Profit per Pixel-Second? [Editorial comment from March 2009’s edition of Internet Retailing Magazine]

This article appeared in November 2008’s edition of Internet Retailing Magazine.

This last month has seen Ian Jindal up to his nose in web analytics and trading reports, pondering the painful question of “conversion”: can this really be a useful metric for etailers?

Now there’s no arguing that conversion is a ‘metric’. Number of visitor sessions ending in a purchase, divided by the total number of visitor sessions. Ta-daah. After a month of looking at ‘the math’ (as our US friends would say) I’m losing faith that this is an actionable or useful metric.

Conversion has its place in reporting: at a gross level it’s a rolled up indicator of “persuasive attraction”: how many people are being attracted to the site, and from that level how effectively are they persuaded to buy. However, if conversion is up or down then it’s not clear that there’s a single lever to apply. Unlike a car’s speedometer, it’s not straightforward to press or ease the accelerator to regulate the speed. Conversion as a metric lacks direct impact on the business: it’s observational rather than action-oriented or definitively comparable.

Two retailers may have the same conversion, but revenues many millions of pounds apart. Equally, a multicategory retailer may have very different conversion rates across products from £3000 sofas to £20 trousers. Who’s making the most money? The best use of resources?

Where products have a long consideration cycle it’s misleading to simply consider the final, purchasing visit as ‘effective’, while the previous ones are somehow ‘overhead’.

A final objection is that in a multichannel world research and purchasing my take place over different channels – where then does ‘conversion’ help drive our activity?

My contention now is that conversion should be consigned to the dustbin of pointless, but detailed, metrics – nestled alongside the “hits” measurement from the 90s.

What then can satisfy us as being a rolled-up metric, against which you can manage your business and which is directly comparable across etailers, categories and time?

Such a metric would need to include as a factor the notion of “profit” – otherwise it’s simply an engineering metric of ‘activity’. Equally, it should relate to maximising invariates.

In traditional retail we have a universal metric of profit per metre of shop space. This illustrates a retailer’s effective use of the fixed resource (space) and their management of yield and profitability.

Online, our limitations are different. While some of us may still believe in the misleading fallacy of the ‘infinite warehouse’, we know that our two limiting factor are:

  • the screen size – there’s no use having a magic warehouse if the window is small, dirty and germ-ridden!
  • the attention span of the customer, measured in the number of seconds they’ll spare for you in which you may persuade them to buy.

This leads to a metric that could be expressed as yield or profit per pixel-second.

We know that not all pixels are created equally and placement is vital: persuasive messages, imagery, promotional prominence, branding, tools – all vie to colonise the limited space. Different retailers take widely diverse options – luxury brand stories versus pile ’em high money-off screaming. Let’s measure their effectiveness on yield.

So then to customers. We’ve noted before that a rising tide floats all boats, and until the end of 2008 there were plenty of new customers spending evermore time each online to allow every retailer to record growth. However, in a saturated market there’s evidence that online customers are settling into a core group of a dozen retail sites (where ‘retail’ include aggregation/affiliate, voucher and cash-back portals who – from a customer’s perspective – are simply alternative ways to shop). The battle now is for the customer’s attention as much as for their money once you have that attention.

Of course, the cunning reader will realise that I’ve not included here the important offline dimensions – time spent handling goods in store, discussing configuration of complex furniture offers, speaking with experts about high cost items… However, a number of retailers are experimenting with ways to track a customer’s activity across channels – a voucher code in-store redeemed online, purchasing cards, logging, custom item codes, case numbers…

As these gain traction – and retailers can take a multichannel view of the effort and investment needed to support sales – then yield-per-pixel-second will morph into a metric of ‘yield per customer engagement second’, across all channels.

At this point we’ll have a universal, comparable, profit-oriented metric. This will allow us to benchmark ecommerce operations, but also see the value of etail within the mix – and importantly draw in the costs of contact centres, store activities and direct mailing into an overall cost of doing business. Maybe not next month, but such an index of effectiveness must be the aim.

Do stars shine brighter against a dark sky? [Editorial comment from November 2008’s Internet Retailing Magazine]

This article appeared in November 2008’s edition of Internet Retailing Magazine.

After the buzz and positive atmosphere at the InternetRetailing 2008 Conference, Ian Jindal considers the role of ecommerce in a hostile and uncertain period for retailers: can etail’s star shine undimmed?

There’s a stunned and bruised feeling in retail. Not so much as a result of the downturn/recession/depression (delete according to pessimism) but  at the effect of the unintended consequences.

The speed and extent of the seizure of short-term lending markets has caused significant trouble to businesses who depend upon flexible working capital: growing businesses, seasonal businesses, leveraged businesses with liquidity covenants and suppliers whose working capital needs to be with retailers are all suffering. The amplified impact of retail and manufacturing workers losing confidence, buying power or even jobs will be, for the retail sector, like hitting a wall.

In retail Boardrooms across the land, all eyes are now on eCommerce. While offline like-for-like performance is down across sectors, eCommerce is still growing or at least ‘holding up’. As drowning men cleave to passing logs, so do CEOs view the online channel as an opportunity to save the financial year. Many in eCommerce, myself included, remember the nuclear winter of 2001-3: the question is what lessons have we learned and do we have the strength to apply them?

The key lesson is that this is a time for brave people to be ruthless and focused. In a rising market there’s always a “mañana” in which to implement gentlemanly improvements in segmentation, stock control, processes, addressing margin… However, there is no “tomorrow”. I know that Christmas is busy, but we must all fear that January post-sale will be even tougher. Putting off decisive action until December 31st is folly.

While each business is different, in general we can concentrate upon pace, focus, agility and responsiveness – attributes that should be a fundamental part of ecommerce.

Pace is vital since we need to trade our sites daily, not weekly or monthly. Learn lessons quickly and implement immediately. This is no time for a ‘to do’ list – you need a ‘just done’ list!

Focus must be upon customer-facing activity – help them part with their cash. Simplicity is a function of this: in merchandising, marketing and projects.

Agility is needed to move quickly and with confidence: make the changes now, not next week!

Responsiveness should be to the customer or emergent opportunities. The origin of the word ‘retail’ is from the French word “retailler” or ‘re-tailor’ – creating something anew for each customer, focused on serving them. The web’s ability to segment, personalise, algorithmically optimise and merchandise should come to the fore. Now, today – not tomorrow.

These are simple requirements, but take backbone to implement. Wibbling, waffling and waiting should be reserved for those on the sidelines.

Even with this bold, brave approach we etailers are dependent upon our colleagues in logistics for service levels, buying and merchandising to have the right goods to sell and our stores and contact centres for cross-channel leverage. The temptation is to try and forge ahead online but now more than ever is the time to work closely with colleagues to burnish a consistent service to customers across all channels. While your colleagues see ecommerce as an opportunity to rescue trading performance you have an opening to cement cross-channel working… not to show that you’re separatist, selfish and narrowly focused!

eCommerce continues to perform well, and it’s said that stars shine more brightly against a dark sky. However, our aim cannot be simply to be valued in comparison with the decline of others. eCommerce professionals have an opportunity in the coming months to demonstrate a robust and agile commercialism and to lift the whole business by customer focus, modern inclusive working practices and delivering the multichannel leverage of which we speak so often.

In these dark times it takes bravery to be brilliant and simplicity to sparkle. eCommerce should be a constellation, not a lone star: this Christmas,  don’t twinkle alone.

Going for Gold [Editorial comment from the August 2008 Internet Retailing Magazine]

Having won a temporary pass from IR Towers to a seaside retreat with cable TV, Ian Jindal is watching Olympic synchronised diving as the rain beats against the windows and thinking of peak season…

The Olympics are an extraordinary event. Not solely for the obvious (and barely-understood) commitment and expertise of the athletes but for the emergence of a new form of human being: Homo Potatum Sofum Expertatis, sometimes known by its common name, the ‘couch potato’.

Being inactive while watching telly is not that remarkable. Rather, it’s the peculiar quadrennial transformation into a sporting expert that defies accepted ideas of evolution. I’d never seen synchronised diving before, but I can note with great accuracy the differences in body line, the perfection of the piked position and the miniscule timing differences in breaking the surface… Humans have evolved to be able to identify tiny differences in patterns, even if most of us lack the ability to make our bodies work to those fine tolerances.

My mind slipped back to thinking about retail, and I realised that the armchair critic is no match for the uncaring, critical, always-right customer!

In the battle to extract cash from the recession-constricted wallets of our visitors etailers are resorting to a near-permanent sale, free delivery, deeper additional discounts… and all the while Christmas is coming and we need to gear up for peak.

Is this our Olympic relay race? We have the highly-honed and much practised disciplines of logistics, buying, marketing and technology, all at peak form after over 4 years of “working” ecommerce. However, if the team play and baton-passing is not the equal of the individuals then the customer notices. “98% performance”” gains no credit for the hard work and expertise: rather, the ‘2% deficit’ is noticed and punished.

Characteristic of the ‘mature stage of ecommerce’ is that customers have now experienced expertise – either from you or (painfully) from your competitors. Unfortunately, the expert etailer gets little explicit praise, save for an increased retention and net promoter [tm] ranking. That retailer’s competitors however suffer silently – the silence of being shunned. Customer may still come to your site, from habit, curiosity or expensive CPA tactics but upon arrival your site suddenly seems to lack lustre, that certain Gold Medal je ne sais quoi, the allure of the champion. Second division. Vauxhall Conference. Amateur.

The first symptom of underperformance is a perplexing drop in conversion rates. Blame the recession, blame holidays, wait for the new season’s stock, fire up another affiliate… Somehow, though, the medal positions are always filled by your competitors… While we all clap politely and are pleased with ecommerce’s resilience – the ‘rise in popularity of our sport’, if you will – it’s of zero consolation to the true competitor, for whom it’s medals or nothing.

With peak season imminent, what are our options? The first point is not to start anything new or risky: this is a time for a perfect drill rather than a  practice match. The next is to coach each of your skilled players in working to their maximum capabilities – practice at peak enables performance at peak. Finally, make sure that your training camp includes cross-discipline practice and communication. With high pressure and high stakes it’s all too easy for people to fall back into their own areas and leave the overall problem to ‘someone else’. But as Potatus Expertatis knows, it’s the tiny cracks and flaws that mark the teams down from gold, rather than the the flashes of isolated brilliance moving them up.

Peak success will be from Gold-standard teams, working flawlessly and consistently together to deliver under pressure against the etailing elite. No amount of free delivery and empty promises can win the Christmas Olympics.

To the victor the spoils.

From destination to distribution – new paradigms for the networked customer [Editorial in July 2008’s Internet Retailing]

This was my Editorial from the July 2008 issue of Internet Retailing magazine.

The paradigm of the web channel being a vast shop with elastic walls has run its course. As Ian Jindal packs his bucket and spade for the summer holidays, he considers a new etailing paradigm: active selling in the network age. Retailers have managed the web for too long – our customers want it back! Continue reading “From destination to distribution – new paradigms for the networked customer [Editorial in July 2008’s Internet Retailing]”

“99% pregnant” – misleading percentages in retail (Editorial from Internet Retailing Magazine, February 2008).

InternetRetailing‘s Editor in Chief, Ian Jindal, has been shopping hard this month and his experience at the sharp end of retail (handing over cash, rather than writing strategies) has made him ponder how retailers should respond to anticipated ‘percentage declines’ in sales.

Thanks to client engagements your Editor in Chief has had the opportunity to pound the malls, boutiques and ateliers of Hong Kong, London, New York and Manchester – all in the space of high carbon-footprint month. During my travels I’ve been both demonstrating best practice rich internet applications and spending times in some truly extraordinary retail venues – from the highest end of luxury outlets and malls in Hong Kong through discount and scale retailers in NYC, where luxury and mass-markets collide, and niche, one-outlet custom retailers in the UK. As a backdrop to this till-gazing my newsfeeds have kept me in touch with the statistics: ongoing fears of a consumer recession; growth in online sales over the Christmas season that show the channel taking an ever-greater proportion of retail sales and a mix of retail results, with some winners and a few losers whose sales have declined.

In my conversations with retailers there’s a general agreement that the “consumer situation” is going to be difficult through 2008 and that spring trading won’t help fashion retailers enough (after all, Spring/Summer goods have a lower cash value that the big winter coats and back to school outfits) and the electronics retailers lack a compelling product – no Xbox/Wii launch, no new operating system, no radical shift in computer power or screen technology. Even the DVD format war has fizzled to a conclusion.

In all, retailers are looking to proceed with caution, eye promotional activity and keen pricing as their lodestone in the difficult currents ahead – looking to steady sales or have a ‘managed decline’ while protecting margins. In a word – incrementalism.

I fear, though, that such stoicism and incrementalism will not serve retailers well: there’s no such thing as an average decline.

Customer behaviour is binary: they either buy or they do not. It’s not as if – faced by a reduced amount of free cash – a customer simply decides to spend £97 instead of £100. Clearly, retailer discounting may give that appearance (ie if we reduce prices) but the more worrying situation is that customers simply do not buy at all from us: a 100% discount!

This was obvious to me as I eavesdropped on the faithful in four different Apple stores fondling the new MacBook Air. Even early adopters acknowledge that the machine is underpowered but its impact is clear: it makes other options look undesirable and customers will wait for the ‘version 2’ rather than spend now or on an alternative. The message for rival products is “we don’t want it” not “we can’t afford it”.

Likewise, for clothing. Recent reports show that customer aspirations remain high even when cash is tight. The observed behaviour is that they’ll continue to buy high-end goods, but in lower quantities, and would fund the purchases by eschewing other non-essential purchases (ie reduced overall sales for the high end, zero sales at the lower end: no ‘average’ in sight!).

Luxury etailers, however, should not take this custom for granted. A quantitative survey by Conchango this month (covered on our portal) shows a catalogue of basic errors and shoddy customer experience. 30% of ordered goods did not arrive, and from a total score of 190 Estee Lauder (the best) only managed 109 and Dior held up the bottom with a lowly 56 (goods didn’t arrive).

The lessons from this are clear, obvious – and generally ignored. Back your products and marketing with great logistics.

The more difficult lesson though is to look through the aggregate behaviour of 100 customers and consider the unique experience of each of them: if we fail to communicate, inspire and delight then the customers’ wallets will stay firmly in their pockets. Aggregate percentage shifts in the market will disguise the fact that some retailers will take lots of money and others will see sales fall off a cliff.

A gynaecologist friend once remarked, one cannot be “99% pregnant” – you either are or you’re not. Likewise with retail in 2008: there’s no ‘99% successful’ – you’ll either make the sale or you won’t. In 2008 etail sales will need to be personal, and etailers must act accordingly.

“Chief Electricity Officers”: Editorial from Internet Retailing magazine.

This is my Editorial piece from November’s issue of InternetRetailing magazine.

A plague of recruitment calls has set Ian Jindal to musing about what we can learn from the reign of the Chief Electricity Officer.

The phone’s been ringing to the point of melting at IR Towers recently and invariably the opening phrases are either “Hi, I’m looking for a new eCommerce Director – could you help?” or “I work for an exective search firm and a client’s looking for an eCommerce Director – can you help?”. Anecdotal evidence indicates that we’re in a boom in ecommerce – the late adopters (sorry, those with “second mover advantage”) are competing with the pureplays and early-starters for a small pool of talent. Actually, for “talent with experience”.

Such is the clamour for talent that in January’s edition we will look in more detail at the state of skills in the industry – how to grow and retain talent, as well as poaching it.

I’ve had cause to consider the skills we require in senior ecommerce folk: major change management, technical literacy, sales-focused customer marketing, trading experience and if possible some understanding of buying product. Oh, and while you’re chatting to this Superhero, ask whether they have board level gravitas, significant expertise in your sector, a desire to work somewhere lost in the bowels of the company bureaucracy and the self-discipline not to use their x-ray vision other than on company business.

This stringent recruitment requirement – out of kilter with market supply – sent me into the bowels of IR Towers, to the musty library, to research when last there was such an intrusion upon the board hegemony of Managing, Sales and Finance directors (at least, since the invention of Marketing in the 1960s, loosening Sales Director’s grasp on the executive washroom key).

The IT revolution put IT Directors on the Board (now they report to the COO – the morphed, ever-resilient FD in many cases); the people-are-our-capital boom of the late 80s put HR Directors on the Board (they too now find a place within the COO’s domain) and the MBA explosion of the last decade had Strategy Directors and Business Development Directors duking it out for the freshest PowerPoint [tm] templates (now everyone on the board is expected to have an MBA). Of course there are strong HR/IT/Strategy Directors on major Boards. However, if you were to prohibit three directors travelling together on a rickety plane you’d select the CEO, COO and CMO, would you not?

Whither then the eCommerce Director, often batted between Marketing, the COO or as a digital adjunct to B&M? Few today would doubt either the importance or transformational responsibility given to the eCommerce Director, yet a permanent position at the Board table is not a given. eCommerce is still seen as “other”, “different” and something to be dumped on someone else’s desk.

Some dusty research offered up by our nonagenarian archivist reminded me of the brief but important tenure of the Chief Electricity Officer. Electricity defined the modern era, yet was an expensive and immature technology. Once standardisation (voltage, plugs etc) was in place the industry entered the mass-marketing phase – but adoption was slow. In 1902, Niagara Falls alone could generate a fifth of all the electricity used in the United States, and by 1907, only 8% of American homes had electricity. eCommerce is just leaving an analogous phase – with broadband now having reached all of the most commercially-attractive homes in the UK, and browser compatibility and stability taken for granted – customer are now looking ‘through’ the technology and assessing the proposition, the price and promotions.

In order to thrive at the Board table our eCommerce Directors will need every one of the formidable skills that the headhunters are seeking. Alongside them, however, so will their Board colleagues. Which FD can today say they ‘don’t do marketing’, or which CMO could blithely claim to be financially illiterate? Of course this no longer happens. In short order, therefore, we’ll see eCommerce Directors with the full range of skills needed to make a contribution to a savvy, supportive and challenging group of Board colleagues.

This temporary bubble should not relieve Boards of the imperative to fully embrace ecommerce any more than the temporary scarcity of talent in eCommerce should lull specialists into an arrogant separatism. The eCommerce Director has no permanent place at the Board table unless and until she manages to “drop the ‘e'” and become, simply and gloriously, the Commerce Director.

Continue reading ““Chief Electricity Officers”: Editorial from Internet Retailing magazine.”