August 14, 2019
The Art of eCommerce Merchandising
Imagine walking into your favorite brick-and-mortar retail store:
What are the first few things that you notice when you walk in? Are you greeted with soft, colorful fabrics and seasonal styles? What about a camping setup meant to inspire your next weekend getaway?
More often than not, these subtle sensory inputs are carefully crafted by merchandisers and retail business owners to create a specific type of customer experience – one that is usually tailored to promote a certain lifestyle and to encourage the sale of retail goods.
In this context, merchandising can seem like a straightforward exercise in customer experience marketing – say, like a storefront’s window dressing or an online store’s homepage design. However, with strong market forces such as increased competition and high operating costs at play, both brick-and-mortar and online retailers alike are now challenged to consider the implications of merchandising up and down the value chain, including on activities such as inventory planning, asset management, product assortment, and more.
This broader definition means that merchandising has become a powerful tool to create a competitive advantage – but where do you begin, and more importantly, how do you measure the success of your merchandising efforts?
In this article, we aim to divide the practice of eCommerce merchandising into practical components based on three critical impact areas:
- Merchandising for customer experience management
- Merchandising for inventory management
- Merchandising for brand management
Our goal is to provide you with a practitioner’s understanding of merchandising with respect to these three impact areas so that you’re better equipped to engage in eCommerce merchandising activities that build brand equity and create lasting value.
The Customer Experience
Far and away the most recognizable eCommerce merchandising efforts are those meant to optimize the customer experience. Another name for customer experience merchandising is visual merchandising, which can be purely aesthetic (UI), functional (UX), or both.
Key Performance Indicators
When engaging in visual merchandising, keep an eye on the following eCommerce KPIs:
- Session Duration: Can increase through compelling content – however, keep in mind that an increase in session duration combined with a subsequent decrease in conversion rate could be indicative of a problem with your site navigation. In turn, improved navigation can result in reduced session duration.
- Average Order Value: Usually increases as a result of merchandising efforts that focus on product bundling and developing collections.
- Conversion Rate: Generally the goal of visual merchandising is to compel visitors to convert; however, some product bundling efforts might out-price certain customers, causing a decrease in CVR for that segment.
- Average QTY / UPT: Some forms of visual merchandising can cause this metric to increase (e.g., buy one, get one 50% off jeans)
- Revenue Per Visitor: RPV is a control metric that shouldn’t decrease as a result of your merchandising efforts.
Use Cases & Examples
Optimizing the Customer Journey
A new customer journey begins at the homepage: after arriving on your site, visitors are presented with images, text, staged products, reviews, and brand assets. A quick scroll down your homepage should be all that is necessary for new customers to understand your brand’s purpose, the qualities of your product, and the types of customers that you serve.
The mattress retailer below provides a great example of a homepage journey that highlights products, customer reviews, unique selling points, industry reviews, and finally a clever call-to-action at the bottom of the page.
However, the journey doesn’t simply end there: click in to any category (e.g., mattresses), and you’re presented with products, unique selling points, and frequently asked questions. Delve into a PDP and you’re once again greeted with product descriptions, reviews, and interactive content.
Collection-based merchandising is common in the cosmetics and retail apparel industries where the goal is to increase volume in terms of the number of items purchased per transaction. Collections are a great way to drive engagement and facilitate discovery while retaining a product and conversion focus. Curation is a great way for retailers in any market (e.g., REI below) to create product collections designed to fit certain lifestyles or customer cohorts such as metropolitan, hiker, and weekend warrior.
If you’d like to create collections but don’t know where to start, scroll to the merchandising for inventory management section of this article for a review of the tools and tactics used to create product collections and bundles.
Ease of Navigation
Mega drop-down menus have opened up the possibilities of visual merchandising within the site navigation itself. In the example below, an online retailer in the pet industry uses an extensive menu structure to visually separate categories (in this case, pets), subcategories (food, treats, and supplies), top picks and even a curated collection.
With Apple’s AR Quick Look (AR Kit) bringing augmented reality to the masses, AR is no longer an edge case reserved for early adopters and tech geeks. In fact, Shopify AR and 3D Warehouse makes interactive product views easy to deploy for merchants looking to provide rich three-dimensional product previews in markets such as home goods.
Channel ubiquity is rapidly commoditizing many product categories: with so many options available to consumers, prices have become more rigid and less of a vector to drive significant margin. Now that merchants competing so closely on price, sound supply chain and inventory management have never been more important as a means to establish a competitive advantage – no matter the size of the business.
Inventory management can seem like a daunting task for eCommerce or marketing practitioners who don’t have access to their order management or ERP systems. However, there are a few simple techniques that can affect metrics like inventory velocity, sales of cold products, cart size, and more.
Key Performance Indicators
eCommerce merchandising for inventory management is usually performed in consideration of the metrics below. As an eCommerce consulting firm, we’re tool-agnostic; however, merchants looking for quick access to these insights will find them inside analytics platforms like Glew or Profitero.
- Inventory Velocity / Inventory Turn: Measures the liquidity of assets tied in inventory, or how quickly you’re selling through your inventory of a given product.
- Hot / Cold Products: Products with highest relative change in order volume, profit, or revenue in a given period.
- Depletion Days: The number of days remaining until you’ve depleted your stock of a given item. Knowing this allows you to schedule re-orders and liquidation.
- Product CVR: The conversion rate of a given product.
- Product CLTV: Reveals which products lend to the highest customer lifetime value.
- Digital Shelf: Monitor competitor’s bundling and product variant trends as well as inventory issues within third party sales channels.
Use Cases & Examples
Micro-segmentation, Bundling & Product Recommendation
Some SKUs sell better than others, so it’s important to understand how each variant sells both compared to other variants and relative to other products in that category. You can encourage the sale of weaker-selling products by recommending or bundling them together with other products variants – say, by matching a water bottle to a matching boot or lid.
Liquidation, Discounting & Loss-Leaders
Cold products – those that aren’t selling well relative to other products in a given period – are often candidates for liquidation and discounting, occasionally as loss-leaders or promotion headliners depending on the season. What might have looked like a lukewarm offer on a product in July could be cause for high traffic volume in December when discounted appropriately, invigorating the sales of both that product and also accessories or even other products. The key is to associate low-margin products with high-margin accessories or compare them to up-sell opportunities.
For instance, an entry-level product may not perform well due to its limitations relative to mid-market options that are closer to the value point; however, deep discounts on the entry model may lead to traffic that eventually converts – not for that product, but for its higher-end counterpart. Product comparisons help customers understand the value and pursue the option that fits their needs.
In the example below, a visitor clicks on a cheaper version of a TV and is presented with other options at various value points. The discount inventory is leveraged to generate the click, but the value proposition is what eventually generates the sale.
It’s no secret that brand is powerful as a differentiator and driver of customer loyalty. eCommerce merchandisers use brand elements to foster a lifestyle that customers can identify with, and promote products as a vehicle to fulfill this vision.
Key Performance Indicators
Brand KPIs for eCommerce merchandising can be both qualitative and quantitative, including:
- Customer Sentiment: Gauged by reviews and NPS.
- Repeat Customer Rate: Repeat customers help to lower overall acquisition costs and can become great peer ambassadors.
- Customer Lifetime Value: CLTV can be measured based on a number of dimensions including by channel, product, or category. A strong brand can help to boost CLTV by encouraging repeat visits and a higher purchase frequency.
Use Cases & Examples
Product staging is another brick-and-mortar tactic that has made its way into the digital space. By displaying products in a manner that serves or fulfills a certain lifestyle, retailers can encourage customers who identify with, or strive towards, the lifestyle depicted to convert.
Rather than showing standalone products, demonstrate use cases by including lifestyle shots in ads, emails, PDPs, and category pages. Demonstrating products used alongside other desirable products or brands can also help boost perceived value.
An increasingly competitive landscape will continue to have retailers considering alternative ways to differentiate their brands from other market players.
To that end, eCommerce merchandising holds promise as a means to create a competitive advantage. By improving the customer experience, optimizing their inventory, and fostering strong brand associations with customers, retailers can improve those KPIs that have significant impact on bottom-line revenue and margin.
Merchandising is a broad practice with implications on many aspects of the online retail business. The selections above represent just a handful of the countless ways to merchandise your products to increase sales, foster loyalty, and build a strong brand.