E-Commerce: Influence Beyond the Transaction Shopper survey results show the impact of e-commerce throughout the purchase cycle

Market Track Perspective TM E-Commerce: Influence Beyond the Transaction Shopper survey results show the impact of e-commerce throughout the purchase cycle I n only two short decades, the internet has completely reshaped how people shop in the US. It is now the norm to see shoppers researching potential purchases on multiple websites, actively surfing the web on their mobile devices to compare prices while in-store, scouring social networks and blogs for product reviews, and ultimately making the purchase wherever is most convenient for them. These stages in the purchase cycle were very different ten years ago, but are the reality today. There is no question about the importance of the e-commerce space as it relates to the overall sales performance of retailers and manufacturers in 2013 alone, the median growth rate among the top 500 online retailers was 11.5%, according to Internet Retailer. We are past the adoption phase of the e-commerce life-cycle. Where we sit today, and where many of the questions around e-commerce lie, is in the understanding of when, where, how, and why the shopper purchase cycle is impacted by the e-commerce space. In this issue of Market Track Perspectives, we uncover that regardless of where a shopper makes their purchase, both retail e-commerce sites and retail and manufacturer brand advertising impact a shopper s decision to fulfill a need with a particular retailer and a particular brand. We surveyed 1,000 primary household shoppers on their interactions with the e-commerce space from the time they are aware they need to make a purchase, through the purchase itself, and every stage in between. Shopping in-store is preferred by 77% of respondents Before entering a discussion on the shopper purchase cycle, and how e-commerce impacts the stages of that cycle, we asked shoppers questions regarding their general preferences toward making their non-grocery purchases in-store vs. online, absent of conditionality. A solid majority of shoppers just over 77%--prefer to make their non-grocery purchases in-store (Figure 1). This number seems surprisingly high at first glance, but given that in-store sales still account for well over 90% of overall retail sales, the figure aligns with actual purchase behavior. Market Track s Shopper Insight Series Over 850 retailers, manufacturers, agencies, and brand advertisers rely on Market Track for the market intelligence needed to improve their promotional and pricing decision-making. Every client with whom we work has both benefitted from and struggled with the rapid growth of e-commerce. One of the primary struggles voiced by Market Track clients is understanding how shoppers behave within today s omnichannel environment. Traditional shopper purchase cycles have been interrupted by the abundance of information and choices characteristic of e-commerce. Throughout this Perspective we will be unpacking the responses from our most recent Shopper Insight Survey around the role of e-commerce in retail today. In a study of 1,000 individuals with equal representation across all age groups that are either primarily responsible or share responsibility for making non-grocery purchases for their households, we explore the e-commerce space as not only a purchase destination, but also as a critical area of influence on shopper purchase decisions. Additionally, we examine the extent to which digital and broadcast media impact a shopper s purchase cycle. www.markettrack.com

Shopper purchase cycle Consideration Research to determine how/where to fill need need Purchase/Trial Purchase product/ fill need Awareness Identification of need Preference Logical and emotional decision on how/where to fill need Repurchase Future purchases after positive trial When you cut the in-store vs. online responses by various demographics, the responses remained largely the same. Among different age groups, 74% of 21-29 year olds prefer to make nongrocery purchases in-store, while 82.5% of those ages 60 and over prefer in-store both within about 5% of the average. 75% of shoppers living in an urban area prefer making in-store purchases, compared to 78% of rural shoppers. The one demographic where we did find some disparity was among different household income tiers. The higher the average annual household income, the less shoppers preferred to make non-grocery purchases in-store. Among shoppers with an annual household income of $25,000 or less, 83% prefer to make purchases in-store, whereas among those with a household income of $200,000+, only 63% prefer to buy in-store. Shoppers in the higher annual household income brackets proved later in the survey to be less price sensitive (only 26% said lowest price was the most influential factor in choosing where to make online purchases), and more prone to using laptops, tablets, and smartphones to make online purchases than shoppers in the $25,000 or less demographic. But...shoppers prefer online for holiday shopping Looking outside simple demographic cuts, one of the more impactful insights shoppers uncovered for us was the difference in their in-store vs. online preference during the holiday shopping season relative to the non-holiday period. During holiday, only 46% of shoppers prefer to shop in-store, compared to the 77% we saw in Figure 1. Figure 2 shows the percentage of shoppers from each household income level demographic that prefer to shop in-store vs. online during the holiday shopping season. Where over 60% of every income demographic prefers to shop in-store during non-holiday periods, all but one demographic (those shoppers in the Less than $25,000) prefer to shop online during holiday. From a business impact perspective, the change in shopper preference of making purchases in-store or online between nonholiday and holiday periods is critically important for retailers and manufacturers when planning where and how to promote and drive traffic at different points throughout the year. Should traffic be driven online during holiday? We will address the holiday shopping season, and how shopper preferences and behaviors change during that period, on our upcoming Shopper Insight Series: Holiday E-Commerce webinar. Figure1: Wealthiest shopper demographic more than twice as likely to shop online as lowest income demographic Webrooming more prevalent than showrooming Figures 1 and 2 shed some light on how shoppers are making purchases both instore and online, and how the interaction with each of those destinations varies. Breaking those shoppers who prefer to make purchases in-store and those who prefer online into two groups, further distinctions can be made from a behavioral perspective. Figure 3 shows the prevalence of Webrooming and Showrooming among shoppers who prefer to make nongrocery purchases in-store vs. online. In the context of our study, we define Webrooming as searching for and 2 Market Track Perspective TM

Figure 2: Shopper preference on In-store vs. Online shopping, Holiday finding the product a shopper wants online, then buying in-store, and we define Showrooming as searching for and finding the product a shopper wants in-store, then buying online. We found that shoppers who prefer to make non-holiday purchases in-store also practice Webrooming at a higher rate than those who prefer to make purchases online, while those who prefer to make non-holiday purchases online also practice Showrooming at a higher rate than those who prefer to make purchases in-store. At face value, those results are not all that surprising, given that Webrooming inherently entails an in-store purchase, and Showrooming inherently entails an online purchase. The important thing to recognize here, however, is the fact that the majority of both groups are using both the e-commerce and in-store spaces in their purchase process, whether they are making the purchase in one destination or the other. Thus, whether a retailer or manufacturer is targeting in-store or online shoppers, there are omni-channel engagement opportunities for both shopper segments. Tailor tactics to your audience A big part of why understanding shopper preferences and behaviors is so important is that it allows retailers and manufacturers to develop profiles for different shoppers. As these profiles develop, it becomes much easier to identify the ideal segments of shoppers that fit a company s over arching strategy. In Figure 4, we introduce a basic framework for shopper segment development. We examined a wide array of survey responses from different age demographics to create profiles that describe the average shopper in each age bracket. Where shoppers in the 21-29 age bracket are generally more connected to their mobile devices while shopping in-store, and are more prone to showrooming, shoppers in the 60 and over demographic generally do not use mobile devices, and have a high propensity to shop in-store. Creating profiles for different shoppers serves as a map for finding the best way to engage and attract various shopper segments. A product promotion on a retailer s mobile application, for instance, may greatly impact a 21-29 year old shopper s decision to purchase from them, but may not impact shoppers in the 50-59 or 60 and over group. Figure 3: Webrooming slightly more prevalent than showrooming Opportunity in shopper purchase cycle We have confirmed at this point that shoppers have different preferences and employ different behaviors when it comes to shopping online or in-store. In our next few sections, we will embark on a shopper s path to purchase to understand all the stages and factors that influence when, where, and how that shopper decides The Power of Market Intelligence 3

Biggest tablet users Heavy users of smartphones and laptops while watching TV Expect promotions to be personalized More prone to showrooming More likely to make purchases online Uses mobile device while in-store for comparing prices and reading reviews Webrooming much more prevalent than showrooming Use price comparison sites (NextTag, PriceGrabber, etc.) more than other demos Reviews less important to them than younger demographics Use desktops or laptops for online shopping purchases Influenced as much by free shipping, in-store returns, and other added values as they are by low prices when deciding where to shop online Shop Amazon less than younger demographics Loyal to retailers where they have had a positive past experience/tough to win back after bad experience Highest propensity to shop in-store Lowest percentage of tablet, smartphone, and laptop users for online shopping 21-29 year olds 30-39 year olds 40-49 year olds 50-59 year olds 60+ Figure 4: Demographic tendencies among e-commerce shopper profiles to fulfill their need, and how that should impact a retailer or manufacturer s promotional plan for engaging that shopper. The first stage in the purchase cycle we identified as the Awareness stage, or when a shopper realizes they have a need to fulfill. Awareness can be manufactured in a variety of different ways a shopper can be browsing in-store and see a product they forgot they needed, stumble upon a product or offer while surfing the web, or even, simply, run out of a product at home that they need to replace. Though Awareness often doesn t necessarily require promotional influence, we set out to understand if, and to what extent they have identified a need through exposure to promotional advertising. From an Awareness perspective, the majority of shoppers have been impacted, to some extent, by a promotion they saw or heard in a TV or Radio commercial. Just over 70% of shoppers claimed they have searched specifically for deals they saw or heard in a TV or Radio commercial, and roughly 61% said their perception of a brand or product has been influenced either positively or negatively by TV or Radio commercials. This is all in spite of the fact that only about 35% of shoppers Nearly 60% of shoppers are more likely to purchase a product for which they saw a promotion in a TV or Radio commercial. actually listen to TV and/or Radio commercials, while the majority either change the channel, fast forward, lower the volume, or don t pay attention during the commercial. In short, the majority sentiment towards broadcast advertising is to ignore, yet the majority have been impacted at some point. Maybe the most important aspect to broadcast advertising in Figure 5: Shoppers more likely to purchase a product they saw/heard in a broadcast ad 4 Market Track Perspective TM

Figure 6: Majority of shoppers go online to research/find deals on products promoted in TV/Radio ads manufacturing Awareness and advancing shoppers along their purchase cycle is illustrated in Figure 5. Nearly 60% of shoppers are more likely to purchase a product for which they saw a promotion on a TV or Radio commercial. Not only can broadcast advertising impact Awareness, but it also embarks shoppers on their path to actually purchase the item promoted. Transitioning from the Awareness stage in their purchase cycle to the Consideration stage is an important step in explaining how shoppers approach their purchases. Are they immediately buying the product after they realize there is a need, or is the Consideration stage more involved? Almost 80% of shoppers go online first to research or look for deals on the product they saw advertised in a TV or Radio commercial, compared to only 11% that said they go directly online or to the store to buy the product. The Consideration stage can be defined as a shopper s time to research and acquire information to determine where BEST to fulfill a need. This is the most important period for retailers and manufacturers to influence shopper decision-making. Figure 6 shows that, for the vast majority of shoppers, the Consideration portion of their purchase cycle involves much more than simply transitioning to the transaction. Almost 80% of shoppers go online to research or look for deals on the product they saw advertised in a TV or Radio commercial, compared to only 11% that said they go directly online or to the store to buy the product. The remaining 11% of shoppers are also looking for deals in either print circulars or other digital promotional media, such as email, social media, or mobile. What motivates shoppers? Everything...but in different ways For the majority of shoppers, TV and Radio can effectively create need, but broadcast media in and of itself will not necessarily win the shopper s purchase. Instead, TV and Radio should be supported with omni-channel promotional engagements, particularly in the online space, to help advance shoppers towards fulfilling their need with a particular retailer or brand. The use of broadcast and digital promotional media among retailers and manufacturers, then, is an And conversation, not an Or. The extent of a shopper s Consideration varies based on a number of conditions. Depending on the category of need, how products have been reviewed by other shoppers, past experience with a brand or retailer, and, of course, price, a shopper s Consideration stage may be more or less impactful to what they ultimately purchase, and where. Figure 7 overlays shoppers propensity to read reviews with their tendency to seek deals for different product categories. In this figure, the higher the percentage of shoppers who will always read reviews and seek deals on a category, the more important it is for retailers and brands who sell within that category to monitor how their products are being reviewed, and to track what competitive promotional offers are available to shoppers within their category. The computers category was identified by shoppers as the most heavily scrutinized category during the Consideration stage in their purchase cycle. Nearly 45% of shoppers will Always read reviews from other shoppers before buying a computer, while nearly 90% will seek promotional offers before buying. Comparing those ratios to the toys & games category for which under 13% of shoppers will Always read reviews, and only 55% will seek promotional offers before buying it can be argued that it is more critical to ensure products and promotions for computers are of a relatively higher quality and value compared to products and promotions in the toys & games category. Shoppers scrutinize computers more than any other non-grocery category, making quality reviews and quality promotions of the utmost importance if retailers and manufacturers within the category hope to advance shoppers from considering their product, to deciding on their product. In addition to variations in consideration by category, shoppers indicated that there are several influential factors in deciding where to fulfill their need. Price is certainly important 70% of shoppers compare prices on at least three websites before deciding where to buy yet shoppers also seek information on the purchase that may trump price in some cases. The Power of Market Intelligence 5

Nearly 45% of shoppers will Always read reviews from other shoppers before buying a computer, and nearly 90% will seek promotional offers. Figure 7: Shoppers research and seek deals more for Computers, Electronics, Tablet/Smartphone purchases As shown in Figure 8, shoppers put significant importance on reviews from other shoppers, as well as positive past experiences with retailers. 64% of shoppers are willing to pay more for products that are positively reviewed by other shoppers. Put differently, a majority of shoppers will prioritize price behind the opinions of other shoppers for the product under consideration. Similarly, 37% of shoppers feel a Positive past experience is the most influential factor in deciding where to shop online, compared to only 27% of shoppers who feel Lowest price is the most influential factor. Based on these results alone, retailers and manufacturers need to be as concerned about what shoppers are saying about their products, how accurately products are promoted on their websites, how convenient the transaction is for shoppers, etc., as they are about competitive price. These factors can directly affect a retailer or manufacturer s ability to win the purchase. Once a shopper has weighed all influential factors during their Consideration phase, and has decided on the product they will purchase to fulfill their need, they transition to the Purchase stage of their purchase cycle. As we discussed in the previous section, shoppers will consider reviews, positive past experiences, and other factors in picking products and retailers. Holding each of those factors constant, it would be logical to assume a shopper will fulfill their need with the lowest price they can find. However, we found that shopper perception and behavior do not always align when it comes to price. Figure 9 overlays the percentage of shoppers who believe the lowest price on the listed categories can be found in-store with the percentage of shoppers who prefer to buy the listed categories in-store. For certain categories, such as entertainment, there is alignment between shopper behavior and shopper perception. 9% of shoppers believe the lowest price on entertainment can 64% of shoppers are willing to pay more for products that are positively reviewed by other shoppers Figure 8: Price not the only determining factor on where and what to purchase 6 Market Track Perspective TM

Only 25% of shoppers believe the lowest price on Major Appliances can be found in-store, yet nearly 80% of shoppers prefer to buy Major Appliances in-store. Figure 9: Preference to buy in-store or online not always correlated with perception of where lowest prices can be found be found in-store, and about 35% of shoppers prefer to purchase entertainment in-store. Shoppers prefer to buy entertainment online, and believe the lowest prices can be found online. The same alignment cannot be found on every category. Regardless of price perception, shoppers prefer to buy certain categories in-store. Major appliances, for instance, had significant misalignment compared to entertainment. About 75% of shoppers believe the lowest price on major appliances can be found online, yet nearly 80% of shoppers prefer to buy major appliances in-store. As we concluded earlier in this piece, price is not the only factor impacting a shopper s decision to fulfill a need at one retailer or another. Likewise, price is not the only factor when deciding whether to fulfill a need in-store or online. This reality can help retailers and manufacturers govern how their categories are promoted. Given a shopper s preference to buy major appliances in-store, should retailers offer their best promotions online? A promotion that drives the major appliance shopper to the store may be more impactful, as it aligns better with shopper purchase preference towards that category. For retailers and manufacturers, the ability to measure how their products are priced relative to not only shopper perception, but their perception versus their behaviors, is critical to ensuring that the most competitive price promotion for those products can be found where shoppers are likely to make the purchase. Figure 10 illustrates shopper perception of where the best prices can be found on digital TVs, tablets, and laptops. We then compared these findings to print promotional and online pricing data for the first six months of 2014 for a sample of products in each of the three categories. Figure 10 shows shoppers are fairly divided on where they believe the lowest prices can be found on digital TVs, tablets, and laptops. 19% believe Amazon has the lowest price on TVs, 23% believe Big Box retailer websites (e.g. Walmart.com) have the lowest prices, and 25% believe Category-specific Big Box retailer websites have the lowest prices (e.g. bestbuy.com). Only 14% believe the best price can be found in-store. We found similar misalignment of shopper perception in the tablets and laptops categories in Figure 10. A higher percentage of shoppers (21%) perceived tablet pricing to be lowest on Amazon than Big Box retailer websites (16%) or Category-specific Big Box (19%), when in reality, the median price on tablets was 1% lower in Big Box and Category-specific Big Box print promotions. For laptops, a higher percentage of shoppers (23%) perceived prices for the category to be lower on Category-specific Big Box retailer sites than on Amazon (20%), yet the median price on Amazon was 2% less during the first six months of 2014. Comparing shopper perception to real pricing data for the first half of 2014 (go to www.markettrack.com for details), we found the median difference between print promoted prices at Big Box and Category Big Box retailers and Amazon prices to be +1% for Digital TVs, -1% for Tablets, and +2% for Laptops. The median price difference was essentially at parity for each category, which supports the finding that shoppers are divided in their perception of where to find the lowest price. There is opportunity here for both Amazon and Big Box and Category Big Box retailers. For Amazon, there is opportunity to engage with shoppers promotionally through the use of email and website media types to help deliver pricing information proactively, better aligning shopper perception of their TV prices, for example, with reality (less than one in five shoppers thought the lowest price on TVs could be found on Amazon). On the other hand, Big Box and Category Big Box retailers should leverage print and email promotions that push digital TV shoppers to their store locations The Power of Market Intelligence 7

About Market Track Market Track is a market intelligence firm dedicated to increasing our customers returns on their promotional investments and providing real-time visibility into e-commerce pricing. We support our 850+ clients through monitoring and analyzing over 200 U.S. and Canadian markets for every channel of trade and 1 billion buy pages from 3,000 global merchants, enabling dynamic decision making by turning data into actionable insights. Figure 10: Shopper perception divided on where to find lowest price on Digital TVs, Tablets, and Laptops keeping in mind a majority of shoppers prefer to buy digital TVs in-store, as shown in Figure 9 to combat Amazon having the lower median price for the category. Traditionally, promotions are a resource for retailers and manufacturers to prompt shopper action at predictable points within a shopper s purchase cycle. Figure 11 illustrates how shopper interaction points with different promotional media have become varied and non-sequential. The new landscape of the shopper purchase cycle requires that retailers and manufacturers adapt the way they leverage their different promotional programs, playing more to the shopper, rather than relying solely on the strengths of each media type. That adaptation begins with working to understand how shoppers interact with different media throughout their path to purchase through a systematic and synergistic strategy that takes all media types into account. CREATES TV Radio Circular/ROP Online Video Cinema Outdoor Awareness Consideration Mobile E-Commerce Online Display Ratings/ Reviews STRENGTHENS IDENTIFIES E-Commerce Online Website Preference Purchase/ Trial Circular/ROP FSI/Direct Mail Email Online Website Repurchase Figure 11: Alignment between shopper purchase cycle and promotional plan Social Media Ratings/ Reviews We heard directly from shoppers that their interactions with the e-commerce, digital media, and broadcast media spaces range from researching products, to seeking deals and promotions, comparing prices, reading ratings & reviews, making purchases and developing opinions about their purchase experiences. Each one of these interactions offers opportunities for retailers and manufacturers to influence the shopper s ultimate decision on where, what, and how much to buy. If a retailer or manufacturer does not have the capability in place to manage each one of these interaction points, they are making a shopper s decision to fulfill their needs with an alternative merchant or brand much, much easier. OPTIMIZES MOTIVATES Key Takeaways Despite the spike in e-commerce in recent years, a convincing majority (77%) of shoppers still prefer to make their purchases in-store. The primary focus of retailer and manufacturer omni-channel promotional strategies should be to understand which media shoppers are leveraging based on category and demographic preferences. A larger percentage of shoppers find and research products online then buy in-store, than find products in-store then buy online. The majority of shoppers do both. The shopper purchase cycle includes both in-store and online, and retailers and manufacturers who fail to engage shoppers promotionally at each point in their purchase cycle are more susceptible to losing the sale. Having the lowest price does not guarantee that you will win the shopper. More shoppers said that having a positive past experience is the most influential factor in deciding where to shop online. Managing the entire e-commerce experience, beyond simple price changes, is critical to winning and keeping shoppers. Shopper scrutiny varies by category. This is critical in understanding which categories are most important to promote and micromanage. If a shopper will always read reviews on a category before choosing where and what to buy, the retailer or manufacturer must have an understanding of where the reviews of their store or product position them relative to competition. Learn More For more insight into the entire promotional landscape or an analysis of your digital and print strategies, call Market Track at 1.800.235.3781 or e-mail perspectives@markettrack.com. www.markettrack.com 2014 Market Track. All rights reserved.