During the last four months, I have been able to travel around the south of Spain to speak in the program DigitalxBorderof which he is Academic Director José Luis Alonso. This program, promoted by ICEX, EOI y Adigital since October 2018 has held 40 editions and more than 1,000 CEOs of Spanish middle market companies have already participated, it has given me the opportunity to immerse myself in the world of omnichannel strategy and explore how e-commerce can empower it. In this article, I will share the lessons I have learned about the importance of an effective omnichannel strategy and how e-commerce can drive business success in this context. In addition, I will answer some key questions CEOs may have about implementing an omnichannel strategy.
Questions to which the article will provide answers:
- What exactly is a omnichannel strategy and why is it important for medium and large companies?
- How can e-commerce enhance an omnichannel strategy and generate higher profits?
- What are the common challenges companies face when incorporating e-commerce into their omnichannel strategy and how to overcome them?
- What are the tangible benefits that companies can gain by implementing an omnichannel strategy supported by e-commerce?
- What are the best practices and tips to maximize the success of an omnichannel strategy and make the most of e-commerce?
- What real-world examples are there of companies that have been successful in implementing an omnichannel strategy supported by e-commerce?
- How can CEOs start implementing an omnichannel strategy and what steps should they take to ensure a smooth and successful process?
As we explore these questions and more, we will discover together the true potential of omnichannel strategy and how e-commerce can be a catalyst for business growth and success.
What is e-commerce?
E-commerce is the art of buying and selling goods on the Internet. By optimizing e-commerce as part of a broader digital transformation, sellers have the opportunity to attract more customers and make more profit.
In just 30 years, e-commerce has revolutionized the way we shop. It's no longer just about going to a store, choosing and paying for products, and then taking them home. Purchases that used to take hours can now take seconds, and can be done from anywhere with an Internet signal. The excitement of shopping now extends, starting with the click to buy and culminating with the "unboxing" (which has become an industry in itself).
E-commerce has been growing steadily since the first Internet transaction in 1994, when someone sold a Sting CD to his friend for $12.48 plus shipping and handling. But when the pandemic has arrivedIn the U.S., triggering confinements around the world, customers poured in: year-over-year growth of e-commerce as a share of total retail sales grew 1.6x in China, 3.3x in the U.S. and 4.5x in the UK. E-commerce sales penetration in the U.S. more than doubled to 35% in 2020 over the previous year, roughly equivalent to ten years of growth. Globally, nearly 20% of total global sales in 2021 were made through Internet purchases. By 2025, nearly a quarter of all global sales are expected to be made on the Internet.
Large retailers were the main beneficiaries of this massive collective shift, especially those that had invested in e-commerce infrastructure and capabilities for years. But for companies accustomed to operating offline, incorporating e-commerce into the customer experience can be fraught with challenges. Small and mid-sized retailers (those with less than $5 billion in annual revenue) and branded manufacturers, such as consumer goods companies, get a much smaller share of e-commerce revenue than large retailers with years of e-commerce experience. For those who rushed to launch e-commerce services, cracks are already starting to appear. But we have also seen that the e-commerce opportunity, especially for SMEs, is huge.
E-commerce creates value for retailers of all sizes by driving efficient sales and creating alternative revenue streams, such as retail media networks.
For smaller stores
Lack of strategy is the worst strategy, especially when you are in a hurry to go digital. New business survival statistics are grim: only 24% of new businesses launched in the last ten years have become viable large-scale enterprises.
Start-up e-commerce businesses face special challenges. There are short-term pitfalls that hinder the growth of e-commerce for small and medium-sized businesses, as well as ways to protect against them:
- Lead with a technology focus, while deferring investment in areas such as operations and channel management. Sales and Operations need to have the same success metrics as the IT teams, and build all elements of the business in parallel.
- Build a technology stack without a long-haul strategy. The wrong technology architecture will create technical debt that will hinder efforts to scale. To combat this, define the long-term architecture and build a minimum viable product as a stepping stone to a larger goal.
- Underinvesting in funds and capabilities. Companies are often tempted to spend as little as possible on launching e-commerce businesses, and then expect an immediate ROI for every dollar spent. To avoid this trap, build a "learning buffer" into any budget to allow for necessary setbacks.
- Learn the economics as you go, rather than taking the time to fully understand unit economics and implement a business model with long-term potential. Instead, work to understand the key drivers of growth and profitability through the prism of profit and loss.
- Building new business too close to the core. Corporate business building activities are often hampered by internal policies that slow down new business development. Combat this by creating distance between the new e-commerce business and the core business. This enables more agile ways of working that reflect the nature of the new business.
For larger stores
For larger retailers looking to get a piece of the e-commerce pie, time is of the essence. In general, companies can create a functional e-commerce site in less time than they think; in the experience of ProportioneIn less than four months, new businesses can be launched in less than four months from scratch.
A European retail chain that had about 1,000 physical retail stores worldwide decided to create an e-commerce presence. Thirteen weeks later, it had a fully functional e-commerce business in one of its regions. The launch was successful from the first month, generating nearly 3% revenue growth in the region, tripling the average basket size compared to retail stores, and maintaining high customer satisfaction. Here are the top three lessons from that program:
- Be pragmatic. Instead of trying to launch a full digital business in all markets at once, the retailer's CEO decided to go to market quickly, in one region, with a limited offering. All initiatives that did not have a direct customer impact were postponed in favor of efforts that did.
- Assign ownership, not tasks. By clearly designating which teams were responsible for which tasks, the retail chain was able to launch at high speed. The chain created four launch teams: technology and design, operations, product assortment and marketing.
- Learn and adapt. Establishing the right key performance indicators early in the process of launching an e-commerce business is vitally important. These allow companies to track what is happening and adapt to drive continuous improvement.
What is a retail media network?
2020 was a challenging year for traditional retail. Customers switched to e-commerce channels by nearly 30%, adding to challenges related to the retail pandemic. To compete, retailers have had to rethink their growth strategies.
One way to address the problem is by joining a retail media network that offers potential value for retailers by providing the opportunity to build a high-margin business to drive e-commerce innovation. RMNs work by leveraging retailers' detailed knowledge of their customers to offer advertising opportunities for brands to target customers through the retailer's digital channels, physical stores and syndication on third-party platforms such as Google. RMNs also offer brands the opportunity to access customers directly through first-party data. And finally, RMNs can help brands deliver a seamless, digitally enabled omnichannel shopping experience.
Many large retailers in the U.S., such as Amazon and Target, have already built and scaled NMRs. The biggest opportunity is for retailers in Europe, the Middle East and Africa, where NMRs are still a relatively hidden and fast-growing profit stream. (For example, in the UK, NMRs are growing more than 10% year over year).
How can e-commerce generate value for brands?
One way brands can generate value is through direct-to-consumer (DTC) e-commerce. There are distinct advantages for retailers that establish direct relationships with end consumers. Here are a couple of examples of brands that successfully used DTC e-commerce:
Harry's, a men's grooming products company, used DTC to generate customer information and build a community. A pre-launch campaign helped the company collect 100,000 email addresses of potential customers through a waiting list and social media sharing. Harry's also learned from its interactions with early customers and tweaked its products before launching them to a wider audience.
DTC also gives brands like L'Oréal direct access to consumer feedback for evaluation and testing. In 2018, the beauty brand launched its augmented reality testing service to allow customers to test makeup and hair coloring products at home. Usage of this touchless service increased dramatically during COVID-19.
A clear strategy that identifies the opportunity and the ability to execute to convert consumers can help companies prepare for DTC e-commerce success.
E-commerce can also generate value for brands through live commerce and social commerce. Live commerce combines entertainment with instantaneous shopping, offering retailers, brands and digital platforms a new channel with great scope to create value. Its cousin, social commerce, is where consumers browse products and make purchases through social media and content creation platforms, within an app.
Live commerce and social commerce started in China. Brands in China have achieved conversion rates of nearly 30% on social platforms, up to ten times higher than conventional e-commerce conversion. They have achieved these remarkable numbers by developing partnerships with social media influencers and engaging in live shopping (an experience that combines instant purchase of a featured product and audience participation). In 2021, Chinese consumers spent $352 billion, or 13% of the total value of e-commerce merchandise, on social commerce. China's staggering figures offer a glimpse of what's possible in the U.S. and globally: already in 2021, $37 billion worth of goods and services were purchased through social commerce channels. That figure is expected to grow to nearly $80 billion, or 5% of total U.S. e-commerce.
Live trading was pioneered by Alibaba in 2016, with the launch of Taobao Live, a streaming service that allows users to sell items and interact with other users. Customers responded and live commerce became a key part of sales campaigns for Singles' Day, a major shopping event in China, as well as a reliable tool for increasing customer engagement and sales. The numbers speak for themselves: in 2020, the first 30 minutes of Alibaba's Singles' Day campaign on Taobao Live generated $7.5 billion in total transaction value. And in a 2020 survey, two-thirds of Chinese consumers said they had purchased products through live broadcasts in the previous year. Taking China's experience as an indicator, live commerce appears to have huge potential for brands and e-commerce platforms.
Live trading creates value in two ways.
First, live commerce accelerates conversion by keeping viewers entertained during an immersive shopping experience. Time-limited tactics, such as one-time coupons, can be used to create a sense of urgency. Live commerce also enhances brand appeal and differentiation by increasing a brand's uniqueness in the context of entertainment.
To get started in live commerce, brands will need to take a thoughtful and iterative approach to the medium, exploring low-risk options first. Test the waters by running infrequent broadcasts on a social media channel or in a marketplace focused on just a few products. In addition, track the performance of live streams with key performance indicators for number of views, conversion rates and top-selling products. Gradually, brands can begin experimenting with a regular schedule of live events hosted on their own websites, managed by a full-time in-house or agency team. Eventually, brands can scale to broadcast frequent live streams on multiple channels, focused on different audience segments and product categories.
How can e-commerce generate value for consumer goods manufacturers?
Consumer goods are items that most people use on a regular basis, such as food, clothing, cleaning products and toiletries. As we have seen, with COVID-19, there has been a rapid and large-scale shift from in-store retail to e-commerce. Prior to the pandemic, only 13% of U.S. households had shopped for groceries online; by the end of March 2020, that number had increased to 31%. And consumer sentiment surveys taken as the pandemic progressed indicated that U.S. consumers were happy with the shift to omnichannel shopping. Some analysis shows U.S. retail internet sales increasing 40% year over year by 2021.
This news has been a mixed blessing for CPG manufacturers. That's because e-commerce has been, for many manufacturers, historically less profitable than physical store sales. Looking ahead, manufacturers should strategize on how to maintain margins.
There are four ways to improve margins:
- Establish detailed transparency into e-commerce gains and losses. This means integrating e-commerce metrics into business reporting that enable business leaders to get a complete picture of performance, make informed decisions on investment trade-offs, and align decision makers.
- Allocate a specific investment in e-commerce marketing, rather than drawing from shopper marketing budgets.
- Use e-commerce growth revenue management tactics, including the introduction of channel-specific products to prevent consumers from making direct price comparisons.
- Incorporate omnichannel supply chain actions, including improving demand forecasting and execution accuracy, and redesigning lower-cost packaging.
In the future, new ways of reaching consumers are expected to emerge, competition for marketing and commerce dollars will intensify, and personalization and precise targeting will become top priorities.
In short, e-commerce has revolutionized the way we buy and sell goods. From the smallest to the largest retailers, everyone can benefit from incorporating e-commerce into their business strategy. As we move forward, we are likely to see even more innovation and growth in this space. Companies that adapt and embrace these new forms of commerce will be better positioned to thrive in the future.
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