Archive for “Ideas”

“The state of the art of online retailing is moving very very slowly.”—Seth Godin

If the web is a customer service medium, why is most web customer service so awful? Because online retail has barely even started. Sure, we have Amazon and eBay. But most online grocery shopping and banking services are anachronistic, organisation-centred, and dominated by monolithic bricks and mortar companies. Why isn’t there an Amazon for groceries or an Apple for banking?

(Note: this article focuses on the UK market, because that’s what I know. The principles apply everywhere, but the details and timing will be different.)

Old barriers to entry, weak competition

Banks and supermarkets benefit from barriers to entry which restrict competition. Although these barriers are crumbling, you wouldn’t know it from looking at competing online services, which suffer from weak product ranges, mediocre customer service, and low quality content—creating a poor user experience.

I call it the “take it or leave it” approach to customer service. Right now, they can get away with it, because there’s hardly any competition. Simply offering a way to transact online is enough to keep customers. But that won’t be true for long.

Let’s discuss two traditional barriers to entry: property and limited access to information.

Barrier to entry 1: control of property in prime locations

Supermarkets limit competition in grocery sales by owning strategically important property. [1] They build stores in prime locations. Before the web, the only way to compete was to build another supermarket nearby.

The equivalent in retail banking is branch networks. You know the mantra: a branch on every high street, enabling customers to open accounts, apply for credit, and deposit and withdraw money. Before the web, to set up a competing bank you’d need to invest in a branch network.

But now, using the web, customers can interact with supermarkets and banks without ever entering a shop. At some point in the future, owning property will create a competitive disadvantage, because of the huge costs.

Barrier to entry 2: limited access to information

The business models of supermarkets and banks depend on customers having limited access to information.

First, pricing. Pre-web, supermarket chains would charge higher prices for a given product in stores in wealthy areas, for example. They’d only compete on price with other stores within a given distance. [2] This is already more difficult because most of the supermarkets’ own websites publish prices that are presumably available nationwide. Likewise, in the past the only way to get detailed pricing information for banking services (interest rates, insurance premiums, credit card fees, etc.) was to traipse around the high street, queue up, and request a quotation. Now there are hundreds of price comparison websites that do it for you. The business model assumes that you’ll generally accept pricing as competitive—without really checking—an assumption that’s no longer valid.

The flip-side to pricing is quality: how good is this stuff, and could I find better quality elsewhere? That question is almost impossible to answer standing in a supermarket aisle, but sitting at home with your iPad, it only takes a few taps. The supermarket business model assumes that customers are willing to give up some control over quality in return for the convenience of a single weekly shop. My quality “gluggable” wine may be your cheap plonk—but the supermarket sells a mass-market compromise that we’re both prepared to buy. They’re assuming that neither of us has access to information about alternatives that would suit our needs better. Banks’ one-size-fits-all services follow the same pattern.

Retail branding: better the devil you know

This helps explain why branding is so important to supermarkets and banks. You choose a brand like Tesco or HSBC, and then you trust that brand to provide the products and services you need, at a fair price. This is backed up by advertising campaigns featuring housewives patting their back pockets in supermarket aisles. The message is: it’s too difficult to do your own research, so trust us to get you the products you need at the best prices. The unsavoury subtext is: if you don’t like it, that’s too bad, because the only alternative is another big brand. (Banks’ brand messaging also plays up security: we can afford branch networks and fancy TV ads, so your money’s safe with us.)

The web erodes these barriers to entry

The web erodes both of these barriers to entry. Given the opportunity, some customers will order groceries online, apply for banking services online, or manage their money online. And the near-universal spread of internet access (in the UK) means that customers have access to a huge amount of information about pricing, product quality, and whether they can trust organisations.

Current online retail services are anachronistic

So if that’s all true, why are supermarkets and banks doing just fine? Because nobody’s successfully taken advantage of these changes yet. Current online retail services are anachronistic, organisation-centred, and dominated by the incumbents’ culture.

All the serious online grocery and banking services in the UK are owned by incumbent supermarket and banking groups. Even the “independent” online grocer Ocado is part-owned by Waitrose, a supermarket chain; and online-only banks smile and First Direct are subsidiaries of Cooperative Bank and HSBC. These services take a pre-web retail experience and bolt on online transactions.

The clearest demonstration of this “bolt-on” approach is the way most online grocery orders are fulfilled. Your order gets sent to the nearest bricks and mortar supermarket, where a staff member walks through the store with a trolley, selecting your shopping. It’s as if Amazon sent a personal shopper to your local bookshop, and then drove the books to your house. You can’t miss the parallel with early television, which “followed the format of popular radio at that time”:

“When a new medium borrows from an existing one, some of what it borrows makes sense, but much of the borrowing is thoughtless, “ritual”, and often constrains the new medium. Over time, the new medium develops its own conventions, throwing off existing conventions that don’t make sense.”—A Dao of Web Design by John Allsopp

Let’s assume Ocado and First Direct are market-leading pioneers. What are their innovations? Ocado has direct-to-customer logistics without stores, and First Direct can open accounts online, with no physical bank branch involved. But both have bog standard product ranges, and traditional crappy customer service via faceless call centres or impersonal email. And they’re both dependent on traditional mass media advertising to find customers.

The future of retail: internet-quality customer service

So what’s going to happen next? New entrants will figure out how to provide internet-quality customer service, and they’ll shake up the market. Here are the key elements:

• Product strategy: create a broader, more specific, more personal product range than the incumbents can offer, “long tail” style. For example, sell products you can’t buy in Tesco, and provide a level of detail about their origin, handling, etc., that’s impossible to do in a store.
• Relationship management: redefine customer service. Instead of a faceless voice in a call-centre, imagine an account manager who knows your name and understands your approach to food, or the intricacies of your financial situation.
• Content strategy: kick the dependence on mass media and advertising for telling new customers how awesome your services are. Execute a growth strategy based on quality content, unrivalled user experience, and active community engagement.

I’ll expand on these points in future posts. In the meantime, stay alert to the cracks appearing in retailers’ strategy. Change gon’ come.

—Jonathan Kahn

Notes

1. “The control of land in highly-concentrated local markets by incumbent retailers acts as a barrier to entry, by limiting entrants’ access to potential sites for new larger grocery stores.” The supply of groceries in the UK market investigation, UK Competition Commission, 30 April 2008, page 12. ↩

2. “The practice of varying prices in different geographical locations in the light of local competitive conditions, such variation not being related to costs… contributed to a situation in which the majority of [some supermarkets'] products were not fully exposed to competitive pressures and which distorted competition in the supply of groceries… the practice… operates against the public interest because their customers tend to pay more at stores that do not face particular competitors than they would if those competitors were present in the area.” A report on the supply of groceries from multiple stores in the United Kingdom, UK Competition Commission, 2000, page 5. ↩

I’ve written an article for A List Apart magazine, for people who make websites, called “Strategic Content Management”:

Any web project more complex than a blog requires custom CMS design work. It’s tempting to use familiar tools and try to shoehorn content in—but we can’t select the appropriate tool until we’ve figured out the project’s specific needs. So what should a CMS give us, apart from a bunch of features? How can we choose and customize a CMS to fit a project’s needs? How can content strategy help us understand what those needs really are? And what happens a day, a week, or a year after we’ve installed and customized the CMS?

–Jonathan

Illustration by Kevin Cornell for A List Apart.

Lisa Welchman of web operations management consultancy WelchmanPierpoint has published a lighthearted yet deadly serious e-book called “The Digital Deca: 10 Management Truths for the Web Age”:

Most organizations address low Web quality by redesigning their Web site or installing expensive infrastructure technology. The real reason your Web site keeps falling into disrepair is because your organization’s management practices don’t align with the 21st century business dynamic.

It’s a straightforward, compelling introduction to the difficult topics of web strategy, governance, and execution. Is there a businessperson in your life who could benefit from it? Download the PDF e-book or browse the slideshare presentation.

You might have heard people claim that blogging, and social networking tools like Twitter, can help your business in the way that advertising used to: a supercharged, free successor to traditional marketing.

But if you’re not sure how on earth that might work, you might want to check out some of best-selling author Seth Godin’s material. A great place to start is this series of four videos from the Amex Open series. Seth argues that the value of blogging comes as much from the process of thinking about what you’re going to say, as the audience you reach; and that social networks only have business value when they represent real relationships.

Highly recommended.

In the middle of a global recession, spending money on web design might sound like a crazy idea. But for many businesses, this is a smart time to invest in your website—acting now might be safer than sitting it out.

Fear makes us want to hide

Recessions are scary—nobody knows what’s going to happen, how bad it’ll be, or when it’ll end. Our natural reaction to fear is to hide—freeze projects, hoard cash, and lock ourselves away in a warm room until the trouble has passed. Investment in web design seems out of the question.

Inaction isn’t safe

Is hiding really the safe option? Clearly, for some organisations it is—those who are winding down their businesses, or who can survive on existing contracts indefinitely. But for businesses that want to stay competitive through the recession, and emerge from the other side, inaction now could be dangerous.

Smart investment can strengthen your business

During the good times, many businesses could count on customers coming through the door, even if the customer experience was poor. On the web, this shows up as a complacent attitude towards user experience—websites are “good enough” if nobody seems to complain.

Now that everybody is cutting spending, customers are more selective about who they buy from—and concepts like customer service are coming back into fashion. If you need to hold on to customers in this climate, “good enough” won’t cut it. A smart investment in improved user experience could make the difference between leading the field and being just another competitor.

Room for improvement

Most business websites have some room for improvement, but what kind of changes are we talking about? Here are just a few suggestions.

You could commission some user-centred design, based on the findings of user research. Or, you could write a content strategy, and then rework your information architecture around it. You might want to look at your use of web standards too.

Worth spending money on

Is web design really worth spending money on now, when money’s so short? It depends on your circumstances, but we think you should give it serious consideration.

A web design project might look expensive at first—but when you’re working collaboratively, a lot of the cost comes from your own time. And in a recession, you have more of your own time available. Add that to the likelihood that your competition will have frozen investment, and you’re on the way to a substantial competitive advantage.

If you’re interested, get in touch

If you think we might be onto something, why not take advantage of a complimentary review of your web presence. Get in touch for details.

A statement we often hear from new or potential clients is, “we don’t sell online”. What they mean, of course, is that their website isn’t transactional—customers don’t buy their products or services over the web. There’s nothing wrong with that—who in their right mind would buy, say, professional services (like, ahem, web design) without first arranging a meeting, or at least a phone call?

But there’s an alarming subtext to that statement, which goes something like this: since our website isn’t transactional, why worry about selling our products or services on it? We can deal with all of that once we meet the customer, right? Wrong.

Yes, you do

I’ll answer the question—yes, you do sell on your website. (The only exceptions I can think of are pure personal expression or art sites.) Any commercial enterprise needs to sell on their website, as do non-profits like charities, NGOs and government agencies. (Although government agencies and other monopolies often don’t need to sell products or services, they’re wise to take a sales-style approach—few organisations are completely safe from disaffected citizens.)

A complicated offering demands more effort

“OK,” I hear you say, “the web isn’t all about e-commerce—but our clients would never make a decision based on the website alone.” Although this statement is probably true, it’s easy to draw the wrong conclusion—that complicated offerings require less sales effort online. In fact, the opposite is true. The more complicated your users’ decision-making process, the more effort you need to put into selling on your website.

Research happens on the web

People increasingly do their initial research on the web—don’t you? Typical research activities include finding potential suppliers, evaluating their offerings, screening, and short-listing promising candidates. Prospects will expect to be able to perform their research using your website—without calling you, and preferably without having to fight against the site’s navigation or search. Additionally, the web’s rise makes it easier to check organisations out—prospects might google for references, follow the links on your website, or look up staff on social networks.

The outcome of this research will strongly influence your prospects—often determining whether they contact you at all. And if they do call, their experiences when researching your organisation will have already created a strong impression of what you’re like. You want that impression to be positive.

A paragraph probably isn’t enough

The days when you could list your services, provide contact details, and then explain everything in person are over. Unless you’re a near-monopoly, or your whole sector hasn’t caught up with the Internet age, you’re already losing out if you’re not selling on your website.

It’s challenging to convey an organisation’s mastery of complex services, or the pertinence of its research techniques in a crowded field, for example. By comparison, e-commerce is easy—do you want this widget or not? Complex selling is more abstract, but it needs to be accessible, straightforward and persuasive—definitely worth spending some time on.