Two Worlds Collide

Bringing the Category Captain Model to E-commerce

Michael Stich Bridge Worldwide

November 12th, 2008

E-commerce Agenda

Introduction

The History of E-commerce, and Why It Matters Today

Who’s Succeeding and Why

The Big Opportunity For The Future

Bridge Worldwide

Founded: 1979

Headquarters: Cincinnati

Employee Makeup: 200 people including Creative, Technology, Research, Strategy, Experience Planning and Account Service.

Top 25 Best Small Companies to Work for in America (2006, 2007, and 2008)

Affiliation: Part of WPP Group, the largest agency holding company in the world with 2,000 offices in 106 countries.

Digital Relationship

Our Positioning

Bridge Worldwide E-commerce Strategy and Solutions

Others In Development

Looking Forward By Looking Back

In 1955, Before E-commerce, CPG Focus Was on Supporting the Consumer Through Retailers

Manufacturers sold products based on where consumers wanted to buy them.

Distribution was simpler with traditional offline customers.

Manufacturers and retailers optimized operations for this model over hundreds of years of refinement.

By 1985, New Forms of Collaboration Led to Category Management and Other In-Store Innovations

Category management brought consumer science to the retail channel.

Efficient assortment optimized selection for overall productivity.

Shopper understanding helped merchandisers enhance in-store selection.

Shelf innovations led to an easier and more efficient shopping experience.

Insights Best Practices

+

Results

E-commerce Arrived 10 Years Ago, Frightened the CPG Industry, and Then...Nothing Happened

Low consumer demand and adoption.

Concerns about channel conflict.

Result: Low industry involvement.

Since Then, E-commerce Has Come To Mean More Than PC’s, Books and Tickets…

Online Home & Garden, Food & Beverage, Child & Baby Care are $1B markets.

In Fact, A Strange Thing Has Occurred -

US CPG E-commerce Is Now a $12B market

More consumers are getting online, researching online, and buying online.

Early-adopter consumers buying even more categories, for very important reasons

Traditional retailers starting to get it.

*Includes baby products, cosmetics, fragrances, food, medicine, personal care, home care, pet supplies. Source: 2006 Forrester Research, 2007 Bernstein, Bridge Analysis

36 50

2002 2007

More Consumers…Number of US E-commerce Households (MM)

6 82235

2006 2008

..Buying More CPG Products…Total US CPG E-commerce Sales ($B)

1015

Food + Beverage

BabyAll Others

15% 9%6% 21%

79% 70%

2002 2007

..From More CustomersTotal US E-commerce Sales by Vendor, %

$125MM

Amazon.comTraditional Retailers

All Others

100%=$90MM

2008: What’s The “Right” Way To Approach E-commerce?

A Few Winning Strategies

We Looked At Many Companies That Are Thriving From E-commerce:

While We Found Many E-commerce Successes, We Noticed A Few Guiding Strategies..

Create a Compelling

Product

Dramatically Improve the

Purchase Experience

Create a Compelling

Business Model

Sell to a Niche

Consumer

Create a Compelling

Product

Dramatically Improve the

Purchase Experience

Create a Compelling

Business Model

Sell to a Niche

Consumer

..With Reusable Principles For Each Strategy

• ACCESSIBILITY• TIME SAVING• DISCRETION

• AUTO-REPLENISHMENT • DIRECT SALE• MARKETPLACE• EXCLUSIVITY

• BUILD TO ORDER• UPGRADEABILITY

• PERSONALIZATION• SIMPLICITY• PAYMENT OPTIONS• GIVE BACK

We Found Successful E-commerce Strategies Beginning to Appear in Consumer Goods

Create a Compelling Product – Nespresso, M&M’s

Sell to a Niche Consumer - PetMeds, Align

Create a Compelling Business Model - Tesco, Luvs

Dramatically Improve the Purchase Experience – DDF, Kroger

Example E-commerce Opportunity: Optimized E-store for Every Category

Turnkey E-commerce capability for All CPG Products

Recommender systems helping consumers buy

Flexible shopping cart options

Fulfilled by regional or national partners

Available on website, mobile, and rich media banner ads

Example E-commerce Opportunity: Focus on Beauty

Consumer: I want what I want when I want it.

And I may want stuff

I don’t know I want.

If you can’t give it to me, I’m gone.

Example E-commerce Opportunity: Focus on Community

Put the user at the center of the site:Let me rate it.Let me review or recommend it.Let me share it with my friends.

Example E-commerce Opportunity: Focus on Unique Information

But teach me things I don’t know.

Video demo, deeper content, comparisons

Example E-commerce Opportunity: Focus on Delight

Surprise and delight me

Free sample when you buy.

Free shipping when you spend over $50

The E-commerce Category Captain: A Big Opportunity For Industry Collaboration

Build a compelling and optimized shopping experience

Make it an independent brand

Invite and your customers or suppliers to join you

• Ownership• Branding• Purchase Options• Promotions• Loyalty Programs

Great, You’ve Got a Category Model.

Now What?

Multi-Channel Integration

The Consumer Is Growing More Multi-Channel,So Should You!

68% compare prices online before shopping in a physical store

58% locate items online before purchasing offline

67% prefer to research online and buy from physical stores

Source: 2008 Accenture

Implications: Many Companies Newly Focused On Thematic, Emotive Design…

Guiding Approach: Focus on the CRUX of Creative (CR) and User Experience (UX)

Usability

Engage For Decisions

Reduce Barriers

USEREXPERIENCECREATIVE CRUX

Aesthetics And Tone

Inspiration and Emotional Response

Who’s Making Multi-Channel Work? Circuit City

Buy online, pick up at the store within 24 minutes or get a $24 gift card.

“One Price Promise” across the store, direct-mail and the web

Free shipping over $24, always-free returns

Who’s Making Multi-Channel Work? Target

Social Shopping Lists

Add To Cart, OR Find It At A Target Store

For every product: store locations, hours of operation and a telephone number, sorted by distance

Where We Are Headed Next?

How Will E-commerce Evolve? More Consumer.

Likely Evolution from Today’s Strategies and Principles, but:

• More personalized

• More communal

• More mobile

• More informative

• More global

• More efficient

• More enjoyable

How To Get In:Our Recommended Approach

Make a new pledge: Support the market with shopper insights in every brand and channel.

Address specific E-commerce segments with best-practice business models, promotions, and products

• Apply the Four Strategies: Niche Consumer, Business Model, Product, Purchase Experience

Foster brand-retailer collaboration via the Category Captain model, by sharing consumer insights and optimized e-store properties.

• Remember CRUX

Lead with Web 2.0 (it’s not your E-commerce engine, it’s the consumers’)

Thank You!

Backup

Each With Their Own Supporting Principles

• ACCESSIBILITY: Serve consumers with products they can't buy in their nearby retail.• TIME SAVING: Target time-constrained consumers and automate their purchase experience.• DISCRETION: Focus on consumers with disabilities, or on products requiring discretion, both of

which complicate in-store purchase.

• AUTO-REPLENISHMENT: Auto-replace products with repurchase cycles and/or low consideration.

• DIRECT SALE: Sell direct for cost and quality advantage.• MARKETPLACE: Create a marketplace for buyers and sellers to transact online.• EXCLUSIVITY: Offer product availability, information, or promotions early or exclusively

online.

• BUILD TO ORDER: Allow consumers to customize their product with a set of feature combinations.

• UPGRADEABILITY: Sell a platform with upgradeable subcomponents over time.

• PERSONALIZATION: Provide a personalized purchase experience for each consumer.• SIMPLICITY: Provide one-click simplicity and more convenient, easier payment options.• PAYMENT OPTIONS: Give the consumer new choices for how to pay for the product.

Sell to a Niche Consumer

Create a Compelling Business Model

Create a Compelling Product

Dramatically Improve the Purchase Experience

E-commerce StrategySupporting Principles

Sell to a Niche Consumer: Williams-Sonoma

What They Did: • Targeted the bride, groom, and their

wedding registry experience

Why It Worked:• Allows the bride, groom, and guests

to keep track of the registry and the gifts purchased

• Facilitated perfect sales without having to go to the store

Key Lessons/Principles:• Target time-constrained consumers

and automate the purchase experience.

Sell to a Niche Consumer: PetMeds

What They Did: • Offered pet medications delivered

directly to the consumer’s door, at a discounted price

Why It Worked:• Allows the pet owner to reorder exact

medications by logging in to their account

• Expanded the offering beyond medication to animal toys/accessories to broaden appeal

Key Lessons/Principles:• Target time-constrained pet owners

and allow for easy reordering of pet medications.

• Offer hard-to-find and expensive products, while providing full customer service and pharmacy reps.

Create a Compelling Business Model: Tesco

What They Did: • Tesco, a leading food retail group in the

UK, launched an online grocery and consumer packaged goods delivery service

Why It Worked:• Offered broader set of products• Made it simple and fast to order

groceries online, and get efficient delivery service

Key Lessons/Principles• Make ordering online simple and fast

(so consumers will be willing to order more CPG products online).

• Actively manage Search Engine Optimization results to maximize traffic to the site.

Create a Compelling Product: M&M’s

What They Did: • M&M’s launched a custom printed

M&M’s product. • Consumer can choose colors, messages

and packaging options.

Why It Worked: • The uniqueness and surprise of a

customized product inside a mass-market brand

• Limited range of choices: right mix of mass appeal and standard fulfillment

Key Lessons/Principles:• Give consumers a way to creatively

communicate or express themselves. With a finite set of combinations.

• Extend the existing appeal of a big brand.

Dramatically Improve the Purchase Experience: Bare Escentuals

What They Did: • Leveraged the popularity of the product from

infomercials to both offline and online stores

Why It Worked: • Detailed product information and instructions

for use; brings the makeup consultant into consumer’s home

• Intuitive progression of navigation, from prep to lips to accessories

• Clean, simple design consistent with branding/packaging

Key Lessons/Principles:• Make product selections easier for the

consumer by displaying all options up front.• Provide related items and recommendations

based on consumer’s interests and/or chosen products.

• Offer “always free shipping” on total purchase over a specific price point.

• Push exclusive offers not available in stores.

Create a Compelling Business Model: Amazon

What They Did: • Direct to the consumer.• Eliminated redundancy in the value

chain, enabling lower-priced goods• Coupled complimentary products

into solutions based on what others buy

Why It Worked: • Timely fulfillment and safe/trusted

transactions • Complementary recommendations

for cross-sell

Key Lessons/Principles:• Streamline the value chain for

efficiencies.• Enable auto-replenishment of

cyclical products.

Create a Compelling Product: Apple

What They Did: • Allow consumers to customize their

product--with a finite set of feature combinations.

• Make extensive product details easy to understand.

Why It Worked: • Personalization• Added convenience• Product extensions and upgrades that

enhance the original purchase

Key Lessons/Principles:• Give consumers the option to

personalize their product.• Sell a digital service for the product

that ensures ongoing relevance.

Dramatically Improve the Purchase Experience: Netflix

What They Did: • Customers subscribe and rent online, and

movies are delivered through the mail.• No due date.• Recommender systems drive additional

rentals.

Why It Worked: • Convenient, helpful ordering and return

service• Removed consumer penalty - late fees• Rich content, easy-to-use functionality,

and democratic opinions

Key Lessons/Principles:• Make product selections easier for the

consumer.• Remove consumers' existing

barriers/penalties.• Simplify returns.

• Provide a feedback loop.

Create a Compelling Product: Nespresso

What They Did: • Created ordering system based on

your unique coffeemaker

Why It Worked: • Easy ordering and convenient

delivery to home or office

Key Lessons/Principles:• Recommending a product specific to

individual’s wants eliminates the confusion and simplifies the choice.

• Allow consumers to customize their product with a finite set of feature combinations.

Sell to a Niche Consumer: PetMedsWhat They Did:

• Offered pet medications delivered directly to the consumer’s door, at a discounted price

• Brought the pet pharmacy to an online/easy-access venue.

Why It Worked:• Allows the pet owner to reorder exact

medications by logging in to their account• Expanded the store offering beyond

medication to animal toys/accessories to broaden appeal of the store

• Includes an online pharmacy supported by pharmacy technicians to answer questions during office hours

• Introduced Price Match to beat the competition’s prices

Key Lessons/Principles:• Target time-constrained pet owners and

allow for easy reordering of pet medications.• Offer a typically hard-to-find and expensive

product at a discounted price, while still providing full customer service and pharmacy reps.

Create a Compelling Business Model: Tesco

What They Did: • Tesco, a leading food retail group in the UK,

launched an online grocery delivery service• More recently, Tesco expanded its offerings

to other consumer packaged goods.

Why It Worked:• Offered broader set of products• Made it simple and fast to order groceries

online• Quick and efficient delivery service

Key Lessons/Principles• Make ordering online simple and fast (so

consumers will be willing to order more CPG products online).

• Actively manage Search Engine Optimization results to maximize traffic to the site.

Retailers Jumping On Board: Target

What They Did: •Expanded the retail chain’s offline shop to online

Why It Worked:•Gave consumers a convenient way to shop at their favorite store and compare prices

Key Lessons/Principles:•Offer items available exclusively online to give customers a reason to shop online as opposed to at the store

•Build on the existing appeal of a well-known brand

•Sell online first to seed word-of-mouth with early consumers, and to capture key insights from them

•Sell products that have an embarrassment factor associated with an in-store purchase

Sell To A Niche Consumer: Use Social Networking

Rosetta recently conducted a study amongst the top 100 online retailers in the US.

The study found that 59 had a fan page on Facebook, up from 30 in May 2008.

“Social media sites continue to be an important source of community connection, and savvy retailers are reaping the benefits of Facebook’s rapid extension into new demographics, such as Gen X and seniors“.

• Adam Cohen, Rosetta