Two Worlds Collide: Bringing the Category Captain Model to E-commerce

Two Worlds Collide Bringing the Category Captain Model to E-commerce Michael Stich Bridge Worldwide November 12 th , 2008

E-commerce Agenda
Introduction
The History of E-commerce, and Why It Matters Today
Who’s Succeeding and Why
The Big Opportunity For The Future

Bridge Worldwide

Top 25 Best Small Companies to Work for in America (2006, 2007, and 2008) Part of WPP Group, the largest agency holding company in the world with 2,000 offices in 106 countries. Affiliation: 200 people including Creative, Technology, Research, Strategy, Experience Planning and Account Service. Employee Makeup: Cincinnati Headquarters: 1979 Founded:

Our Positioning Digital Relationship

Bridge Worldwide E-commerce Strategy and Solutions Others In Development

Looking Forward By Looking Back

In 1955, Before E-commerce, CPG Focus Was on Supporting the Consumer Through Retailers
Manufacturers sold products based on where consumers wanted to buy them.
Distribution was simpler with traditional offline customers.
Manufacturers and retailers optimized operations for this model over hundreds of years of refinement.

By 1985, New Forms of Collaboration Led to Category Management and Other In-Store Innovations
Category management brought consumer science to the retail channel.
Efficient assortment optimized selection for overall productivity.
Shopper understanding helped merchandisers enhance in-store selection.
Shelf innovations led to an easier and more efficient shopping experience.
Insights Best Practices + Results

E-commerce Arrived 10 Years Ago, Frightened the CPG Industry, and Then...Nothing Happened
Low consumer demand and adoption.
Concerns about channel conflict.
Result: Low industry involvement.

Since Then, E-commerce Has Come To Mean More Than PC’s, Books and Tickets…
Online Home & Garden, Food & Beverage, Child & Baby Care are $1B markets.

In Fact, A Strange Thing Has Occurred - US CPG E-commerce Is Now a $12B market
More consumers are getting online, researching online, and buying online.
Early-adopter consumers buying even more categories, for very important reasons
Traditional retailers starting to get it.
*Includes baby products, cosmetics, fragrances, food, medicine, personal care, home care, pet supplies. Source: 2006 Forrester Research, 2007 Bernstein, Bridge Analysis More Consumers… Number of US E-commerce Households (MM) ..Buying More CPG Products… Total US CPG E-commerce Sales ($B) 10 15 Food + Beverage Baby All Others ..From More Customers Total US E-commerce Sales by Vendor, % $125MM Amazon.com Traditional Retailers All Others 100%=$90MM

2008: What’s The “Right” Way To Approach E-commerce? A Few Winning Strategies

We Looked At Many Companies That Are Thriving From E-commerce:

While We Found Many E-commerce Successes, We Noticed A Few Guiding Strategies..
Create a Compelling Product
Dramatically Improve the Purchase Experience
Create a Compelling Business Model
Sell to a Niche Consumer

..With Reusable Principles For Each Strategy
Create a Compelling Product
Dramatically Improve the Purchase Experience
Create a Compelling Business Model
Sell to a Niche Consumer
ACCESSIBILITY
TIME SAVING
DISCRETION
AUTO-REPLENISHMENT
DIRECT SALE
MARKETPLACE
EXCLUSIVITY
BUILD TO ORDER
UPGRADEABILITY
PERSONALIZATION
SIMPLICITY
PAYMENT OPTIONS
GIVE BACK

We Found Successful E-commerce Strategies Beginning to Appear in Consumer Goods Create a Compelling Product – Nespresso, M&M’s Sell to a Niche Consumer - PetMeds, Align Create a Compelling Business Model - Tesco, Luvs Dramatically Improve the Purchase Experience – DDF, Kroger

Example E-commerce Opportunity: Optimized E-store for Every Category
Turnkey E-commerce capability for All CPG Products
Recommender systems helping consumers buy
Flexible shopping cart options
Fulfilled by regional or national partners
Available on website, mobile, and rich media banner ads

Example E-commerce Opportunity: Focus on Beauty
Consumer:
I want what I want when I want it.
And I may want stuff I don’t know I want.
If you can’t give it to me, I’m gone.

Example E-commerce Opportunity: Focus on Community
Put the user at the center of the site:
Let me rate it.
Let me review or recommend it.
Let me share it with my friends.

Example E-commerce Opportunity: Focus on Unique Information
But teach me things I don’t know.
Video demo, deeper content, comparisons

Example E-commerce Opportunity: Focus on Delight
Surprise and delight me
Free sample when you buy.
Free shipping when you spend over $50

The E-commerce Category Captain: A Big Opportunity For Industry Collaboration
Build a compelling and optimized shopping experience
Make it an independent brand
Invite and your customers or suppliers to join you
Ownership
Branding
Purchase Options
Promotions
Loyalty Programs

Great, You’ve Got a Category Model. Now What? Multi-Channel Integration

The Consumer Is Growing More Multi-Channel, So Should You!
68% compare prices online before shopping in a physical store
58% locate items online before purchasing offline
67% prefer to research online and buy from physical stores
Source: 2008 Accenture

Implications: Many Companies Newly Focused On Thematic, Emotive Design…
Guiding Approach: Focus on the CRUX of Creative (CR) and User Experience (UX)
Usability
Engage For Decisions
Reduce Barriers
USER EXPERIENCE CREATIVE CRUX
Aesthetics And Tone
Inspiration and Emotional Response

Who’s Making Multi-Channel Work? Circuit City
Buy online, pick up at the store within 24 minutes or get a $24 gift card.
“ One Price Promise” across the store, direct-mail and the web
Free shipping over $24, always-free returns

Who’s Making Multi-Channel Work? Target
Social Shopping Lists
Add To Cart, OR Find It At A Target Store
For every product: store locations, hours of operation and a telephone number, sorted by distance

Where We Are Headed Next?

How Will E-commerce Evolve? More Consumer.
Likely Evolution from Today’s Strategies and Principles, but:
More personalized
More communal
More mobile
More informative
More global
More efficient
More enjoyable

How To Get In: Our Recommended Approach
Make a new pledge: Support the market with shopper insights in every brand and channel.
Address specific E-commerce segments with best-practice business models, promotions, and products
Apply the Four Strategies: Niche Consumer, Business Model, Product, Purchase Experience
Foster brand-retailer collaboration via the Category Captain model, by sharing consumer insights and optimized e-store properties.
Remember CRUX
Lead with Web 2.0 (it’s not your E-commerce engine, it’s the consumers’)

Thank You!

Backup

Each With Their Own Supporting Principles
ACCESSIBILITY: Serve consumers with products they can't buy in their nearby retail.
TIME SAVING: Target time-constrained consumers and automate their purchase experience.
DISCRETION: Focus on consumers with disabilities, or on products requiring discretion, both of which complicate in-store purchase.
AUTO-REPLENISHMENT: Auto-replace products with repurchase cycles and/or low consideration.
DIRECT SALE: Sell direct for cost and quality advantage.
MARKETPLACE: Create a marketplace for buyers and sellers to transact online.
EXCLUSIVITY: Offer product availability, information, or promotions early or exclusively online.
BUILD TO ORDER: Allow consumers to customize their product with a set of feature combinations.
UPGRADEABILITY: Sell a platform with upgradeable subcomponents over time.
PERSONALIZATION: Provide a personalized purchase experience for each consumer.
SIMPLICITY: Provide one-click simplicity and more convenient, easier payment options.
PAYMENT OPTIONS: Give the consumer new choices for how to pay for the product.
Sell to a Niche Consumer Create a Compelling Business Model Create a Compelling Product Dramatically Improve the Purchase Experience E-commerce Strategy Supporting Principles

Sell to a Niche Consumer: Williams-Sonoma
What They Did:
Targeted the bride, groom, and their wedding registry experience
Why It Worked:
Allows the bride, groom, and guests to keep track of the registry and the gifts purchased
Facilitated perfect sales without having to go to the store
Key Lessons/Principles:
Target time-constrained consumers and automate the purchase experience.

Sell to a Niche Consumer: PetMeds
What They Did:
Offered pet medications delivered directly to the consumer’s door, at a discounted price
Why It Worked:
Allows the pet owner to reorder exact medications by logging in to their account
Expanded the offering beyond medication to animal toys/accessories to broaden appeal
Target time-constrained pet owners and allow for easy reordering of pet medications.
Offer hard-to-find and expensive products, while providing full customer service and pharmacy reps.

Create a Compelling Business Model: Tesco
What They Did:
Tesco, a leading food retail group in the UK, launched an online grocery and consumer packaged goods delivery service
Why It Worked:
Offered broader set of products
Made it simple and fast to order groceries online, and get efficient delivery service
Key Lessons/Principles
Make ordering online simple and fast (so consumers will be willing to order more CPG products online).
Actively manage Search Engine Optimization results to maximize traffic to the site.

Create a Compelling Product: M&M’s
What They Did:
M&M’s launched a custom printed M&M’s product.
Consumer can choose colors, messages and packaging options.
Why It Worked:
The uniqueness and surprise of a customized product inside a mass-market brand
Limited range of choices: right mix of mass appeal and standard fulfillment
Give consumers a way to creatively communicate or express themselves. With a finite set of combinations.
Extend the existing appeal of a big brand.

Dramatically Improve the Purchase Experience: Bare Escentuals
What They Did:
Leveraged the popularity of the product from infomercials to both offline and online stores
Why It Worked:
Detailed product information and instructions for use; brings the makeup consultant into consumer’s home
Intuitive progression of navigation, from prep to lips to accessories
Clean, simple design consistent with branding/packaging
Make product selections easier for the consumer by displaying all options up front.
Provide related items and recommendations based on consumer’s interests and/or chosen products.
Offer “always free shipping” on total purchase over a specific price point.
Push exclusive offers not available in stores.

Create a Compelling Business Model: Amazon
What They Did:
Direct to the consumer.
Eliminated redundancy in the value chain, enabling lower-priced goods
Coupled complimentary products into solutions based on what others buy
Why It Worked:
Timely fulfillment and safe/trusted transactions
Complementary recommendations for cross-sell
Streamline the value chain for efficiencies.
Enable auto-replenishment of cyclical products.

Create a Compelling Product: Apple
What They Did:
Allow consumers to customize their product--with a finite set of feature combinations.
Make extensive product details easy to understand.
Why It Worked:
Personalization
Added convenience
Product extensions and upgrades that enhance the original purchase
Give consumers the option to personalize their product.
Sell a digital service for the product that ensures ongoing relevance.

Dramatically Improve the Purchase Experience: Netflix
What They Did:
Customers subscribe and rent online, and movies are delivered through the mail.
No due date.
Recommender systems drive additional rentals.
Why It Worked:
Convenient, helpful ordering and return service
Removed consumer penalty - late fees
Rich content, easy-to-use functionality, and democratic opinions
Make product selections easier for the consumer.
Remove consumers' existing barriers/penalties.
Simplify returns .
Provide a feedback loop.

Create a Compelling Product: Nespresso
What They Did:
Created ordering system based on your unique coffeemaker
Why It Worked:
Easy ordering and convenient delivery to home or office
Recommending a product specific to individual’s wants eliminates the confusion and simplifies the choice.
Allow consumers to customize their product with a finite set of feature combinations.

Sell to a Niche Consumer: PetMeds
What They Did:
Offered pet medications delivered directly to the consumer’s door, at a discounted price
Brought the pet pharmacy to an online/easy-access venue.
Why It Worked:
Allows the pet owner to reorder exact medications by logging in to their account
Expanded the store offering beyond medication to animal toys/accessories to broaden appeal of the store
Includes an online pharmacy supported by pharmacy technicians to answer questions during office hours
Introduced Price Match to beat the competition’s prices
Target time-constrained pet owners and allow for easy reordering of pet medications.
Offer a typically hard-to-find and expensive product at a discounted price, while still providing full customer service and pharmacy reps.

Create a Compelling Business Model: Tesco
What They Did:
Tesco, a leading food retail group in the UK, launched an online grocery delivery service
More recently, Tesco expanded its offerings to other consumer packaged goods.
Why It Worked:
Offered broader set of products
Made it simple and fast to order groceries online
Quick and efficient delivery service
Key Lessons/Principles
Make ordering online simple and fast (so consumers will be willing to order more CPG products online).
Actively manage Search Engine Optimization results to maximize traffic to the site.

Retailers Jumping On Board: Target
What They Did:
Expanded the retail chain’s offline shop to online
Why It Worked:
Gave consumers a convenient way to shop at their favorite store and compare prices
Offer items available exclusively online to give customers a reason to shop online as opposed to at the store
Build on the existing appeal of a well-known brand
Sell online first to seed word-of-mouth with early consumers, and to capture key insights from them
Sell products that have an embarrassment factor associated with an in-store purchase

Sell To A Niche Consumer: Use Social Networking
Rosetta recently conducted a study amongst the top 100 online retailers in the US.
The study found that 59 had a fan page on Facebook, up from 30 in May 2008.
“ Social media sites continue to be an important source of community connection, and savvy retailers are reaping the benefits of Facebook’s rapid extension into new demographics, such as Gen X and seniors“.
Adam Cohen, Rosetta

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Two Worlds Collide: Bringing the Category Captain Model to E-commerce

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