The coming crisis for comparison shopping

Comparison shopping is going from strength to strength. Usage rates are rising at around 20-30 per cent a year. More shoppers are catching the comparison habit, and more money is flowing through comparison sites to vendors. Vendors in turn are waking up to the potential power of comparison shopping as a distribution channel.

So far, so good.

Trouble is, if the comparison engines don’t watch out, this may be good as it gets. If the comparison shopping industry doesn’t get its act together, it risks losing this momentum to become a marginal niche that never really fulfils its promise.

So, what’s the problem?

First, there is the simple fact of competition. The industry is still in its infancy, but already the marketplace is getting crowded. Shoppers now have a choice between many different comparison shopping sites. Pretty soon rapid growth rates will taper off – unless service providers can find some way to grow the market.

Enter the real problem: limited shopper value because of low levels of trust and limited utility.

Let’s start with utility. Comparison shopping sites as they stand are OK (not ‘good’, only ‘OK’) for people who know what they want to buy. But they are terrible at actually helping people make better decisions. Being able to compare prices when you can’t compare quality, or you don’t know how well competing products are actually going to fit your needs, is pretty much close to useless. Most shoppers are not driving by price alone. They want value: ‘the best possible solution to my problem as the lowest possible cost’.

But most comparison site are not addressing this need and if truth be told they don’t want to do. Why? Because they feel the business of price comparisons is complicated enough without venturing into the hugely complex, highly subjective territory of value. Nevertheless, a failure to rise to this challenge means dramatically – perhaps even fatally – restricting the utility of their services.

The winners will be the ones that grasp this nettle. In category after category they will go beyond pure price comparison to provide shoppers with all the information they need to make better decisions. To do this they will begin to include:

• the results of independent, impartial technical testing and market research (such as the services provided by Stiftung Warentest in Germany and J D Power in the car markets)
• the considered assessments of impartial experts, alerting would-be buyers to Wow! points and Yuck! points and to ‘things you should think about but probably didn’t know enough to ask about’
• peer reviews, the collated views of previous buyers about product quality, service efficiency and helpfulness and so on
• problem solving services that elicit and answer the specific questions would-be buyers have about products or services
• efficient ways of collating and presenting this information so that it is quick and easy to use (via buyer guides, searchable knowledge bases, decision trees and so on)

Then, and only then, will the price comparison be as valuable is it really should be.

The instinctive reaction of most comparison sites right now is that is much too big a mountain to climb. Far too complicated. Far too expensive. The reality is that there are ways to tackle both these issues of complexity and cost (look out for the forthcoming BCCF White Paper on Problem Solving Services for example). Indeed success in these areas could soon be the price of survival.

Why? For three reasons.

First, the service that is the best at ‘helping me navigate my way to best value’ is the service that becomes the shopper’s first port of call. It’s the service that wins the customer’s business. Revenues, and clout with suppliers, follows. In an increasingly competitive environment, this will be the difference between success or failure.

Second, cracking this shopper utility challenge is also the secret of user and revenue growth. Right now the comparison shopping industry’s growth prospects are highly constrained along three dimensions.

1)      the industry is limiting its appeal to a small minority of shoppers: those who are confident about what they want to buy and who are price oriented. The biggest growth will come from expanding the market to include shoppers who are not so confident and who are more concerned with value rather than price alone.

2)      the industry is limiting its range and scope to those products or services that are relatively easily compared. There is massive growth to come from expanding into those areas where comparisons of utility, functionality, quality, service, availability, convenience and so on are much more important for shoppers.

3)      the industry is currently limiting its appeal by focusing solely on price. There is huge potential for growth at the opposite end of the scale (the connoisseur and expert) and for those who are more concerned with other factors such as quality, reliability, functions and attributes, quality of after sales service, future-proofability, environmental and social responsibility and so on.

Long term growth prospects along all these dimensions – of customer base, category range and points of comparison – are highly doubtful for any comparison site that fails to rise to this challenge of better quality buyer-centric information.

But there’s more, because without improved shopper trust, services still risk wasting their time.

The comparison shopping industry still has to clear two trust hurdles if its growth prospects are to be improved.

First, it needs to demonstrate that its product is technically trustworthy. Can shoppers really be sure that the information presented by the service is comprehensive. As long as there are doubts about this, usage will be restricted.

Second, it needs to demonstrate that the information it presents is impartial and not biased. When push comes to shove, there are two conflicting perspectives on comparison shopping. One is that comparison sites are a distribution channel for sellers. The seller pays the site for leads and/or closed transactions, so the site is a service to the seller. If this view prevails, sites will tailor their service to what sellers want including, for example, listing products not according to ‘best value’ for the shopper but according to ‘highest commission’ from the seller. This is a good way of ensuring healthy revenue streams in the short term. But it is also a very good way of destroying shopper trust in the long term.

The alternative view is that the comparison site is a sourcing channel for the buyer. The buyer paysthe site with his time and attention and via the cash he spends on transactions. While sellers pay the cheques in terms of commissions and fees, it is buyers who actually deliver the financial value by providing the site with their custom. No site visit and usage; no commission. Seen from this perspective, the number one priority of the site is to build shopper trust (while all the time focusing on how to turn this trust into revenue).

This is a business model question and it won’t be easy. It will mean standing up to all sorts of supplier pressure, and it may involve spreading the risk in terms of revenue streams. Instead of relying 100% on seller commissions for example, sites may start selling to suppliers data from and about shoppers and their shopping behaviours. They may accept advertising. Some may even sell add-on premium services to shoppers themselves. Either way, the ability earn shopper trust will mark the difference between winners and losers over the medium to longer term. Sites that are not honest, impartial and transparent won’t last the course.

In the early days of the Internet there was a lot of naïve talk about the informed, ‘empowered consumer’. With all this information at the tip of their fingers, all consumers had to do to find the best value was ‘surf the web’, it was declared. ‘The web’ – a crude, raw piece of technology – would do it all.

As it turned out, ‘surfing the web’ is an extremely time-consuming, wasteful, frustrating exercise which often delivers poor results. ‘Surfing the web’ wasn’t any answer at all. Informing and empowering consumers is a business – a complicated, hard-to-manage business in its own right.

Right now we are beginning to realise how complicated and hard-to-manage it is.

That’s not a bad thing but a good thing, because once we set aside dreams of quick, easy solutions we can get down to the job of actually making it happen.

The prizes of success are potentially gargantuan. The last few decades of business history have been characterised by a secular shift of power from manufacturers to retailers. But it was a specific type of retailer that drove this shift in the balance of power: the ones who became the consumers’ ‘destination shop’, their first port of call when going to market and who were able to capitalise on the resulting buying power.

Retailers won this first-port-of-call status via their stranglehold on physical distribution. They were the places shoppers went to do their shopping. But shopping is, first and foremost, an information processing activity: deciding what to buy, from where. Any service that can provide shoppers with the information they need to make better, quicker, easier buying decisions has the ability to dislodge even the most powerful retailer from its privileged status as the shopper’s first port of call.

With comparison shopping we have an embryonic challenge to the Wal-Marts and Tesco’s of this world. It could be the thing that relegates these giants to second place in the commercial pecking order. But this won’t happen so long as the industry fails to transcend the limitations that are already beginning to restrict its growth.

Alan Mitchell

Comments

[Webber]

I couldn't agree less. The point you are missing here is comparison shopping sites are the final step in the purchase cycle. They are a destination predominantly visited by 'quick click' shoppers to secure the best deal. The research for the most part is done and the worse thing a comparison shopping site can do is bog people down in more social or research features. People don't go to eBay to research, they go to get a deal. CSE's are no different and shouldn't be. By doing more than giving the shopper what they want, front and center, the CSE's conversion declines, hurting merchants.

[Robert]

Your post makes many excellent points. In the near term, it seems unlikely that a single comparison shopping engine will dominate the market. There seems to continue to be a place for a variety of engines with different stengths--some focusing on price comparison and others on product research. I think that's a good think. Do we really want one player (like Google) to completely dominiate all aspects of this market?

Personally, I AWAYS use multiple engines when shopping, and for that reason, I recommend RoboShopper.com, which is a meta comparison shopping and product research site that makes it easy to query multiple shopping engines.

[Mike]

This specific post on comparison shopping is very precise on what happens in the retail sector , as a consumer I must agree totally with you .

[vasilis]

I read your articles Alan and i find them always fascinating.
I m head buyer in a greek supermarket chain and this specific post on comparison shopping is very precise on what happens in the retail sector, if we see it this way.
Everybody is fighting to give the best price and we re losing the value batle and the trust(they call it loyalty, but it s trust actually you re right)of the consumer.
No wonder why people are rushing to discounters.