Black Friday is a pulsating symbol of all that is wrong with retail. Knock down prices aside it is indeed a black day. Queuing and aggression make it a bad day for the customer experience, but it is also a day that does more than most to cement the idea that cutting margin is the way to compete.

Is there any other industry seemingly so committed to a race to the bottom, so near-universally beholden to price cutting and profit gouging as a means to compete?

Stand back and look at it dispassionately, he explains, and it’s crazy that a frantic day of knock down prices and brawls over flat screen TVs was ever seen as holding the key to tipping into annual profit.

Hint hint

In truth Black Friday is a not-so-subtle hint that something is wrong; that a different approach is required. In fact, an alternative solution has long been hiding in plain sight - rather than cutting prices and relying on flash sales, retail could find a way to more effectively monetise vast e-commerce traffic year round.

Yes, shoppers spent £1.1 billion on Black Friday in 2015. But how many of those shoppers enjoyed a positive brand experience? And how much of that £1.1bn was profit?

Indeed, spread that headline-grabbing £1.1bn over a year and it equates to just £21m a week across the entire retail sector. To put that figure in context, it amounts to a revenue increase of just 0.3% on the sector’s average weekly revenues (excluding the £1.1bn from Black Friday).

Are we really to believe that retail cannot find a way to drive revenue increases of just 0.3%?

Conversion failure

Before we answer that, let’s remember that, in 2015, e-commerce revenues of £114bn represented a conversion rate of around 7%.

That is, just seven out of every 100 visitors to e-commerce sites was motivated to buy. Indeed, despite massive spending on e-commerce solutions, the vast majority of retailers have failed to convert huge traffic numbers into sales. Online conversion rates have remained well below the 10% mark since e-commerce's year dot - and lag miles behind in-store conversion rates.

That failure is down to merchandising and the user experience - e-commerce sites have failed to inspire people to buy or made it too hard to buy, or both.

Can we continue to believe that simply doing more of the same will eventually deliver significant gains? Quite the opposite. The facts make it hard to escape the conclusion that a rethink is long overdue.

A rethink

It’s high time retailers found an approach to e-commerce merchandising that reflects the complexities of the context. It’s time to stop trying to re-use approaches that have worked in store but have more than amply proved they are inadequate online.

At present, retailers still rely on a manual approach to merchandising that is unsustainably labour intensive.

Unsustainable in terms of resource demand - just look at the sheer number of online merchandising jobs retailers are currently trying to fill.

And unsustainable in terms of results - how long will retailers continue to attempt to prop up results with sticking plaster solutions and promotions rather than address the core issues?

Automation and AI

The truth is that retailers, in their e-commerce operations specifically, are failing to grasp a nettle that other sectors tackled long ago - automation.

But not just any automation. The automation of online merchandising’s heavy lifting - the vast number of repetitive but vital tasks that are practically made for machines - and automation guided by artificial intelligence and big data capabilities.

This kind of intelligent automation has two immediate virtues.

First, it enables retailers to deliver better, more relevant experiences for each customer, by adapting everything from search and navigation to recommendations and even product display according to individual behaviour and intention in real time.

That would truly be a watershed moment: The moment when retailers finally embrace the full potential of e-commerce - the ability to shape and instantly adapt product discovery and the entire customer experience according to the needs of each and every individual customer.

Doing all that across product exposure, search, navigation and recommendation of course, neatly takes care of both inspiration and ease of use - the twin failings that have to date held back conversion rates.

Second, it frees merchandisers from a tyranny of spreadsheets, and enables them to focus on the high-level tasks that really require their specialist input.

That could include the development and execution of the holistic product exposure strategies that would be necessary to guide automated merchandising. These high-level strategies could be shaped by real merchandising priorities - business objectives like revenue, profit margin, stock oversupply and consumer trends (be they micro or macro).

A molehill to climb

When you think of an e-commerce operation that inspires purchase through absolute, individual relevance, but which also makes it easy to shape merchandising strategies according to business metrics, a revenue gain of 0.3% suddenly feels more like a molehill than a mountain.

And, thank goodness, that race to the bottom for which Black Friday is the poster child would be a thing of the past.

 

By Frank Schoutissen, advisor at Apptus

 

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