Shopping 3.0: The New Face of e-Commerce

6/5/07Follow @joechung

I fully realized that the third generation of shopping was upon us when Sharon Jester Turney, CEO of Limited Brands Direct, turned to me and said something along the lines of how she needed something to add the sex to the new Victoria’s Secret website. That one utterance, delivered without irony, wove together several threads that I’d been tracing since the earliest days of Internet retail. They run through the dot-com boom, and my first company’s soaring success, to the bust, which I happily mostly escaped. They then cascade through the present to the new era of shopping—Shopping 3.0—that is just dawning.

In 1995, at the birth of Amazon, e-tailing, and the great Internet bubble, almost all major and midsized retailers rushed to get online with an irrational exuberance that consumed billions of dollars and set up the ensuing crash. The Web 1.0 pundits predicted the demise of big-brand retailers because the Web was going to disintermediate manufacturers and consumers, essentially providing a sort of uber-catalog of all products made anywhere in the world, listed at the lowest competitive price. Yet as online retailing has played out over the past decade, a curious thing has happened: not only have big-brand retailers defied early death, but their online sales have thrived to the point that they now dominate virtually every category. The largest specialty apparel retailer in the world is Gap. The largest online specialty apparel retailer? Gap Online. Largest office products retailer? Staples. Largest online? Staples.com.

Yet the online shopping experience that Amazon created in 1995, and which we still live with today, relies almost exclusively on placing products in electronic catalogs on Web pages and waiting around for customers to fill out and submit their orders—a paradigm that would be perfectly familiar to the Sears & Roebuck Company at the turn of the last century. So far, online shopping has turned out to be merely an electronic extension of catalog shopping; generally speaking, customers are using the Internet to buy the same products from the same retailers that they already know and trust.

The obvious business-school lesson is to never underestimate the power of convenience and brand. The top 100 U.S. Internet retailers alone will sell $50 billion worth of goods in 2006, and their annual online growth is predicted to exceed 20% for the foreseeable future. Online retail is the fastest-growing multibillion-dollar business in the world.

So why is the CEO of the sexiest brand in the world talking about making her website sexier? The answer lies in the fact that the Internet shopping experience is finally showing signs of moving beyond the electronic-catalog model. The conjunction of a number of elements, including broadband connection speeds, rich media, social networking, and user-contributed information—a collection associated with the “Web 2.0” phenomenon—is dramatically reshaping the landscape of online retailing and will ultimately reshape the way all products are marketed and sold.

To understand this, we have to understand today’s Shopping 2.0 experience. Shopping 2.0 did not begin with the Internet. Rather, retail’s second generation was, in fact, catalog shopping, reaching back to the Sears era and accelerating tremendously as catalogs moved online. Product catalogs, whether on printed or web pages, held the transformative power of extending the shopping experience beyond the physical store and into customers’ homes and workplaces at all hours of the day.

While this extension offers consumers the convenience of remote shopping on their own schedules, it has also fractured the shopping experience into a series of disjointed phases: awareness through mass-media advertising, brand impressions, and word of mouth; selection of products through images and description, prior in-store experiences, and recommendations; the fulfillment experience of placing the order and the shipping process, the product experience itself when the item arrives and is used or consumed; and finally, the service experience of resolving any questions or problems along the way.

Catalog shopping’s separation of the shopping lifecycle has tended to create a parallel separation in the way retailers and marketers address each of the phases of the experience—even for the retailers who offer both in-store and catalog (web based or paper) experiences. Product advertising to create awareness is developed by a marketing group, whereas a separate in-store merchandising group worries about shelf space and layout. Another group manages the paper catalog, and yet another creates the Web catalog. These operations are rarely linked tightly to customer service, so when the shopper’s experience is going badly, there is no direct feedback to people elsewhere in the experience chain.

By contrast, in the pre-catalog Shopping 1.0 experience, many of these phases were compressed into a single store visit, where even the first awareness of a particular product might lead directly to purchase and consumption. Shopping for shoes in the 1.0 era represents a perfect example of the strengths of a unified shopping lifecycle: a customer gains awareness of the shoes she wants by browsing the visually rich and tactile displays, immersing herself in the products and selecting the right combination of style, fit, price, and availability. She converses with her sales representative or with a friend or even just observes other shoppers to glean cues to help guide her decision. Fulfillment is immediate, and even consumption can be instantaneous, if she walks out wearing her purchase. There is always someone to guide her and assist her with any problems, from the awareness phase to consumption.

Shopping 3.0 can be viewed as a sort of synthesis of generations 1.0 and 2.0, combining the high-touch, unified shopping lifecycle of the physical store with the convenience of the time and place shifting of the online catalog. With the continuing breakup of mass media, the Internet is becoming the dominant channel for promoting brand awareness, not only through explicit advertising and marketing, but also through the word-of-mouth buzz fostered by the Web’s flourishing social-communication facilities. Likewise, customers more frequently base their product selection on information, reviews, and recommendations found online, and on increasingly sophisticated interactive shopping experiences fueled by broadband video and audio. Finally, while fulfillment will always involve some form of delayed gratification, the online customer-service experience is being hugely enhanced by highly responsive online help services, “click-to-call” systems, and voice over IP.

These phenomena are effectively compressing the formerly disparate elements of the 2.0 shopping experience cycle into a single online channel, but with entirely new rules. Both corporate brand promotion and customer product selection depend increasingly on the interactive medium of the Web, where the voices of the marketers must compete for attention with the voices of end-consumers themselves. Even customer service is transforming from a centrally controlled business process into an open forum, full of information but also disinformation. Internet visionary Esther Dyson, commenting on the launch of my latest startup, put it this way: “You can no longer tell people about your brand; you have to let them experience it.”

As Sharon Jester Turney intuited, we are entering a new era, where online shopping will evolve from an electronic version of the Sears catalog into an open, dynamic, and social experience with the potential to dramatically increase sales volumes and profits. It’s an era where the shopping experience itself can be sexier than supermodels in lingerie, as retailers begin cross-breeding online shopping with entertainment and social networking, and digital media in ways that will surprise and delight their customers.

Online shopping will no longer be a solitary, utilitarian task built around convenience but rather a destination activity, in which consumers specifically seek out sites that offer rich, entertaining, and exciting experiences that they can share with their friends and families. The retailers, marketers, and brand managers who embrace and drive these changes will be richly rewarded with deep and lasting brand loyalty, which will benefit all of their fulfillment channels. Those who can’t make the leap from 2.0 catalog pages will be left further and further behind.

Joe Chung is Managing Director at Redstar Ventures, a company that creates companies, taking them from the earliest stages of ideation and growing them through their first institutional funding rounds and beyond. Joe tweets from @joechung. Follow @joechung

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  • http://www.sheeleytech.com msheeley

    What if your shopping 3.0 is more advanced. what if the community actually changes how the store operates directly? Just like wikipedia is changed by its community, store inventories might be changed by its community. A WikiCatalog maybe?

    I talked about this same thing on my blog post Web 2.0 and Mortar

  • http://internetconsultantsgroup.co.uk/improve_website_conversions.html Mark.Jones

    That is an interesting article. In our experience website owners find it difficult to understand visitor behaviour even with good systems such as Google Analytics.

    We have recently come across an excellent piece of software that not only allows them to monitor individual user behaviour in real time, but also facilitates direct engagement between visitor and user. This has been increasing conversions by an average of 15% in the websites we have implemented it in.

    It seems that the individualised data gives a more enlightening perspective.

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