Many retail executives are missing the mark when it comes to gauging thereturn on investment (ROI) of their Web efforts, often failing to take intoaccount the considerable influence Internet sites have on offline purchases,according to a report released Tuesday by Forrester Research.
Forrester’s findings dovetail with a similar report released earlier thisweek by Jupiter Media Metrix, which concluded that 69 percent ofbrick-and-click retailers are underestimating the benefits derived fromtheir Web sites.
“The problem today is that even sophisticated retailers become myopic whenit comes to calculating the ROI of selling online,” said Forrester senioranalyst Evie Black Dykema. “Since the returns on Internet investments extendbeyond online sales alone, retailers must begin to measure company-wide ROI,which factors in the Web’s impact on offline sales and operationalefficiencies.”
The Cambridge, Massachusetts-based research firm said brick-and-clickmarketers will find that their online technology expenditures will pay offif they take a “disciplined approach” to site investments and ROI analysis.
To this end, Forrester advised retailers to place value on their Internetarm as a marketing and service channel. Moreover, the study said vendorsshould use their online sites to boost the efficiency of theiroperations by cutting costs and improving margins through self-service,hands-free order taking, inexpensive retention marketing and the additionalyield on liquidation.
On a cautious note, Forrester warned that multichannel retailers riskdamaging the company-wide ROI of selling online by investing either too muchor too little in their Web presence.
With the cost of some online stores climbing towards the US$50 millionrange, the report said it is imperative for retailers to fine-tune theirspending based upon the level of site sophistication and the types of goodsbeing sold.
When calculating the cost of selling online, Forrester said a site’s capitaloutlay will vary depending on its core commerce, merchandising and servicecapabilities. For instance, the implementation of an elaborate merchandisingsystem may drive up the cost of a Web site 10 to 17 times more than a basicsite with functionality in place to personalize multichannel sales.
Different classes of products play distinctive roles in fueling abrick-and-click retailer’s company-wide ROI, Forrester concluded.
For instance, the study said replenishment goods, such as health and beautyproducts, only require basic sites, because customers are more likely to simplyreorder.
On the other hand, researched products, including consumer electronics andfurniture, call for more technologically enhanced Web sites because those purchases are more complex. According to Forrester, these sites must be designed toguide consumers through each stage of the lengthy buying process.
The Big Picture
Meanwhile, convenience goods, such as apparel and toys, sell best throughsophisticated online stores because an abundance of related content and fullyhoned merchandising tools will spur increased consumer spending.
“Multichannel retailers looking for ROI from their e-commerce investmentswithout taking company-wide returns into consideration are like nomads in thedesert hoping to happen upon a lake,” said Forrester research director LisaAllen. “Chances are it just won’t happen.”
Allen said that retailers have to recognize “the cost savings, efficiencies and incremental revenues” that an e-commerce site contributes to the company as a whole.
In its report Monday, Jupiter estimated that nearly two-thirds of the total Webbenefit for retailers will be in offline transactions influenced by onlineresearch. To this end, Jupiter said that only Internet pure plays shouldfocus primarily on recognizing profits from their Web sites.