designer, Web manager and myself. Between the five of us and interns, we manage to take care of all our in-house advertising and marketing online.

“Because we’re in such a niche market, and its so specific to what we do, in order to make certain we did as well as we wanted to, we had to develop that capability in-house with people who knew it and breathed it. It took a while to get those people in place, and took a while to get them to work as a team. But they do, and they work well,” Dick added. Vintage Tub hires outside help “when we
absolutely have to,” to handle very technical/specific projects that need full-time
attention.

The Big Picture

For Manlove, and for Dick, e-commerce and Web sites are all components of a larger retail technology platform.

Says Manlove, “Just a year ago, we built an RF controlled warehouse. It allows our business to be very scalable. We could not do the business we’re doing without a very efficient business center.”

“Our technology platform allows us to be scalable, and very efficient and very predictable in everything we do,” he says, adding that, “E-commerce is just a component of our technology platform. Now we’re creating content that can be used in retail, advertising, catalogs, the Web site, for direct mail pieces and POP material,” he says. “Internally on our portal we have all the content that we create and it can be leveraged for our own training.”

Content “allows customers to make educated decisions,” Manlove says. “It’s not so much about price and item. One of our strategies moving forward is to re-evaluate our expansion model at retail. We want to serve up content in a delivery system that no one else has.”

Techno-centric

Dick, at Vintage Tub and Bath, is also running a technology-centric business model. “In order to run with the margins we’re turning we pay a lot of attention to technology,” he says.

Beyond making sure the right tub goes to the right customer at the right time, Vintage Tub is focused on just-in-time inventory, allowing customers to track their orders, giving staff access to information that customers need.

The goal, says Dick, is “seamless, excellent customer service. Customers are used to that now—it’s not a bonus. It’s expected, and if we don’t measure up to that, we get faulted for it.”

Citing Web sites operated by the likes of Circuit City, REI, L.L. Bean and Polo as examples, Dick says, “They’re really raising the bar for us, raising customer expectations for what a good Web site looks like.” yy

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