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VIRTUALLY THERE Powered By Docstoc
					VIRTUALLY THERE?
HOW TO MAKE THE MOST
OF YOUR ONLINE CHANNEL.
INTRODUCTION




    The internet may well have been developed in the technology race following the
    Sputnik 1 spacecraft launch in 1957, but its impact on the retail industry has only
    been felt during the past few years.

                 But during its short lifespan in the sector there is no doubt that it is proving
                 increasingly influential on retailers of all types, as existing players seek to utilise its
                 power to enhance their high street operations and pure-play retailers carve out
                 growing niches for themselves.
                 During the dotcom boom it was said that the internet spelled the end of the
                 high street, but instead it has become complementary, with a multi-channel
                 strategy being key. The online channel has come a long way since Boo.com spent
                 $135 million in 18 months ... a dotcom story from concept to catastrophe.
                 Activity has been rife, with numerous big name retailers adding ‘Click & Collect’
                 services to their stores, while Boden and MandMDirect have added internet
                 channels to their catalogue businesses. There have also been some major pure-play
                 successes such as Net-a-Porter and ASOS.com.
                 This action across the sector has resulted in significant online sales growth (that
                 has far outstripped the high street), with retail sales worth £18.4 billion in 2008,
                                                                  *
                 which represents 6.4% of total UK retail spend. The predictions are that it will grow
                 by 13% in 2009 and account for 10% of total retail spending by 2013.      *


    THIS GROWTH IS EXPECTED TO CONTINUE AND LEAD TO SOME GREAT
    OPPORTUNITIES, EVEN FOR THOSE RETAILERS THAT HAVE SO FAR
    ONLY TAKEN SOME SMALL STEPS. INDICATIVE OF HOW RELATIVELY
    EARLY WE STILL ARE ON THE INTERNET JOURNEY IS THAT SOME OF
    THE LARGEST GLOBAL US AND EUROPEAN CLOTHING RETAILERS STILL
    DO NOT HAVE TRANSACTIONAL WEBSITES IN THE UK.

                 We hope that you find the series of articles in this guide, written up following our
                 Virtually There? Online Retail Forum held at the Barclays Global Headquarters on
                 18th June 2009, both interesting and thought-provoking.


                 Richard Lowe
                 Head of Retail & Wholesale
                 Barclays Corporate
                 Mobile: 07775 540802
                 Email: Richard.lowe@barclayscorporate.com
                 www.barclayscorporate.com




                 *Data from Verdict Knowledge Centre, 2009
                 ‘e-Retail storms ahead through recession’.
                                                                                                               1
    SURVIVAL OF THE FASTEST
    PAUL FRANTZ, INDUSTRY HEAD OF RETAIL, GOOGLE UK


           ---Retailers may be finding it tough in the current downturn, but this recession is unique in being the
           first with a digital economy. Merchants are therefore able to use internet technology to mitigate some of
           the declines seen in consumer spending.

                        Paul Frantz, Industry Head of Retail, Google UK, says:                                       Using such tools makes it possible to see some of the
                        “Retailers doing well are those putting bets online,                                         obvious trends like the big increase in consumers now
                        with Argos and Tesco each having achieved £2 billion                                         searching for details of voucher codes, but Frantz
                        annual online sales. More and more retailers are now                                         says other, more unexpected things can be spotted:
                        focusing on this, and as they get online stores the                                          “Aston Martin searches have increased by 10%, while
                        digital technology lets them make smart decisions.”                                          Lidl have fallen 10%. It might be counter-intuitive so
                                                                                                                     you have to look at all the data.”
                        And if retailers are in any doubt about the trend for
                        greater use of the internet in their purchasing activities,                                  Another key insight now made possible is the ‘path to
                        Frantz has plenty of statistics to support the view,                                         purchase’ of consumers. The internet enables retailers
                        including the fact Google now handles two billion                                            to find the answers to the questions: What do people
                        searches per day. 80% of internet users compare prices                                       do when they start a search and where do they finish,
                        whether buying online or in-store, and as many as                                            with the purchase?
                        one-in-three people post online comments every week.
                                                                                                                     He says an average of six searches is undertaken prior
                                                                                                                     to conversion (to a purchase) but as many as 20% of
                                                                                                                     purchases are converted after as many as 15 searches.
           -THE DECISIONS RETAILERS ARE NOW ABLE TO                                                                  And Frantz states that “this figure has increased as the
           MAKE TO COUNTER THE DOWNTURN ARE MADE                                                                     recession has started to bite”.
           POSSIBLE THROUGH THE INSIGHT THAT THE
                                                                                                                     Over 40% of transactions are ultimately completed
           INTERNET IS PROVIDING. “IT ALLOWS THEM TO
                                                                                                                     after more than 30 days following the date of the
           TARGET CUSTOMERS MORE EFFECTIVELY. THEY                                                                   shoppers’ first exploratory search, which means
           GET INFORMATION THAT’S ACTIONABLE, FROM                                                                   retailers have to be on top of the information that the
           THE MANY FREE TOOLS THAT ARE AVAILABLE.”                                                                  internet is providing to track customer behaviour.
                                                                                                                     Otherwise they will potentially lose sales to rivals who
                                                                                                                     are utilising the technology and data more effectively.




                        AVERAGE SIX SEARCHES TO CONVERSION.

                         20%



                         18%



                         16%



                         14%



                         12%



                         10%



                         8%



                         6%



                         4%



                         2%



                         0%

                               0     2      4      6      8     10     12     14     16    18     20     22     24     26     28     30     32    34     36     38     40     42     44     46     48       50

                                                                                   NUMBER OF CLOTHING SEARCHES PER CONVERTER


                               HOWEVER, 20% PERFORM MORE THAN 15 SEARCHES.
                               Purchases & research tracked at a leading set of clothing retailers’ websites – Next, ASOS, Freemans, Great Universal, Empire Stores, Additions Direct, Kays, Littlewoods.
                               Source: comScore custom analysis – UK Population, Q4 2007; Clothing searches in Q4 2007 time aligned and monitored over 12-week period from first search.

2
           “We’ve seen this trend accelerate. So if retailers do not    Clothing retailer ASOS has also shown itself willing to
           track (shoppers from their first search) through the         make ongoing changes in order to better serve its
           year then they’ll not be competing with the likes of         customers and boost sales. This involves changing the
           Amazon,” he warns.                                           models it is using for certain dresses and undertaking
                                                                        multi-variant testing that can contribute to increasing
           Frantz also suggests that it is only useful having access
                                                                        sales by 10%.
           to insightful data if it is ultimately acted upon:
                                                                        Shoe retailer Schuh is another advocate of multi-
                                                                        variant testing. When it reduced the number of items
“YOU HAVE TO LOOK BEFORE YOU LEAP. BUT YOU                              shown on pages of men’s shoes, enabling it to display
 HAVE TO LEAP. YOU CANNOT JUST LOOK AT                                  larger images of each product, it enjoyed a sales uplift
 THE DATA.”                                                             of 10%. However, this was not replicated when it made
                                                                        the same change to women’s shoes, leading Frantz to
                                                                        warn retailers that they cannot expect a one-size-fits-all
           This data now affects change within a retailer’s online
                                                                        approach to work.
           business very quickly in real-time, with Frantz citing the
           example of Debenhams that had been initially                 He also cites ASOS as a good example of a retailer that
           disappointed with the level of take-up from                  makes changes based on the customer insight it is
           its website for its new Beauty Club.                         gaining. When it found its customer base bought
                                                                        heavily when it had just been paid it decided to increase
           Following the raising of the image and the link to join
                                                                        its ranges by 15% at that time each month and also put
           the Club to above the mid-point (‘fold’) of the screen,
                                                                        new dresses above the fold on the screen.
           take-up increased 30%. And when this move was
           combined with a more ‘aspirational’ image the number         What is particularly important, according to Frantz, is
           of people signing-up jumped by a massive 89%.                for retailers not to be afraid of making changes because
                                                                        of a fear of failing. He reveals that even the mightily
           Such changes can be done on a discrete ongoing basis
                                                                        successful Amazon finds that only two out of every
           and not just by entrepreneurial retailers but by the
                                                                        20 changes it makes ultimately benefit its business.
           likes of Debenhams and Next. They are among the
           larger players that make modifications continuously          Changes based on insight gleaned from the internet
           in a process Frantz describes as:                            can also be utilised by retailers to improve the efficiency
                                                                        of their online operations. One of the major ongoing
                                                                        issues for online stores is the level of abandonment of
“TEST, LEARN AND GET RESULTS”.                                          shopping baskets at the checkout – which is typically
                                                                        a very high 65%.
           When Next found that 40% of the customers on its site
           go straight to the search option and that the level of       To address this issue, electricals retailer Comet
           break from the box was high, it sought to make               undertook tests on its website and the checkout
           changes. After doing a test on boys’ socks that              process was simplified. The ‘Your money is safe with
           delivered a page mixing socks with, curiously, pyjamas,      us’ comment and ‘Top Checkout Tips’ were both
           the search results were amended to better reflect the        removed, which resulted in a 6.7% increase in
           search criteria – and so only socks were then displayed.     conversions. A similar simplification exercise was
           This successfully reduced the level of break.                instigated by John Lewis Direct and this helped it
                                                                        increase sales by around £1 million.



IT IS A COMBINATION OF ALL THESE SMALL MEASURES THAT FRANTZ SUGGESTS WILL
ENABLE RETAILERS TO WIN THE BATTLE WITH THEIR RIVALS OVER THE “SLIGHTLY SMALLER
WALLET SIZE” OF CUSTOMERS, COMPARED WITH BEFORE THE RECESSION. “IT IS HARD TO
FORECAST THE FUTURE, BUT IF RETAILERS ACT WITH INSIGHT, TEST AND LEARN, AND ARE NOT
AFRAID OF FAILURE THEN THEY’LL COME OUT OF THE RECESSION STRONGER,” HE SUGGESTS.


                                                                        Paul Frantz
                                                                        Industry Head of Retail, Google UK
                                                                        Telephone: 0207 031 3104
                                                                        Email: pfrantz@google.com
                                                                        www.google.com




                                                                                                                                      3
    ONLINE STRATEGIES
    TONY STOCKIL, CHIEF EXECUTIVE, JAVELIN GROUP


            Increasingly demanding consumers should be the only prompt needed for retailers to grasp the nettle
            and develop their businesses into integrated multi-channel operations. Otherwise they run the risk of
            losing sales to merchants who are better serving customers’ needs online and across channels.

                         Tony Stockil, Chief Executive, Javelin Group, says:         “Most retailers do product information really badly,
                         “Customers are more time-poor than ever, and are            which often gives a poor customer experience.
                         consequently demanding more convenient service              If you want to see how to do it then look at ASOS.com.”
                         from their retailers, including home delivery.”
                                                                                     ASOS photograph all their clothes on live models and
                                                                                     use video footage of models on a catwalk for almost
            ADDING ECOMMERCE SHOULD NOT JUST BE                                      all their products. ASOS also merchandises other
            REGARDED AS A DRIVER OF INCREMENTAL SALES                                associated products alongside the main item with the
            ONLINE, BUT ALSO AS AN “INFLUENCER” OF                                   aim of cross-selling.
            CUSTOMERS WHO GO ON TO BUY IN-STORE.                                     Video is applicable to almost all product categories
                                                                                     – except probably food – with Stockil rebuffing the
                         Stockil says between 60% and 70% of customers in
                                                                                     argument from many retailers that it is too expensive.
                         Curry’s and PC World research online first before
                                                                                     He argues that if a relatively small company like
                         buying in the store, and at B&Q, where only a small
                                                                                     ASOS.com can use video very profitably then so too
                         fraction of sales are transacted online, the internet has
                                                                                     can players like Arcadia who can amortise this fixed
                         an influence on as many as 50% of in-store purchases.
                                                                                     cost across a much larger scale.
                         This represents a very different way of shopping to that
                                                                                     For established store-based retailers, the website is just
                         predicted by store-based retailers in the early dotcom
                                                                                     one area of focus. At least equally challenging is the
                         boom, who feared consumers would first research
                                                                                     complex task of integrating the channels to create a
                         goods in-store and then order them elsewhere online.
                                                                                     true multi-channel business.
                         One of the keys to success online, according to Stockil,
                         is to have a full or even extended range, because a         “MAKING YOUR BUSINESS MULTI-CHANNEL
                         limited offer can hugely disappoint customers online
                                                                                      IS NOT A SIMPLE TASK: IT TAKES IN ALL
                         and potentially convey the impression that the
                         proposition in-store is equally limited. When B&Q
                                                                                      PARTS OF AN ORGANISATION. ONE OF
                         temporarily reduced its online range it immediately          THE MOST CRITICAL REQUIREMENTS IS
                         experienced a fall in web-to-store traffic.                  CHIEF EXECUTIVE SPONSORSHIP,
                                                                                      AS ONLY THE CEO CAN DRIVE CHANGE
                         He suggests it is equally important that these products      THROUGHOUT THE ORGANISATION,”
                         are merchandised effectively with detailed information
                                                                                      EXPLAINS STOCKIL.
                         on each item and appealing visuals a must:




4
            Those retailers attempting to integrate their channels        Although Stockil suggests the move to become a
            should first ensure that some fundamental elements            multi-channel business is “a very significant technical,
            are in place.                                                 as well as operational, challenge”, he says the
                                                                          e-commerce technology market has become much
            One such fundamental is the back-end fulfilment
                                                                          more interesting over the past three years, with
            infrastructure – the less glamorous side of e-commerce.
                                                                          numerous new e-commerce platforms becoming
            This infrastructure should enable the retailer to meet        available. “A few years ago retailers had to choose
            its promises consistently, both for home delivery and         between two very expensive applications at the top
            for ‘Click & Collect’ – where shoppers order a product        end, and a handful of relatively weak solutions with
            online and collect from their nearest store.                  unattractive terms at the bottom end. But there have
                                                                          been many new entrants over recent years with strong
“‘CLICK & COLLECT’ IS A REAL DRIVER OF SALES,                             e-commerce solutions for the mid-market,” he says.
  AND IF RETAILERS HAVE NOT TRIALLED IT YET                               As well as selecting the most relevant e-commerce
  THEN I STRONGLY SUGGEST THAT THEY DO.”                                  platform when developing their business into a
                                                                          multi-channel operation, Stockil believes the key
            Although Stockil believes such a service is most
                                                                          drivers for success include: getting the basics right,
            compelling strategically for retailers with large stores
                                                                          such as range, availability and delivery; product
            or a large number of stores, he says it is still applicable
                                                                          visualisation; integrating the various channels;
            to smaller retailers as it could enable them to better
                                                                          adopting the right technical infrastructure; and
            target customers in their catchment area.
                                                                          gaining commitment and sponsorship from the
            Advantages of ‘Click & Collect’ include allowing              Chief Executive.
            customers who are buying clothing and shoes online
            to reserve more than one size in-store and choose
            when to collect (rather than waiting at home for delivery).   Tony Stockil
                                                                          CEO, Javelin Group
            For Argos it has also proved extremely successful.
                                                                          Telephone: 0207 961 3200
            Its ‘Check and Reserve’ now accounts for 12.5% of
                                                                          Email: Tony.Stockil@javelingroup.com
            Argos’s sales, up from almost nothing just four
                                                                          www.javelingroup.com
            years ago.




                                                                                                                                     5
    MULTI-CHANNEL RETAIL EXPLAINED
    STEPHEN ROBINSON, CHIEF EXECUTIVE, MANDMDIRECT


           Multi-channel is enabling retailers to hit the strategic jackpot of delivering on the triumvirate of
           choice, value and convenience that customers are increasingly demanding of merchants.

                         Steve Robinson, Chief Executive, MandMDirect, believes          of bulky items like sofas and white goods on display in its
                         it is difficult for retailers to truly “tick all three boxes”   stores, and utilise the catalogue to extend its range with
                         without having a multi-channel capability, which he             the full offer and all the variants listed in the catalogue.
                         describes as having a matrix of stores, delivery, phone,
                                                                                         Robinson previously set up the Tesco Direct business and
                         internet and catalogues that are all integrated to give
                                                                                         used catalogue ordering in-store, via service desks, rather
                         consumers every possible option.
                                                                                         than installing internet kiosks and providing web ordering.
                         He has a particularly strong affinity with the catalogue
                         element of this matrix, with MandMDirect distributing           “I’M A BIG BELIEVER IN IN-STORE DESKS.
                         900,000 flyers every three weeks at a cost of £9 million
                         per year:
                                                                                          THERE ARE KIOSKS AROUND, BUT IF
                                                                                          CUSTOMERS WANT TO INTERACT WITH
                                                                                          TECHNOLOGY THEN THEY’LL DO IT AT
          “THERE IS SOMETHING ABOUT FLICKING THROUGH                                      HOME WITH THE INTERNET. THAT’S
           THE RANGE THIS WAY, RATHER THAN HAVING THE                                     WHY A DESK IS A GOOD THING.”
           FAMILY CROWDING AROUND THE PC. THEY CONVEY
           THE RANGE MUCH BETTER THAN THE INTERNET.”                                     For multi-channel retailers, Robinson says the delivery
                                                                                         of such items should be wherever the customer
                         Although 75% of MandMDirect sales are derived from
                                                                                         chooses. “It could be to the home, which is wherever
                         the internet, Robinson says the catalogue is a major
                                                                                         the customer wants it to be, to the store, or to a pick-up
                         facilitator of both phone and internet ordering and
                                                                                         point,” he says, adding that no one has yet managed to
                         can give authority to a business as well as acting as a
                                                                                         successfully set up a network of centrally located
                         reference guide. It also, significantly, allows retailers
                                                                                         pick-up points for accepting home shopping deliveries
                         to offer a much broader range of products.
                                                                                         from a number of retailers.
                         For ranging across their stores businesses, Robinson
                                                                                         Deliveries typically divide into three categories and for the
                         says most retailers tend to stick to the 80:20 principle,
                                                                                         majority of retailers this task will be outsourced to various
                         whereby they focus on stocking the core 20% of
                                                                                         providers. First, there are the sub-25 kilo items that can be
                         products that make up 80% of their sales. The only
                                                                                         handled by one person. Smaller items will be delivered by
                         problem with this is that it leaves many specialists such
                                                                                         operators such as Parcelforce while couriers will deal with
                         as Halfords with the problem of not being able to stock
                                                                                         the larger goods.
                         all the products that they would like.
                                                                                         Second, there are goods over 25 kilos that require
                         “By allowing the ordering of goods from the catalogue
                                                                                         two people to deliver and will be handled by specialist
                         in-store retailers are able to extend their range.
                                                                                         couriers. Third, there are items that Robinson classifies
                         This allows the long tail to be sold,” says Robinson.
                                                                                         as “ugly”, which are bulky but not necessarily heavy,
                         It allows the likes of Tesco to have only a very small number
                                                                                         such as bicycles.




                         MULTI-CHANNEL MATRIX                                            ORDER CHANNEL
                                                                                                                         DESK
                                                    FULFILMENT CHANNEL                       STORE
                                                                                                                         KIOSK

                                                    STORE             HOME                 INTERNET

                                                                                                                         CALL CENTRE

                                                                       
                                                                                            PHONE                        TEXT
                                          STORE                                                                          BROWSER
                         ORDER CHANNEL




                                                                       
                                                                                         FULFILMENT CHANNEL
                                         INTERNET
                                                                                                                         HOME
                                                                                             STORE
                                                                                                                         OFFICE

                                          PHONE                                          INTERNET
                                                                                                                         STORE
                                                                                                                         PICK-UP POINT




6
          A growing trend in the retail sector is for pick-up         He says it is also important to try and avoid any
          in-store with one method requiring the retailer to          processes that are undertaken for the stores business
          “ring fence” products that are already in-stock in the      being duplicated by the other channels. The solution
          store that has been selected by the consumer for the        could involve centralising some of the marketing,
          pick-up. However, Robinson suggests that the real           buying and other functions: “The areas you can
          panacea for retailers is to only send an item to a          combine will depend on how big the business is,
          store once it has been bought.                              but there is a need to avoid any duplication.”
          With a central warehouse that can distribute goods to       This helps to reduce costs across the business, which
          all stores he says this scenario would represent “dream     is clearly important, and in other businesses similar to
          retail”. The only issue is that it would require shoppers   MandMDirect call centres might also be regarded as
          being asked to wait 24 hours before being able to           an example of an unnecessary expense.
          collect their goods from the store.
                                                                      However, Robinson regards them as important because
          Such ‘Click & Collect’ services typically require payment   even if the majority of calls they receive involve
          for the goods to be made in-store at the time of            customers asking whether their internet order has
          collection, but Robinson suggests that these types          been received, he suggests it is “comforting”
          of service should allow consumers to pay online for         for the consumer to actually speak to an individual.
          the goods that they have asked to be reserved in-store
                                                                      A much more telling issue for many older retail
          as this would simplify the transaction process.
                                                                      businesses is the task of integrating the technology
          Another key issue he cites for multi-channel merchants      and systems relating to the new channels into their
          is the handling of returns, which Robinson says can         existing infrastructures. He believes it may prove a
          run at between 10% and 40% of sales, depending on           major obstacle for many of them in developing as
          the category, with fashion clothing at the higher end       multi-channel operators: “They will find it tough
          of this scale. “It can cripple a business. People forget    integrating this new stuff with their old technology.
          that these returned products have to be sorted and          It is hard and I don’t think they’ll be up for changing
          processed. But this can be eased with up-front              it in the current climate.”
          planning,” he says.

ROBINSON IS KEEN TO STRESS HOW TOUGH IT IS TO                         Stephen Robinson
DEVELOP A MULTI-CHANNEL BUSINESS AND HE                               CEO, MandMDirect
                                                                      Email: steve@mandmdirect.com
SUGGESTS ONE OF THE KEY CONSIDERATIONS FOR
                                                                      www.mandmdirect.com
RETAILERS IS TO ALIGN THE INTERESTS OF PEOPLE
ACROSS THE BUSINESS.
          Getting store staff to buy into it is hard if they regard
          transactions going through the company’s internet
          store as lost potential store sales.




                                                                                                                                 7
    DIGITAL AND AFFILIATE MARKETING
    MARK SYAL, HEAD, WALKER-i


           Forward-thinking retailers must not only retain a focus on selling goods online but with the
           media industry becoming increasingly digitised they should also consider the internet as a fertile
           ground for marketing.

                          But what retailers face is a confusing array of online                                                                         Individual digital channels are now starting to rival
                          options, including online display advertising, social                                                                          traditional channels’ size; YouTube, for example, would
                          networking, blogging, micro-blogging, and a variety                                                                            sit between Sky One and E4 on the list of the most
                          of other online activities revolving around online                                                                             popular TV stations’ monthly reach figures with its
                          conversations that might either be the ideal solution                                                                          12.9 million unique monthly users aged over 16 years.
                          for the marketing of a client’s products, or totally
                                                                                                                                                         Syal says that one major emerging consumer trend is
                          irrelevant. Mark Syal, Head, Walker-i, says: “There are
                                                                                                                                                         the mixing of domestic TV viewing with web surfing:
                          many options and retailers need to find ways to zone in
                                                                                                                                                         “Using the internet and TV together is becoming more
                          on the most relevant ones to their businesses.”
                                                                                                                                                         common. Retailers need to look at the joint effect as
                          He suggests the way to do this is to look at the relative
                                                                                                                                                         there is a noticeable increase in recall and product
                          size of the activity amongst the target audience and to
                                                                                                                                                         consideration when both are seen by consumers.”
                          consider what role it might play in a communication plan.
                                                                                                                                                         According to Syal, the levels of consumer engagement
                          According to Syal it is essential to prioritise these options:
                                                                                                                                                         with some of the major online properties also
                                                                                                                                                         highlight the growing importance of digital media.
           WITH NEARLY 32 MILLION PEOPLE ‘FREQUENTLY                                                                                                     According to Comscore:
           ONLINE’ IN THE UK AND MORE THAN SIX OUT OF
           10 ADULTS ONLINE AT LEAST ONCE A WEEK,                                                                                                        AS MANY AS 6.2 BILLION MINUTES WERE
           DIGITAL CHANNELS HAVE BECOME A MAINSTREAM                                                                                                     SPENT ON THE SOCIAL NETWORKING
           WAY OF REACHING YOUR TARGET AUDIENCE.                                                                                                         SITE FACEBOOK IN APRIL 2009 ALONE.
                          Such is the variety of digital media that Syal says it can                                                                     An increasing area of activity for advertisers is to use
                          occupy any area on any ‘theoretical purchase path’                                                                             digital media as a channel to engage with consumers.
                          typically used by the advertising industry. It can affect all                                                                  T-Mobile managed to attract 13,500 people, by sending
                          the elements in this chain – awareness, engagement,                                                                            invites via Facebook and on Twitter, to converge on Trafalgar
                          liking, consideration and research, and purchase. Almost                                                                       Square in London and sing The Beatles’ song ‘Hey Jude’.
                          any activity in traditional media has its digital equivalent.                                                                  The event has also subsequently attracted 500,000 views
                                                                                                                                                         on YouTube, and of course was then turned into a TV ad
                                                                                                                                                         which was seen by most of the UK population.




                          YOUTUBE RANKS AMONGST THE TOP TV STATIONS IN TERMS OF POPULARITY
                          ADULTS (16+) MONTHLY UNIQUE USERS
                                                 45

                                                                  AGE 16–34 MEN                                                                                                                                                       44.3
                                                 40
                                                                                                                                                                                                                         41.9

                                                                  ONLINE (REST OF ADULTS)
                                                 35                                                                                                                                                              35.6

                                                                  TV (REST OF ADULTS)
                          MONTHLY UNIQUE USERS




                                                 30



                                                 25                                                                                                                                                      26.5


                                                 20
                                                                                                                                                                                          20.5   20.9

                                                 15

                                                                                                                                                                               12.9
                                                 10                                                                                                                  11.2

                                                                                                                                                             7.7
                                                 5                                                               3.9         4.1          6.4          6.8                                                               6.1          6.1
                                                                                                 2.9                                                                                                              5
                                                                                    1.7                                                   1.3          1.7   1.4                           4      4      4.2
                                                      0.3        0.4      0.8                    0.5             0.5         0.5                                               2.9
                                                                                                                                                                     2.2
                                                 0
                                                      Y! VIDEO

                                                                 BLINKX

                                                                          ITV.COM




                                                                                                ENTERTAINMENT
                                                                                                    TELEVISION

                                                                                                                 EUROSPORT

                                                                                                                             BBCiPLAYER
                                                                                    MSN VIDEO




                                                                                                                                          SKY SPORTS

                                                                                                                                                       MTV

                                                                                                                                                             BRAVO

                                                                                                                                                                     SKY ONE

                                                                                                                                                                                YOUTUBE

                                                                                                                                                                                           E4

                                                                                                                                                                                                  DAVE

                                                                                                                                                                                                          ITV2

                                                                                                                                                                                                                  FIVE

                                                                                                                                                                                                                          CHANNEL 4

                                                                                                                                                                                                                                       ITV1




                      Source: Nielson Ocober 08, BARB
8
          BASIC AFFILIATE TERMS

                                          THIS IS ANOTHER TERM USED TO DESCRIBE AN AFFILIATE – AS THEY IN ESSENCE PUBLISH
             PUBLISHER/AFFILIATE
                                          CONTENT ONLINE.

                                          THIS IS A TERM USED TO REFER TO CLIENTS – OR THOSE WHO OFFER PRODUCTS AND
           MERCHANT/ADVERTISER
                                          SERVICES ONLINE.

                                          COMPANY THAT PROVIDES A MEETING PLACE FOR MERCHANTS/ADVERTISERS,
                   NETWORK                PUBLISHERS AND AFFILIATES WITH THE TECHNOLOGY AND SERVICE WHILE ACTING AS
                                          A GATEWAY AND SUPPORT CENTRE TO LARGE NUMBERS OF INDIVIDUAL AFFILIATES.




          The major focus for most UK web advertisers is not             Examples of big categories in affiliate marketing include
          branding or engagement activities, however, but sales          travel, mobile phones and Digital TV, with their key
          driving activities. Search marketing, either through           attributes of mass appeal and good margins enabling a
          search engine optimisation or through paid search,             higher price to be paid to the affiliate, thereby ensuring
          is the primary medium here, but increasingly the affiliate     the top spots on its site. Affiliates themselves have
          market is becoming a key channel. Most major UK                created many sites that have responded to the demands
          retailers will have an affiliate programme running –           of users for content to help them whilst buying these
          although not all are run according to best practice.           products. It’s this closeness to the point of purchase that
                                                                         makes many affiliate sites such efficient sales drivers.
          The three parties involved in affiliate marketing are the
          publisher/affiliate that runs the website, the retailer or     With the variety of affiliates in the marketplace and
          advertiser, and the affiliate network that enables the two     the competitiveness in securing the top advertising
          parties to work together. The arrangement centres on           slots with each of them, Syal says that effective affiliate
          advertisements being placed on the affiliate website and       management is essential if retailers are to achieve
          payments being made to its owner only when consumers           their full potential from using this form of marketing.
          have clicked on ads and gone on to purchase the                Walker-i use their bespoke WASP affiliate platform
          advertisers’ product or service.                               – an invitation-only affiliate network – to focus their
                                                                         management efforts on the larger affiliates.
          Syal says the advantage of such marketing is its low risk,
          potential for a high volume of sales, cost-effectiveness,
          accountability, and the fact that an advertiser can engage     TYPICALLY, 10% OF AFFILIATES WILL
          in quite a wide variety of activities through affiliates,      DRIVE UP TO 90% OF SALES ON AN
          typically all paid for on a cost per sale basis.               AFFILIATE PROGRAMME.
          The sites/affiliates can be anything from blogs run by
          individuals to cashback or discount sites, to major            Syal’s key recommendations are: ensuring regular and
          price-comparison websites such as Kelkoo and                   frequent contact with affiliates to encourage the
          Moneysupermarket.com. One of the key tasks involved            optimisation of campaigns; providing affiliates with access
          in this form of marketing is the management of the             to a full range of promotional materials; creating tiered
          relationship between the affiliate (generally handled          commission structures to drive more traffic and maintain
          through an affiliate network) and the retailer, to ensure      interest in promoting campaigns; offering high levels of
          that sales are maximised for the advertiser.                   service to affiliates resolving any issues quickly; and
                                                                         ensuring that commission is paid to affiliates on time.
          Syal says it is essential that there is negotiation between
          the two sides and that different ways of advertising are
          constantly tried on the different affiliates’ sites in order   Mark Syal
          to achieve the best levels of click-through and sale.          Head of Walker-i
                                                                         Walker Media
“YOU NEED TO BE PRO-ACTIVE AND OFFER GOOD                                Mobile: 07775 515041
 BOUNTY PAYMENTS IF POSSIBLE, BECAUSE YOU                                Email: marks@walkermedia.com
 ARE COMPETING FOR SPACE WITH MANY OTHER                                 www.walkermedia.com
 ADVERTISERS FOR SHARE OF SALES.”
          The affiliate will give priority to advertisers who generate
          the highest yield for them. What helps this process is the
          ability of retailers to be able to see what commission
          rates other advertisers are paying affiliates.




                                                                                                                                       9
     “THE OPPORTUNITY TO GO OVERSEAS
      IS VERY REAL AND MANY BIG PLAYERS
      ARE DOING THIS TODAY AND SEEING
      SOME BIG RATES OF GROWTH. ”
10
EUROPEAN COMMERCIAL PAYMENTS
HOWARD BELL, HEAD OF ONLINE PAYMENTS, BARCLAYCARD


       As well as representing an increasingly important channel for retailers in the domestic market, there is a
       growing realisation by merchants that their internet infrastructures can act as great springboards for
       selling into other countries.

                    It is not surprising that many merchants are looking         “This involves helping retailers simplify the complexity
                    overseas for new business because, even though sales         of cross-border payments, especially in a diverse region
                    online in the UK are predicted to grow at 8%this year*,      like Europe.” Bell suggests that this enables retailers to
                    the forecast rates of growth elsewhere in the European       concentrate on what they do best – retailing.
                    Union also provide attractive opportunities for retailers.
                                                                                 Despite the exciting backdrop of overseas expansion
                                                                                 into new territories, Bell says fraud will remain at the
       ONLINE PAYMENT SALES ACROSS THE EU,
                                                                                 top of the agenda for Barclaycard and its retailer clients.
       EXCLUDING THE UK, ARE EXPECTED TO INCREASE
       BY AN IMPRESSIVE 22%** DURING 2009.
                                                                                 THIS ISSUE HAS BEEN THROWN
                    This highlights how the use of the internet as a channel     UNDER THE SPOTLIGHT WITH THE
                    for shopping resonates across the whole of Europe.           DEMANDS ON RETAILERS TO COMPLY
                    Howard Bell, Head of Online Payments, Barclaycard,           WITH PCI DSS, WHICH IS A SET OF
                    says: “The opportunity to go overseas is very real and       REQUIREMENTS DESIGNED TO
                    many big players are doing this today and are seeing         SAFEGUARD AND PROTECT
                    some big rates of growth.”                                   CARDHOLDERS’ DATA HELD ON
                                                                                 RETAILERS’ PAYMENT SYSTEMS.
                    “To help retailers tap into this significant opportunity,”
                    Bell says, “Barclaycard is committing a significant
                    amount of investment into e-commerce, with a                 Failure to comply with PCI DSS regulations not only
                    particular focus on expanding its footprint outside the      leaves merchants open to international fraud but can
                    UK by continuing to develop its multi-currency               also result in fines from both MasterCard and Visa.
                    platform for both cross-border and domestic trade.”          From 1st October 2009, PCI DSS will also become
                                                                                 relevant for smaller merchants, which means that
                                                                                 retailers of all sizes will need to increasingly align the
                                                                                 opportunities that the internet presents overseas with
                                                                                 ensuring that they have the necessary safeguards to
                                                                                 protect their businesses and their customers.


                                                                                 Howard Bell
                                                                                 Head of Online Payments,
                                                                                 Barclaycard Payment Acceptance
                                                                                 Telephone: 07826 944316
                                                                                 Email: howard.bell@barclaycard.co.uk
                                                                                 www.barclaycardbusiness.co.uk/epdq




                                                                                 *Figures calculated from Forrester Research, Inc report
                                                                                 ‘Trends, includes Consumer Technology Adoption
                                                                                 Study data and a market sizing forecast’ August 2006;
                                                                                 Updated March 2007.
                                                                                 **Barclaycard Expert View Report, June 2009.
                                                                                                                                               11
     ONLINE SECURITY
     JIM KENT, MANAGING DIRECTOR, 7SAFE


            The impact of chip and PIN in Europe on deterring theft in-store, combined with the growing levels
            of transactions made over the internet, has led to a dramatic increase in the levels of fraud
            committed online.

                         When this is combined with the increased levels of
                         cross-border transactions being undertaken by                   WHY ONLINE FRAUD?
                         retailers through their online stores, and the growing
                         effectiveness of the fraudsters operating remotely
                         from around the world, retailers have to make great
                         efforts to secure their businesses from criminal attack.
                         Jim Kent, Managing Director, 7Safe, says the internet                                    PERCEIVED
                                                                                                                 OPPORTUNITY
                         has attracted a lot of business online but it has also
                                                                                                                The belief that the
                         brought the opportunity for people to “do bad things”                               perpetrator can commit
                         and the trend has been for these bad things to be                                  fraud and get away with it
                         increasingly perpetrated on companies trading
                         within the EU.

            SINCE THE UK IS THE LARGEST MARKET FOR                                                                   FRAUD
            ONLINE RETAIL SALES WITHIN EUROPE, IT IS
                                                                                                  PERCEIVED
            NATURALLY PROVING A PRIME TARGET OF                                                   PRESSURE                      RATIONALISATION
            CRIMINAL GANGS.                                                                    Externally applied,                 “We are not
                                                                                                  self-applied                   hurting anyone”
                         Highlighting how online crime has migrated to the EU,
                         and specifically the UK, are the figures from Visa, that         Because fraudsters want to become wealthier
                         for 2007 show the US accounted for a sizeable 74% of             and don’t care about the negative consequences,
                         total global compromises (breaches to IT security that           especially with the worldwide web as a
                         result in loss or damage) while the EU was a much                hiding place.
                         lower 21%.
                         But in 2009 the US is forecast to drop, whereby it will
                         account for only 43% of compromises; whereas the
                         EU is expected to increase its share to 48%. “This is
                         worrying and shows chip and PIN has made criminals            For 7Safe there has been a marked increase in the
                         move over from stores to online. We therefore need to         number of investigations in which it has been involved.
                         be mindful of this trend,” says Kent.                         For retailers this has often centred on the theft of
                                                                                       payment card data. It now typically investigates seven
                                                                                       to eight companies per month, with one of these
            HE POINTS TO THREE KEY AREAS WHERE ATTACKS                                 recently suffering from the theft of the data relating
            ARE BEING INCREASINGLY PERPETRATED:                                        to a massive 12.5 million payment cards in only
            MALWARE, WHERE WORMS ARE USED TO INFILTRATE                                34 minutes.
            IT EQUIPMENT; HOST COMPUTERS, WHERE ‘THUMB                                 Of the numerous compromises investigated by the
            DRIVES’ ARE USED TO ‘SNIFF’ TRAFFIC FROM THE LIKES                         company (that have encompassed all types of
            OF ATMS AND PCS; AND NETWORKS, WHERE HACKERS                               businesses from a merchant selling model horses in
            GAIN ACCESS TO RESTRICTED DATA REMOTELY.                                   a shed to a big hosting adviser that holds the details
                                                                                       of many payment cards) Kent says the common
                                                                                       thread has been their non-compliance with PCI DSS.
                         As well as being able to use such advanced techniques,        This is the set of requirements from Visa and
                         Kent says the key attraction of committing fraud online       MasterCard designed to safeguard and protect
                         is the impersonal nature of the crime: “If there is the       cardholders’ data held on retailers’ payment systems.
                         web between you and the victim then, firstly, you’re
                         not hurting anyone individually; secondly, there is no
                         personal interaction; and thirdly, what’s the odds of         “OF ALL THE PEOPLE WE’VE
                         actually catching somebody if they are abroad? There           INVESTIGATED NONE HAS BEEN PCI DSS
                         is the belief that the perpetrator can get away with it.”      COMPLIANT. THERE HAVE TYPICALLY
                         In contrast, if a fraud is committed in a shop it is highly
                                                                                        BEEN BASIC FLAWS IN THEIR SECURITY,
                         unlikely that all these three factors will be in place,
                                                                                        SUCH AS A LACK OF ROTATION OF
                         thereby making it a less attractive route for criminal         PASSWORDS, LIMITED SEGMENTATION
                         activity. Not least from the fact that criminals are much      OF THEIR IT NETWORK, AND A LACK
                         more likely to be caught by stealing goods in a store.         OF ADHERENCE TO DIFFERENT LEVELS
                                                                                        OF ACCESS TO THEIR SYSTEM.”



12
For those unfortunate companies that suddenly find            offering, which includes testing, code review and
their systems have been breached, Kent says the first         securing of a client’s web presence to minimise the
step is for it to be substantiated by their bank. Following   ever-growing risks surrounding online trading.
this, 7Safe or a similar forensics specialist then works
                                                              The key recommendation to retailers from Kent is:
out a strategy of how it is to investigate the breach and
                                                              “If you can get rid of everything to do with credit cards
decides on related issues such as the release of
                                                              then do it. You can then be acquitted from any blame
comments to the press.
                                                              relating to a breach. If you have no cards on your
Kent says 7Safe will then deploy investigators on-site        network then we’ll end up looking somewhere else
who will undertake ‘forensic imaging’, which involves         for the breach – maybe with the retailer’s PSP
copying the breached company’s hard drives. This is           (Payment Service Provider).”
then taken to the laboratory and a mirror image of the
retailer’s own network is built, which should enable          HE WARNS RETAILERS THAT EVEN IF
7Safe to see the traffic flow of data that will hopefully
highlight how many cards might have been taken.
                                                              THEY ARE FOUND TO HAVE NOT
7Safe also deploys ‘ethical hackers’ to remotely
                                                              BEEN THE GUILTY PARTY IN THE
access the breached system.                                   INVESTIGATION OF A REPORTED
                                                              BREACH THEY COULD STILL BE FINED
These processes should enable a final report to be            BY VISA OR MASTERCARD IF THEY
delivered to Visa or MasterCard who Kent says are
                                                              ARE FOUND TO BE NON-COMPLIANT
“very strict on how this is compiled”. They require it
within a maximum of 30 days from the time of the
                                                              OF PCI DSS.
breach: “We’ve a 30-day window from being involved
in the investigation to getting the report to Visa            And for as long as they remain non-compliant then
or MasterCard.”                                               the fines will be ongoing, thereby providing yet another
                                                              reason why retailers need to deal with PCI DSS as
Part of what 7Safe do when they deploy ‘ethical               soon as possible and ensure that they are compliant.
hackers’ is to test the security of the externally facing
components of the company. “For example,” says Kent,          Jim Kent
“we test the client’s web page to see if we can break         Managing Director
into it, allowing access to any back end equipment            7Safe
such as database servers, mail servers or file servers.       Mobile: 0870 600 1667
We also test the code of the website to see if it is          Email: James.kent@7safe.com
possible to alter prices or layouts, deface the website       www.7safe.com
or upload malicious software into the website.”
The purpose here is containment, to make sure the
client is secure from the outside threats and is not
externally leaking any card or sensitive data. This
service is also part of 7Safe’s Penetration Testing




                                                                                                                          13
     DISTANCE SELLING AND VAT: PLANNING FOR SUCCESS
     RYAN OSTILLY, COMMERCIAL DIRECTOR, MERIDIAN GLOBAL SERVICES
     AND PAUL QUIGLEY, DIRECTOR OF VAT CONSULTING, MERIDIAN GLOBAL SERVICES

            As the growth of online sales overseas continues to gather pace, there is a risk that many retailers will
            fail to consider the full implications of VAT relating to cross-border transactions, which can lead to many
            potentially complex and costly issues.

            PAUL QUIGLEY, DIRECTOR OF VAT CONSULTING,                               The situation for retailers is complicated by the fact
            MERIDIAN GLOBAL SERVICES, SAYS: “VAT IS ONE                             that each of the 27 EU countries has set their own
            OF THE MOST IMPORTANT AND BOTHERSOME                                    distance-selling thresholds that have typically been set
            TAX ISSUES RELATING TO SELLING ONLINE TO                                at either €35,000 or €100,000 (or the local currency
                                                                                    equivalent where the Euro is not the currency in use).
            CONSUMERS IN OTHER COUNTRIES.”                                          These thresholds are based on a cumulative VAT –
                                                                                    exclusive value of goods sold to consumers in that
                         Selling products in this way is classified as ‘distance    specific member state during a calendar year.
                         selling’ because such transactions fall into the bracket
                                                                                    Quigley says there are likely to be three different VAT
                         of goods or services being sold to customers at a
                                                                                    scenarios faced by retailers selling their goods via the
                         distance. It is exactly the same for items being ordered
                                                                                    internet to customers located overseas. The first
                         over the phone.
                                                                                    involves the retailer’s sales not exceeding the threshold
                         This definition of distance selling changes slightly in    of the country it is selling into. This requires VAT to be
                         the context of VAT, according to Quigley, who says:        paid in the country of despatch. VAT can continue to be
                                                                                    applied at the home country’s rate until the threshold
                                                                                    has been reached.
            “IT IS DEFINED AS THE SALE OF GOODS
             (NOT SERVICES) DELIVERED TO CONSUMERS                                  The second scenario involves transactions taking place
             FROM ONE EU MEMBER STATE TO ANOTHER                                    when the thresholds have been reached or exceeded.
                                                                                    In this case the retailer must collect and assess VAT
             EU MEMBER STATE.”
                                                                                    in the country of the consumer.
                                                                                    The final scenario involves transactions being
                                                                                    completed when the threshold has not been met but
                                                                                    where the retailer has elected to apply VAT in the
                                                                                    country of the consumer.




                            For the growing number of retailers now finding they have to deal with these various
                            scenarios, or who are on the verge of selling into other countries, Quigley says there are
                            10 key questions that should first be answered by all of these merchants:

                           1. Should I opt to tax all sales in the country          6. Do I need to file VAT returns, how often are
                              of the consumer from the outset, and how                 they due, what is the filing deadline and are
                              do I do that?                                            there any other filing obligations?

                           2. What are the distance-selling thresholds              7. How do I pay the VAT that is due and to
                              set by each country?                                     whom, and when does the payment need
                                                                                       to be made/received by?
                           3. When do I need to register for VAT?
                                                                                    8. How do I treat sales made to consumers in
                           4. What rate(s) of VAT should I charge?                     non-EU counties such as Switzerland and
                              Children’s clothing could be zero VAT in                 Norway? They may have different thresholds
                              the UK whereas in others the standard                    to those countries in the EU.
                              rate will apply.
                                                                                    9. What happens if a VAT-registered business
                           5. Do I need to issue invoices, what information            places an order? Such an issue will need to be
                              do they need to show, and can they be                    factored into the design of the retailers’ website.
                              issued electronically?
                                                                                    10. Once I become registered for VAT in another
                                                                                        country, do I always have to remain registered
                                                                                        there if I continue to make distance sales?




14
           DISTANCE SELLING – VAT RULES

            UNITED KINGDOM                                                                           FRANCE
                                                                                                     (THRESHOLD = €100,000)

                  UK DISTANCE
                     SELLER




                     GOODS                                                                                   FRENCH
                                                                                                           CONSUMERS
                                                                             GBP            EUR
                                            SALES                          78,000        85,800

                UK VAT RETURN               UK VAT (15%)                   11,700         12,870
              OUTPUT VAT: £11,700           FR VAT (19.6%)                      0             0
                                            GROSS                         89,700         98,670




           The key recommendation from Quigley to retailers            “CONSIDER VAT AT THE EARLIEST
           embarking on the road to selling goods overseas              OPPORTUNITY, IDEALLY BEFORE THE
           from their websites is that they make the necessary          SUPPLY CHAIN HAS BEEN DECIDED
           preparations. He advises retailers to consider what
           the sales might be in each of their target territories,
                                                                        AND THE WEBSITE DESIGNED.”
           proactively obtain the VAT registration numbers in
           each of these countries, and be fully aware of their        For UK retailers selling services rather than goods
           auditing requirements.                                      into other EU countries Quigley says there are a set
                                                                       of VAT rules that have their own complexities.
           Planning is therefore critical if retailers are to avoid    For certain services supplied to consumers in another
           paying VAT in the wrong country and then having to          EU member state the retailer pays VAT in the country
           unravel past trading activity.                              where he is established.
                                                                       Paul Quigley
“PROPER PLANNING IS ESSENTIAL TO ENSURE THAT                           Director of VAT Consulting
 VAT DOES NOT BECOME A COST AND THE BUSINESS                           Meridian Global Services
 DOES NOT INCUR PENALTIES AND/OR INTEREST FOR                          Telephone: 0208 601 4600
 NON-COMPLIANCE WITH ITS VAT OBLIGATIONS.”                             Email: paul.quigley@meridianglobalservices.com
                                                                       www.meridianglobalservices.com
           This is becoming increasingly important as the growth
                                                                       Ryan Ostilly
           in retailers trading cross-border via their websites has
                                                                       Commercial Director
           been noted by the authorities in each country and they
                                                                       Meridian Global Services
           are seeking to target those merchants not complying
                                                                       Telephone: 0208 601 4600
           with the local regulations. “Tax authorities are taking a
                                                                       Email: ryan.ostilly@meridianglobalservices.com
           strong stance on companies paying VAT from outside
                                                                       www.meridianglobalservices.com
           their country,” says Quigley.
           He also warns that such is the complexity of distance
           selling that retailers should avoid the potential trap of
           developing a strategy based purely on the commercial
           side of their business but which has failed to take into
           account the tax implications of selling overseas.




                                                                                                                               15
     The views expressed in any third party guides or articles are the views of the author alone, and do not necessarily reflect the views of the Barclays
     Bank PLC Group nor should they be taken as statements of policy or intent of the Barclays Bank PLC Group. The Barclays Bank PLC Group takes no
     responsibility for the veracity of information contained in the third party guides or articles and no warranties or undertakings of any kind, whether
     express or implied, regarding the accuracy or completeness of the information given. The Barclays Bank PLC Group takes no liability for the impact
     of any decisions made based on information contained and views expressed in any third party guides or articles.


16
Barclays Bank PLC. Registered in England (Registered No: 1026167)
Registered Office: 1 Churchill Place London E14 5HP United Kingdom
Barclays Bank PLC is authorised and regulated by the Financial Services Authority.

www.barclayscorporate.com
Telephone: 0800 015 1921*
*To maintain a high quality of service, your call may be monitored or recorded
for training and security purposes. Calls to 0800 numbers are free of charge,
when calling from a UK landline. Charges may apply when using a mobile phone
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