Next growth for e-commerce
According to a recent news article, EU Commission is investigating antitrust issues in e-commerce. Everyone knows that by and large online shopping is replacing legacy shopping channels and some of the global players are dominant in this sector with their prowess. With this perspective in your mind, what is important is to figure out how these global players such as Amazon, Google, and Apple have distended successfully so far. Among them, Amazon is the most representative and the only case in terms of actual goods. Does this mean that a new or small company has no chance against incumbent mega players? The answer to this questions is “No”.
Fortunately, e-commerce sector is fragmented by a sophisticated value chain. Moreover, there is a huge regional boundary that has blocked global players from entering all markets as Google has done. Regardless of the fact that there can be a lot of strategies and implementation plans, it is important to know where the approach to developing a business starts from. Several points will precedently specify what we have to think for our business prior to guessing how to tackle problems.
Rule 1. Shoppers are slow adopters
Anyone who wants to buy something at a reasonable price compares the diverse aspects of the product such as price and quality. Throughout the shopping process from recognition to after sales, customers do not attempt something that will get them in a disadvantageous position when it comes to cost. Here, a cost is a wide concept, which includes time, physical effort, stress about something new, and monetary expense. If benefits of a new service are well clarified, shoppers do not take it as granted but stay away with it. I read about a locker delivery service several years ago. These services including Amazon Locker are not expanded widely. I did not see anyone who uses a locker service while I have been staying in America these last two years. So far, it is natural for shoppers to order online and wait for deliveries.
Rule 2. Technology cannot be a long-term strategy but a triggering point
Most startups tend to be dependent on technology. They have a haze of illusion that new features are directly connected to improving the quality of commerce activities. Even if this thought is true at some degree, it is risky for companies to be obsessed with the notion thoroughly. When I tried to promote mobile credit card service in early 2010, we thought of an interesting application to trigger young people. This application provided actual gifts such as mobile discount coupon if users catch a certain number of virtual butterflies. The application was made on AR (Augmented Reality) and ended up as a failure. Rather than being beneficial, target users thought installing the application and catching butterflies was a waste of their time and effort. Now, I still see many companies investing most of their money and efforts to innovate their technologies. Technology is important, but it is time for you to roll out your business with more tangible methods.
Rule 3. Back to the basics
Don’t forget the following simple formula to earn revenue.
Revenue = Average costs per person * Number of purchases * Number of customers
E-commerce is not advertising but is based on a real business. If there is no one who buys your product, you will soon go bankrupt. Pick any factor from the above formula for your focused area. The reason why most commerce channels have their own membership program is to increase the number of purchases. They encourage shoppers to buy more by giving loyalty points. Actually, three variables are not perfectly exclusive, but selecting the starting point can be a great stepping stone to lay out implementable plans.
Based on the three points above, we can dive into the real world and provide some directions to players in a certain sector of e-commerce.
Success of Kohl’s mobile membership
Recently, Kohl’s successfully expanded their mobile customer base with a wholly renewed application (related article). In this case, what Kohl’s has done well is to concentrate on how to increase “number of purchase”. To that end, they induce their offline customers to download a new application and strengthen their offering in it at the same time. There are two key issues to realize the goal, increasing the frequency of purchase: how to permeate to more customers (issue 1) and how to offer more qualitatively as a marketing tool rather than provide spam messages (issue 2).
Issue 1. How to get more customers to install and use the application
Kohl’s overhauled their old application for customers to easily use their loyalty program at stores. Focusing on the basic and core feature that enable users to accumulate their membership points at the point of sales, customers began to see the benefits of mobile membership. If this benefit financially appeals to customers, it will boost sales. However, it is important for companies that try membership points to take into account profitability and their customer lifetime value (LTV).
I am a big fan of Wholefoods, and especially their pizza and organic products are some of the reasons why I love the store. The problem to me is that the price of every item in Wholefoods is much more expensive than one in others such as Kroger and Walmart. Fortunately I was able to save my money with the loyalty service of Woblet. When I calculated the prospective benefit from membership points, Woblet reduced the price gap between Wholefoods and Kroger even if it required me to buy a certain amount of purchase, which could be reached by more than 5 visits per month. Interestingly most users around me thought of the service in the same way and were accustomed to visit Wholefoods. And, all of sudden, Woblet stopped providing the service to Wholefoods. Now, I do not go there as frequently as I did. But, one thing that I am sure of is that Woblet lowered the threshold of “price” to encourage me trying the place until I have known the difference of product quality.
Besides the clear benefit, building well-organized and educated infrastructure is one of the key factors to make the optimal environment for mobile usage. This infrastructure sometimes tells everything when it comes to payment. If there is an error during my payment with a smartphone, customers will no longer use mobile payment. There are many possibilities such as a device problem, a staff’s inexperience, and a user’s mistake. Most of all, mobile payment does not have any kind of direct benefit that users are realizing while paying in it. On the contrary, loyalty service is simpler and beneficial to customers than mobile payment. However, it still needs well-equipped or easily working commerce environment.
Issue 2. How to offer products and items
Data science can be a strong option to make offering better and more intelligent. This concept is partly aligned with the so-called Growth Hacking (explanation of Growth Hacking), which is likely to be more prevalent in startups. Since web 2.0 usage convenience or human interface have been spotlighted as the keywords to approach prospective users in the mobile world. This vague words should be redefined as practical interest and personalization in e-commerce. Practical interest is to pursue benefits for customers and personalization is to provide optimized offering for individual needs and demands within the same service such as website and application (or web app).
Single men in their 20s vs moms with two kids in their 40s, are they interested in the same TV shows? No, there is almost “zero” possibility for them to share common interests when they buy something. If they get offers on the same product, at least one of them will think the service is a spam message. Obviously, to know who likes what is essential to meet more diverse needs and demands. From this perspective, Buzzfeed is trying to select news and analyze readers’ preference to those articles. Based on this data analysis, they recorded 150 million MUV (monthly unique visit). They put eye-catching images and write articles very easily (related article). They seem to catch who their readers exactly are, what they need, and how to satisfy their needs.
Now, we need to ask about who we are pursuing as our target customers more specifically. Figuring out the answer to the premise, we can step into the next phase.
Application
Let’s talk about how to apply several concepts into our company. To be more specific, I limit the boundary of the example to loyalty service that I often mentioned above. I assume that there is a loyal company called JK, which does not have distribution channels and only provide a membership service for partners. They look like a B2B2C company, but they are more consumer oriented than business partners and have their own user base. Also, JK offers sponsored products to garnered consumers to promote hot deals for their B2B partners. What should they start with? Some strategic options work for the company, options that are derived from the formula of “Revenue = Average costs per person * Number of purchases * Number of customers”.
1. Strengthen benefits
Already, Uber and Lyft adopted free credits for starters to experience their services. All agree upon the effect of free credits to collect a user base. What is really important is how to make users engaged with their services without users becoming cherrypickers. To that end, JK should meet two conditions. One is that JK is positioned as the service providing reasonably low-priced product, and the other is that the quality of JK is trustworthy. Regarding the former condition, JK does not need to be the service full of the cheapest products. If it’s possible for a company to sell their products at the lowest price, the game is getting easier.
However, most companies like JK cannot decide the price of products per se. It is much more important for those who cannot decide the price to convince consumers that they are not ripped off from deals than to maintain the lowest price. Even though pricing strategy may not be a main issue to those companies like JK, a price is still a real issue to most companies in e-commerce. One thing that I am sure of about pricing strategy in e-commerce is that it is not fixed and it should be varied. You can get more ideas about flexible pricing here and what kind of goods are more dependent on price change here. Given that the quality of offered deals is good and a price is affordable, somewhere in the middle between offline shops and online shopping sites, consumers are likely to accept the offer from JK.
Secondly, JK needs to find which part has to be complemented by investment and efforts for better customer experiences. With customers recognizing that offered prices in JK is competitive, the service provides one or two edges that enable consumers to use it against other services. Besides the most important factor of price and product quality in e-commerce, there are two types of benefits customers usually consider when they purchase: improvement of the purchasing process and enhancement of consumer’s decision process. The former is about how to buy products easily and how to deliver them fast, and the latter is about how to assure consumers to make a decision and how to recommend what they are interested in. Where JK focuses on among products and consumers makes what they will have for their service edge. The enhancement of consumer’s decision is based on analyzing their behaviors while the improvement of the purchasing process is an old and traditional area including system optimization.
Let’s say JK has the second type as the service advantage. They want customers to be induced to their service to stay longer and to engage more strongly. To that end, they try to assure customers that their deals on JK app are guaranteed by putting messages under deals like “the lowest price guarantee” or “refundable within 7 days”. This frequently used marketing method of persuading customers to buy something is still effective to lead them to take action. If consumers see those messages, the threshold will be much lowered with respect to purchasing.
Inventory information and the number of viewers are a good example of enticing customers to purchase this product (from eBay).
This is another example on stressing upon the price guarantee (Best Buy).
However, this marketing strategy is not sufficient for JK to accelerate the speed of customer’s’ decision and make them convinced that deals are perfect for them. That’s why JK is required to start analyzing their customers. This issue will be additionally dealt in the next part in the perspective of personalization.
2. Personalize offers
JK has two channels to users: app and web. They are focused on their mobile app, but their number of users are remaining flat without a further increase. They offer 100 new deals to their users, which includes thumbnail images and short descriptions. Data analytics team inside JK tries to find customer segments and their shopping patterns based on purchase records. However, it does not seem to work. It is time to approach the problem from two different angles.
First and foremost, JK has to focus on offering personalized deals rather than being obsessed with the optimization of machine learning process. This is because the accurate machine learning algorithm cannot be obtained by handful data due to the lack of the service history of JK. It is better for them to throw away products that customers appear not to be interested in. Accurate expectation cannot be achieved within several weeks. Easy and simple way are necessary for them to have direct effect from their actions. Drop unpopular products from the list and replace them with the new trial.
Compared to a desktop, a mobile device has a very limited display. As you can see from the above trends of two keywords, mobile shopping and personalization show the similar pattern of search trends. In order to use this screen more effectively, JK should test which service design will perform better. Hypothetically, if JK’s deals are concentrating on CPG (consumer packaged goods), they have consumer segments with common products. Anyway, toilet papers are necessary for both old married women and young single men. Based on this fact, the service can be provided as follows;
Two-thirds of an interface will be spaced with personalized offers and the remaining space will be provided with common deals. Personalized offers are decided by which segment a customer is in. For customer segmentation, criteria can be divided into category (product type of interest based on user’s cookie information and purchase history), dollar amount (average sales per day or month), and frequency (of purchase and of browsing deals in the app).
Actually, this process is too common to innovate JK’s service. Regardless of cliche, one of the problems of companies in e-commerce is that a lot of companies don’t try this basic approach. Adding to this basic approach, JK will use tools to know customers’ needs better by asking questions about their preferences at the beginning and scoring their browsing history afterward. This method is commonly seen in news apps.
The real differentiator of JK should be how to be offered to potential consumers rather than what to be offered. The premise is to integrate web, mobile and offline. Also, this integration is going beyond the closed boundary as open API makes it easier. Some players are focusing on BLE beacons to improve the connection of offline and mobile, and others are trying to use other services to obtain wider reach. Starting May 20, Domino’s, for instance, will get orders through tweets (related article). Domino’s does not change the main procedure of getting an order but enables users to use additional way of what they are accustomed to in online lifestyle. A small change may have the greater effect than we expect like a butterfly effect.
This strategic decision on how to deliver deals or get orders is dependent on which direction a company provides its service to. However, companies like JK need to combine their assets with others as well as integrate internal assets harmoniously. In other words, their service features and technologies should not be isolated since e-commerce is interwound with other services and infrastructure.
Lastly, we have to take a look at the website of JK if it is covered by only redundant information for prospective investors or visitors. Most startups use their websites to promote their services without considering how many visitors actually care about them. I don’t mean that the introduction or basic information about the service is useless. Some companies will not require a fancy website, connecting to their app. However, if a monthly user passes over one million and their mobile screen is too limited to show what they want to show, it may be better for them to think about the new mission for the website. Specifically, deal offering services like JK make their app much simpler than they are supposed to be by connecting a website to a mobile channel effectively. For example, the feature of memo for shopping list is written in a web app or a website, and an app automatically recommend where consumers buy those items.
What I want to say is that shopping process is very continuous and e-commerce is surrounded by much more participants that you cannot ignore. Many startups in this sector always pursue fancy solutions. But, there is no such thing so far. Even Google failed to automate consumers’ preferences and connect them to actual sales via boutiques.com and like.com, forwarding to the common style of google.com/shopping. Returning to the basic, you’d better fix your service or try to create a small change from customers’ actual behavior on a purchase.