The Evolution of E-Commerce
Ready to ride the wave? Here's what you need to consider
By Urey Onuoha
E-commerce is booming. Last year, UPS' fifth annual "Pulse of the Shopper Study" found that, for the first time, more than 50 percent of all purchases by respondents were made online. To put that in greater context, Forrester Research projects online sales in the U.S. will reach $523 billion in the next five years — a 56 percent increase from 2015.
Not surprisingly, marketers are taking notice. Nearly 75 percent of the 215 client-side marketers surveyed by the ANA said their company is now running e-commerce initiatives, and within two years that number is projected to eclipse 80 percent.
"Marketers are really beginning to understand the rapidly growing importance of e-commerce in digital channels and its increasing influence on offline channels and offline purchases," says John Denny, VP of e-commerce and digital at Bai Brands, an online leader in the beverages space. The growth in e-commerce investment, he notes, can be traced to a number of factors, including advanced mobile technology, the emergence of Amazon, and the movement toward convenience.
Paul Murray, director of digital innovation at Dunkin' Brands, also attributes the rise of e-commerce to mobile technology. "Our coffee subscription program allows us to ship Dunkin' products to our fans who may live in areas where we don't have locations," he says. "Our ability to sell gift cards online and in the mobile app creates a feeder system for enrollment into our DD Perks loyalty program, and the ability to provide Dunkin' branded merchandise online helps us extend our brand presence with our loyal fans."
For brands considering e-commerce initiatives, here are three rules of thumb drawn from the ANA research report "E-Commerce Insights."
1. E-commerce is most often a marketing function. Fifty-nine percent of respondents to the ANA survey who currently conduct e-commerce said they have a dedicated department for such activities. Of these departments, 34 percent comprise more than 20 employees. E-commerce teams most often report to the CMO (47 percent), followed by the head of sales (15 percent), the CEO (10 percent), and the chief technology officer (8 percent).
E-commerce is considered a digital function at Dunkin', so the department reports to the digital innovation/marketing group, led by the chief digital officer. "We view e-commerce as a continuation of all of our digital efforts and digital channels, whether that's digital media, loyalty, our mobile app, or our website," Murray says. "We put it in the context of the groups that manage the channels."
Bai Brands' Denny, whose team reports to the CMO, believes e-commerce should fall under the purview of marketing. "Over the years, I've encountered a bunch of companies in the CPG space that put the e-commerce team within the sales organization, and I've always wondered how effective that can be," he says. "This space requires talent with a particular technical skill set and they need to have additional marketing background. They need to understand search algorithms, search optimization, and analytics. Success factors in this space are so completely different from what drives sales in a physical store. My personal view is that it's really a marketing function and requires digital marketing talent."
2. Marketers conduct a variety of e-commerce activities. Placing digital and social ads is the most popular e-commerce activity according to 69 percent of marketers, the ANA survey found. Respondents also report having an online store within a proprietary website (65 percent), using mobile commerce/payments (48 percent), and using third-party online stores within another retailer, such as Amazon, Target, or Walmart (44 percent).
The growth and influence of Amazon have made the platform a strong focus of Bai Brands. Denny notes a 2016 study by BloomReach, which found that 55 percent of consumers turn to Amazon first when searching for products online, compared to 28 percent who start with search engines. In addition, the number of U.S. households with Prime subscriptions has grown considerably, hitting 50 percent in November 2016, according to research from Cowen and Company.
"This is a hugely influential channel," Denny says. "The degree to which the products are endorsed and loved by the Amazon community influences what consumers buy in physical retail channels. The reality is that Amazon is by far the top product search engine and the place consumers turn to in those critical decision moments. Signals they see about products, including ratings, best dollar flags, and consumer reviews, now have a huge influence, particularly at the point of purchase as consumers are using mobile phones."
3. Agencies play an important role. When it comes to the execution of e-commerce initiatives, from design and strategy to social commerce to sales via third-party retailers, 56 percent of ANA survey respondents said they partner with at least one agency. And of these respondents, 54 percent work with multiple agencies, 20 percent with digital agencies, 16 percent with media agencies, and 10 percent with brand agencies.
Dunkin' operates under a franchisee and an asset-light model so the company works with partners to provide services like e-commerce, Murray says. "Part of our DNA is being asset-light, so we do leverage agency partners for e-commerce as well as for other services," he notes. "It helps us to keep a reasonably small staff, and we are able to maximize the sales benefit of that small staff."
Working with specialized agency partners becomes increasingly important as brands look to scale their businesses, Denny says. "E-commerce and digital are very specialized and can be technical, which means you need to work with folks who are experts in particular niches of the business," he adds. "That often means reaching out to specialized agencies, consultants, or partners. The space is rapidly changing so you need people you can partner with who are dialed into these changes."
Focus on Talent
Given the dramatic growth of e-commerce, brands born in the digital era have distinct advantages over those that dominate the physical retail space, says John Denny, VP of e-commerce and digital at Bai Brands. Of particular note, digital brands are led by people who understand the importance of online platforms and the flywheel nature of the space, where a product's performance determines its ability to appear on recommendation engines. These newer brands, employing disruptive strategies, are difficult to dislodge once their leadership status is attained.
So, what's a more traditional brand to do to break through? Focus on finding the right partners, Denny advises. "There's an ecosystem of companies out there that are ready to consult with you and help you navigate this space," he says. This includes experts in content creation, search, data and analytics, and the operations side of the business.
"This is a new world that has completely different strategies," Denny says. "If you lean in with the right talent, you begin to build an advantage that becomes increasingly difficult [for other companies] to overcome, as the search engines see all these signals point to a particular product as a leader in a category.
"Brands that perform well in this space are the ones that will have a rich and positive data story, reviews and ratings, and questions and answers left in digital platforms," Denny continues. "Those that don't perform well risk becoming less relevant over time."
Image credit: Wahyu b. Pratomo/Thinkstock.com
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