Some of the world’s largest retailers hail from Sweden, and even those that haven’t yet come to dominate global retail are significant players in Scandinavia and wider Europe. As such, Swedish e-commerce is among the most advanced in the world. Why is this? What do Swedish retailers have that others perhaps don’t?
Of course, Sweden has a long history of being at the forefront of science and technology. It should have surprised no one that, when e-commerce first arrived, the Swedes would quickly adapt to this new form of retail.
But it is the holistic approach that is the answer. It has developed as a requirement coming from the necessity to enforce several merchandising needs within a single tool (Search, Recommendations, Navigation, Ads). These needs must all be represented in the same algorithm, they must all ‘listen’ to a specified order of importance and not undermine each other.
The Swedish merchandising model
The ‘Swedish model’ is an approach to merchandising online that could not be further from the ‘top seller’ strategies and campaigning that dominate in the rest of the world.
Instead, the beating heart of Swedish online retail is to optimise product exposure according to business objectives.
Powered by AI, machine learning and big data analytics, it is an approach that uses real time customer behavioural data, context and crowd wisdom to merchandise the entire product catalogue. It presents each shopper with the most relevant selection, and ordering, of products possible. This is all guided by underlying business goals – i.e to maximise conversion, revenue or profit.
It’s a far cry from the top seller and campaigning approaches that focus on the ‘tip of the iceberg’, typically merchandising 25% of a catalogue or less, and exposing an even smaller selection.
The bottom line
While most of the world struggles to realise significant return on e-commerce investments – with conversion still hovering around 3% – those Swedish retailers utilising AI to merchandise their sites are enjoying stellar growth.
For instance, Nordic DIY giant Bygghemma moved over to automated product exposure and saw overall profitability rise by 6%.
Nordic beauty retailer Kicks A/B tested AI-driven product exposure on its home page against their existing manual approach and received eight times higher click-through rates and add-to-baskets.
The evidence is compelling. Product exposure really does beat campaigning. The question is ‘why?’.
This approach may have been driven initially by an urge to replicate ways of working in the offline world to those online – regardless of the need to make profit, for the Swedes it’s just the right thing to do – but in doing so they have inadvertently reaped additional rewards.
A more productive workforce
Because they’re using automation to do the heavy-lifting, Swedish e-commerce teams are free to do more creative work, the type of work that computers have yet to master yet which has a significant effect on the overall customer experience.
Using real-time automation in the management of product promotion and exposure has increased retailers’ reaction times. Social media can create and destroy trends for items within hours, and unlike manually merchandised sites Swedish retail sites can react to these changes in demand in real-time.
Because all the screen real-estate is being managed, not just key landing pages, and because the whole catalogue is exposed more equitably, Buyers and Merchandisers can have greater confidence in what will sell and by how much, minimising end-of-season mark downs.
Aligned business objectives
Key to making this approach work has been the adoption of objective-based merchandising. Rather than focussing on the management and promotion of individual products or lines, merchandisers set objectives for the merchandising algorithms to work towards… increasing margin, sales or profit, or minimising stock. The nitty-gritty of which products are promoted where is largely an irrelevance, as senior managers know that the merchandising system will make these decisions for them, but in alignment with the company’s strategic goals.
Look beyond the tip of the iceberg
If you’re an online retailer, take another look at your site. Browse the products on your site, not just on the popular landing pages – look beneath the water line – and ask yourself who decided to place those products there and why? Who, or what system, made the decision and was it the right one?
The chances are, that unless you’ve already adopted the Swedish model, the answer to these questions will prove difficult to answer.
Ready to look beyond the tip of the iceberg? Contact us to learn more.
This blog post is a summary of an article in Internet Retailing.