The Secret of Effective Online Merchandising – All About Behavioral Merchandising

Behavioral merchandising is the art and science of using customer behavior to place, promote and display products in order to maximize retail sales revenue. In an online retail context, examples includes using data on where visitors come from, what they search for, what they click on and what they buy, to drive as relevant product promotions to each visitor at every point of interaction as possible.

Example applications include features such as “people who, like you, came here from… searching for… usually ended up buying…” and “customers who bought this item also bought…”.

Behavioral merchandising was originally made famous by Amazon.com, but has evolved much further. Today, it is practiced at online retailers everywhere on the globe – companies whose turnover can be anything from $1 million to $1 billion and beyond.

The popularity of behavioral merchandising stems from the fact that it has been proven to be up to 300% more effective than customer segmentation in impacting sales per visitor through raising conversion rates and average order values.

Behavioral merchandising offers a personalized shopping experience for visitors that is highly relevant, trustworthy, and that adapts to changing customer preferences automatically. The automation aspect also means it offers retailers an opportunity to cut costs of manual merchandising, while at the same time achieving better results.

What is merchandising?

“Merchandising means maximizing merchandise sales using product selection, product design, product packaging, product pricing, and product display that stimulates consumers to spend more. This includes disciplines in pricing and discounting, physical presentation of products and displays, and the decisions about which products should be presented to which customers at what time.”

An Established Practice

To explain behavioral merchandising it is beneficial to first look at its roots.

Merchandising is a relatively old practice used by retail stores to increase sales. Some well-known examples of traditional merchandising include placing and promoting – Candy by the check-outs – Children’s yogurt at the eye level of children – Milk at the back of the store

Predictably, merchandising has migrated into electronic sales and is today a natural part of every major e-commerce site. As in the traditional sense, electronic merchandising is about maximizing the conversion rate and the average order value through displaying the right products in the right way to the right individuals.

Why Merchandising Matters

We have established that retail merchandising is the art of increasing sales, in other words maximizing sales revenue from a given audience of visitors to a retail outlet. To understand the importance of merchandising, we must also put it in relation to advertising, which is basically the art and process of driving an audience of visitors to the outlet in the first place.

A retail outlet will typically want to spend a given amount of money on advertising to drive as much relevant traffic as possible to the outlet – maximizing the performance metric cost-per-visitor or cost-per-click as it is often referred to.

The retail outlet will then want to practice the best possible merchandising in order to convert this traffic into as many buying customers as possible – maximizing the performance metric conversion rate. To generate as much value out of the traffic generated the retail outlet want to make each visitor to buy as much as possible – maximizing the performance metric average order value.

In short, the success of the retailer’s efforts in maximizing cost-per-visitor, conversion rate and average order value will more or less define the sales revenue generated by the outlet. Adding the cost-of-goods-sold margin or average product margin completes the model to define the operating profit that the outlet will generate.

It becomes clear that there are basically four levers that the manager of a retail outlet can pull to try to maximize profits. Unfortunately not all the four levers are under the retailer’s control.

The ultimate aim of advertising, merchandising and purchasing combined is to maximize the operating profit of the retailer. Four key performance metrics that define the success of this process – Cost Per Click, Conversion Rate, Average Order Value, and Cost of Goods Sold margin. But only the Conversion Rate and Average Order Value metrics, which together quantify the success of the merchandising process, are directly under the retailer’s control. ‘ In an online environment much of the traffic is purchased along a CPC-model. CPC is the cost-per click or cost-per-visitor paid to a media company for each visitor driven to the e-commerce site. The CPC-prices are relatively perfectly priced through supply and demand. The retailer must simply pay what the market demands for advertising.

The gross margin for products sold is primarily dependent on the success of the other levers, i.e. on the volume bought by the retailer – so it cannot be pulled independently. This leaves the retailer with two levers that are in his control to maximize: the “conversion rate” and the “average order value”. Together they quantify the success of the retailer’s merchandising process.

In other words, merchandising offers the two levers for profitability that is uniquely in the control of any given retailer to maximize the revenue in order to deliver better financial results than the competition.

Three Methods Of Merchandising

Electronic merchandising can be divided into three methods: mass-, segmented- and personalized merchandising,

Each of the methods can be found also in “offline” retail merchandising – Mass merchandising: The approach that by necessity is used in stores, as the store assortment is the same for every visitor. – Segmented merchandising: The approach typically used by mail order companies, in which separate catalogues are constructed to match the expected interests of a certain user demography (e.g., region, age, gender) or product category. – Personalized merchandising: Shopping assistants or “personal shoppers” who guide the visitor through the store highlighting and recommending items based on their understanding of the user’s profile and needs.

The mass and segmented approaches are typically top-down approaches; one or a small group of people (employees of the retailer) creates and manually administrates the merchandising.

Personalized merchandising is almost inherently a bottom-up approach as it is impossible or exceedingly expensive for the retailer to manually create personalization for each and every customer or product. Bottom-up meaning a web 2.0-like approach, in which all visitors contribute to the merchandising either explicitly (by submitting ratings, reviews, listings etc) or implicitly (by the data they provide through their actions taken on the site)

Explicit contributions are typically made intentionally by a smaller sub-set of all visitors – according to usability expert Jakob Nielsen, as little as 1 out of every 100 users on a typical social site. All visitors, on the other hand, inherently make implicit contributions – intentionally or not. Combined, these user generated contributions can be mined as a collective and form the basis for behavioral merchandising. ‘ What is behavioral merchandising?

Personalized Merchandising

Behavioral merchandising (“BEM”) means using customer contributed behavioral data to automatically achieve a credible and efficient merchandising. BEM was made famous through Amazon’s implementation of “those who bought this also bought”, but has evolved to be much more than that. One might call BEM the combination or intersection of retail merchandising and social networks. In effect, BEM in an online retail context means turning an e-commerce site into a social network focused on creating a pleasant, socially interactive and interesting personal shopping experience for visitors.

As mentioned previously, there are two types of BEM; implicit and explicit. With implicit BEM the actions that are taken by customers – click patterns, searches done, products purchased – are analyzed and used to create the merchandising. Explicit BEM is when customers explicitly say something about a product, for example submitting a review or recommending a product to a friend.

Implicit

– Those who bought this also – Recommendations based on the product currently being viewed. – Based on all your previous interactions with us, our community of users thinks you’re looking for… – Recommendations to an individual customer. – Based on the contents of your shopping cart, our community of users thinks you might want to add one of the following items… – Recommendations based on the content of the basket. – Based on the way you’ve navigated our site so far, our community of users thinks you’re looking for… – Recommendations based on clicks made on a site. – Those who searched for… selected…. – Recommended search results. – Those like you who came here from… searching for… usually ended up buying… – Adaptive landing pages based on the search phrase used on an external search engine such as Google, which site a visitor arrived from, and visitor data such as browser, operating system and language.

Explicit – Ratings & reviews – Share this product with a friend, e.g., by email, link or to a social network – Customer-created product lists

Social Network Service “A social network service uses software to build online social networks for communities of people who share interests and activities or who are interested in exploring the interests and activities of others.” Source: Wikipedia

The Value Of Behavioral Merchandising

The ultimate rationale for BEM lies of course in the superior contribution to financial success that it brings to retailers in comparison to the other available approaches to merchandising. Studies have shown that measured as revenue-per-visitor (i.e., the combined contribution to conversion rate and average order value) the contribution of BEM is up to 300% greater than the contribution that a segmented merchandising approach will give.

The primary explanations to the superior results delivered by BEM lies primarily in that BEM is: – Relevant: Because all customers combined are always more likely to collectively possess greater knowledge about all products as well as the way they are purchased and consumed than a limited team of professional merchandisers. BEM gives each individual visitor a more personally relevant shopping experience, helping each one to find precisely the products or promotions that is most relevant to them in each given situation. FIGURE 3 – COMPARING BEHAVIORAL MERCHANDISING WITH OTHER APPROACHES Personalized merchandising using behavioral methods has proven by far the most effective In studies conducted by Avail at customers, behavioral merchandising has generated up to 300% better results than segmented merchandising by being more relevant, trustworthy and adaptive.

– Trustworthy: BEM is ultimately generated by peer consumers, as opposed to by marketing professionals which is the case in all other approaches, and thus creates trust. Research clearly shows that consumers are much more likely to trust peers than professional marketers, in particular online.

– Adaptive: Because BEM can be made to take into account the collective behavior of all visitors in real-time, it can respond to quickly changing – and sometimes fickle – preferences of visitors and consumers and it can apply that response in real-time from one interaction to another by the same visitor during a visit to the outlet.

Apart from the superior contribution to revenue-per-visitor, BEM has several other advantages over other approaches, including the fact that it can be made highly or completely automated, requiring no on-going human administration or maintenance and so reducing the cost of merchandising operations, even for very large product ranges and very large groups of visitors.

Getting Started With Behavioral Merchandising

In the infancy of behavioral merchandising, e-commerce retailers were often forced by necessity to create their own software, as 3rd party solutions were either unavailable or not mature enough to be practically useful.

However, due to the sophisticated algorithm development necessary, as well as the general cost and organizational impact of large-scale software development, more and more retailers are abandoning in-house developed solutions for cost-effective and proven online merchandising platforms from established vendors such as Avail Inteligence.

Position Position Position – The Secret to Success Online

When you saw this heading you possibly thought of real estate or search engine placement.

While this is very applicable to these two systems I want to take you a little deeper into the concept of positioning yourself for success online.

Position is really a life skill with its own set of stratergies and skills.

Position: A place or location. A strategic area occupied by members of a force. An advantageous place or location. A point of view or attitude on a certain question. Sports. The area for which a particular player is responsible. The arrangement of the pieces or cards at any particular time in a game such as chess, checkers, or bridge.

Over the past seven years I have been involved in Internet Marketing. The first five as part time and the last two years full time. Many people asked how I made the graduation from part time to full time and the answer is always positioning.

The Concept of Positioning.

If you have played or watched sports at any time you will know that positioning is the key to winning or losing. In football you need to be in position to accept the ball if you are going score.

The same applies to your life and business.

My basketball coach always told me that I needed to put all my effort to get into the right position and once I got there I could have a rest. I think you would know …. he lied. Once you get into position there is no rest as you then have to maintain that position.

Positioning is a skill that can be developed:

It is very important to do your homework because positioning is a skill that is developed by training and studying. It is not a haphazard occurrence.

Last year I was looking at a new business I could start up online so I looked at what was growing and developing. In doing this I found that baby boomers are an economic force in the community and that they like gadgets, technology, investments because they are rapidly approaching retirement and health for a similar reason.

I also found that streaming audio was becoming something that people wanted to use on websites without the need for special servers, a lot of technical ability etc. In fact in my research it was the fastest growing multimedia tool people were looking for. So I went out and found a product I could develop to position myself in the middle of this growing market. Hence was born MP3 Sound Stream that allows anybody to add streaming audio to their website easily and simply.

Positioning for life.

I know that we are mainly talking about business in this article however if you do not also use positioning in your everyday life then it will not flow over into your business. Success is a mixture of both personal and business strategies and this is why so many people when they come into large sums of money loose it within five years and are back to where they started if not worse off.

They had not positioned themselves in life to handle the pressures and responsibility of there new found wealth. This is possibly why many people who start working for themselves also do not make much more than they did in their job. They never re-positioned themselves.

Summary

As I mentioned before positioning is a skill you can develop.

1. Find out what position you want or are capable of attaining.

One of my friends is a great sales person. He sells welders and turns over millions of dollars selling this equipment. A few years ago the company he worked for decided that it would be better for him to train a lot of other sales people so they could do even more.

It turned out that the company actually sold less with more sales people because the positioning of my friend to train people was not in his ability. The company actually went backwards so they repositioned him back into sales and re took the market lead again. His position was sales not training.

2. Take action and hold on.

In an instant society we are all looking for the quick fix however we all appreciate those who can maintain a solid position. I belong to an online MLM company and for 4 years nothing much happened however I knew that it was positioned for success. Today it is growing in leaps and bounds. Unfortunately some of my friends left a little too early and have missed out on the benefits of holding on. If you believe in what you are doing do not give up.

3. You don’t have to make millions to succeed online.

The concept of positioning is really all about strategies. Remember the old saying how do you eat an elephant. A bite at a time.

Positioning is the same. You do it a bit at a time. First you learn then you apply. Then you learn some more and then you apply what you have learnt. By being consistent you will see it start to pay off.

Finally let me tell you one last story. While I was writing this article my son was watching a documentary on the salmon in Canada that migrate up river to lay their eggs. Some of the scenes where they would jump up waterfalls bashing against the rocks to get to their final destination impressed me. The point is they would either make it or die trying.

Now there are people who are going to make out that becoming successful online is easy and both you and I know this is a lie. Just like the coach who told me I could rest once I got into position. The fact is it will take hard work and there will be casualties however if you are determined to succeed you will have a better chance of success.

Some people will just find this all too hard so my advice to you is take the easy road and don’t start.

Are You Still Struggling to Make Money Online? Still in the Rat Race?

The concept of Making Money online has taken the internet by storm, with many money making programs being offered to many people and the opportunity seeker’s head space has not been spared at the moment.

Many programs being offered are now competing for the buyers head space that one is left wondering what to lays his hands on.

The recent and the still felt economic recession and depression resulted in many jobs lays off. The majority of the affected individuals definitely looked for an alternative means to supplement the severe reduction in their household income and scores of people who have heard about the concept of making money online over the internet, to them, this was a sure financial guarantee, and in any case try their hands out on it, and at any rate make ends meet. Or rather whether it’s really factual as its is always said that a substantial amount of money can be made online through Network Marketing, Mlm, and all the Internet money making opportunities and games out there.

The humble time taken through this article is possibly to put things as many may have experienced them.
The severe frustration folks have to bare up with after spending their hard earned money on countless internet programs that the only thing they are left up with, is jumping from one opportunity to another together with a masked credit card, for sure this lot has nothing to show for in their pursuit for making money online.

The big questions that rings on my mind continuously, Why the hype? The unrealistic promises? The GRQ (Get Rich Quick) Schemes? I got myself into the world of online business some years back and the bitter pill that I was forced and remained to swallow was the outright failure that ensued the zeal and the dreams that are always associated with making it online. At this juncture, I wish to bring a friendly reminder that the internet is full of crap and junk and – a direct byproduct of any open forum platform. To sandwich this fact is the reality that we live in an era marred by corporate greed and deception and getting the right company that will offer the guidance together with Integrity, Education, Success and the Trust that is becoming the missing link in the many money making machines and programs out there is hard to come by

Other programs and opportunities delivered all they could in their promise and pursuit to making money online i.e. tiny commissions’ checks received, without leverage of time. In achieving this, you have to get used to cold calling all day, prospecting to friends and family and at the end of the tunnel tiny commission checks or no money at all for the effort.

In a nutshell, it is a plain and simple fact that money can be possibly made online as longs as one is involved with the right company, which should definitely provide all the necessary resources and tools that will steer both a newbie and a zealous Internet veteran to heights of success one never thought achievable.

After so much frustration, increasing debt and jumping from one horse to another,outright failure was not an option, and thanks for one time decision and action taken as Napoleon Hill puts it that “Action is the real Measure of Intelligence” The end result? A community of successful Entrepreneurs, where each one is driven by the passion of knowing that success is earned, and leaders are not born but made. Both the newbie and the experienced love the education, the training and not to mention the ideas and one on one coaching by the very successful business coaches.

To crown it all is a very clear and persistence mission that drives the entire Community “100 Millionaires by 2012. Period.
To good to be true? Yes, each passing day and moment, we see how near we are towards achieving the mission and nothing stops the ardent and determined community, just like the migrating Wild beasts of the Kenyan mountains and plains, not even the hungry alligators in the Mara river would stop them from their one clear Mission, Green pastures in the Serengeti Plains!

Are you ready to belt yourself and enjoy the ride of your life?

Collins Omondi,
Network Marketing Coach and Consultant –
Pro Solutions and CarbonCopyPro Marketing