Whenever I discuss products and retail as part of the definition of local search people are often a little skeptical. Yet again and again studies show that consumers are using the Internet to do research before buying locally in stores. This is especially true for “considered purchases” (bigger ticket items), but it’s generally true for products across the board.
The Internet has not emerged predominantly as a transactions platform, as many had predicted several years ago, but instead as a marketing platform driving offline transactions. And while e-commerce is projected by comScore and others to exceed $200 billion this year (impressive numbers to be sure) those figures are effectively like a fly on the posterior of U.S. retail sales. According to the U.S. Census Bureau, e-commerce is hovering at about 4 percent of overall retail.
Many die-hard e-commerce supporters will undoubtedly dispute my seemingly dismissive characterizations of etailing. But two of e-commerce’s historically most bullish supporters – Jupiter and Forrester Research– have more recently come around and said that the growth of online commerce is “flattening,” while the Internet’s influence on offline consumer purchases continues to grow almost unabated.
Here’s what Jupiter’s most recent e-commerce forecast had to say:
“Online retail sales are maturing and the lion’s share of future growth will primarily come from existing buyers spending more in the online channel,” said Patti Freeman Evans, JupiterResearch Senior Analyst and lead author of the report. “Assuming growth continues in a similar trajectory over the coming decades, US online retail sales will plateau at 10 percent to 15 percent of total US retail sales, barring a dramatic change in the online shopping experience that promotes an inordinate spending shift among buyers.”
US online retail sales will grow by 16 percent in 2007 to reach $116 billion. Over the next five years US online retail will grow at a CAGR of 11 percent reaching $171 billion in 2011. Despite the slowing of growth in online buying, web influenced off-line sales will grow at a slightly faster pace over the next five years, reinforcing the vast advertising and marketing value retailer websites present.
Both research firms independently predicted that the Internet would influence “a trillion dollars” of U.S. retail spending by either 2011 or 2012. These projections may well miss their precise deadlines, but directionally they are accurate. In January, 2005, Amazon CEO Jeff Bezos famously opined, in prescient agreement with Jupiter’s Freeman Evans, “I think online ultimately will be 10 to 15 percent of retail.”
The Internet’s influence over consumer purchase behavior is accelerating while e-commerce itself is heading for a plateau. One can see the “maturation” of e-commerce in the stalled growth of online shopping comparison engines like Shopzilla or eBay’s Shopping.com. Indeed, Shopzilla’s revenues are down and the company (now part of EW Scripps is struggling to regain its footing).
Of course, with some of these statements I’m oversimplifying to make a point; and in fact consumer purchase behavior is growing more complex as increasing volumes information and more and varied influences compete for consumer attention — online and off. But the big picture is quite clear: the large majority of consumers shop online before buying in-store. And there’s nothing to suggest that will change in the foreseeable future.
To look out into the future a couple of years, the three most interesting trends in “online shopping” are local, social and mobile:
- Local: as in “Where can I buy it today?”
- Social: as in “Can anybody recommend a . . .”
- Mobile: as in “How much does it cost somewhere else?” or “These guys don’t have it, where can I go to find it right now?”
One company trying to leverage all three of those trends to varying degrees is ShopLocal. Last Friday the company introduced what it is calling the “ShopLocal Index,” which seeks to be a barometer of Internet-influenced offline shopping.
ShopLocal is tracking “pre-purchase” consumer research at 50 major U.S. retailer websites and mapping it to in-store transactions. According to the inaugural index, based on a survey of 23,000 consumers, ShopLocal found that “65 percent made an in-store purchase within a week after visiting a site and another 23 percent within three weeks.” As more data like this is compiled tactical implications for online marketers will become apparent.
Many other studies, including a recent one from Yahoo and comScore, have similarly documented the Internet’s (and search’s) impact on offline transactions. While conventional comparison engines leave “money on the table” by failing to capture or extract value from this dominant consumer behavior pattern, Internet-influenced local shopping has its challenges as well.
The “inventory infrastructure” is developing but has yet to be fully built out. Sites like ShopLocal, Krillion and NearbyNow, among others, are working diligently on this challenge. Once substantially accomplished, that inventory information will transfer into mobile with relative ease. And NearbyNow already has a relatively sophisticated mobile marketing program in place.
Another challenge is tracking: showing the online-offline connection. Right now offline conversion tracking is limited to after-the-fact consumer surveys, coupon redemption and phone tracking, as a kind of proxy for purchase intent. Phone tracking arguably doesn’t work well for products because people many not call stores in the way they call service businesses (e.g., doctors, plumbers) for appointments.
Marketers may never get the same degree of “visibility” on online-offline consumer behavior that they have with e-commerce transactions: from search keyword to online shopping cart. (Tracking conversions offline is one of the sessions at SMX Local & Mobile.) And the difficulty in tracking those conversions in the real world has been one of the factors obscuring a clear view of what’s really going on out there.
But this complexity and “opacity” shouldn’t obscure the fact that people go online to research products they then go to physical stores to buy those products. And when you factor in what has historically been called “multi-channel shopping” into local search you start to see how big a deal it really is.
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