Andrew Walmsley on digital: E-tailers should heed offline lessons

The high street is not alone in feeling the pressure. Last week, insurer
Aviva announced it is to cut 4000 UK jobs, citing a change in consumers'
buying habits led by technology, adding that more than 50% of its motor
insurance is now sold online.

This has sparked a flurry of acquisitions and strategic moves, as
retailers boost their investment in the online channel and direct
businesses ramp up their web retail efforts. BT recently acquired
Dabs.com, a technology retailer, for example, and the Dixons brand has
moved entirely online.

So if you're in retail online, things are pretty good, and the outlook's
even better. Online retailers trade body IMRG predicts that 20% of UK
retail - equating to £60bn -will be conducted via the internet by
2010.

Inevitably, broadband is behind this growth. It is simply easier to buy
online when the computer is always on and there are no dial-up
charges.

But it is not all rosy. We all know how frustrating buying online can be
- bad web design, broken links and inaccurate product descriptions erect
barriers to purchase completion. Despite huge strides in customer
service, logistics and marketing in recent years, the sites themselves
are often the weakest link.

Consider the effort that goes into retail design, especially by
supermarkets. Customer-experience research and hard data on footfall
patterns and purchase triggers are combined with in-store trialling to
create customer-centric development. Rolling programmes monitor
shoppers' attitudes, giving early warning of changing demand and the
impact of rivals' activity.

By contrast, such activity is almost non-existent online. The research
that is done is sporadic and fails to connect the business objectives to
the consumer's. An example of this is the usability study, widely
conducted, but flawed in two ways. First, such a study makes the
dangerous presumption that what is on the site is right, and it is
merely a question of putting it in the right order to boost sales.

Second, it fails to accommodate the impact key product sales have on
high-margin sales; a usability study would tell supermarkets to put milk
by the entrance, for example, as it is the most in-demand item and this
is the easiest place to find it.

Websites rarely conduct end-to-end research, which would follow both the
user's journey through the site and their thoughts as they progress.
This lack of qualitative understanding is online retailers' biggest
shortcoming. They use weblogs in the same way that offline stores use
EPOS data, the difference being that the latter also talk to customers
to find out the reasons for their actions. This makes a huge
difference.

This is evidenced by the variation in conversion rates across retailers,
even within sectors. In the apparel market, for instance, average
conversion rates range from 2% to 15%, according to web analytics
specialist Fireclick.

Those that can grasp this are a country mile ahead. The problem is that
those at the bottom end are still experiencing prodigious sales growth
driven by market expansion, so often don't know how badly they are
performing. This means we are still underestimating the potential for
online growth. Most of the market is benefiting principally from an
expansion in users, but for the winners, this is just the jumping-off
point.

- Andrew Walmsley is co-founder of i-level

30 SECONDS ON ... ONLINE SHOPPING

- British shoppers spent £13.5bn online in the first half of 2006,
a year-on-year increase of 40%, according to IMRG.

- Internet sales first broke through the £2bn a month barrier in
November 2005 and have exceeded it every month since.

- The effect of the football World Cup on online shopping was less
detrimental than it was to high-street retailers; online sales of beer,
wine and spirits were given a boost by the tournament, with sales up 70%
year on year.

- Amazon.co.uk, Argos.co.uk, Expedia.co.uk, Euro.dell.com and Tesco.com
were the five most-popular UK online retailers in July, according to the
IMRG-Hitwise Hot Shops List.

- There has been a recent surge in online spending at auction sites; 79m
transactions and £2.8bn was spent on such sites last year.

- More than half of all adults in the UK - 25m - made an online purchase
during 2005.