Insights on Marketing & Technology

Keep your promises

A mature e-commerce market
When entering a new market or region, Zalando’s biggest challenge is discerning the most effective approach to take for each individual country. Business strategies are adapted in consideration of local needs, as well as to support the development of country-specific expertise.
    Last year, Zalando headhunted apparel aficionado and former McKinsey consultant, Michael Lindskog, and relocated him from his hometown of Stockholm, to Berlin. It was the first step in setting up a dedicated international team for the Nordic region.
    “What attracted us to the Nordic markets was a combination of various factors and characteristics”, Michael Lindskog explains. “The internet penetration there is extremely high and consumers are very confident with both the internet and e-commerce in general. On top of this, e-commerce in the Nordics has quickly evolved from being primarily about price, to being more about assortment, quality, buying experience, and so forth.”
    Consumers in the Nordics have an affinity for buying clothes online, despite (or maybe because of) the region’s strong tradition for genuine fashion. This is especially relevant for Denmark and Sweden, which both have strong designer brands at a local level. Suddenly, customers in more rural areas have access to a selection of brands and products they simply cannot find locally.

International experience, local focus
“All in all, we knew we could enter the market and provide something new to consumers. What we are able to do is set the playing field by driving the factors of convenience and selection to a different level. We came in with a much, much broader assortment than anybody else - we carry close to 1,500 brands”.


    The Nordic team must be able to “read between the lines” in their approach to customer care, and successfully meet the customers’ needs. Zalando has set-up a buying office in Stockholm to be closer to Nordic customers and to better maintain a current, regional selection of items by regularly adjusting the stock to reflect local trends.
    Each country utilises processes which require a large degree of flexibility in numerous areas, including marketing, advertising, payment transactions, logistics, and IT. Though there are many similarities across each region, there are also vital differences.

A great shopping experience
“We put considerable emphasis on offering our customers a great online shopping experience. I believe it’s crucial that, as a customer, you feel comfortable when shopping online. Consequently, Zalando offers free and secure transaction, free delivery on every purchase and a 30-day free return period. In other words, there is no risk involved in making a purchase.”
With a product line of more than 150,000 items, the usability aspect of the site is essential for effectively guiding the customer through their search to their eventual purchase.
    “It’s important to have a stable site that runs smoothly. It’s also imperative for your site to provide inspiration, be user friendly, help your consumers find the right products and sizes, and so forth. We continually develop various filters so that each customer can easily navigate their way through to a relevant selection of products. We are also making constant improvements on the way we present the products with images and product descriptions.”
    Zalando has about 350 developers working on their site. All local versions of the site share the same backbone, but the front end is adjusted to reflect the unique needs of each local market. In other words, what consumers will see and experience differs from country to country. Furthermore, the assortment of products is adjusted to fit the demand and trends of the local market in question.
    “One of the reasons we have such a vast selection of goods is to meet the needs of as large a population as possible. That said, we do realize that not everyone will be interested in everything that we have. So our goal is to instead ensure that interesting and relevant offers are presented to each individual, and with this, to try and understand what is most likely of interest to the consumer. From here we can selectively display only the most relevant items to the consumer. In this way, we help our customers to define their style through recommendations and personalized newsletters. Such efforts have been well-received by our customers.”

 
Logistics are not only about speed
Logistics are fundamental for any e-commerce business offering physical goods. Goods are shipped to the customer and some of these goods are returned. Zalando originates from Germany, and all of their warehouses are located there, including the mega-warehouse in Erfurt that has been nicknamed “Europe’s largest wardrobe”.
    “To be quite honest, unless you have stable logistics and operations, you will have a very difficult time surviving in this market. This is why we have put so much effort and resources into building a stable backend and operations. In general, what I truly believe is of paramount importance for the consumer is that you deliver on your promises! It’s really not that important if you’re a few hours or one day faster than everybody else. But if you say you will deliver within 2–3 days, you need to deliver within 2–3 days. If you show up 5 days later, you have broken that promise.”
    Another critical aspect of logistics deals with goods that are returned. One would think that all e-commerce businesses would strive to keep their return rate to a minimum, right?
    “The average return rate for Zalando is around 50%. Generally speaking, the return rate for the Nordics isn’t as high as other markets. Nonetheless, in planning our entry to the Nordic markets, we based projections on return rates that were close to the average of 50%. The reason for this is closely linked to some of the usability and shopping-experience elements I mentioned earlier on. Our very generous shipping and return policy is part of our offering to the entire market. The bottom line is that we want people to be happy with what they buy! As long as the customer is happy with their overall buying experience, he or she will most likely complete a second, third and fourth purchase with Zalando. On a large scale, that’s really good business.”

Finding new customers
To gain new customers, Zalando uses a combination of on- and offline marketing activities, and a balance of mass marketing campaigns and personalized messages. When entering new markets, the first line of offense is online. All marketing activities are carefully planned, but they are also designed to be very flexible so that they can be adapted to suit local requirements.
“We follow our initial marketing activities with a second wave after we have more insight into what doesn’t work and what could potentially be very effective. We reach out on a broader scale through mass media platforms like TV in order to supplement the more product-focused online activities with campaigns that build awareness and trust in the Zalando brand. Following our first year of operations in Denmark, we already have a brand awareness of 70–75% – which I see as a testament of how well the consumers have adopted our concept and offerings.”
    Zalando is now a household name in the Nordic Countries, and the company’s market entry has in many ways fulfilled the company’s expectations. That said – despite being a native Swede – Michael has encountered a few surprises.
    “There are some interesting differences between each of the Nordic countries that are quite useful when targeting consumers. For instance, the Danes are, even offline, very deal-driven. The Swedes are very trend-driven. The Norwegians are very quality-focused and willing to invest a bit extra to acquire a better quality product. And the Finnish are very brand-oriented, which I believe is connected to their need for trust.”

A few final words of advice …
“If I should pass on some advice to companies who want to engage in e-commerce in the Nordic countries, I would emphasize three things. First, focus on your costumers. Put every effort into ensuring that they are happy and that they will come back and shop at your site again. Second, understand what kind of offerings your customers are looking for – why should customers buy from you and not from somebody else? Last but not least, keep your promises!”

Zalando

Zalando GmbH is Europe’s leading retail store for fashion, with annual net sales of 1.15 billion EUR and a product range of 150,000 items across 1,500 brands (2013). Zalando was founded in 2008 in Berlin by David Schneider and Robert Gentz. Recently, Anders Holch Povlsen of Bestseller invested in Zalando and now holds a 10% ownership of the company.

Michael Lindskog

Regional head of Nordics at Zalando since the spring of 2012. Previously, Michael worked with McKinsey & Co, VF Intimates and Fruit of the Loom. He originates from Sweden where he also studied at Stockholm School of Economics.