WINNING ONLINE RETAIL’S
Zero-Sum Game
ARTICLE - by Michael Mokhberi, CEO Apptus Technologies
Merchandising needn’t be a trade off between gains and losses – but
overcoming the fundamental conflict between finite real estate and infinite
merchandising options means taking a unified approach and targeting down
to ever more granular customer segments.
For years, almost since the birth of ecommerce, online merchandisers have been playing a
zero-sum game – a game of give and take in which the simple act of promoting one set of
products has the effect of demoting others.
In essence, that is a consequence of three things: Finite online real estate, infinite merchandising
combinations, and a continued application of out-dated ideas around everything from segmentation to
the role of online merchandising.
FINITE ONLINE REAL ESTATE
Screen real estate, that catch-all term for the totality of your digital selling space, is a valuable resource
that requires careful management.
Not only is it finite; when measured per visitor, screen real estate is tiny. Compared to physical stores
or paper catalogues, levels of product exposure online represent a fraction of most retailers’ actual
offering.
As a result, selling online demands a different approach, especially as channel and device proliferation
are rendering customer behaviours ever more fragmented.
So selling online isn’t like physical retail – the space we have available to sell our wares is extraordinarily
limited. However unlike shop windows, we don’t have to show the same things to the every customer.
INFINITE MERCHANDISING COMBINATIONS
Given the scale of many retailers’ product catalogues these days, the range of options in terms of
promoting and merchandising products is virtually limitless.
ARTICLE
The maths here is straightforward, yet mind-boggling. Take even a relatively modest category of 500
products and the total possible display permutations are practically endless: 500! (500 factorial), a
number running to 1134 digits. For a retailer selling even a handful of categories, this applies every time
– and everything from search-level promotion to seasonal campaigns adds another layer of possibility.
In the real world, no retailers even begin to scratch the surface of this vast range of possibility. For one
thing, it is impossible to do so when employing a largely manual approach to merchandising, or at least
merchandising that requires manual intervention some or all of the time.
For another, it’s probably not desirable to do so: to simply try every possible combination is not a very
smart approach. The smart approach is to draw on contextual information to narrow down the options
and, ultimately, find the optimum approaches to site-wide merchandising.
The question is whether you rely on intuition and sales feedback, which inevitably limits merchandising
in both scope and agility – or widen the possibilities through real time automation.
A ZERO-SUM GAME
Agility and scope are, however, crucial bearing in mind the nature of online merchandising’s zero-sum game:
• The amount of screen real estate is finite, and the merchandiser’s
ability to increase it is limited.
• So when a merchandiser promotes one product or campaign, it
inevitably leads to the demotion of other products or campaigns.
One in, one out.
This is the essence
of the game
Online merchandising isn’t simply the digital equivalent of shelf stacking, where every product has
a place and every place a product. It is a process of continuous optimisation, where the status quo
ARTICLE
is consistently challenged by alternative courses of action, and not just on a page-by-page basis, but
customer-by-customer.
OUT-DATED SEGMENTATION AND THE ROLE OF ONLINE MERCHANDISING
Unfortunately, however, few retailers have recognised this need to optimise customer-by-customer and
fewer still have the capacity to truly deliver such granular approaches to merchandising.
As a result, most retailers are playing the zero-sum game the ‘old way’.
They are merchandising only a handful of products at a time, and only on very limited, high traffic real
estate. They are effectively merchandising in silos – a campaign here, personalised recommendations
there – and this disjointed approach makes it very difficult to know if one is ‘winning’. That is, whether
merchandising is improving sales performance overall or, by demoting the wrong products, hampering it.
What’s more, in most cases customer-by-customer means a limited application of personalisation – for
instance personalising only recommendations. There is no doubt that personalisation works, but the
vast majority of product exposure happens within search and category lists, not recommendations
panels.
ONE BY ONE
Winning at online merchandising’s zero-sum game requires a radically different approach – an approach
with intelligent automation at its heart.
Indeed, it is an approach that is impossible without automation, because the sheer scope of
merchandising executions and agility it requires cannot be delivered the old fashioned way.
The key question here is not how to win the game, but how many games to play. That is, do you play one
game, look for the ideal mix of products for an imaginary average shopper, or play several, segmenting
according to arbitrary typologies and personalise some areas of the real-estate?
Or do you do neither of these? Do you instead play almost as many zero-sum games as there are visitors
to your site?
The truth is, in a fast-moving world of ever more fragmented shopper behaviour, the right approach is
to treat every shopper as their own segment - and serve each with their own highly relevant experience.
The result is a merchandising operation that redefines the zero-sum game to optimise both product
exposure and product relevance for every shopper.
• Relevance: Personalising the retail experience down to ever more
granular segments maximises the opportunity to deliver relevant
experiences and merchandise relevant products.
• Exposure: Product exposure is maximised too, because
individually personalised merchandising is no longer limited by
screen real estate, but by the number of eyeballs looking at it.
INTELLIGENT AUTOMATION
Clearly, however, this kind of approach presents some fairly significant challenges for ecommerce
merchandising departments still labouring to maximise product exposure the old way - largely manually
ARTICLE
and with tools that do not support the flexibility, agility and scale required to deliver truly personalised
experiences for every shopper. Not just that, but experiences that learn from and adapt to crowd and
individual behaviour in real time.
There is only one way to deliver merchandising on that scale – one to one, whole site personalisation
– and that is through automation. Not just automating basic workflow tasks, but automating entire
merchandising operations, with human input focused where it should be – on high level, strategic issues
rather than the day to day of which products are displayed where.
Today, very few retailers have this capability. Those that do have adopted a new generation of
merchandising automation tools, which draw on big data, cutting edge machine learning and predictive
analysis to deliver true personalisation – which means maximum product exposure, maximum individual
relevance and the ability to adjust everything in real time.
AT THE CUTTING EDGE
Music, films, games and books retailer, Ginza, uses Apptus eSales to automate product assortments
across search, recommendations and merchandising. Crucially, the solution also enables high level
merchandising input, by providing the ability to fine-tune recommendation data.
It has achieved stunning results - reversing a four-year downward trend to realise
a 20% increase in total sales, 12% higher conversion rate and 4% average order
value uplift.
Johan Sävenstrand, eCommerce & Technical Manager at Ginza, explained: “For
the first time since 2009 we´ve increased revenues, transactions, cart value and
conversion rate. With eSales, we see an ROI of at least three times when taking into account increased
costs for licenses and hardware.”
Fashion retailer, Stayhard, meanwhile turned to Apptus as it sought a more effective way of managing
assortments, using more than sales data and intuition, and ideally with products selected on a per
customer basis.
Once again, the automated approach helped Stayhard to win the zero-sum
game. During A/B testing traffic driven to Apptus managed web pages performed
significantly better than traditionally managed pages - 10% more customers added
items to shopping carts.
As Johan Davidsson, Operations Manager at Stayhard, put it: “We compared manual product-range
management with Apptus eSales automated sorting and recommendation technologies, and the results
are striking. Doing the same thing manually would cost a fortune.”
Apptus eSales – Personalisation that works. Customer behaviour changes by the second. Can you? Combining big data with
predictive analysis and automated real-time decisioning, Apptus eSales is an service that completes your eCommerce platform. It’s fast, precise
and unified. Our world leading algorithms analyse, in real-time, a customer journey based on all behavioural inputs from search, navigation and
history, instantly delivering a truly personalised customer experience. True Personalisation – the next level of eCommerce.
APPTUS TECHNOLOGIES AB | [email protected], www.apptus.com