Whether you are a vertically integrated brand, a retailer or a platform, it is essential that you focus on what customers want. A few years ago with a team of research partners, we did a study that tried to understand exactly that. We wanted to better understand what customer want when it comes to a normally channel experience. We design a study to uncover the trade-offs that real customers make when closing the transaction of a product that they know they want to buy. We study what customers want in terms of fulfillment, return policy, price, information, and retailers reputation. We did this study using a conjoint methodology that allowed us to uncover the underlying preferences and tensions of customers that need to make trade-off when deciding where to buy a product. Let me share with you the main insight of this study that built on our discussion. First, it is important to recognize that customers will make trade-offs. If we look at each one of these attributes in isolation, fulfillment, return, price, and information, we can easily answer what customers want. We know that fast delivery is better than slow delivery, that free delivery is better than paying extra for it. We know that customers want the flexibility to return the product at no extra cost any time, pay the lowest possible price and have the best amount of information they always required. However, it is hard for a retailer or any company to make a profit by offering what customers expect in every single dimension. The key here for anyone that wants to engage with the customer and make a profit is to uncover the trade-offs that they make the customers, when making a decision. It is also important to be aware that these decisions that customers make can be category specific. We have seen before how the digital component and the digital intensity can vary significantly across categories. In our study, we first focused on the apparel category by asking customers to express their preferences when buying a jacket. We then studied the weight of each one of those five attributes when the customer was making the purchase decision. What we discovered was that a relatively large fraction of the decision was given by the delivery option and the price offered by the retailer. These two features carry almost 30% of the decision weight. It is important to note that it is critical to have the pricing and the delivery options right, because 60% of the decision Is based on those two features. However, this result can overlook the fact that the remaining 40% of the decision is driven by other things. In those attributes is where the differentiation across retailers can become crucial. We also wanted to understand if the relevance of these five attributes was different when it comes to other retail categories. So we replicate the conjoint exercise for the electronics, books, and home good items by exploring the trade-off when buying a large TV, a book series, and a cooking set. We ask again the customers to make purchase decisions that will help us uncover the underlying preferences across these five attributes. We want to see the underlying tension when they try to make a purchase decision. And it was interesting to see that the relative importance of the attributes was very consistent across the different categories. We could see that some attitudes have higher wait for the apparel category versus the book category, and that is not a big surprise. However, if we think of the ranking of these attributes, it was very consistent and similar across categories. However, we shouldn't stop there, when we try to understand what customers want inside each one of these attributes. There were specific features that the customers were considering, and what customers see as a great delivery option for a jacket can be a not so great option when it comes to a large TV. With our conjoint exercise, we were able to see what exactly the customers value in terms of these attributes. Let me share one of many interesting points we learn that I'm hoping it's going to reinforce this idea of matching the effort of customers expectation at the category level. The delivery option is important for all categories. Customers have a strong preference for free shipping in two business days. For the jacket, free in store pickup is a very attractive option that can drive as much customer satisfaction as free delivery. However, it is interesting to see that the preference for the free shipping is way higher for the TV set. At the same time, customers don't want to pick a large TV at the store. This could be a function of the bulkiness of the product and the weight of the product, while the relevance of the delivery option is almost identical for electronics and apparel category. When it comes to the actual options that the retailer need to offer, the specifics of the delivery can be a dealbreaker for a customer and what works great for one category can be frustrating experience in another. When thinking about the digital offering, retailers today tend to focus primarily on price and delivery as the main drivers of online purchases. This is consistent with our study that shows that those are important drivers of the decision, But these are not the only drivers. In a recent survey, customers were asked what was the main reason why they shop online? Availability to shop 24 hours a day, 7 days a week came on top. The ability to compare prices and saving time is also extremely valued by customers when they are asked what they want to find in the online shopping experience. Being aware of these drivers is very important because for example, it can drive decisions on how to staff the support for the online store. At the same time, it can help the retailer think more carefully when committing to practices that will directly hurt the bottom line, like giving away free shipping for every order, no questions asked. Free fast shipping might not be the main reason why customers are visiting your online store today. Of course, everyone loves great service for free. The question is whether the retailer and ultimately the customer can afford it. A similar consideration is important when it comes to the reasons why customers shop in the store. For example, there is a large portion of customers that expressed the need to touch and see the item before buying it as a main driver for visiting the store. This goes back to the information for freedom matrix, we discussed before. They need to touch and feel the product become critical when it comes to apparel and customers want to try on the item. It is not a small fraction of customer expressing those needs. There is an underlying concern that the product will look different from the impression that you get in the online store. According to this survey, while it is true that customers might visit the physical store because the delivery takes too long or the shipping costs are too high, those are not the main reasons why people go to the store. So when thinking about the investment and effort to reduce the friction across the retail channels, shipping speed and shipping costs should be included. But it might not be the only driver, and for some categories it might not be the most relevant driver. One way to think about the different categories is to consider what fractions of the product attributes are digital versus non-digital. If we think of all the attributes of a product that customer consider, we're making a purchase, we can see that some of those attributes can be captured in a digital way and some cannot. On one extreme, we have products that are characterized almost exclusively with digital attributes. Most products are best described in a mixed of digital and non-digital attributes. In the other extreme, we have products where almost all their features are non-digital and where the digitalization is a poor substitute of the physical experience. A battery is a good example of a digital product. By knowing the battery type and the brand, we pretty much know everything there is to know about that product. And when we have the price, we have been able to capture almost everything that is meaningful and useful to make a purchase decision. In the other end of the spectrum, we find perfumes. Perfumes are a great example of products with almost no digital attributes and where the most crucial feature, the scent of the perfume, cannot become bait at all in a digital way. Once again, if we think of a continuum between pure digital attributes and pure non-digital attributes, we can see how different products and products categories will sit in this continuum. In the real world, there is an additional challenge that customer face when sizing becomes relevant for the product. The ultimate test is the combination of sizing and fit for footwear and apparel. We can think of a matrix that has digital and non-digital attribute and sizing being relevant or not relevant at all. In that sense, products like perfume, while they have a very big portion of non-digital attribute, present almost no uncertainty in terms of sizing. However, other products, like wedding dresses, have a high portion of non-digital attributes and a large uncertainty of sizing and fit. One can be tricked by thinking that the sizing information can be captured digitally by disclosing the size of a particular product. Any customer that has experienced buying an apparel product online will know that this sizing can be misleading. Different brands have different sizing and sizing changed over time. This is a phenomenon that some read for us, size inflation.