Greetings from snowy Boston (will it never end?!)

In high school, my friends and I passed time by inventing novel insults beyond sophomoric profanities (although we used plenty of those, too). One of my favorites was to slap someone with the insult "irrelevant." The dialog would proceed as follows: "You don't like my new stone-washed Guess? jeans? I don't care, you're irrelevant." No one ever had a good comeback.

My friends would find it humorous then that years later I find myself mulling the importance of relevance in retail. The Web's initial promise was to bring relevance to retail in the form of personalization and collaborative filtering. But this technology got mixed reviews from retailers and customers (RIP NetPerceptions). Instead, we see relevance emerge in the physical world, of all places. Examples? Home Depot's neighborhood stores in New York's West Village, Best Buy's rollout of stores targeted at suburban housewives in California, and American Eagle's use of optimization technology from ProfitLogic to better target local store pricing and assortment.

This idea of tailoring store format and assortment to key segments bucks the trend of cookie-cutter, big-box stores and also makes me wonder -- why is this happening offline instead of online? Isn't it cheaper to do online? I wrote a report in 2000 called "Pricing Gets Personal" that predicted that dynamic pricing at the segment level would occur online -- I was wrong. What is happening is that retailers segment customers in more explicit ways online. Rather than overhauling the entire store for individual customers, they:

• Launch loyalty programs. A double-edged discounting sword, loyalty programs do one thing best -- identify a retailer's most valuable customers. To ferret out these customers, retailers like Best Buy and Barnes & Noble offer fee-based rewards programs. Why a fee? To weed out unprofitable, discount-grabbing customers who dilute the value of loyalty programs, letting the retailer spend more time and energy focusing on creating more relevance for valuable customers. Look for our upcoming research titled "Getting More Out Of Retail Loyalty Programs" for more on this and how to avoid common pitfalls of loyalty programs.

• Take sales abroad. It turns out that relevance crosses borders, too. Retail without borders was another initial promise of the Web, but it's one that we're seeing pick up steam just now. As US online sales begin to slow, and as retailers see up to 10% of site sales coming from international customers, retailers will launch international sites to become more relevant to foreign guests. With help from BorderFree, Lanebryant.com lets users click on a Canadian flag on the home page and instantly convert all prices into Canadian dollars. Selling internationally takes more patience than waiting in the security line at O'Hare though, so check out our upcoming research called "Taking eCommerce Sales Abroad" to avoid common tourist traps.

• Let customers do the work. The inherent flaw in collaborative filtering tools is that technology can't infer purchase intent or filter out gifts; pity the Forrester employee who bought a pregnancy book for his wife at Amazon and was then offered breast pumps for years. Why guess what cross-sells will work when customers can tell you themselves? Wish lists and saved items on Gap.com and Yahoo! Shopping let customers tell retailers what they want -- data that retailers can use to improve email offers and site relevance. eBags is on to something big with its customer reviews, which users can sort by type of reviewer (a flight attendant's review of a carry-on suitcase means something different than a casual traveler's). Taking this type of personalization to the next level, imagine if a product detail page automatically filtered product ratings and reviews to match the customer segment. Or, taking a page from retailers like Lenox, retailers can use basic information that they know about a customer, such as a name, to proactively monogram clothing or personalize a frame. That's a lot more relevant than that breast pump or even than the news flash that customers who bought Harry Potter Six also bought Harry Potter Five.

We've always lived in a society of relevance. It began with Victorian brooches, graduated to vanity license plates, and now appears as venti nonfat extra hot double vanilla shot lattes. Retail is finally catching up both online and offline in small pockets of innovation and growth. I'd love to hear your thoughts on how retail can become more relevant without just adding more syllables to my Starbucks order.

Regards,


Carrie Johnson
Principal Analyst

Research Referenced In This Issue 2004 US eCommerce: Wrapping Up The Year (36197) Commerce Server Interest Grows — Again (36106) Retail February 2003 Data Overview: A Gender Analysis Of Online Shopping Behaviors (16089) The Comparison-Shopping Shakeout (36175)

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