E-Retail - The Revenue Generation

For some time now, we have watched the exponential growth of the internet, with online relating in UK nearly quadrupling in value from £4 billion in 2002 to £14 billion in 2007. But this has essentially been a land-grap-with every offline retailer and business worth their salt establishing a sales presence online. And we have also seen other evolutionary stages-such as the building of so-called brick and click multi-channel strategies.

But now, in 2003 e-business faces a new frontier. With everyone who is serious about the internet having developed a robust e-commerce strategy, now is the time to make it pay. Models that generate as yet unexplored avenues of incremental revenue, by leveraging the volume of customer traffic to sites is the way ahead. The critical mass of shoppers is there - 31 million UK consumers shop online - so e-retailers just need the right business model to take full advantage.

Innovation

To succeed in the increasingly competitive online space e-businesses need to take a fresh look at how they work, at ways they can drive online sales and generated revenue from additional channels. Sales alone are not sufficient to maximise profit opportunities and boost loyalty - e - retailers need to find increasingly innovative ways to monetise their websites.

In many ways it is a question of importing some of the mindset of the high street to the online shopping arena. We all know that a gondola end in Tesco is a prime retail asset, and that bricks and morter retailers scrutinise their footfall and merchandising strategy in minute detail. But is the same level of scientific scrutiny being applied online? Are e-retailers as 'clever', in parting people from their pounds as their high street counterparts?

A brief look at how many e-shoppers abandon their baskets before checking out gives a clue to how e-street could get smarter. A study by MarketingSherpa Research earlier this year found that 52% of US shoppers who started to make a purchase online changed their mind before completing the order. That's an astonishingly high number, and is from an arguably more mature and shop sophisticated e-shopping market than we have here in Europe.

Retail Research

We at Webloyalty examined how e-retailers could be smarter in how they monitise their sites in a report we commissioned from retail specalists, VerdictResearch. The report E retail The Revenue Generation, examined the potential for maximising growth through incremental revenue streams and estimated that e-retailers could generate an additional £130 million per year, growing to an estimated £818 million in extra income by 2011.

This prediction of monetisation growth is only based around the model of third party companies - such as Webloyalty-pitching their offers to a retailer's web traffic. It does not include advertising. Our model works by partnering with e-retail or e-travel sites and offering their customers the opportunity to join our subscription-based benefits and reward programmes. Our offer sits on our partner sites payment conformation page, with the shopper promised £10 off their next purchase with that site if they join our programme. Once subscribed, consumers can take advantage of host of other benefits, discounts and rewards, with over 400 online retailers. When consumers join our scheme, we fund the money off the next purchase, helping our partners generate repeat visits, and we also pay them a fee for each consumer joining the programme, furnishing them with incremental revenue.

To achieve the full potential of website monetisation, e-retail needs to continue booming - and it will. Currently Verdict estimates that the online retail sector is worth around £13.8 billion, still a modest 4.9 percent of all retail consumer expenditure.

By 2011, it forecasts that e-retail sales will be worth £29 billion, a more significant 9 percent of all retail spending. Over the next five years the e-retail market will more than double in size, growing by just over 102%. Comparatively, overall retail will grow by less impressive 12%.

Shopping Around

But to access these new revenue streams, e-retailers also need to be smarter about understanding the difference between how shoppers behave on and offline. For example, 'shopping around' is far more prevalent, thanks to the ease of price comparison, which, in turn, makes online shoppers far more price sensitive and less loyal. Music, video and electricals is the most promiscuous retail sector. In both, online shoppers use an average of five retailers, compared to two offline.

Although attracting the most fickle shoppers, music and video is predicted to the biggest online success story. Verdict forecasts that online music and video retailers will account for over half of the online sales sector by 2011, fueled by the popularity of digital music downloading. So, the incentive for understanding behaviour in this area, and coming up with a suitable monetisation strategy, is particularly high.

Combating cart abandonment by following up lost purchases and encouraging repeat purchase through a smart use of loyally, relationship management and incentivisation tools will become key. As will looking at every page on a site and testing new ways to make them pay. We have found a route for monetising the previously 'dead' transaction confirmation page, but what other opportunities are there?

As we head into 2008, these and other questions promise to make it a fascinating time for online business. As they used to say about another new frontier-"there's gold in them there hills!