We all observe the shift towards digital in retail but there are still several challenges that it doesn’t cope with. Why is virtual shopping not ready yet to replace analog shopping for high-priced products? What was the impact of the pandemic on purchasing behavior at local stores? Karsten Holdorf, Managing Director at gap intelligence GmbH, answers these questions in an interview with Dealavo.
Aleksandra Hołownia, Dealavo: The previous year has brought many changes to the retail industry – both online and offline. What are the changes in business models or customer behaviour that you observe?
Karsten Holdorf, gap intelligence: What I should say upfront is that we, as gap intelligence, track retailers’ promotions for products that are produced by manufacturers like Samsung, Electrolux, etc. So we observe the whole retail as such.
There is of course the differentiation between the traditional analog retail stores and e-commerce – they were always considered as two worlds: online and offline. But what we can see now (not only due to the pandemic, but the pandemic was an accelerator and the catalyst for the whole process), is the shift towards digital for specific products.
We also see a specialization of the online channels for specific categories and more efforts from the retailers regarding the trade marketing activities happening online. But we also see where online retail is not present yet.
One of the examples is window shopping. In former times, when you needed a product that you use in your daily life (let’s say coffee pads or ink cartridges), you either bought it online or went around the corner to buy it – especially when the shipping cost was comparably high. And then you would do window shopping – see what else you could buy. And due to the pandemic, that certain process of window shopping doesn’t exist anymore. All those convenience products have become more attractive to buy online – you can avoid contact with people, stay at home and protect yourself.
On the other hand, it’s different with higher-priced products, like really large TVs or kitchen appliances. These are the items that customers don’t necessarily want to buy online – they want to have a possibility to try them out first.
A.H.: How about the solutions that seem to be somehow in the middle, such as click & collect? Do they answer some of those needs?
K.H.: Not really – click-and-collect implies that you already made your commitment to the purchase. That you already made the decision that you want to buy this specific Samsung TV. Before you buy it, you want to see with your own eyes whether the resolution or the picture quality are as impressive as the manufacturer wants you to believe. And it’s something you can’t do online. You have to go to the store. And when you are there, you can check the picture quality, you can navigate through the menu, and you can also discuss your requirements with the salesperson.
Of course, there are virtual assistants that can give you a recommendation in an online store. This is the future, as well as augmented reality and virtual reality shopping. For example, some retailers presented their first virtual stores which you can visit with your VR glasses. That’s nice, but for now you are not able to replicate the high resolution experience of an 8K TV with your VR glasses. That just won’t work yet.
When it comes to the click & collect, it plays a certain role, especially for people that care about where they buy products. For the time being, it was very convenient and affordable to buy, let’s say, on Amazon – huge assortment, nice marketplace, cool prices, very easy to buy. But with the pandemic, people noticed that there were many stores in their direct neighborhood that they haven’t used. And now, the neighborhood is affected by the effects of the pandemic and these stores can go bankrupt. But they are the ones that pay regional taxes and support the community. So the people started thinking: “I can buy this product online for 15 euros but they don’t support the community. Locally, I can buy it for 16 or 17 euros, but with the surcharge, I support the seller whose son goes to school with my child and who contributes to my community”.
So currently, people have completely changed their minds about purchasing decisions at stores. On the one hand, it is safe and convenient to buy online. But on the other hand, many people want to support the local retailers – you can see it by hashtags, such as #supportyourlocal. And that’s where click & collect is helpful.
One of the massive developments in the next few years will be the drive towards marketplaces. There will be fewer large monobrand online stores but there will be more and more marketplaces. Getting the right connection to those marketplaces will be key for small analog stores – they have to be seen online because people are online. And I think that helping those smaller stores with their online presence and getting things connected will be relevant, also for such companies as Dealavo.
A.H.: You mentioned the loyalty towards the local retailers. Is it possible to gain such loyalty online as well, or is it specific for traditional retail?
K.H.: What you need to think of, is what is your USP. If you are a small retailer, you need to think of what differentiates you from a store shipping from China or Poland where the rents are lower. What is your USP? It is your location. It’s to offer the click-and-collect. It’s to offer the after-sales service and to offer the possibility to test the product before the purchase. I wouldn’t drive to China or Poland to check a TV but I can do it in one of the stores in Düsseldorf. A store needs to have a certain presence online because customers search for information about products online.
Price is not always the most important factor, but it has an impact. You have to have the right price management: to be attractive (because if you are too expensive, you won’t sell) and to have a certain margin as well. So you need to think of what your “USP” is and highlight it.
For local stores, communication online is difficult. As I mentioned, there are no traditional window shopping possibilities. What can you do if you want to actively communicate a product or promotion? You can send a newsletter but, due to the GDPR, only to a person that wants to be informed about the products. He has to give you his email address and agree to receive advertisements from you. And, let’s be honest, that’s usually the first box people uncheck.
That’s why traditional flyers are still the most powerful way to reach an unaddressed customer. Even if he might not want a flyer, he has one in his mailbox. And even if he didn’t want it, he might read it. He sees a TV on the front page and thinks of the upcoming European Championship. And then you see him in the store. Doing that online is extremely difficult.
A.H.: I think that here comes another aspect – some people can find physical flyers unsustainable. For the same reason, they can avoid shipping from different countries. How important is sustainability currently?
K.H.: That is a certain aspect. I think that there are already some initiatives that want to forbid flyer promotions. Flyers cause pollution but when you look at online retail, it causes massive pollution as well. Think of logistical chains of the major Pure Players. When a customer buys a product from a different country and doesn’t like it, he puts it in the box, prints a return ticket, and the product gets shipped all across Europe once again.
Of course, sustainability is extremely important. And this is another advantage that the local stores have – their supply chain is more sustainable. Customers can go there, see and touch the product, and if they don’t like it – they simply won’t buy it.
A.H.: And how about customers that, as you mentioned, go to the store, see the product, touch the product, but don’t buy it – they go home and buy it cheaper on the Internet? Is there anything that retailers can do about it?
K.H.: You, as a retailer, can’t prevent someone from coming to your store. Generally – what you described is a classical phenomenon of unsocial buyers. Some might call it smart. I would say that if a person comes to a store and gets in interaction with a sales manager or sales representative, for example to ask for recommendations, he already uses the service and it’s already a part of a certain contract. A contract that if you use a service, you pay for it.
I think that it’s the role of a salesperson – to convince the customer with the service and the product promise. The client should know that if there is anything wrong with the product, he can simply go across the street to have it fixed. He doesn’t have to chase through several hotlines and emails to get a reply on the broken device. He doesn’t have to ship it at his own cost.
A.H.: Such a promise is something that differentiates traditional retail and online retail. You, at gap intelligence, are specialists in the analysis of the 4Ps from the marketing mix. What are the differences between the analog and digital worlds from the 4Ps perspective?
K.H.: The difference is that e-commerce is always mostly price-driven. That’s because you have nearly unlimited choice. You can go on, let’s say, Idealo, sort the offers by the price and you will probably pick the first one that you trust. It has little to do with customer retention – a certain retailer is just one of many.
Online, you have nearly an unlimited offer. In a traditional store, your shelf is limited, so you aren’t able to have, for example, 200 TVs. And that’s the advantage of the internet. The advantage of offline, on the other hand, is the possibility of trying and presenting the product. And it’s especially true for the high-priced products, for which the recommendation, pre-sale and after-sale service are particularly important.
A.H.: You have mentioned a few situations when customers usually prefer buying offline. Are there any types of companies or industries that can struggle with moving online?
K.H.: In the markets that we care for, such as technical consumer goods or home appliances, online trade has become an elemental part of the business. I think that what might be the challenge though, is to understand the customers online. You need to understand them now and remember that their requirements change regularly. It’s not enough to know your target customer once. Their behaviour might be affected by many factors, such as, as we mentioned, sustainability. Before the pandemic, such movements as Fridays for Future had a lot of traction and the topic of sustainability was very dominant. Due to the pandemic, it has fallen off the table. When the pandemic comes, hopefully, to an end, the sustainability aspects might be back on the table. But maybe there will be other problems and challenges that will impact the clients’ behaviour. And then understanding them will be the key to success.
In such industries as FMCG, companies implement loyalty programs to understand customers better. Many tech retailers also try to implement them (or have already implemented them), but the frequency of shopping in this case is too low to truly understand a customer. You don’t buy a TV every 4 weeks.
A.H.: How, then, can such companies understand their customers better?
K.H.: It’s easy to say: market research. You need it to connect the dots, to analyze your customers. Many brands try to do it with cashback campaigns, for instance. It is a classic way to incentivize the retailer, but also to be attractive to the consumer because of the reduction afterward. The consumer then gets the money from the brand directly. In return, he has to sign up on the website with a lot of information extremely valuable for the brand. The brand is then able to answer more and more questions, such as: What kind of customers do I have? How old are they? What is their gender? Where do they live? What are their preferences, etc.
All those consumer insights are important to make a perfect combination of the right assortment and the right prices.
A.H.: Brands don’t sell to one type of consumers only. Is it better to be consistent or have different marketing and pricing strategies across different customer segments?
K.H.: Yes, that’s definitely a point. There is probably no one “fit for all” marketing strategy. When you know your customers, you have to address them in the right way and with the right promotions – no matter if it is online or offline.
For example, in Spain, online shopping is under the EU average. People like to go out in the evening and then do some shopping and meet with their friends. For them, online shopping can be more of a burden than a relief. There are several factors like that that you should consider when trying to determine the right strategy.
You can also see differences between different brands’ clients. An average client of a 65-inch LG TV will be different from an average client of a 65-inch Samsung TV.
Knowing such differences helps you in answering questions: Where should I market my product? Where do I display them?
In the FMCG or in the food channels, you have microtargeting and an individual, client-by-client approach. For consumer electronics, it is too sophisticated. But you need to have the right approach to, let’s say, four or six customer segments with the products that you have. And that is extremely important.
A.H.: During our conversation, you have already mentioned a few ways of promotion. Do you see big differences across different channels in this regard? Are there any new ways of promotion that turned out to be especially successful?
K.H.: Frankly speaking, I don’t see many new ways of promotion, especially if we exclude some fancy high-tech stuff, like the VR approach. That is, of course, interesting, but it is not too deep in the market yet.
I recently saw a report about Media Markt’s approach to new teleshopping on Youtube for the new Google Nest product series. It was called a “new sales style” but it is actually something that has been in the U.S. for around 40-50 years now.
I think that there are many creative people in the advertising industry. And I don’t think that there is anything that hasn’t been invented yet. It is just a question of how to assemble it and how to put, as we say in German, old wine in the new bottles.
In reality, it’s all about combining the right things that can make a difference. The biggest challenge is the pre-pay purchase process that usually happened in the store when people don’t even know that they want to buy a certain product. And this process, as we mentioned, happens more and more often online and we need to find the right communication for it.
A.H.: You are a professional, but apart from that, you are a customer as well. Are there any means of communication or promotion that work on you despite your experience? Would you say that some of them are particularly successful?
K.H.: I would say that something that I privately find more annoying than supportive are the situations when you see advertisements that clearly come from your search history. Or even not yours but your wife’s.
K.H.: Yes. I think that the recommendations can be helpful in the purchasing process, but in this case, they are more annoying because it seems like telling me what to do. So this is one of the things that doesn’t work on me, personally.
Probably the best ways of promotion that work on me are the ones that I can’t tell you about because I don’t even notice them.
A.H.: Are there any sources of information (books, articles, etc.) that you could recommend to those who want to know more about e-commerce?
K.H.: I’m not able to recommend one source only because I always try to check a few sources of information.
I do the same thing when I do some shopping investigations. If I want to check prices, I never use only Idealo, but check different options as well. I think this helps me to optimize my online shopping behaviour and pick the option that I prefer.
A.H.: Do you have any final thoughts about the current shape of retail or e-commerce?
K.H.: I think that the biggest challenge for companies like yours is to help small- and medium-sized businesses not to lose connection with customers. They set up their development on more mid-term planning but the situation with COVID accelerated the processes and anticipated the whole growth by 4-5 years. Now they have to keep up with the new challenges extremely fast.