Editorial content is an increasingly popular way for retailers to increase engagement with a firm’s customers. And this is not the first foray for Gilt into editorial content. The launch of Gilt Taste was noted for the hiring of famed New York Times reviewer, Ruth Reichl, to guide the editorial policy of the new business.

But by actually launching a full content site, Gilt is expanding beyond its core business operations. But this follows a recent trend in the ecommerce space. It is not uncommon for the largest etailers to populate their sites with advertising — walmart.com, toysrus.com, and overstock.com are prominent examples. This practice is appealing because it provides ancillary income for a retailer. When site sales are reduced by the cost of goods, marketing and technology costs, as well as overall SG&A, most retailers are satisfied with an operating margin of 5%.

The impact of advertising is not necessarily trivial, as this article illustrates. 2011 may have been an outlier in the company’s financial performance because of heavy investment in the development of the Kindle Fire, but for the purpose of this post, it is important to note that Amazon generated $631 mm in net income. But the company generated $1 bn in advertising sales, which may have been the leading contributing factor that swung the business to a profit.

I am not a financial analyst, and it seems certain that my analysis is a very simple one because Amazon’s business is particularly complicated one due to its investments in product development, web service business. But it is clear that advertising is a tremendous subsidy that allows Amazon to fund future investments in growth.

I thought this was a timely post for retailers after reading about how to build a niche content site. It is by no means a quick path to fortune, but the items in this post show you how to begin.

I will write a follow-up post shortly on the engagement benefits of content in helping consumers convert on your site.

]]> http://okewcommerce.com/your-content-du-jour/feed/ 0 http://okewcommerce.com/karmaloop_cracks_the_social_commerce_conundrum/ http://okewcommerce.com/karmaloop_cracks_the_social_commerce_conundrum/#comments Fri, 13 Apr 2012 17:21:54 +0000 Marty http://okewcommerce.com/?p=58

I was recently asked by a client to help them develop a social strategy — which is a fairly common request these days given the limitless press devoted to Facebook, Twitter, and newest entrant Pinterest — but in my experience I have struggled to see any concrete examples of retailers convert their social efforts into dollars in the door. A few retailers have amassed an enormous number of followers on Facebook (Victoria’s Secret is the current leader, topping out at more than 18mm fans at the time of this post), but very few sites have been able to leverage this social base for more than 1-2% of their overall sales. So it came as a surprise to me when I found out that KarmaLoop, a retailer focused on Global Concrete Culture, drove 27% of its revenue through a social program. We are talking real dollars as well – an estimated $20mm+.

The key to their success is an associate program that turns social media fans into an affiliate sales force for the Boston based retailer. The company allows anyone to sign up as a rep on their site, and it is estimated that 100,000 people have already joined the program. The sign-up page lists out the  top 10 associates over the past seven days, and an associate named thegoodgood has earned 675,775 points which converts to $135,000 in revenue for KarmaLoop — that is an astonishing figure! Based on my estimates, that would make thegoodgood one of the largest affiliates in the entire KarmaLoop program.

There are some challenges for converting this model for most retailers — it would be difficult for someone like ColdWater Creek to generate the same level of passion for its product as a 19 year old college kid who loves the new ‘Cocaine & Caviar’ design from Crooks & Castles, but a carefully thought out process of matching your most influential advocates to a carefully curated product mix might just pay off in spades.

I am sure that KarmaLoop is happy.

Since we sourced each form separately, I was able to determine that these subscribers were less valuable to us than past purchasers — but not by much. The cost of one prize to acquire thousands of subscribers made the cost of acquisition trivial, but this tactic lost its effectiveness years ago when most modern web browsers adopted pop-up blockers as a core feature.

So it is surprising that a number of major ecommerce retailers continue to feature pop-ups as a way to capture new email subscribers. Two key surprising examples are J. Crew and Saks Fifth Avenue. I have to wonder about the effectiveness of the pop-up — it was a cumbersome process for me to actually enable to pop-up in order to confirm that they are still working. But the bigger surprise is that the pop-ups seem like an anachronism from an early era of the web, and it seems out of sync with the luxury or premium brand image that these retailers normally convey.

But I have noticed that this tactic does seem to be resurgent, though in a slightly altered form. These screencaps from Anthropologie provide a good illustration of the new killer email acquisition tactic – the home page interstitial.

When a new users visits the Anthropologie.com site, they are greeted with an interstitial asking them to subscribe.

Visitors to the site do not see the interstitial on repeat sessions.

In order to quantify just how frequently these interstitials are being deployed, I conducted an audit of the Internet Retailer Top 500 and found that only a handful of retailers are using this tactic. They are primarily in the apparel category (Urban Outfitters, Express, Shoes.com), but it includes assorted merchants such as Blue Nile.

In my work with clients, I have seen dramatic improvements in the email capture rate. And more importantly, I have seen those subscribers effectively converted into purchasing customers. This is a tactic that should be implemented more frequently, and with A/B testing technology such as Monetate, the impact to conversion can be measured and determined to be marginal.

Let me know if you have had success with this tactic.

As a novelist my wife has an ear for words. And she alternates between amusement and exasperation with the phrases that seem to take root overnight in the business world and then become obnoxiously ubiquitous. “The Pivot” is the most recent term that seems to be on everyone’s lips, and moving beyond the cliché, it is about company taking radical leaps to alter their business model in order to move past business challenges.

This is somewhat commonplace in the start-up world – see how StickyBits moved from tagging the real world with social elements and became Turntable.fm, a site that encourages users to hang out and take turns DJ’ing for their friends.

But how does a company that has seen financial success with its business model pivot? It cannot walk away from an existing model that throws off millions (or billions) of dollars a year in profit, but at a point, its growth stalls or disappears entirely.  For example, Wal-mart continues its reign as the world’s largest retailer.  But over the past decade the company has seen its share price rise by only 3.5%. Despite consistently increasing its dividend over that period, that performance is nobody’s idea of a stock market darling. Compare that to Amazon, which saw 1,300% appreciation during that same period. It seems as though Walmart’s days of a growth stock are already behind it and that it has lost the online retail war.

So I think it caught most observers by surprise when, Walmart acquired Kosmix (reportedly for $300mm) last April. The team, rechristened as @WalmartLabs, has been positioning itself as a disruptive force within the world of social + mobile + retail. While I don’t know if anyone involved in this transaction was familiar with “Box 3 Strategy Making” as a strategic framework, it adheres to all of the clear principles articulated by Vijay Govindarajan and Chris Trimble in their HBR article, “The CEO’s Role in Business Model Reinvention.”

The article details the three areas of responsibility for a CEO — and Box 1 is to manage the present. On the same day as the acquisition, Mike Duke, Walmart’s CEO, announced that his top responsibility was to manage a turn around in same store sales. This is precisely the area of current fiscal importance to the company’s shareholders, and a splashy acquisition was not intended to distract from his responsisbilities.

Box 2 is a little more elusive – it may be about focusing on core practices that are outdated or diminished in their effectiveness, but it may be about looking at mistakes or near misses. It is possible to forgive Walmart for not moving to dominate online sales a decade ago, but it is now a channel that cannot be ignored. Afterall, Amazon is now honing in on Target, the number two mass merchant in the United States.

@WalmartLabs is clearly adhering to Box3 — it is focused on creating the future of retail. Run as a separate organization out of San Francisco, the team is trying to map the social genome in order to improve shopping online. Their first product, ShopyCat, launched in time for the holiday shopping season, and it provided (accurate) recommendations for your Facebook social graph.

Not every retail organization can make a $300mm bet like Walmart, but with the cost of developing new online businesses rapidly dropping, I would love to see more retailers invest in Box3 innovations. They should look to firms like Y Combinator as a model of how to do this at low cost entry point.

There are quite a few other firms playing in this space – companies such as Birchbox (luxury samples) and Little Black Bag (curated gifts and an aftermarket for trades and one of InStyle’s Sites We Love) are beginning to see major traction. There is one clear reason that this business model is so appealing to founders and investors, and it is that they can count on a regular flow of revenue from acquired customers. It is easy to calculate the lifetime value of consumers. Simply multiply their monthly subscription revenue by the expected cancellation rate and you can easily put a value on each customer. This allows you to more effectively plan your inventory and put a precise dollar figure on your customer acquisition cost.

This compares favorably to the traditional ecommerce model where each customer is on a heterogenous purchase cycle – some customers will purchase monthly while others will only purchase during the holiday season. One retailer I have worked with has seen over 50% of its revenue occur between Thanksgiving Day and its Free Shipping cutoff – talk about a planning nightmare and an alarming risk profile.

The other facet of this trend is the curation model – the value proposition for consumers is that they have a direct tie into celebrity stylists like Kim Kardashian or design luminaries like John Maeda. This allows the average consumer to receive an item vetted by someone who has the time and, most importantly, the resources to suss out the next must have product. The shopper is paying a premium for these services – notice the lack of discounting or couponing that these retailers use. This breaks the cycle of ever increasing discounts – a cycle that JC Penney’s is currently spending millions of dollars trying to break.

This raises two questions for the ecommerce retailer: 1) Is there a way to convert your merchandise offering into a subscription based service, and 2) What is the premium curated proposition for your consumers? If you are an online wine-seller, it is straightforward to have a wine of the month club, but who is the sommelier or what is the overarching idea that will convince consumers to pay for the subscription.