Online Shopping - Consumer Habits
The challenges faced by traditional retailers in leveraging the online channel, such as payment security, distribution or the prevalent franchise model in Australia, are outweighed by the considerable benefits in meeting consumer retail needs on the internet. A survey of the online shopping landscape using Hitwise Australia data indicates that consumers are actively researching brands and products across thousands of websites on a daily basis as they make their purchasing decisions.
There is general consensus however that manufacturers and retailers in Australia are not meeting online consumer demand to its full potential. The Pricewaterhouse Coopers Retail & Consumer Outlook Australia 2007 Report states that, “major retailers in the UK and US are investing heavily in the internet as part of their multi-channel strategies,” but continues, “yet in Australia, few retailers appear ready to take advantage of the trends”.
Hitwise research confirms that retailers in Australia are not fully optimising their websites to leverage online consumer behaviour. Search data indicates retailers have room to capture more brand and product-related traffic through effective search marketing practices. These missed opportunities will become more pronounced as the competition in payment systems heats up with the launch of Google Checkout in Australia. As consumers take advantage of a more convenient retail experience, it will become imperative for retailers to build their brand for online and offline shopping.
Whether a retailer opts for an e-commerce or website brochure model, effective online marketing can be crucial to overall sales results. There are numerous studies that show consumers are highly likely to research online before they make an offline purchase. A US study by Forrester in May 2007 estimates almost $400 billion of store sales are directly influenced by the web, and that will grow to $1 trillion in the next five years.
Hitwise Australia data indicates there were more than 28,000 Shopping & Classifieds websites visited by Australian internet users in July 2007. The substantial consumer research that is retail-oriented is demonstrated by the fact that over 600,000 unique search terms delivered traffic to Shopping & Classifieds websites. Of the top 100 terms, 88 were brand names, 7 product-related and five generic terms.
How well are retailers capturing this search traffic, however? A Hitwise study of 10 traditional retailers shows an average of 81% of searches for brand names resulted in a visit to one of the brand owner’s websites. The remaining 19% went to competitors, affiliates, price comparison and news websites.
While lost opportunities on product-related searches are more difficult to quantify, an analysis of key product searches also indicates missed opportunities. Consider LCD TVs, which according to a report by Display Search, grew globally in sales in the second quarter of 2007 by 65% year-on-year, to a volume of 19.6 million. Hitwise search data similarly indicates that over a 12-month period, search term variations on ‘lcd tv’ increased by 16%, to week ending 25 August 2007. During Christmas, search variations on ‘lcd tv’ spiked by 76%, week ending 30 December 2006.
A Hitwise Industry Search Terms report of the term, ‘lcd tv’ shows Shopping & Classifieds websites received 26.89% of traffic, including 13.29% to Rewards & Directories players for the four weeks ending 28 July 2007; 7.85% of traffic was directed to Electronics websites, which includes manufacturers. The remaining 65.26% of traffic went to other industries including Net Communities and News and Media websites.
The top websites to receive traffic on ‘lcd tv’ for the four weeks ending 25 August 2007 were ShotBot.com.au and LCD TV Buying Guide, receiving 13.75% and 10.63% of traffic respectively. The Good Guys was the only bricks and mortar retailer in the top 30 websites to receive traffic, with less than 2% share.
A similar analysis on the term ‘laptop’ shows that 26.44% of traffic went to Shopping & Classifieds websites, 13.79% to Hardware and Electronics websites, with the remaining 59.77% to ‘other’ websites. The considerable consumer research that occurs around laptop purchases is highlighted by the fact that there were over 6000 variations on the term, ‘laptop’ for the four weeks ending 25 August 2007.
The term ‘laptop reviews’ was the most popular search variation ahead of any other brand name, suggesting that consumers are beginning their research without any particular biases.
Large brands cannot afford to ignore the scope of lost website traffic on product and brand searches. Steps such as bidding on one’s brand name across the search networks, or improving search engine optimisation to receive more cost-effective organic traffic can improve the competitive position of retailers.
Hitwise Australia data indicates that online shopping accounted for 5.87% of all internet visits in July 2007, representing a year-on-year increase of 4%. One of the fastest growing areas of online retail was the House and Garden sector which grew by 26% year-on-year in July 2007, reflecting the Australian housing boom.
House and Garden retailers are following global trends of a ‘clicks and bricks’ model, where the consumer browses online and picks up in-store, an alternative to providing e-commerce. Ikea Australia for example, allows users to view detailed product information online and to check stock levels first before venturing in-store. Ikea’s text-based catalogue, as opposed to PDF, increases the likelihood of the website picking up search engine traffic on product searches.
In the Electronics sector, JB HI-FI was a leading bricks and mortar player during the Christmas 2006 period, increasing its website market share 20% year-on-year. Search data indicates that it received significant traffic on product-related terms such as ‘car audio’, ‘eb games’, ‘lcd tv’, ‘dvds’, ‘xbox 360’ and ‘cds’.
A company statement in August 2007 said that it had “exceeded its profit guidance in June 2007 of $37 million to $39 million”. Further, its “sales in all product categories were solid; with games, DVD, portable audio and computers driving strong comparable sales growth.” It is unclear what effect JB HI-FI’s investment in e-commerce had on its sales results; Hitwise data reveals however that its shopping domain, www.jbhifionline.com.au, increased in visits by 17% year-on-year in August 2007.
While retailers have been quick to offer coupons and warranties online, the coming launch of Google Checkout in Australia may re-invigorate the trend to provide a full online shopping experience for consumers. The potential boost to SMEs with new payment options will mean large brands will have to reconsider their online retail strategy to adjust to the increased competition.
Google Checkout made some impact during its launch in the US and UK markets. In both markets, incentives of discounted purchases were offered to consumers; with an ensuing spike in website traffic during the Christmas period. In July 2007, Google Checkout ranked 20 in the Business & Finance – IT & internet industry in the US market, and 68 in the UK market. Retailers to have received significant traffic from Google Checkout include Buy.com, Toys R Us-USA, Dick’s Sporting Goods, AmericaRX and RYE in the US; and Empire Direct eBuyer, Cartridge People and Dust Bag in the UK.
The dominance of PayPal in the Australian market means Google Checkout will have its work cut out for it in capturing market share. PayPal held 43.05% market share in the Hitwise Business & Finance – IT & internet industry in July 2007. Given that Google powered more than 80% of searches in the Australian market in July 2007, we can expect it to leverage referrals from its main search page and to emulate its US and UK discount schemes to compete against PayPal.
A compelling Experience
As the online retail industry in Australia continues to evolve, big brands will need to reconsider their strategies to leverage consumer research online, while SMEs will need to consider the benefits of new payment options. A significant challenge that remains is to create an online experience that imitates the recreational aspects of offline shopping. Integrating with popular content areas such as Net Communities or building the brand on top publishing websites offers retailers the opportunity to engage their consumers more effectively. The objective should be to build a seamless multi-channel experience that connects retailers with consumers.