Leverage Product Intelligence to Improve Category Performance This Holiday Season

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LeverageProductIntelligenceToImproveCategoryPerformance

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MODERATOR:DebbieHaussEditor-in-Chief,RetailTouchPointsPanelists

SudhirHollaSeniorVicePresident,[email protected]@sudhirholla

SucharitaMulpuruVP,PrincipalAnalystservingeBusinessandChannelStrategyProfessionalsForrestersmulpuru@forrester.com@smulpuru

Private & Confidential

A look at Product Types of the Future Sucharita Mulpuru, Analyst

September 22, 2015


© 2015 Forrester Research, Inc. Reproduction Prohibited 7

There are more stores than ever before



That is why it’s hard to affect KPIs

KPI USbenchmark Discussionforemergingmarkets

Siteconversion 2.6%Generallylowerinemergingmarkets;pureplayshavehigherconversionratescomparedtomarketaverage

Siteabandonmentrate 63% Lowerinemergingmarkets;lowerwithreducedfric=oninshipping/delivery

AOV $171 Alwayslowerinemergingmarkets;electronicsdrivesaverageup

Repeatcustomerrate 40%Earlystagemarketsaremuchlower;lotsofwhitespace;thisfiguregrowsinmaturemarkets

Returnsasa%ofsales 15% Lowerifthereisfric=onwiththepostalservice;higherifmerchantfacilitates

Source:TheStateofRetailingOnline(Forrester/Shop.org)



Metrics discussion (continued)

KPI USbenchmark Discussionforemergingmarkets

%ofrevenuespentonIT 7% Generallyinthe5-10%rangeforallmarkets

Newcustomeracquisi=oncostperorder $51

LowerinemergingmarketswhereCPCsares=lllow;comparisonshoppingenginesareocenprevalent;thisbecomesmuchhigherasamarketmatures

Marke=ngcostperorder $15Lowerinemergingmarkets;convergencebetweenoverallcostandnewcustomeracquisi=oncostsover=me

Customerservicecostperorder $5

Phoneorchatorderscanincreasecosts;emergingmarketsareonparduetolowerconversionrates

Fulfillmentcostperorder $10 Onparduetomoreexpensivedeliveryop=ons(egCOD)



Marketing expenses are generally high



WebmerchandisingcanbeadifferenDator

Usage(industrystandard)

Effec3venessRicherimageryOverhaulingon-sitesearchTopsellersZoomOutletsColorswatchingSecurityfeaturesOrdertrackingDropshipDetailedshippinginforma=on

What’snewVirtualcatalogsandcirculars

CategorybuyingguidesSide-by-sideproductcomparisonsGicregistryWishlists

ColormatchingExpertreviewsA/Btes=ngCustomerra=ngs/reviewsAlterna=vepaymentsPrepaidreturnsProductcustomiza=onProductrecommenda=ons

MUST-HAVESSHOULD-HAVES

NICE-TO-HAVESFINEWINE



Source: North American Consumer Technographics Retail Online Benchmark Recontact Survey, 2015

Selection is a differentiator for merchants

61%

63%

67%

69%

Ifindbe3ervaluesanddealsonline

Ishoponlinebecauseit'seaserthangoingtothestore

Isave=mebyshoppingonline

IfindproductsonlinethatIcannotfindanywhereelse



But it’s important to reduce a shopper’s stress

Source:ForresterResearch,“HowPeopleChoose”



Manufacturers will likely bifurcate in a competitive, transparent market

“CommodiDzed”brands “Protected”brands

Exam

ples

Characteris=cs

Ma3elPanasonicLogitech

Rubbermaid

Brandsaresubs=tutableRetailerprivatelabelcompe==on

Channelconflictfears

Physicalstorepresenceisweak

AppleNike

NespressoLouisVui3on

Brandsarenotsubs=tutableHeavyIPprotec=on

DTCbricks-and-mortarpresence

UPPadherence

Implica=

ons Heavypricecompe==onandbroadproduct

distribu=onwilldriveretailerstochangecontracts;expectthesemanufacturerstobearmoreinventorycostsandpoten=ally

leasespaceinstores

Thesebrandswillhavestrongerproductinnova=onpipelines(orpowerfulandbroadpatents)whichenablethemtopreservetheir

brandequityandcommanddistribu=onpowerinthemarketplace

CalphalonDysonBritax

NeatCompany



Three types of products will be in stores in the future

Typeofproduct CharacterisDcs Whatitmeansforretailers Whatitmeansforbrands

Privatelabel

Exclusiveitemsandbrands,privatelabelassortment;

compe==vepricingsupportedbyprofitpools

ProfitcenterProtectyourIPsoyour

productsaren’tcannibalized

Stand-alonebrandsProtectedbrandswithUPP

power

Modestprofit(orNA);brandswillbechoosierofwhotheyworkwith;thebestbrandswillsellDTC

Constantneedtoinnovateandprotectthebrand

Commodi=zedorsubs=tutablebrands

Ownershipofinventoryispushedtomanufacturer;lowcostofownershipforretailer;highmarginsfromleasedspace,ormarketplace-type

arrangements

Breakeven,lossleaders Beware,marginswillbesqueezedruthlessly

Unique,“longtail”items

Previouslyundiscoveredornewproductscreatedbyinventorsorar=sanswhichhavecultfollowingsorarespecificfor

hardtofindniches

Profitcenter,butonethatrequiresconstant

monitoring;anopportunitytocreateapipelinefor

privatelabelopportuni=es

Alsoanopportunitytominetrends



The long (long) term view

› More private label merchandise › More differentiated store experiences › New retailer-manufacturer

relationships › Greater legal restrictions around web

pricing

Private & Confidential 17 Private & Confidential

•  More private label merchandise

•  More differentiated store experiences

•  New retailer-manufacturer relationships

•  Greater legal restrictions around web pricing

Product Intelligence

Category Performance


What do these 3 products have in common?


First, let’s talk about “Poo-Pourri”


Review count for “Poo-Pourri”


VS.

Next, let’s take a look at the “LG Bluetooth Headset”


207,690

510,010

824,890

1,223,890

1,612,930 1,798,860

12,470 40,480 64,810 84,460 118,300 152,980

Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15

Search Trend

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2012 2013 2014 2015

Review Trend LG Tone HBS730

Plantronics M50

Review and Search Trends for the “LG Bluetooth Headset”


I hear voices…..


Multi-point

Noise Cancellation

Stereo

Style - Earbud

Style - Over the Ear

Style - Behind the Head

Key Attributes

30%

56%

22%

6%

66%

8%

2011

32%

58%

30%

8%

64%

12%

2012

22%

58%

42%

10%

54%

24%

2013

54%

46%

56%

14%

40%

38%

2015

The voices tell me things…


We all hear voices…

Consumers are freely and constantly telling us what they like, what they don’t like, and what they want. They are also telling us why they want it, and how much they are willing to pay for it.

…not everyone is listening though.


•  It is about hearing voices.

•  It is about translating these voices a.k.a. digital footprints that consumers leave behind to understand the characteristics of a product in relation to a consumer need

What is Product Intelligence?


Traffic Conversion

Retail is about leveraging assets


Traffic Conversion

Price+Promo=on

340

360

380

400

420

440

06-Aug 13-Aug 20-Aug 27-Aug 03-Sep

Price($)

“Easy”todeploy,but“Expensive”

There are several factors that impact how retailers efficiently use this data


Referrals/Backlinks

ProductPage

Content/Store

Experience

Reviews

SocialMedia

Price+Promo=on

Traffic Conversion

0.30

0.35

0.05

0.05

0.20

0.450.25

0.05

There are several factors that impact how retailers efficiently use this data


VS.

Meet the “Vitamix 750 blender”


Meet the “Vitamix 750 blender”

VS.


Content Intervention

Improve margins without reducing price


•  Brand:PacificTrailChaski

•  Price:$55

•  Reviews:8Reviews(4.5Stars)

•  SalesRank:#9801inShoes

•  Cross-sellTraffic:60%

•  Brand:KeenNewportH2

•  Price:$99

•  Reviews:2083Reviews(4.5Stars)

•  SalesRank:#60inShoes

•  Cross-sellTraffic:30%

VS.

Which of these two products has higher price elasticity?


Conversionincreaseswithbe_erpricecompeDDveness…

Conversionalsoincreaseswithhigher“loyal”

traffic

Q:DoIneedtokeepthepricescompeDDvewherethetrafficloyaltyishigh?

Loyalty vs. Price Competitiveness – The Trade-off...


Conversion Increases above Upper Limit: Increase price to get conversion back into targeted zone based on competitive elasticity

Conversion Decreases below Lower Limit: Decrease price to get conversion back into targeted zone based on competitive elasticity

Competitive price change should not be the trigger for a price change. Take a look at other consumer signals…


Are you getting a share of that demand?

Can product content be leveraged to improve conversion?

Can lower prices be used to improve conversion profitably?

Can frequent price changes help skim margins?

Is there demand for the product?

Assortment

Content

Pricing

Boost merchandise performance without compromising margins with product intelligence


0

10

20

30

40

50

60

70

80

90

100

020406080100

Pred

ictedProd

uctR

ank

ActualProductRank

58%ofrankpredic=onwithin+/-20

Assessing Demand – Predict the top 100 in a category with about ~60% accuracy using “freely” available data


Assortment: Do we have the right products?

Content: Have we

described and marketed

the product correctly?

Pricing: Have we

priced it right?

Pre-Season- Buying Cycle Pre-Season- Item Setup In-Season - Pricing

7.5% increase in top-line for a pre-existing category at a leading retailer

21 basis points increase in conversion without a change in price

7% increase in the “Top 20 results” for Google search ranking

3.75% increase in margin dollars for an existing category at a leading office supplies retailer

Results

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Q&A//Panelists

SudhirHollaSeniorVicePresident,[email protected]@sudhirholla

SucharitaMulpuruVP,PrincipalAnalystservingeBusinessandChannelStrategyProfessionalsForrestersmulpuru@forrester.com@smulpuru

MODERATOR:DebbieHaussEditor-in-Chief,RetailTouchPoints

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