Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy

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1 For: ebusiness & Channel Strategy Professionals Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy by Sucharita Mulpuru, October 15, 2014 Key Takeaways Organizational Alignment Is Often Lacking The organizational silos created to empower web teams now often inhibit cross-channel experiences. Companies that align their web teams with C-level web champions and that have created specific cross-division omnichannel roles have told the most promising success stories. Recruiting Is An Overlooked Competency All ecommerce businesses find it challenging to recruit adequate talent for key roles like technology management and customer experience. Companies that have developed innovative approaches to hiring and retaining employees are in a better position to drive value through the Web. Site Usability Has Significant Room For Improvement Most companies fail Forrester s Website User Experience Review because their sites do not help users achieve their goals. Those companies that do help achieve shopper goals are more likely to extract long-term value from customers. Forrester Research, Inc., 60 Acorn Park Drive, Cambridge, MA USA Tel: Fax:

2 For ebusiness & Channel Strategy Professionals October 15, 2014 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy Processes: The Retail ecommerce Playbook by Sucharita Mulpuru with Carrie Johnson and Laura Naparstek Why Read This Report Retail ecommerce has nearly two decades of experience under its belt, so companies in the early stages of web retail can now follow a fairly established set of best practices. This report is a critical chapter in the retail ecommerce playbook and provides guidance on improving the likelihood of success when building a web business. Forrester s research on this topic is extensive and long-standing; we initially introduced the frameworks and concepts in this report in earlier reports on topics like organizational structure, site performance, and usability. The takeaways from these reports remain relevant, so we have aggregated and updated them for retail ebusiness and channel strategy professionals. This report is an update to the report originally published on August 9, Forrester reviews and updates it periodically for continued relevance and accuracy. Table Of Contents 2 Avoiding ecommerce Pitfalls Involves Planning Well From The Start 9 Pitfall No. 1: Having Poor Or Missing Multichannel Alignment Pitfall No. 2: Failing To Recognize The Importance Of Recruiting Pitfall No. 3: Going For The Big Unveil Pitfall No. 4: Picking The Wrong Partners Pitfall No. 5: Undervaluing Site Usability Supplemental Material Notes & Resources Forrester has aggregated and updated years of research on organization structure, site performance, and usability for this report. Related Research Documents The New Paradigm Of Retail July 24, 2014 US Cross-Channel Retail Sales Forecast: 2014 To 2018 July 24, 2014 The Art And Science Of Retail ecommerce July 2, , Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please clientsupport@forrester.com. For additional information, go to

3 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 2 Avoiding Ecommerce Pitfalls Involves Planning Well From The Start Forrester s segmentation of ecommerce businesses into leaders and laggards distinguishes between those that exceed industry-average performance in ecommerce and those that don t. 1 Our surveys of global ebusiness and channel strategy professionals reveal that laggards have several characteristics in common: having poor or missing multichannel alignment; failing to recognize the importance of recruiting; going for the big unveil ; picking the wrong partners; and undervaluing site usability. ebusiness and channel strategy professionals embarking on an ecommerce strategy should learn from laggards mistakes and avoid those pitfalls. Pitfall No. 1: Having Poor Or Missing Multichannel Alignment Too many firms physically separate their web divisions from the rest of the company (see Figure 1). These detached teams have the advantage of being nimble, but being so distant in terms of both reporting structure and geographic proximity is, ultimately, a curse for firms when they attempt multichannel engagement and differentiation down the road (see Figure 2). Toys R Us had a remote web team in its early ecommerce days but then handed its web business over to the web services team of the company that is now its biggest competitor, Amazon. 2 Recommendation: ebusiness professionals must recognize that siloed web functions may not be optimal for their organization; they will rarely help firms achieve multichannel goals. Instead, ensure that the web team reports to a senior officer that has the ear of the CEO or, ideally, is the CEO so that the company understands the importance of the channel and nurtures it. Firms must change their web and digital reporting structures as often as necessary to align with individuals and business units that are influential and web champions. United Airlines ditched the idea of channel-specific teams altogether and realigned its customer-facing functions with stages of the customer life cycle. Rather than focusing on the Web or mainframe systems, United now has teams such as Plan and Book and Prepare to Travel. Each team owns all aspects of that stage of the customer journey whether it s digital or physical. 3

4 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 3 Figure 1 ecommerce Teams Often Stand Alone Which statement best describes the role of your ebusiness group? There are other ecommerce groups that report to other divisions or regions 19% We are a shared service function that executes, or helps to execute, the online initiatives of other business units and departments 28% Other, please specify 8% Source: Forrester s Q Global ebusiness And Channel Strategy Professional Online Survey We are the only ebusiness/ecommerce group within the organization and are responsible for determining our own initiatives 46% Base: 105 ebusiness and channel strategy professionals (percentages do not total 100 because of rounding) Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited. Figure 2 Many ebusinesses Lack Adequate Cross-Channel Synergies How would you rate your company s effectiveness at implementing the following for your multichannel strategy on a scale of 1 (not at all effective) to 5 (extremely effective)? Ability to provide a seamless handoff between channels for customers, regardless of whether offline-toonline or online-to-offline Ability to deliver a channel-agnostic capability for customers to get relevant information about their account and profile Ability to provide a consistent cross-channel experience % 36% 30% 11% 4% 11% 40% 33% 13% 4% 15% 33% 24% 23% 6% Base: 80 ebusiness and channel strategy professionals (percentages may not total 100 because of rounding) Source: Forrester s Q Global ebusiness And Channel Strategy Professional Online Survey Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited.

5 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 4 Pitfall No. 2: Failing To Recognize The Importance Of Recruiting One of the biggest challenges for any ecommerce business is finding the appropriate team members to drive initiatives forward, particularly in IT, customer experience, and analytics (see Figure 3). Chronic understaffing in these roles stems from the difficulty of finding, attracting, and retaining talent. Virtually every multichannel, multibillion-dollar, multinational company around the world is increasing its web resources; they re competing for a limited supply of talented individuals who are often more attracted to the flexibility and financial opportunities that hotshot technology startups offer. As a result, it s not uncommon for the ecommerce groups of traditional companies to stage publicity-driving efforts like Walgreens hackathons or to launch innovation labs, as at Nordstrom and Staples, to find fresh new talent that would otherwise go to younger, sexier technology companies or digital agencies. 4 Etsy, a rapidly growing pure-play marketplace based in New York City, has managed to attract talent through an engineering blog and open source tools that wouldbe developers can explore. Recommendation: It takes the constant and collective efforts of an HR team, an ecommerce team, and outside recruiters to fill and maintain a strong web organization. The digital talent problem means that firms must revamp training and internship programs to grow internal talent and attract young talent; senior executives will also require explicit career development support. 5 Companies need to offer flexibility such as the ability to work from home or set your own hours if they can t offer other, cooler benefits like free food or bringing your pets to work. Innovation labs, hackathons, and internships can be effective marketing tools: Evangelizing the fun, cool projects that a team can work on as Nordstrom did with its video about its Innovation Lab is essential to getting the word out and attracting bright college graduates. 6 At the VP levels where digital experience is scarce, ecommerce leaders must constantly benchmark benefits and salary packages and be prepared for compensation ranges and frequent changes that outstrip those in other parts of your organization.

6 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 5 Figure 3 ecommerce Businesses Struggle To Staff Key Roles In what functional area do you feel you are understaffed the most? Customer service 3% Merchandising 3% Operations 6% Project management 6% Product management 7% Marketing 13% Other 4% Business analysis/analytics 21% Usability/customer experience/creative 19% IT/development/infrastructure 18% Base: 96 ebusiness and channel strategy professionals Source: Forrester s Q Global ebusiness And Channel Strategy Professional Online Survey Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited. Pitfall No. 3: Going For The Big Unveil In the early days of ecommerce, it was not uncommon to wake up one morning and see that a site had completely changed its look and feel or for a completely new ecommerce platform to power a site overnight. Turning on such changes all at once is what we call the big unveil a tactic that we don t recommend, given the higher revenues and risks associated with consumer retail sites. One recent case was The Finish Line, which chose to launch a major site redesign in November 2012 just before the critical holiday period. Ultimately, the company blamed its poor quarterly earnings on the challenges associated with this poorly timed, major launch. 7 Similarly, Target scored a marketing coup when it launched a line of Missoni products in 2011, but the sudden and overwhelming flood of traffic to the website on the morning of the product launch caught it unprepared. 8 Recommendation: When big site redesigns go awry, companies are reminded of the more agile approaches of companies like Amazon; they engage in constant testing and improvement via small site changes, launch them to limited groups of customers, and then gradually roll them out over time. We recommend that retailers release small changes to small audiences during off-peak times first before gradually rolling them out to larger audiences. At the same time, we don t recommend that firms embrace lockdown periods. Lockdown periods, such as a moratorium on site changes in

7 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 6 Q4, are becoming less common. A few years ago, the web executives at Barnes & Noble said they would dispense with a formal lockdown during the holiday season. Why? Because in a world where engineers have a list of priorities that will take years to execute, losing three or four months to a lockdown is a waste of precious time. To mitigate risk, though, Barnes & Noble limited the extent of any changes product detail page adjustments versus a completely new home page or checkout, for example; this ensured minimal disruption to the site experience while allowing the IT team to make progress on its to-do lists. Pitfall No. 4: Picking The Wrong Partners It is very common for ecommerce teams to work with outside partners, particularly in areas like IT (see Figure 4). The vast ecosystem of ecommerce vendors and point solutions means that it s very rare to find a retailer with a fully insourced, homegrown solution. However, an aggressive venture capital and investment community has funded a number of these third-party players, often giving tenuous companies more credibility than they may deserve. This leaves large players that have invested significant time and money in these integrations in the lurch if the companies go bankrupt or are acquired saw the failure of ecommerce platform player N2N Commerce, which was supposed to have been the platform for Victoria s Secret; its failure left many questioning the financials of their own platform partners. 9 More recently, Google s acquisition of data feed partner Channel Intelligence has left retailers wondering if it makes sense to continue their relationship with their feed provider if it risks exposing their transaction details to other third parties. Recommendation: Forrester Wave evaluations and other vendor landscape documents provide insight into various technology companies, their market positioning, and their strategic road maps. 10 Leverage this insight to assess the strengths of your current partners and to put in place a migration strategy to address any disadvantageous outcomes arising from partner failures, mergers, or acquisitions. Industry conferences are valuable venues for networking with other executives who have often been pitched by the same vendors and solution providers; trade notes not only on specific companies but on which areas of investment seem to be the most promising and deliver the biggest bang for the buck.

8 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 7 Figure 4 ecommerce Groups Often Outsource IT Functions Do you outsource any of the following functions? IT/development/infrastructure Usability/customer experience/creative Operations Marketing Customer service Project management Business analysis/analytics Product management Merchandising Other, please specify 21% 21% 18% 14% 12% 5% 4% 7% 30% 75% Source: Forrester s Q Global ebusiness And Channel Strategy Professional Online Survey Base: 73 ebusiness and channel strategy professionals (multiple responses accepted) Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited. Pitfall No. 5: Undervaluing Site Usability Perhaps the single most important measure of success of any web business is how well the site meets a user s goal. Web executives, however, often create requirements for site design based on business goals and objectives rather than user design, site performance, and deliverability of key pages. In worst-case scenarios, we see companies mimicking their competitors and, consequently, repeating their mistakes. Not surprisingly, site usability has improved only marginally in the past decade. Forrester has conducted more than 1,500 Website User Experience Reviews, and the vast majority of sites have failed; sadly, the biggest improvement has been in sites moving from the very poor to poor groups (see Figure 5). These lapses end up costing retailers significant amounts of money (see Figure 6). The challenges of design and usability are only becoming more complex as the number of devices on which consumers access content, such as mobile phones, tablets, and webenabled TVs, grows. Recommendation: Incorporate rigorous user testing and usability research into your design changes, using continually updated personas that represent your core customer segment. Employ objective third-party evaluations like Forrester s Website User Experience Review after any site changes to evaluate the site s effectiveness at meeting the needs of those personas. Most firms need to improve their use of personas, though. Personas have always offered a proven solution for

9 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 8 user-centered design, and the practice has evolved to include rigorous research and data-based best practices. 11 Most importantly, these exercises must include the input and design of multiple touchpoints to adapt to perpetually connected customers and their rising expectations of crosstouchpoint experiences. Figure 5 Site Usability Needs To Improve Distribution of Website User Experience Review scores (November 1999-July 2013) Average score: 1.3 Number of sites that passed: 27 Fail Pass 40 Number of sites Base: 1,535 Website User Experience Reviews Source: Forrester s 1,535 Website User Experience Reviews versions 2-8, November 1999 through July Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited.

10 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 9 Figure 6 Negative Site Experiences Are Costly 68% of shoppers 32% of shoppers Positive-experience shoppers Negative-experience shoppers who continue to shop Negative-experience shoppers who complain Negative-experience shoppers who abandon the website Short-term value* $100 Customer completes an average transaction successfully. $100 Customer completes an average transaction but with problems. $90 Customer completes an average transaction, but a call center cost is associated with it. $0 The retailer loses the customer entirely. Long-term value $370 Full lifetime value is realized, and the customer is responsible for some word-of-mouth marketing. $100 The retailer receives no long-term value from the customer and no positive word-of-mouth marketing. $90 The retailer receives no long-term value from the customer and no positive word-of-mouth marketing. $0 The retailer receives no future benefit from the customer. Lost revenue per customer $0 $270 $280 $370 *Assumptions (based on a sample online retailer): average order value = $100; lifetime value of a customer = $350; word-of-mouth benefit = $20; call center contact cost = $ Source: Forrester Research, Inc. Unauthorized reproduction or distribution prohibited. Supplemental Material Methodology Forrester fielded its Q Global ebusiness And Channel Strategy Professional Online Survey to ebusiness and channel strategy professionals. The panel consists of volunteers who join on the basis of interest and familiarity with specific marketing and strategy topics. For quality assurance, panelists are required to provide contact information and answer basic questions about their firms revenue and budgets. Forrester fielded the survey in November Exact sample sizes are provided in this report on a question-by-question basis. Panels are not guaranteed to be representative of the population. Unless otherwise noted, statistical data is intended to be used for descriptive and not inferential purposes.

11 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 10 Endnotes 1 Forrester examined the specific differences between high- and low-performing ebusiness organizations. We define high-performing ebusiness organizations as those that describe themselves as best in class or that believe that they are growing much more rapidly than the rest of their industry. High-performing ebusiness organizations tend to have more resources and support, as well as formal structures, while low-performing organizations are more likely to be shared services or to rely on shared services, impeding their ability to materially affect online business goals and strategy. See the October 31, 2007, Dissecting High-Performing ebusiness Organizations report. 2 Toys R Us severed its relationship with Amazon after a lengthy lawsuit and is currently working with GSI Commerce, an ebay company, to execute its ecommerce and multichannel retail strategy. 3 Organizations of the future will undergo radical shifts in their structures to align themselves with how their customers think and act. United Airlines has realigned its customer-facing functions with stages of the customer life cycle instead of channels. Rather than focusing on the Web or mainframe systems, United now has teams such as Plan and Book and Prepare to Travel. Each team owns all aspects of that stage of the customer journey whether it s digital or physical. The airline maintains touchpoint expertise via a small set of experts who have a deep understanding of their specialty mobile, kiosks, etc. and who work cross-functionally with their life-cycle-focused colleagues. To read more about United Airlines, see the June 16, 2014, United Airlines Drives Self-Service With Mobile report and see the July 19, 2013, Welcome To The Era Of Agile Commerce report. 4 Walgreens hosted a hackathon to support a new digital photo effort, while companies like Nordstrom and Staples have innovation labs in large part to support talent recruitment. 5 Firms will reevaluate training and compensation programs. Much like HR departments struggle to catch up with the hiring of engineers in intensely competitive markets like the Bay Area in California, they will need to work closely with ebusiness professionals to adapt their hiring and retention practices for ebusiness leaders and team members. Training and internship programs to grow internal talent will be a must for ebusiness organizations that seek to attract young talent, and senior executives will require explicit career development support. Another shock will be the salary expectations of VPs of ebusiness and ecommerce: The dearth of leaders with the magical combination of operational experience growing a digital business and of evangelizing and leading an organization through a digital revolution means that these folks bring in total compensation packages that can total up to $1 million. ebusiness professionals will have to work with their HR departments to help set new salary benchmarks for in-demand digital talent. See the May 15, 2014, Trends 2014: Staffing And Hiring For ebusiness report. 6 Source: Nordstrom Innovation Lab website ( 7 Source: John Kell, Finish Line Surprises With Loss, The Wall Street Journal, January 4, 2013 ( wsj.com/article/sb html). 8 Source: Stephanie Clifford, Target s New Missoni Collection Brings Down Site, The New York Times, September 13, 2011 (

12 Five Pitfalls To Avoid When Executing A Retail ecommerce Strategy 11 9 Source: Erick Schonfeld, N2N Commerce Dumped By Victoria s Secret, Found in Deadpool, TechCrunch, January 2, 2008 ( 10 To learn more about the Forrester Wave and to see a full list of all Forrester Wave reports we have published, please visit the Forrester Research website ( 11 For examples of companies that have executed persona-driven site design, see the September 30, 2013, Five Creative Approaches For Using Personas And Customer Journey Maps Effectively report.

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