e-Retail Case Study 1: BabyCenter
Questions and gear—that is what pregnancy and raising children seem to be all about these days. From the moment the home test changes color (or, even earlier, if conception is elusive), parents are part of A Great Experiment that aims to create a healthy human being. Yet there is no official laboratory guide for this experiment, and the array of potential tools, decisions, and advice (solicited or otherwise) can be daunting.
BabyCenter aims to be the leading Web site for parents, whether they are looking to answer the questions or simply to purchase the gear. Founded in November 1997, BabyCenter was acquired in 2000 by e-retailer eToys. The acquisition has shifted some of the personnel in the San Francisco headquarters of BabyCenter, but the site continues to operate as it always has, with the enhancements of scale and financing that the acquisition affords.
Figure 1 BabyCenter storefront.
Part newsletter, part library, part encounter group, and large part retail store, BabyCenter guides parents and parents-to-be through the maze of information and products for confident parenting and comfortable child-rearing.
BabyCenter faces competition from a number of other resources on the Web, not to mention the myriad resources available offline. To differentiate itself in a busy marketplace, BabyCenter has focused on a subset of childcare information—preconception through the toddler years. By narrowing the focus to this subset, BabyCenter is better able to provide impressive depth in product assortment, as well as in information resources.
The key word for BabyCenter is guidance. Visitors are assured that they will be guided through the choices of parenthood, with expert advice on health, development, and products. Bulletin boards and chat sessions provide an important point of connection between parents and experts. Personalized e-mail newsletters provide information tailored to the appropriate stage of pregnancy or child development.
Guidance, information, and community are the topline, strategic positioning elements for BabyCenter. The bottom line, however, is retail. BabyCenter's revenue model calls for more than three-quarters of its revenues to come from product sales, with the remainder made up through advertising and sponsorships. (Product sales make up a smaller percentage of profits, however, as other income sources are more profitable.)
To manage the critical relationship between content and sales, BabyCenter runs its business through two departments: content/media and e-commerce. The branding of the organization accomplished through the content/media components of the business is what drives the sales on the e-commerce side of things. Through content, BabyCenter establishes its branding as a trusted, comprehensive resource; who wouldn't want to buy their childcare products from such a source?
As one measure of success, BabyCenter gets more than 1.6 million unique visitors each month. The site's content and community-building features have indeed created the customer base to which BabyCenter can market its products.
To a certain degree, BabyCenter's strategic focus defines the range of products its merchants must seek to fill out the assortment—books, toys, clothing, nursery items, health care and feeding items, along with the rest of the accoutrements that go along with modern parenthood. With a number of competitors, online and off, BabyCenter must have a comprehensive assortment to fulfill its promise of being a leading resource for parents.
Michael Schmier, vice president of Product Management, joined BabyCenter without previous experience in retail. He quickly came to respect the need for traditional merchant knowledge to make the business run effectively. "I've been surprised at the broad range of products and individual SKUs we have to carry and how merchants need to understand each SKU's demand curves and selling features," Schmier says.
The company's merchant knowledge has been acquired at times through difficult experience. "There are times I wish we'd had better product and category forecasts to avoid overbought situations," notes Josh Litwin, who served as vice president of Operations until the culmination of the eToys acquisition on September 1, 2000.
Merchants are divided into broad product categories, including hard goods, soft goods, and gear/nursery to select products for the assortment.
BabyCenter has created several creative merchandising techniques to draw customers into the store. In addition to the expected product categories (For Mom, Infant & Toddler Gear, Nursery, Baby Clothing, and so on), BabyCenter sorts products in the following ways:
Checklists and buying guides: Step-by-step guides point shoppers to the products they need for each stage of pregnancy and child rearing.
Gift solutions: A selection of items appropriate for gift-giving for particular occasions is presented, along with a gift registry and a gift certificate program.
By special request: Special categories of products (preemies, multiple births, items for expectant fathers, and designer items) are merchandised separately to guide shoppers to exactly what they want.
Shop by lifestyle: The most creative of the techniques, Shop by Lifestyle groups products according to lifestyle needs. "On the Go Baby" emphasizes travel gear. "Adventure Baby" emphasizes items that enable parents and infants to enjoy the great outdoors together. "Nature Baby" emphasizes all-natural and organic products.
In addition to its sorting mechanisms, BabyCenter uses many of the merchandising techniques that other e-retailers have found effective. Visitors can opt to view best-selling items in popular product categories, or shop the special list of products named by parents as the Best of Breed.
When visitors register for BabyCenter membership with an e-mail address and their baby's due date or date of birth, BabyCenter responds by providing targeted e-mail information on sales and special products appropriate for their stage of parenthood.
Nearly all of the products offered at BabyCenter are owned by the company as inventory, with the exception of a few furniture items that are shipped to customers directly from the manufacturer. With the eToys acquisition, BabyCenter gained access to a wider warehouse and distribution network, with facilities on both coasts.
Without the limitations of space that traditional retailers face in selecting and merchandising their assortment, Web-based retailers face different kinds of inventory challenges, Schmier and Litwin note. "It's easy to get a huge number of SKUs, and then it's very difficult to extract data and statistics about your SKUs in order to make intelligent business decisions," Schmier says.
From the operations standpoint, Litwin's observations are even more critical. "It was absolutely critical that we learned to manage our warehouse space and allocate it as a resource much like our financial resources," he recalls. "Some of our product SKUs take up a lot of room. Sometimes we were caught unprepared and unable to handle large receipts of strollers, for instance.
"The product/SKU database needed to have all the information in it," Litwin continues. "For pick-and-pack, we needed to have on hand all the information about a SKU's weight, country of origin, dimensions, and more."
Originally, BabyCenter developed all of its back-end inventory management programs and defined the reporting those programs would generate. Since the eToys acquisition, BabyCenter is folding its inventory management into eToys' system.
Pricing and Promotion
In the marketplace for parenting goods, there are many pricing strategies from which to choose. A number of retailers and e-retailers opt for the "guaranteed lowest price" proposition, while just as many go for the "best-of-the-best" strategy, with luxury prices to match. BabyCenter focuses on providing an important value-added information resource to its retail assortment at a reasonable price.
Across the product lines, BabyCenter shoots for an IMU of 35 percent to 40 percent, depending on the product category.
Schmier offers another reminder on the importance of pricing strategy: "You need to think through your pricing structure and margin considerations first," notes Schmier. "Be sure you have a model that can actually be profitable, even if things don't go exactly according to plan."
Promotions are an important part of BabyCenter's e-retail operations, but they are not used indiscriminately; they are targeted through the customized e-mail newsletter system and, occasionally, tied to time-limited offers. The site's clearance center moves items that are going out of stock at discounted prices.
BabyCenter had a difficult time breaking into the childcare vendor community. It has been a struggle to convince suppliers that BabyCenter was not the sort of dot-com to aggressively discount products and fight for the bargain-basement customer. "This is a highly competitive arena, and many retailers do take the 'sale, sale, sale' route with their assortments," Schmier says. "We were finally able to convince reluctant suppliers that we rely on a different model. Over the course of our relationships, we have avoided significant promotional activity, which has increased the confidence of our vendor partners. Overall, I'd say vendors find us a cooperative partner and much less aggressive with pricing and promotional activity than many of our retail competitors."
BabyCenter employs merchants who work in broad product categories. The merchants are also responsible for developing on-site merchandising and promotional techniques. Merchants report to directors of merchandising, and directors report to a senior vice president of e-commerce.
The medical advisory board is an additional layer in the decision-making structure. The board is more often called on to contribute to the content areas of BabyCenter, although board input may be sought to review the efficacy and/or safety of a product.
Communication across the organization has proven to be of central importance to running the business effectively. "You need merchants who understand the requirements of operations, and operations workers who understand what merchants do," notes Litwin.
The Wisdom of Experience
At the age of three, BabyCenter is a self-assured pre-schooler. However, it got to that point only through careful parenting. Schmier was not the only member of the management team who arrived at BabyCenter without extensive retail experience, but the company has learned on its feet and toddled into a leadership position.
At the heart of BabyCenter's success is knowledge of the customer on many levels. "You have to understand your customer," Schmier notes. "You have to understand how they shop for the categories you plan to carry in your assortment. What's more, you have to understand their attitudes regarding purchasing those products online."
With its community-building features and opportunities to rate and review products, BabyCenter also ensures that its customers understand each other, which is perhaps one of the most important of the intangible factors that make BabyCenter work.