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How Online Research Influencing Offline Purchase

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For those immersed in eCommerce, it can be easy to forget that the vast majority of purchases still take place o#ine – more than nine out of 10. But it’s crucial to remember that four out of 10 people prefer to ROPO – research online, purchase o#ine. That’s 40% of the market that most retailers don’t properly understand, and this at a time that broadband availability and smartphone use are ensuring ever more research is done online. Bricks and mortar retailers used to metrics such as sales-floor performance must now also measure the role of their website in driving sales in their stores – only then can they get under the skin of these increasingly valuable customers.

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White Paper | December 2011
Everybody knows that eCommerce is big
business – it’s now estimated to be worth
a staggering £5 trillion a year.1 But that’s
only half the story.

Consumer businesses have poured enormous resources into understanding web analytics
and online attribution models, and have racked up impressive online sales as a result. But
the job is far from over, and retailers who want to stake their claim in the new digital
frontier have already moved their wagons on. They’ve realised that if the last five years
were about selling online, the next five years will be spent working out how to use online
to influence the way that customers spend money offline, in real bricks and mortar shops.
    This is a hugely exciting field, and it has the potential to return significant rewards for
those prepared to act now. There is still much to be understood about how on- and offline
behaviours join up, but from its work with European clients, Google is able to offer a set of
compelling insights that will help retailers form a more rounded picture of their customers’
activities – and create a more fluid pathway from online research to offline purchase.

EXECUTIVE SUMMARY

For those immersed in eCommerce, it can be easy to forget that the vast majority of
purchases still take place offline – more than nine out of 10. But it’s crucial to remember
that four out of 10 people prefer to ROPO – research online, purchase offline.
   That’s 40% of the market that most retailers don’t properly understand, and this at a
time that broadband availability and smartphone use are ensuring ever more research is
done online. Bricks and mortar retailers used to metrics such as sales-floor performance                   1
                                                                                                            McKinsey & Company report
                                                                                                      The great transformer: The impact of
must now also measure the role of their website in driving sales in their stores – only then          the Internet on economic growth and
can they get under the skin of these increasingly valuable customers.                                            prosperity – October 2011.




                                                                                                  2
RESEARCH ONLINE, PURCHASE OFFLINE                                 Fig. 1 Today’s buyer is more informed than ever

     Levels of online research have increased dramatically over                                                                                                         60

     the last decade, both by consumers who go on to buy online                                                    Percentage of retail buyers performing ROPO
                                                                                                                                                                        55
                                                                                48%
     and those who purchase in-store. As the chart opposite                                                                                                             50

     shows, in Europe the internet has become the starting point                                                                                                        45
                                                                                                                                    39%         40%
     for close to half of all consumers who end up purchasing in                                           37%                                                          40

     a store or via a call centre (Fig. 1).                                                                                                                             35
                                                                                             33%
         Think about the last time you bought a car. The chances                                                          31%                                           30

     are that 10 years ago you would have read a selection of                                                                                                           25

     magazines, visited dealerships and made your selection.                 Percentage of all retail sales made online
                                                                                                                                                                        20

     Today you’re far more likely to do your research online,                                                                                                           15
                                                                                                                                                 9%
     accessing the vast amount of reviews, opinions and statistics                            6%                          5%
                                                                                                                                                                        10
                                                                                 3%
     available, before making your journey to the same dealerships                                         1%                       1%                                  5

     to strike a deal and buy the car.                                          France     Germany         Italy    Netherlands     Spain        UK
                                                                                                                                                                        0

         But it’s misleading to think that ROPO applies only to
     those big-ticket items that you feel compelled to see, touch
     and smell before purchasing. While online research is more        Fig. 2 ROPO customers search online almost as
     frequent and takes place over a longer period for bigger,         intensively as customers who actually buy online                                                NO. OF
                                                                                                                                                                       SEARCHES
     more considered purchases, ROPO is also found in other
     less considered categories. And customers are serious about                               9.2                                                                      10
     it – as the chart opposite shows, those researching online                                                                                                         9
     but buying offline search online almost as intensively as                                                                      7.6                                 8
     those buying online (Fig. 2).                                                                                                                                      7
         Take, for example, the following three categories: mobile                                                                                                      6
     phones and contracts; ADSL broadband; and high street                                                                                                              5
     fashion. None of them could be deemed a large, considered                                                                                                          4
     purchase, but in each case, consumers undertake high                                                                                                               3
     levels of online research. In fact, half of all buyers in these                                                                                                    2
     categories research online before buying offline.                                                                                                                  1
         To put all of this in context, in the UK alone, ROPO                                                                                                           0
                                                                                         Purchase online
     business is thought to be worth €36bn per annum in the
     retail, technology, consumer packaged goods, entertainment
     and finance sectors (Fig. 3).


     Fig. 3 Retail spend researched online and purchased
     offline across Germany, the UK and the Netherlands
ROPO (€B)



80

              61
60


                                  36
40




20
                                                       8
                                                                                                                           Fig. 1: Forrester’s Q1 2011 eCommerce
0                                                                                                                              Forecast, and Consumer Commerce
                                                                                                                                    Barometer (TNS / Google / IAB)
                                                                                                                                                 Fig. 2: MEP Studies
             Germany          United Kingdom        Netherlands
                                                                                                                           Fig. 3: Boston Consulting Group - study
                                                                                                                               covers retail, technology, consumer
                                                                                                                                     packaged goods, automotive,


                                                                                                                      3
PREPARED TO SPEND

But what does all this mean to the retailer? The good news is that customers who research
online and purchase offline are not only better informed; they’re also prepared to spend
more. In one study, French entertainment and electronics retailer FNAC found that in
Spain ROPO customers spend around 33% more in-store than those who have done no
online research (Fig. 4).
   The penny is beginning to drop as retailers recognise that customers who interact
with them across different channels are more attractive and profitable than single-channel
customers. The amount that a customer spends is still most heavily influenced by in-store
merchandising and the ability of store staff to up-sell. However, Google’s research suggests
some interesting links between online research and higher basket size.

Fig. 4 FNAC: Basket size and amount spent on TVs

                                   €701



          33%
                                                   €526
       MORE SPEND




       Researched online                                             Did not research online



In a recent coupon-based study with German shoe and accessory retailer Goertz, for
example, Google made an interesting discovery: Although only half as many coupons were
redeemed offline as online, the average spend per customer and redeemed coupon was twice
as high offline (Fig. 5).


Fig. 5 Goertz: ROPO effect on gross sales of shoes / apparel




 +51%                                  For every 100 coupons redeemed through
                                       the online shop, a further 51 coupons were
                                       redeemed in-store.




 +93%
                                       But the sales revenues derived from customers
                                       who performed ROPO was disproportionately
                                       high. For every €1 of sales generated online,
                                       another €0.93 of offline revenue was generated.




                                                                                               4
WHY ROPO?

So why do consumers research online but then buy offline? Why don’t they just buy while
they’re on the site? There are still issues of trust, usability and availability surrounding
eCommerce, all of which can be seen as factors that push consumers towards purchasing
offline (Fig. 6). But the reasons why a consumer actively chooses to research online before                                            Fig. 6 Reasons for
buying in a store are not so well understood and quantified.                                                                           not buying online
    What we do know is that many go online to research product features and specifications,
to compare the product against competitor products, to compare prices, and to locate                                                          54%
stockists. In the FNAC study, Google asked ROPO customers buying electronics why they
researched online, then bought in-store. Wanting to see the product first, and seeking
the instant gratification of taking the product away immediately were the reasons most
frequently offered.

                                                                                                                                     Wanted to see the product
Fig. 7 PC City and Carrefour: Understanding the drivers of offline sales                                                                 before purchase


                                                                                                                                              16%
                                                    Base sales



                                                   Seasonality




                                                                                                                       %
         11%                                                                            10%



                                                                                                                   2.7

                                                                                                               0. %
                                                                                                                 1.3
                                                                                                                 7%
                    5%                                                                            5.9%
                       2%




                                                                                                              1%
                                                                                                                           8%




                                                                                                           1.
                                                   Regular price                                                       0.
                                                                                   %
                                 15




                                                                               1
                                                                             8.
                                   %
  12%




                                                                                                                                       Wanted to take away
                                                  TV advertising
                                                                                         of in store sales                                 immediately
                                       3%




                                                                     11.6%




        conversations driven                1%                                         comes as a result of
                                            1%
 8%




                                                                                                                                              12%
                                                 Price promotion



                                                    Catalogues
                                                                                                                   e
                                                                                                                al
                                                                                                              s




                             s                                                                             es
             42% Base sale                                                                             Ba s
                                                 Press/Display ads                               57.5%



                                                   Radio & OOH
               PC City                                                                      Carrefour

                                                                                                                                         marketing online
                                                   Other drivers


TARGETING ROPO CUSTOMERS                                                                                                                      11%

A significant proportion of all online research takes place on retailers’ own domains, and
their websites are therefore vital to generating leads and driving on- and offline conversions.
There are plenty of eCommerce analytic tools to measure a website’s effectiveness in
driving online sales. But making the link between a website and in-store sales is more
challenging, as correlating online traffic to seasonally fluctuating offline sales requires                                             Product availability
modelling capability.
    However, retailers with a baseline understanding of the role played by their website                                                       8%
can improve the accuracy of their attribution models and make better informed decisions.
In a recent study with PC City in Spain, Google assessed the role of the retailer’s website
against other sales and marketing activities in driving on- and offline sales, and found
that PC City’s website delivered 11% of all offline sales – almost a third of all marketing-
influenced sales. Likewise, French supermarket Carrefour knows that 10% of its in-store
sales are driven by online research (Fig. 7).                                                                                       Questions about the product




                                                                                                                                5
USING ONLINE ADVERTISING

Establishing the relationship between website visits and in-
store sales begs an important question: What impact would
sending even more traffic to the site have in terms of offline
sales? Of course the answer varies from case to case, but
Google’s research suggests that sending more traffic to a
website drives incremental offline sales. For example, at
French retailer Auchan, a single percentage point increase
in web traffic led to 0.23% more sales in-store (Fig. 8).
    And even better, marketing online is cost effective.
Switching investment from TV to online advertising can


Fig. 8 Offline sales impact of sending 1% more traffic to the website / increasing distribution of other media by 1%
(indexed to website, original value = 0.23% lift in category sales)


     100
                                                                                                      as increasing catalogue distribution (unit
                                                                                                      sales indexed to 100 sales)

                                                                                                      The presence of competitor media has a


                    48
                                  30
                                                 22
                                                                13
                                                                                9              9                  4                   -2


                  Catalogues   Manufacturer   Manufacturer   Auchan Radio   Manufacturer   Auchan Press       Manufacturer       Competitive
    Auchan.fr                     press         outdoor                        radio                              TV                TV




drive increased unit sales for the same overall investment,
or in the case of L’Oreal, drive the same offline sales for
less investment (Fig. 9). By swapping TV advertising for
YouTube advertising, L’Oreal recorded 2% higher unit
sales at 13% lower cost, and also discovered that serving
YouTube advertising on top of its TV advertising helped to
maintain sales over a longer period after the TV campaign
ended (Fig.10).
    A retailer’s success in driving incremental offline sales
depends on the level of existing investment in digital
marketing (“Where am I on the yield curve?”) and how
much market competition there is for additional website
traffic (“What will be the on- and offline ROI of incremental
acquired website traffic?”).
    Both questions can be answered through a combination
of econometrics modelling (to develop hypotheses) and
experiments (to validate them). These experiments can
provide valuable insights for generating incremental multi-                                                            Fig. 8: Marketshare Partners




                                                                                                          6
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How Online Research Influencing Offline Purchase

  • 1. White Paper | December 2011
  • 2. Everybody knows that eCommerce is big business – it’s now estimated to be worth a staggering £5 trillion a year.1 But that’s only half the story. Consumer businesses have poured enormous resources into understanding web analytics and online attribution models, and have racked up impressive online sales as a result. But the job is far from over, and retailers who want to stake their claim in the new digital frontier have already moved their wagons on. They’ve realised that if the last five years were about selling online, the next five years will be spent working out how to use online to influence the way that customers spend money offline, in real bricks and mortar shops. This is a hugely exciting field, and it has the potential to return significant rewards for those prepared to act now. There is still much to be understood about how on- and offline behaviours join up, but from its work with European clients, Google is able to offer a set of compelling insights that will help retailers form a more rounded picture of their customers’ activities – and create a more fluid pathway from online research to offline purchase. EXECUTIVE SUMMARY For those immersed in eCommerce, it can be easy to forget that the vast majority of purchases still take place offline – more than nine out of 10. But it’s crucial to remember that four out of 10 people prefer to ROPO – research online, purchase offline. That’s 40% of the market that most retailers don’t properly understand, and this at a time that broadband availability and smartphone use are ensuring ever more research is done online. Bricks and mortar retailers used to metrics such as sales-floor performance 1 McKinsey & Company report The great transformer: The impact of must now also measure the role of their website in driving sales in their stores – only then the Internet on economic growth and can they get under the skin of these increasingly valuable customers. prosperity – October 2011. 2
  • 3. RESEARCH ONLINE, PURCHASE OFFLINE Fig. 1 Today’s buyer is more informed than ever Levels of online research have increased dramatically over 60 the last decade, both by consumers who go on to buy online Percentage of retail buyers performing ROPO 55 48% and those who purchase in-store. As the chart opposite 50 shows, in Europe the internet has become the starting point 45 39% 40% for close to half of all consumers who end up purchasing in 37% 40 a store or via a call centre (Fig. 1). 35 33% Think about the last time you bought a car. The chances 31% 30 are that 10 years ago you would have read a selection of 25 magazines, visited dealerships and made your selection. Percentage of all retail sales made online 20 Today you’re far more likely to do your research online, 15 9% accessing the vast amount of reviews, opinions and statistics 6% 5% 10 3% available, before making your journey to the same dealerships 1% 1% 5 to strike a deal and buy the car. France Germany Italy Netherlands Spain UK 0 But it’s misleading to think that ROPO applies only to those big-ticket items that you feel compelled to see, touch and smell before purchasing. While online research is more Fig. 2 ROPO customers search online almost as frequent and takes place over a longer period for bigger, intensively as customers who actually buy online NO. OF SEARCHES more considered purchases, ROPO is also found in other less considered categories. And customers are serious about 9.2 10 it – as the chart opposite shows, those researching online 9 but buying offline search online almost as intensively as 7.6 8 those buying online (Fig. 2). 7 Take, for example, the following three categories: mobile 6 phones and contracts; ADSL broadband; and high street 5 fashion. None of them could be deemed a large, considered 4 purchase, but in each case, consumers undertake high 3 levels of online research. In fact, half of all buyers in these 2 categories research online before buying offline. 1 To put all of this in context, in the UK alone, ROPO 0 Purchase online business is thought to be worth €36bn per annum in the retail, technology, consumer packaged goods, entertainment and finance sectors (Fig. 3). Fig. 3 Retail spend researched online and purchased offline across Germany, the UK and the Netherlands ROPO (€B) 80 61 60 36 40 20 8 Fig. 1: Forrester’s Q1 2011 eCommerce 0 Forecast, and Consumer Commerce Barometer (TNS / Google / IAB) Fig. 2: MEP Studies Germany United Kingdom Netherlands Fig. 3: Boston Consulting Group - study covers retail, technology, consumer packaged goods, automotive, 3
  • 4. PREPARED TO SPEND But what does all this mean to the retailer? The good news is that customers who research online and purchase offline are not only better informed; they’re also prepared to spend more. In one study, French entertainment and electronics retailer FNAC found that in Spain ROPO customers spend around 33% more in-store than those who have done no online research (Fig. 4). The penny is beginning to drop as retailers recognise that customers who interact with them across different channels are more attractive and profitable than single-channel customers. The amount that a customer spends is still most heavily influenced by in-store merchandising and the ability of store staff to up-sell. However, Google’s research suggests some interesting links between online research and higher basket size. Fig. 4 FNAC: Basket size and amount spent on TVs €701 33% €526 MORE SPEND Researched online Did not research online In a recent coupon-based study with German shoe and accessory retailer Goertz, for example, Google made an interesting discovery: Although only half as many coupons were redeemed offline as online, the average spend per customer and redeemed coupon was twice as high offline (Fig. 5). Fig. 5 Goertz: ROPO effect on gross sales of shoes / apparel +51% For every 100 coupons redeemed through the online shop, a further 51 coupons were redeemed in-store. +93% But the sales revenues derived from customers who performed ROPO was disproportionately high. For every €1 of sales generated online, another €0.93 of offline revenue was generated. 4
  • 5. WHY ROPO? So why do consumers research online but then buy offline? Why don’t they just buy while they’re on the site? There are still issues of trust, usability and availability surrounding eCommerce, all of which can be seen as factors that push consumers towards purchasing offline (Fig. 6). But the reasons why a consumer actively chooses to research online before Fig. 6 Reasons for buying in a store are not so well understood and quantified. not buying online What we do know is that many go online to research product features and specifications, to compare the product against competitor products, to compare prices, and to locate 54% stockists. In the FNAC study, Google asked ROPO customers buying electronics why they researched online, then bought in-store. Wanting to see the product first, and seeking the instant gratification of taking the product away immediately were the reasons most frequently offered. Wanted to see the product Fig. 7 PC City and Carrefour: Understanding the drivers of offline sales before purchase 16% Base sales Seasonality % 11% 10% 2.7 0. % 1.3 7% 5% 5.9% 2% 1% 8% 1. Regular price 0. % 15 1 8. % 12% Wanted to take away TV advertising of in store sales immediately 3% 11.6% conversations driven 1% comes as a result of 1% 8% 12% Price promotion Catalogues e al s s es 42% Base sale Ba s Press/Display ads 57.5% Radio & OOH PC City Carrefour marketing online Other drivers TARGETING ROPO CUSTOMERS 11% A significant proportion of all online research takes place on retailers’ own domains, and their websites are therefore vital to generating leads and driving on- and offline conversions. There are plenty of eCommerce analytic tools to measure a website’s effectiveness in driving online sales. But making the link between a website and in-store sales is more challenging, as correlating online traffic to seasonally fluctuating offline sales requires Product availability modelling capability. However, retailers with a baseline understanding of the role played by their website 8% can improve the accuracy of their attribution models and make better informed decisions. In a recent study with PC City in Spain, Google assessed the role of the retailer’s website against other sales and marketing activities in driving on- and offline sales, and found that PC City’s website delivered 11% of all offline sales – almost a third of all marketing- influenced sales. Likewise, French supermarket Carrefour knows that 10% of its in-store sales are driven by online research (Fig. 7). Questions about the product 5
  • 6. USING ONLINE ADVERTISING Establishing the relationship between website visits and in- store sales begs an important question: What impact would sending even more traffic to the site have in terms of offline sales? Of course the answer varies from case to case, but Google’s research suggests that sending more traffic to a website drives incremental offline sales. For example, at French retailer Auchan, a single percentage point increase in web traffic led to 0.23% more sales in-store (Fig. 8). And even better, marketing online is cost effective. Switching investment from TV to online advertising can Fig. 8 Offline sales impact of sending 1% more traffic to the website / increasing distribution of other media by 1% (indexed to website, original value = 0.23% lift in category sales) 100 as increasing catalogue distribution (unit sales indexed to 100 sales) The presence of competitor media has a 48 30 22 13 9 9 4 -2 Catalogues Manufacturer Manufacturer Auchan Radio Manufacturer Auchan Press Manufacturer Competitive Auchan.fr press outdoor radio TV TV drive increased unit sales for the same overall investment, or in the case of L’Oreal, drive the same offline sales for less investment (Fig. 9). By swapping TV advertising for YouTube advertising, L’Oreal recorded 2% higher unit sales at 13% lower cost, and also discovered that serving YouTube advertising on top of its TV advertising helped to maintain sales over a longer period after the TV campaign ended (Fig.10). A retailer’s success in driving incremental offline sales depends on the level of existing investment in digital marketing (“Where am I on the yield curve?”) and how much market competition there is for additional website traffic (“What will be the on- and offline ROI of incremental acquired website traffic?”). Both questions can be answered through a combination of econometrics modelling (to develop hypotheses) and experiments (to validate them). These experiments can provide valuable insights for generating incremental multi- Fig. 8: Marketshare Partners 6
  • 7. channel sales, and for informing decision-making about Fig. 9 Vodafone: Effect on in-store sales of running where the next pound, euro or dollar of marketing budget AdWords search engine marketing would be best spent. For example, Google recently worked with Vodafone in the UK to test incremental opportunity using AdWords search engine marketing (SEM). It was found that SEM £ sales drove 27,000 incremental store visits, which led to 1,200 incremental sales, or a 1.5% lift in units sold. SEM was found to have an even greater impact on in-store sales than online sales (1.75 in-store connections for every one for every online) and perhaps most importantly, Vodafone received an impressive £4.26 in sales for every £1 spent on AdWords. £ spent Fig. 10 L’Oreal: Swapping some TV spend for a mix Fig. 11 L’Oreal: YouTube and GDN helped maintain including YouTube achieved significantly the same sales at a high level after the TV campaign had ended amount of sales for 13% less budget Television YouTube plus TV and GDN 128 130 125 120 120 124 115 117 110 100% 87% 105 Budget Budget 13% 15% 102 100 100 Lift in sales Lift in sales Before campaign During TV After TV Base: In-store sales (measured at the POS level) TV only YouTube revenue swap TV with YouTube on top Fig. 10 & 11: Marketingscan Next steps ROPO customers demonstrate huge commercial potential, and our data continues to uncover compelling evidence for the web’s ability to drive offline sales. To join us in exploring this latest digital frontier contact your Google account representative to discuss how your organisation could address the following questions: 7