Martin Child, the Managing Director of Webloyalty, explains how online retailers can gain a share of a £220m opportunity by securing new revenue from existing customers.
The past decade has seen a tremendous move towards online, from news sources to entertainment, from social life to shopping. One of the sectors that has been forced to adapt drastically is the retail industry.
After dipping their toes in with safe products such as books and DVDs, shoppers overcame their fears of buying products online when retailers started offering free returns on items such as clothing. It is no surprise that the online channel is now growing faster than the traditional channel, clearly demonstrated by once tiny start-ups such as Amazon overtaking existing retail giants in a matter of years.
According to Verdict Research, ten years ago, online retail was worth an estimated £1bn and accounted for just 0.5% of all retail spending. However, in just ten years, it has grown by an average of 37% per year and is now worth over £20bn, with 7.3% of all purchasing going through the online channel.
In those first ‘land grab’ periods after the emergence of a new disruptive technology, growing a business can be relatively easy. One of the main drivers of this rapid growth in online retail has been the surge of new shoppers dipping their toes into online shopping each year. A mere six years ago only one in four shoppers used the internet, now it is one in two. The sheer number of new shoppers entering the market was enough to drive sales increases.
However, the online channel is maturing and now online retailers are facing a severe slowdown in new customers – not just resulting from the recession. Retailers must therefore turn their attention to driving repeat business – shifting effort away from just attracting new customers and instead focusing on adding value and extra benefits for their existing customer base and driving repeat business. Those retailers that try to win on price and product alone will be outsmarted.
Despite growing by 13.3% in 2009, the findings from Verdict suggest that internet retail has been significantly impacted by the recession – costing internet retailers an estimated £1.6bn in lost revenues that would otherwise have been gained had the economy not suffered recession.
Recovery from the recession, and facing a more mature market, calls for more sophisticated income strategies for the online retailer. Many consumers will continue to grow in confidence and begin to treat themselves once again. They will be more willing to buy higher priced goods. However, they will still be cautious and a likely trend will be to buy fewer but higher priced items. Online retailers cannot rely on heavy traffic and new custom, they need to recognise the increasing importance of providing their existing customers benefits that attract repeat business and maximise the revenue streams on their sites.
This is why retailers should look to generate additional revenue from existing pages on their sites. Retailers invest significant sums attracting visitors to their sites so that customers will spend money with them. Verdict estimates that at the end of last year the potential value of this so called ‘monetisation‘ of retail websites, excluding any revenue from advertising banners, was already worth up to £220 million. And, as the online channel continues to grow, this will only increase: potentially up to £949 million by 2013.
The process behind generating an ancillary revenue stream from existing pages is pretty straight forward. All it takes is allowing third parties to market their offers to a retailer’s web traffic. These offers can take various forms, a discounts and rewards programme, a similar membership scheme or perhaps a one-off tactical offer. These third parties will remunerate online retailers for the privilege of being exposed to their web traffic.
Because these revenues can be generated at a very low cost, monetisation of otherwise static pages can be very beneficial. Usually the right partner in this field can manage the whole process, leaving retailers to focus on what they are good at: selling products.
All online retailers are required to do is promote the carefully chosen third party offer on their site. This can be as simple as adding a small advert or a click-through link. These can be placed on existing ‘non-transactional’ pages such as payment confirmation pages, turning these previously static pages into ancillary revenue generating areas of the site.
Tougher times such as these are the ideal time for retailers to reduce their dependency solely on sales for generating revenue. Now the online retailers must work smarter with more sophisticated online strategies to gain additional revenue streams on top of sales. A strategic partnership with the right company that offers added value services to customers can hold the key to unlocking this additional revenue from existing web pages and existing customers.
By Martin Child
Managing Director
Webloyalty
www.webloyalty.co.uk
