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GUEST OPINION Beyond the tip of the iceberg: Why the ‘Swedish Model’ for online merchandising wins every time

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The Swedish eCommerce market is among the most advanced in the world.

 

Retailers have been protected from the corrosive effects of direct, in-country competition from Amazon, while serving a demanding sophisticated consumer base.

 

As a result, many have been able to focus on the online customer experience rather than the price competition that has dominated elsewhere. They have been free to innovate, to rethink retail for the online world, rather than simply apply tried and tested offline techniques to the online store.

 

The Swedish model: Holistic product exposure strategies

 

Emerging from that is the ‘Swedish Model’, an approach to merchandising online that could not be further from the ‘top seller’ strategies and campaigning that dominate in the rest of the world.

 

Instead, the beating heart of Swedish online retail is the product exposure strategy.

 

Powered by AI, machine learning and big data analytics, it is an approach that uses real time customer behavioural data, context and crowd wisdom to merchandise the entire product catalogue. It presents each shopper with the most relevant selection, and ordering, of products possible. This is all guided by underlying business goals - for instance to maximise conversion, revenue or profit.

 

It’s a far cry from the top seller and campaigning approaches that focus on the ‘tip of the iceberg’, typically merchandising 25% of a catalogue or less, and exposing an even smaller selection.

 

Intelligent automation delivers outstanding results

 

What’s more, it works. While most of the world struggles to realise significant return on ecommerce investments - with conversion still hovering around 3% - Swedish retailers are enjoying stellar growth.

 

For instance, when Nordic DIY giant Bygghemma recently moved over to automated product exposure, to balance relevance with business goals, it saw overall profitability rise by 6%. In short, costs fell as manual effort was eliminated, and sales rose.

 

In another experiment, Nordic beauty retailer Kicks A/B tested manual merchandising versus AI-driven product exposure on its home page.

 

The results were striking.

 

The automated version received an eight times higher click-through rate than the manual version, eight times more add to baskets and where the manual version delivered one actual purchase, the automated version succeeded in completing 101 sales transactions. The test only ran for a few days as Kicks didn’t need longer to see the benefits of the automated strategy.

 

The evidence is compelling. Product exposure really does beat campaigning. The question is ‘why?’.

 

Here are 8 reasons to mull over:

 

  1. Holistic merchandising

 

Product exposure strategies do not simply focus on the tip of the iceberg - top sellers and promoted ranges - leaving a long tail that is barely touched.

 

They merchandise the entire product catalogue, with products given precious screen real estate based on real time relevance and business goals, not historical data.

 

Top seller strategies, meanwhile, rarely touch more than 25% of the catalogue and expose a still smaller proportion to consumers - much like the traditional shop window.

 

  1. No cannibalised sales

 

A merchandising model that automatically and instantly makes product exposure decisions based on relevance and business goals overcomes a common eCommerce issue - cannibalised sales.

 

Most rules-based merchandising quickly escalates to create a tangle of sometimes competing rules, and there is no single view to help spot where merchandising decisions are having unforeseen, and detrimental effects.

 

Product exposure overcomes this issue because day-to-day merchandising decisions are always shaped by a single, common strategy. For instance, low-profit products will never be exposed at the expense of high-profit variants if an ‘optimise for profit’ strategy is in play.

 

  1. Consistent relevance

 

The same product exposure strategy can be employed across everything from search and navigation to recommendations, ads and promotional panels.

 

As a result, shoppers get a consistent experience no matter how they choose to shop. Whether they use search, faceted navigation, recommendations or browse from home page panels, they will always see product assortments driven by the same AI decision-making and, of course, optimised for the same business goal.

 

  1. Adaptable and agile

 

One of the most common complaints from retailers using manual, rules-based merchandising centres on a lack of agility. For many it can take days or weeks to respond to macro trends - for instance by adapting product assortments and sort orders.

 

A product exposure approach, powered by AI and machine learning technologies changes the game by automating product assortment and sort order decisions, and delivering them in real time - again, with every decision shaped by insight and business goals.

 

  1. Micro-trend sensitivity

 

Similarly, many online retailers lose out on vital sales, and longer term brand loyalty, through a failure to react quickly to micro trends. Quite simply, retailers reliant on manual merchandising cannot move quickly enough to catch the wave. For many, it takes at least 24 hours to respond - in the case of trends driven by social media, that is simply too late.

 

But worse than that, responding to these trends too late can even hurt sales, with previously trending products taking prominent real estate and sort order positions away from reliable sellers.

 

Retailers using an automated, AI-driven product exposure strategy suffer no such issues. Trends are spotted in real time, and everything from search and recommendations to promotional panels instantly push trending products to the fore. Crucially, overarching business goals ensure wider merchandising is not harmed, and the system results just as quickly once trends fizzle out.

 

  1. Powerful insight

 

Customer insight should be the lifeblood of eCommerce, and even inform wider retail strategy - everything from price to product. It is, after all, a potential source of instant consumer feedback.

 

But all too often, customer data from online stores is partial and backward-looking. It tells retailers whether campaigns worked and, in a broad sense, how consumers react to specific products and collections.

 

A holistic product exposure strategy completely changes the game when it comes to consumer insight. It affords a single view of shopper behaviour in real time, which allows retailers to make better, more agile decisions. Fed back to the wider business, it can inform everything from brand marketing to buying strategies.

 

  1. Resource-efficient

 

Of course, the route to retail success is not solely one of more sales. Profitability is what shareholders care about, so making more sales while driving cost and resource efficiency is very important.

 

For retailers still relying on manual merchandising, that is particularly difficult, since scaling up teams to do more of the same is expensive - and merchandising talent is in short supply.

 

In truth, the mundane, day-to-day merchandising job is one of number crunching and rules management - a task that is ideally suited to computers, especially now the cost of computing power is so low and AI and machine learning technologies are in such common usage.

 

A product exposure strategy that’s automated and managed by AI-enabled computers completely changes the nature of merchandising. The day-to-day decisions are in the hands of computers - reacting to massive amounts of customer data in real time and guided by business goals.

 

That leaves those expensively acquired merchandisers to focus where their skills can have the greatest impact - in making higher level, strategic and creative decisions.

 

  1. Business-orientated and predictive

 

The many limitations inherent in mainstream, manual merchandising leave many online retailers with little choice but to focus on relatively short-term goals and strategies - be they related to sales, category or collection promotions.

 

What’s more, it is not uncommon to find parallel campaigns, devised separately, with competing goals - a price-cutting promotion is about conversion, while a parallel campaign could be more about high margin products, so profit - and the two are not necessarily compatible.

 

A holistic approach, guided by business goals like profit, revenue and conversion, has no such limitations. A single strategy can be applied to the entire catalogue and every product exposure decision at the click of a mouse - and it is even possible to test the outcomes of other strategies before making the switch.

 

Ready to look beyond the tip of the iceberg?

 

Given the compelling case for holistic product exposure strategies, it is no surprise to see forward-looking retailers starting to catch on.

 

Remember, if you’re not ready, one of your competitors may be.

Andrew Fowler is UK country manager at Apptus.

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