A buyers guide to Virtual Retailing. Part 1

‘Virtual retailing’ is a buzz-word being used a lot at the moment.

But what exactly is it? In its base form, virtual retailing is defined as ‘using a digital virtual environment to facilitate and create a purchase’. However, as about to be explained, virtual retailing has several facets.

Here are the K Zero definitions of the different types of virtual retailing….

1. Metabrand pureplay

This refers to the process of selling virtual products in a virtual world. In this instance, there is no link or reference to a real-world product. In fact, there is no real world product at all – the offering is purely virtual addressing a consumption need purely in the virtual space. The terms Metabrand and Metabranding were invented by K Zero and now commonly used to describe virtual products.

Importantly, with metabrand pureplays, the purchase transaction occurs in-world, not via a website. And, the purchase mechanic is instant. No logging into an account (because you’re already logged in). Gratification is instant too – in this scenario, the product is delivered instantly. You pay, you get.

And at present, it’s the owners of virtual worlds that are enabling and providing this instant payment mechanic. However, it will not be long before real world financial services companies want a piece of this action.

Some might think that metabrand pureplays are niche in terms of the types of products available in a virtual world. Not so. In Second Life alone, there’s almost 250,000 individual products or sets of products available for purchase. And these products cross several different categories. The graph below (data sourced from SLExchange – explained later) shows at a top level the categories containing virtual goods in SL.

The demand for avatar personalisation can be clearly seen in the graph above. Just like in the real world, people want to express their individuality via their digital self.

Furthermore, people (women more than men) like to have different outfits and appearances for different occasions or situations. The virtual onion can be peeled down another layer….in this instance, showing the sub-categories of metabrands available within the womens apparel segment.

2. Static merchandising

This is the area some real world brands are mistakingly looking hardest at. Static merchandising relates to displaying real world product images in a virtual store. Although many companies think this is virtual retailing, it is the weakest application of it. And of all five of the categories explained, this is the one that offers the lowest level of engagement and sales conversion.

Why? Because a really crucial point with virtual retailing is this – if the experience and process is better delivered via another channel (such as an e-commerce website) then what’s the incentive to use virtual retailing? If there’s no added value in place, then it’s highly unlikely to be a revenue stream worth pursuing for the foreseeable future.

Disappointingly in this context, the attributes of virtual worlds (collaboration, interaction and on-the-fly customisation for example) are not being maximised (or even considered in some instances) and the perception that the ‘coolness’ of having a ‘virtual store’ is sufficient to drive response and sales. I would argue that this is a short-term strategy with limited upside for real world brands looking to penetrate the virtual retailing marketplace.

Interestingly, static merchandising in its execution is actually ironic. Why? Because virtual worlds are 3D environments. Displaying a real world picture in a 2D picture format is an under-utilisation of available resources.

Perhaps the saving grace for static merchandising is not how the product is displayed, but where it is displayed. Having products presented in a virtual store with multiple shoppers inside it means visitors can see where people are gathering – which products or shop areas they are drawn to.

Traffic pattern rules also apply to virtual worlds. It will be interesting to see how Kinset leverages this theme.

Static merchandising can be broken down into two categories depending on the treatment of the imagery. In one format, 2D displays typically with white backgrounds in virtual worlds can be used to show a flat image of the product (a real world picture), as shown in the image above.

In terms of the payment mechanic, metabrands take payments obviously in-world. However, the vast majority of real world products need to be payed for by taking a hyperlink to a corresponding e-commerce enabled website. Surely these companies need to start considering taking payments for real world products with virtual world currencies.Taking this concept a stage further, as long as an avatar user profile contained personal data – email address for delivery of digital goods and a postal address for delivering physical items then large opportunities exist for companies looking to exploit this lucrative business model (mental note: must speak to a vc about this).

3. Dynamic merchandising

Creating 3D representations of real world products and using them as the prime focus for a retail transaction is called dynamic merchandising. Both metabrands and real world products can use this technique to sell.

We’re yet to see significant activity in this area, as from a consumer perspective this is a concept that ‘you need to get your head around’.

Although the pricing point is arguably too high in virtual terms and therefore is not currently offered, a good demonstration of dynamic merchandising would be Hublot, shown right.

1-800 Flowers was one of the first real-world companies to experiment with dynamic merchandising.

4. Inbound advertising

Although currently the reserve of metabrands, inbound advertising – using websites to initiate and drive virtual retailing could be a potential option for real world companies.

Already there are platforms (websites) available offering this service. SLexchange and OnRez both have listings and purchase mechanics in place to facilitate the purchase of virtual products.

These sites show the actual products using static merchandising.

So, putting this into a real world context, if a virtual environment can present a real product better than a print ad or brochure then marketers need to consider this option.

5. Two-tone retailing

Two-tone virtual retailing involves having two different versions of a product.

The first, the real-world product is available to purchase in the real-world. Payment can (and should) be available both in-world and via e-commerce. The second, the virtual offering is dynamic merchandising fully exploiting the attributes of virtual worlds to bring the product to life.

The newly launched Canada Post venue in SL demonstrates this approach in the Sky Mall shop.

And the (seemingly long time ago) launch of the Adidas store in Second Life featuring the Microride gave us a insight into how this technique can be used.

From a pricing perspective, giving the virtual version away for free is a smart move for retailers, after all, the income (at present) from the real world exceeds metaverse revenue streams.

The virtual retailing map is shown below. As shown, the sweetspot strategy for real world companies wishing to use virtual worlds as a retailing channel has to focus on making virtual versions of their products and bring them to live. Interactivity and easy engagement are key themes to focus on.

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