| Behavioral merchandising is the art and science of | | | | (employees of the retailer) creates and manually |
| using customer behavior to place, promote and | | | | administrates the merchandising. |
| display products in order to maximize retail sales | | | | Personalized merchandising is almost inherently a |
| revenue. In an online retail context, examples includes | | | | bottom-up approach as it is impossible or exceedingly |
| using data on where visitors come from, what they | | | | expensive for the retailer to manually create |
| search for, what they click on and what they buy, to | | | | personalization for each and every customer or |
| drive as relevant product promotions to each visitor | | | | product. Bottom-up meaning a web 2.0-like approach, |
| at every point of interaction as possible. | | | | in which all visitors contribute to the merchandising |
| Example applications include features such as "people | | | | either explicitly (by submitting ratings, reviews, listings |
| who, like you, came here from... searching for... usually | | | | etc) or implicitly (by the data they provide through |
| ended up buying..." and "customers who bought this | | | | their actions taken on the site) |
| item also bought...". | | | | Explicit contributions are typically made intentionally by |
| Behavioral merchandising was originally made famous | | | | a smaller sub-set of all visitors - according to usability |
| by Amazon.com, but has evolved much further. | | | | expert Jakob Nielsen, as little as 1 out of every 100 |
| Today, it is practiced at online retailers everywhere | | | | users on a typical social site. All visitors, on the other |
| on the globe - companies whose turnover can be | | | | hand, inherently make implicit contributions - |
| anything from $1 million to $1 billion and beyond. | | | | intentionally or not. Combined, these user generated |
| The popularity of behavioral merchandising stems | | | | contributions can be mined as a collective and form |
| from the fact that it has been proven to be up to | | | | the basis for behavioral merchandising. ' What is |
| 300% more effective than customer segmentation in | | | | behavioral merchandising? |
| impacting sales per visitor through raising conversion | | | | Personalized Merchandising |
| rates and average order values. | | | | Behavioral merchandising ("BEM") means using |
| Behavioral merchandising offers a personalized | | | | customer contributed behavioral data to automatically |
| shopping experience for visitors that is highly | | | | achieve a credible and efficient merchandising. BEM |
| relevant, trustworthy, and that adapts to changing | | | | was made famous through Amazon's implementation |
| customer preferences automatically. The automation | | | | of "those who bought this also bought", but has |
| aspect also means it offers retailers an opportunity | | | | evolved to be much more than that. One might call |
| to cut costs of manual merchandising, while at the | | | | BEM the combination or intersection of retail |
| same time achieving better results. | | | | merchandising and social networks. In effect, BEM in |
| What is merchandising? | | | | an online retail context means turning an e-commerce |
| "Merchandising means maximizing merchandise sales | | | | site into a social network focused on creating a |
| using product selection, product design, product | | | | pleasant, socially interactive and interesting personal |
| packaging, product pricing, and product display that | | | | shopping experience for visitors. |
| stimulates consumers to spend more. This includes | | | | As mentioned previously, there are two types of |
| disciplines in pricing and discounting, physical | | | | BEM; implicit and explicit. With implicit BEM the actions |
| presentation of products and displays, and the | | | | that are taken by customers - click patterns, |
| decisions about which products should be presented | | | | searches done, products purchased - are analyzed |
| to which customers at what time." | | | | and used to create the merchandising. Explicit BEM is |
| An Established Practice | | | | when customers explicitly say something about a |
| To explain behavioral merchandising it is beneficial to | | | | product, for example submitting a review or |
| first look at its roots. | | | | recommending a product to a friend. |
| Merchandising is a relatively old practice used by retail | | | | Implicit |
| stores to increase sales. Some well-known examples | | | | - Those who bought this also - Recommendations |
| of traditional merchandising include placing and | | | | based on the product currently being viewed. - Based |
| promoting - Candy by the check-outs - Children's | | | | on all your previous interactions with us, our |
| yogurt at the eye level of children - Milk at the back | | | | community of users thinks you're looking for... - |
| of the store | | | | Recommendations to an individual customer. - Based |
| Predictably, merchandising has migrated into electronic | | | | on the contents of your shopping cart, our |
| sales and is today a natural part of every major | | | | community of users thinks you might want to add |
| e-commerce site. As in the traditional sense, | | | | one of the following items... - Recommendations |
| electronic merchandising is about maximizing the | | | | based on the content of the basket. - Based on the |
| conversion rate and the average order value through | | | | way you've navigated our site so far, our community |
| displaying the right products in the right way to the | | | | of users thinks you're looking for... - |
| right individuals. | | | | Recommendations based on clicks made on a site. - |
| Why Merchandising Matters | | | | Those who searched for... selected.... - Recommended |
| We have established that retail merchandising is the | | | | search results. - Those like you who came here |
| art of increasing sales, in other words maximizing | | | | from... searching for... usually ended up buying... - |
| sales revenue from a given audience of visitors to a | | | | Adaptive landing pages based on the search phrase |
| retail outlet. To understand the importance of | | | | used on an external search engine such as Google, |
| merchandising, we must also put it in relation to | | | | which site a visitor arrived from, and visitor data such |
| advertising, which is basically the art and process of | | | | as browser, operating system and language. |
| driving an audience of visitors to the outlet in the | | | | Explicit - Ratings & reviews - Share this product with |
| first place. | | | | a friend, e.g., by email, link or to a social network - |
| A retail outlet will typically want to spend a given | | | | Customer-created product lists |
| amount of money on advertising to drive as much | | | | Social Network Service "A social network service |
| relevant traffic as possible to the outlet - maximizing | | | | uses software to build online social networks for |
| the performance metric cost-per-visitor or | | | | communities of people who share interests and |
| cost-per-click as it is often referred to. | | | | activities or who are interested in exploring the |
| The retail outlet will then want to practice the best | | | | interests and activities of others." Source: Wikipedia |
| possible merchandising in order to convert this traffic | | | | The Value Of Behavioral Merchandising |
| into as many buying customers as possible - | | | | The ultimate rationale for BEM lies of course in the |
| maximizing the performance metric conversion rate. | | | | superior contribution to financial success that it brings |
| To generate as much value out of the traffic | | | | to retailers in comparison to the other available |
| generated the retail outlet want to make each visitor | | | | approaches to merchandising. Studies have shown |
| to buy as much as possible - maximizing the | | | | that measured as revenue-per-visitor (i.e., the |
| performance metric average order value. | | | | combined contribution to conversion rate and |
| In short, the success of the retailer's efforts in | | | | average order value) the contribution of BEM is up to |
| maximizing cost-per-visitor, conversion rate and | | | | 300% greater than the contribution that a |
| average order value will more or less define the sales | | | | segmented merchandising approach will give. |
| revenue generated by the outlet. Adding the | | | | The primary explanations to the superior results |
| cost-of-goods-sold margin or average product margin | | | | delivered by BEM lies primarily in that BEM is: - |
| completes the model to define the operating profit | | | | Relevant: Because all customers combined are always |
| that the outlet will generate. | | | | more likely to collectively possess greater knowledge |
| It becomes clear that there are basically four levers | | | | about all products as well as the way they are |
| that the manager of a retail outlet can pull to try to | | | | purchased and consumed than a limited team of |
| maximize profits. Unfortunately not all the four levers | | | | professional merchandisers. BEM gives each individual |
| are under the retailer's control. | | | | visitor a more personally relevant shopping |
| The ultimate aim of advertising, merchandising and | | | | experience, helping each one to find precisely the |
| purchasing combined is to maximize the operating | | | | products or promotions that is most relevant to |
| profit of the retailer. Four key performance metrics | | | | them in each given situation. FIGURE 3 - COMPARING |
| that define the success of this process - Cost Per | | | | BEHAVIORAL MERCHANDISING WITH OTHER |
| Click, Conversion Rate, Average Order Value, and | | | | APPROACHES Personalized merchandising using |
| Cost of Goods Sold margin. But only the Conversion | | | | behavioral methods has proven by far the most |
| Rate and Average Order Value metrics, which | | | | effective In studies conducted by Avail at |
| together quantify the success of the merchandising | | | | customers, behavioral merchandising has generated |
| process, are directly under the retailer's control. ' In | | | | up to 300% better results than segmented |
| an online environment much of the traffic is | | | | merchandising by being more relevant, trustworthy |
| purchased along a CPC-model. CPC is the cost-per | | | | and adaptive. |
| click or cost-per-visitor paid to a media company for | | | | - Trustworthy: BEM is ultimately generated by peer |
| each visitor driven to the e-commerce site. The | | | | consumers, as opposed to by marketing |
| CPC-prices are relatively perfectly priced through | | | | professionals which is the case in all other |
| supply and demand. The retailer must simply pay | | | | approaches, and thus creates trust. Research clearly |
| what the market demands for advertising. | | | | shows that consumers are much more likely to trust |
| The gross margin for products sold is primarily | | | | peers than professional marketers, in particular online. |
| dependent on the success of the other levers, i.e. on | | | | - Adaptive: Because BEM can be made to take into |
| the volume bought by the retailer - so it cannot be | | | | account the collective behavior of all visitors in |
| pulled independently. This leaves the retailer with two | | | | real-time, it can respond to quickly changing - and |
| levers that are in his control to maximize: the | | | | sometimes fickle - preferences of visitors and |
| "conversion rate" and the "average order value". | | | | consumers and it can apply that response in real-time |
| Together they quantify the success of the retailer's | | | | from one interaction to another by the same visitor |
| merchandising process. | | | | during a visit to the outlet. |
| In other words, merchandising offers the two levers | | | | Apart from the superior contribution to |
| for profitability that is uniquely in the control of any | | | | revenue-per-visitor, BEM has several other |
| given retailer to maximize the revenue in order to | | | | advantages over other approaches, including the fact |
| deliver better financial results than the competition. | | | | that it can be made highly or completely automated, |
| Three Methods Of Merchandising | | | | requiring no on-going human administration or |
| Electronic merchandising can be divided into three | | | | maintenance and so reducing the cost of |
| methods: mass-, segmented- and personalized | | | | merchandising operations, even for very large |
| merchandising, | | | | product ranges and very large groups of visitors. |
| Each of the methods can be found also in "offline" | | | | Getting Started With Behavioral Merchandising |
| retail merchandising - Mass merchandising: The | | | | In the infancy of behavioral merchandising, |
| approach that by necessity is used in stores, as the | | | | e-commerce retailers were often forced by |
| store assortment is the same for every visitor. - | | | | necessity to create their own software, as 3rd party |
| Segmented merchandising: The approach typically | | | | solutions were either unavailable or not mature |
| used by mail order companies, in which separate | | | | enough to be practically useful. |
| catalogues are constructed to match the expected | | | | However, due to the sophisticated algorithm |
| interests of a certain user demography (e.g., region, | | | | development necessary, as well as the general cost |
| age, gender) or product category. - Personalized | | | | and organizational impact of large-scale software |
| merchandising: Shopping assistants or "personal | | | | development, more and more retailers are |
| shoppers" who guide the visitor through the store | | | | abandoning in-house developed solutions for |
| highlighting and recommending items based on their | | | | cost-effective and proven online merchandising |
| understanding of the user's profile and needs. | | | | platforms from established vendors such as Avail |
| The mass and segmented approaches are typically | | | | Inteligence. |
| top-down approaches; one or a small group of people | | | | |