Web 2.0 for Retailers: A Consumer-Focused Definition...

Like many industry terms, "Web 2.0" has become a proxy for a variety of concepts that shape our understanding of its meaning.  I liken the development of Web 2.0's tenets and popular definitions to the evolution we have seen with "Customer Centricity" over the last eight to ten years.  For those of you who do not remember, Customer Centricity became an extremely popular buzz phrase that marked a seismic shift from the retail industry's obsession with supply chain efficiency (i.e. driving costs out of their bottom lines) to an approach focused on delivering a satisfying experience to customers and building brand loyalty.  Many retailers used this realignment to begin very structured studies of their customers buying patterns and demographics.  The end result (for some retailers) was a better view of the needs of their customers and the mechanisms internally to act upon them in a more proactive fashion.  In a very tactical sense, this produced technologies capable of better store-level assortment, markdown optimization, advanced forecasting and demand planning, more robust customer loyalty programs, etc.

So against this backdrop enters Web 2.0.  First some additional context.  Retailers are experiencing some exceptional growth in their eCommerce business.  While competition is high, many retailers are growing at an exceptional clip, with 20% online growth commonplace.  Because of this growth, retailers are now addressing their multi-channel retailing businesses as core to their growth strategies. 

While there is great growth, there are challenges.  It is my opinion that there are two primary drivers of what we identify as Web 2.0 concepts.  First, customer acquisition.  With great competition and some saturation in certain retail segments (i.e. consumer electronics) some retailers are having trouble adding new customers.  This will begin to constrain growth if there is no significant ability to grow average basket size.  In addition, there are inherent differences between customer acquisition in the multi-channel world when compared to the legacy brick and mortar world.  Customer attraction, while always a focus, has taken on new meaning.  Retailers engage with potential customers differently than they did when the primary (only) buying avenue was the physical store.  Concepts like search, online advertising and affiliate marketing, email marketing have now all become very common methods of attracting customers.   

With the Web now a big part of the way retailers and customers interact, customer experience has now moved to the forefront.  Customer experience in this context means a couple of things.  First, look and feel and overall usability.  This centers around a consumer's visual experience, ability to interact with and engage frustration-free with a retailer's site.  The big bet here centers around user experience technologies and design.  Some of the big resulting focus areas include:  AJAX technology, Rich Internet Applications (RIA), XML, etc. 

Second, retailers have begun to realize that they need to cater to how consumers communicate and network on the Web.  The new outlets available to consumers given the proliferation of broadband technology and the increased prevalence of Web-enabled devices (Wi-FI laptops, mobile devices, etc) have enabled consumers to make the Web a part of their social fabric.  Seeing the power of this new social manifestation of the Web, retailers have started to try to embrace social aspects of the Web in a variety of ways.  Some include: product reviews, blogs, Wikis, partnerships with social networking entities (MySpace, Facebook, Second Life, etc), RSS, etc.  To show you how much this concept has taken hold with some in the industry, I recently attended an industry event where a speaker said that retailers should no longer be brand managers but instead become "brand stewards".  The implication is that the social Web can be leveraged to communicate the value of a brand better than any retail marketing/merchandising department can.       

Clearly the concept of Web 2.0 is taking hold, regardless of the definition one subscribes to.  The key for retailers however will be in how to monetize these concepts.  For example, many big retailers have tried (unsuccessfully) to create a retail presence in virtual worlds like Second Life.  While the experience will hopefully lead to an improved understanding of how consumers interact with retailers in social settings, none have made any significant money in these environments.  For now, retailers will continue to invest in technologies that improve the user experience and will look for ways to acquire new customers. 

The key to being successful as some of these technologies take hold will be to have the agility to capitalize on new business initiatives.  Key tenets of good multi-channel infrastructures, including a single view of the customer, extraction of business from presentation layer(s), effective business tooling and a common and flexible development environment will all continue to drive Web 2.0.