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Retailers Are Wearing Blinders When It Comes To Measuring The ROI Of Selling Online, According To A New Report From Forrester

Cambridge, Mass., August 21, 2001 . . . When retail executives get down to calculating the ROI of their Web efforts, they are forgetting to turn their eyes offline. According to a new report from Forrester Research, Inc. (Nasdaq: FORR), retailers will find that their investments in online technology will pay off if they take a disciplined approach to site investments and ROI analysis.

"The problem today is that even sophisticated retailers become myopic when it comes to calculating the ROI of selling online," said Evie Black Dykema, senior analyst at Forrester. "Since the returns on Internet investments extend beyond online sales alone, retailers must begin to measure companywide ROI (cROI), which factors in the Web's impact on offline sales and operational efficiencies."

Retailers that do not consider the effect Web sites have on offline purchases are neglecting the value of the Web as a marketing and service channel. Also, retailers must not forget that sites can improve the efficiency of their operations by reducing costs and boosting margins through self-service, hands-free order taking, inexpensive retention marketing, and the additional yield on liquidation.

One way to damage the cROI of selling online is to either over- or underinvest in a Web site. With the cost of some online stores approaching $52 million, retailers must calibrate spending with the level of site sophistication and class of goods being sold. In another recent report on the cost of selling online, Forrester estimates that a site's expenditures vary depending on its core commerce, merchandising, and service capabilities. For example, implementing an elaborate merchandising system helps to drive up the cost of a sophisticated Web site 10 to 17 times more than that of a basic site with no functionality to personalize cross-sells.

In addition, cROI is driven by the role that a site plays in selling a particular class of products: replenishment, researched, or convenience goods.

• Replenishment goods -- health and beauty products -- only require basic sites, since customers are predisposed to simply reorder.
• Researched goods -- like consumer electronics and furniture -- require more sophisticated Web sites because these purchases are more complex. Sites must be designed to guide consumers through each stage of a lengthy purchase process, requiring more technology.
• Convenience goods -- such as apparel and toys -- sell best through sophisticated online stores, because offering more content and merchandising tools will make consumers spend more.

"Multichannel retailers looking for ROI from their eCommerce investments without taking companywide returns into consideration are like nomads in the desert hoping to happen upon a lake. Chances are it just won't happen. Retailers have to recognize the cost savings, efficiencies, and incremental revenues that an eCommerce site contributes to the company as a whole," said Lisa Allen, research director at Forrester.

Related Events
On August 29, Forrester is hosting a one-day Workshop in Cambridge called "Driving Retail Web Site ROI." This Workshop is designed for eCommerce and Web site design executives interested in improving online ROI through effective retail and Web site design strategies. To register, please go to www.forrester.com/Events.

From September 23 to 25, Forrester will host a two-day Forum entitled "Making Money With The Web." This Event will explore how retail, marketing, and new media companies are using the Internet as a profit engine. Forrester analysts and industry luminaries will share best practices for cutting costs, increasing revenues, building brands, and solidifying customer relationships across online and offline channels. To register, please visit www.forrester.com/Events.

Forrester Research is a leading emerging-technology research firm, analyzing technology change and its impact on business, consumers, and society. Forrester's "Whole View" provides clients with a comprehensive set of research that reveals how technology change affects their customers, drives their business strategies, and dictates their investment in technology. Clients receive continuous research and analysis through Forrester eResearch® Reports, an array of Advisory Services, Assessment Tools, and topical Events. Established in 1983, Forrester is headquartered in Cambridge, Mass., with North American Research Centers in San Francisco, Calif., and Toronto, Canada. Forrester's European Research Center is located in Amsterdam, Netherlands, its UK Research Centre is located in London, and its Research Center Deutschland is located in Frankfurt, Germany. Additional information about Forrester Research can be found at www.forrester.com.

Contact:

Mariko Zapf
Manager, Public Relations
Forrester Research, Inc.
+1 617/613-6255
press@forrester.com