Ideas & musings about consumer behaviour

Change is inevitable for Australian retailers

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As published on SmartCompany, Tuesday 15 March 2011.

There has been a lot said around the ‘GST for online retail’ campaign launched recently by leading retailers. Retailers have been dealt a firm message by consumers – accept, adapt and do it quickly. It’s worth taking a look at what underpins the change and what organisations need to do to bolster their performance in the face of increased global competition.

Since the late ’90s, the internet has promised to transform every industry. What we have observed however is that the pace of change varies both within and across industries. There are many contributing factors to the pace of change, but none more important than the following five:

1. Critical mass
Critical mass creates the market where competition can thrive. Critical mass used to be the thing that justified business cases but had little impact on our execution decisions. We now have one of the most connected communities in the world. Critical mass has now started to drive our daily business decisions as well as our overall performance in the market.

2. Behavioural change
Ten years ago, we didn’t have enough critical mass in online retail because consumers generally weren’t ready to embrace the web. Traditional search and purchasing behaviours were entrenched. However, the community has had time to experience and learn. Many now understand the incredible value the web can offer in discovery, options comparison and purchase. The savvy retailer has also learned how to exploit the changing role of retail and the shift in dynamic and relationship between seller and buyer.

3. Confidence and transparency
The web these days is more complete and more up-to-date. Online processes offer better transparency and web-based systems are now more secure. We have been researching the role of trust, privacy and security in online purchasing behaviour for over 10 years and we know that even today making sure your website gives consumers a sense of security and confidence means you can lower two critical barriers to conversion.

4. Convenience and experience
The perceived benefits of shopping in the physical world are now more closely offset by the benefits of online shopping. Even though Australians have very low expectations of customer service compared to the rest of the world, they can still distinguish between these two options. The ability to compare across products and brands quickly and easily, to shop 24/7 and to be remembered and rewarded on return visits are now some of the key reasons consumers choose to shop online. These different experience factors build differentiation between the two worlds, opening up a gap that previously never existed and that can’t easily be closed by “bricks and mortar” retailers.

5. Price
Our studies show that price remains a core factor for motivating consumers to buy online, so retailers do have a point about being able to compete on price alone. While the Australian dollar remains high, consumers can naturally enjoy more competitive pricing from retailers who have higher-volume markets and less infrastructure-intensive operations.

So does it mean the Australian Government should consider charging GST on goods purchased for under $1,000 overseas?

Simply put, no. Apart from the significant costs in managing compliance associated with the vast and growing number of micro-purchases, any attempt to influence and control the online market will fail. We have seen over the past 10 years fundamental shifts occurring across industries. Do we charge people to send emails because ‘snail mail’ postage volumes are down? Do book retailers just close their doors because customers are purchasing online? Retailers that remain slow to recognise the change and who can’t offer a differentiated service or product, will eventually die. What we are now seeing are fundamental shifts by consumers. Consumers are now in the driver’s seat for key retailing decisions. Retailers have the option to innovate and remain relevant, or face progressive decline.

Customer experience will remain a critical factor in retail markets that are dominated by price competition. Experience-based differentiation is where retailers can shine. Retailers must find the few key factors that can add value to their customers.

This is not about just putting a catalogue online. This is a change in the playing field. Australian retailers have the benefit of geographic proximity for speed and ease of distribution. Use it. Step up to the capability to personalise experiences based on what you know about each and every consumer. I know that’s what I prefer: to have a relationship with someone that genuinely commits to getting to know me.

The boardrooms in this country must invest time and money into tracking online consumer trends, understanding how customers respond to their online properties and take action to adapt their businesses. Ten years ago there was a lot of hype about strategic response to online retailing but no fundamental change in approach to measurement or execution. This time it’s for real.

By Greg Muller, Chief Executive Officer

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