02 diciembre, 2021
Over the past year and a half, almost all e-commerce companies, retailers, and brands playing in the e-commerce space have experienced extraordinary growth and increasing profitability. The COVID-19 pandemic lock-down gave the industry a significant boost due to closed stores and decreased spending in other categories such as travel & leisure. This means that e-commerce has essentially been riding a wave – and thoroughly enjoying the ride!
This new high on overall e-commerce penetration is partly owed to new customer groups that have traditionally been reluctant to move online. As a result, the e-commerce industry is larger than ever – the “cake” has been expanded. However, continuing these levels will be extremely difficult, and we foresee that only the most professional e-commercers will be able to continue growing in the coming years.
What many e-commercers have forgotten is that a year and a half ago, competition was already increasing, and growth rates were lower than many were used to in the first waves of the e-commerce era.
As a result, it is not surprising that growth rates are now declining to more moderate levels – and not just because physical stores have opened again or because of the difficulties getting access to goods due to the global supply chain situation. Companies are back to looking at areas that are tougher to affect in order to improve or sustain growth.
With Coronavirus starting to be in the rear-view mirror, the question is: Were your e-commerce strategies strong enough to continue your growth trajectory, or were you just lucky? If your growth is suddenly disappearing, you were probably just sailing along in the strong corona wind, and thus, lucky. The good news is that you only need to focus on the things that are moving the needle in e-commerce to progress from luck to being a top-performing e-commerce professional. Another piece of good news is that most of your competitors aren’t really there yet either.
But where should you focus to move the needle in your company?
In our experience, what moves the needle in e-commerce are the areas that we have chosen to call “competitive battle-zones,” which cover a combination of market and internal perspectives and capabilities. We call them battle-zones because they represent areas that all e-commerce shops need to continuously battle to stay competitive. We also call them battle-zones because being skilled in one zone will unleash further growth. There is one catch to it though: The more competitive the market is, the more battles you need to have to continue growing.
Our goal with this article is to help you navigate and focus your efforts because we believe competition and growth will be significantly more fierce in the coming months and years. We want to help you become more than just lucky.
The competitive battle-zones
We have both been part of the e-commerce industry for the past 10 years in various roles, and it has become clear to us that the competitive factors on which e-commercers compete have been somewhat similar across B2C categories and industries. We foresee that B2B companies will face some of the same factors in the future if they haven’t already.
When looking at competitive factors and the intensity of competition, we have identified 10 mutually exclusive battle-zones. These are characterized as “staying battles” because they are the ones that companies need to face. However, as growth decreases and competition gets fiercer, more battle-zones open up, and companies will start to show whether they are skilled or just lucky.
The identified battle-zones are described in the graph below:
Before we jump into describing each battle-zone, the graph should be read as the 10 battle-zones that open up as market intensity increases. The more battle-zones that are open, the more pressure (headwind) e-commerce organizations will face. Finally, each battle-zone evolves individually, yet they remain a battle-zone, meaning these are areas where companies will need to continuously focus.
Back in the early days of e-commerce, and also when the e-commerce market exploded due to the Coronavirus retail shut-down, it was almost enough to just be open and have products in stock to grow and be successful. We even saw small local stores creating e-commerce shops that made significant sales. However, as the competitive landscape increased, availability shifted from one’s own channel (website) to being present and available on other platforms such as marketplaces. We are seeing movement from having products in stock in your warehouse (a “king of e-commerce offering”) to a more mixed picture, where e-commerce retailers are choosing to offer products that are not in stock but are still available on the same delivery timetable as the merchandise from their warehouse. We see this development continuing as brands are “upping their game” - providing APIs and delivering competitively.
2. Pricing and Merchandising
The next level of competitiveness is pricing. Because digitalization brings transparency to everything, your prices need to be right. Have an attractive offer. You might sell an overpriced product to a customer once, but that won’t last when other e-commerce retailers have a more competitive price. This is a major factor in competition, and in lower levels of competitive intensity, your prices need to be about right from an overall perspective.
However, when competition intensifies, your prices and AdWords need to be perfectly aligned. You only win the sales button with the right price at the right time; otherwise, you are irrelevant and even your best customers will know it. Having a pricing strategy/plan, and a structured approach to trading and merchandising, is a prerequisite. This strategy is required to go from relying mainly on promotions to drive sales, to having a focus on the individual customer, ensuring the next product purchase/experience creates great NPS and loyalty. To provide this, you need to move the experience customers know from your physical shop to your website – with the right product, at the right price, in the right context, at the right time! How optimized are your key trading drivers (product sorting, site search, promotions, and the use of the home page driving traffic to the right products)?
Your assortment is the next competitive level. In essence, this is about having the products that customers want. And nursing your approach to assortment is the main source for above-market level growth, and the most effective way to affect your average basket size. At low levels of competition, your assortment width is key to success. However, as competition intensifies, competition shifts towards width AND depth, and how you work with the product descriptions and details in a way that customers understand and like.
This is the reason many companies have started working with PIM systems (Product information Management systems). One common mistake, however, is that companies are simply just putting their ERP data into the PIM platform. But that will not give you a competitive edge, as data quality does not change significantly. Another aspect that is increasing in importance is whether to make your assortment available at marketplaces. This is a strategic question in itself: Can the risk of losing control be managed? And, do the short-term sales and the long-term positive brand effect for your store outweigh this risk? Moving towards making your assortment available in marketplaces, we would normally recommend focusing on products with high customer satisfaction, easy fulfilment, and low return rates.
The key to winning in this battle-zone is understanding your customers’ preferences, the costs of product onboarding, and how to find the optimum balance between the two. You should also aim to strike the right balance between assortment width and depth. Many companies increase width too much to increase growth/AOV but then face being less relevant and losing their previous “category-ownership" status. Customers may not understand why a broad range of products are introduced in the shop, and internally, the company loses track of its core assortment (product offering), driving unprofitable shopping baskets.
4. Delivery and Fulfilment
The next competitive level is a tough one, and the last of the mature levels, which indicates that it has been a competitive factor in the e-commerce industry for many years. People want their products offered conveniently and delivered fast. Their requirements change rapidly, as the biggest players establish new standards. Delivery and fulfilment are the most important factors in projecting if you’ll see the customer again, as well as if the e-commerce shop will experience profitability.
At lower levels, customers’ expectations toward fulfilment are lower; but as competition grows, multiple delivery options need to be in place, and stringent communication options across all touchpoints are needed to succeed. This will be both complex and expensive for most e-tailers, which is why the winners in recent years have been those who truly understand how to optimize their logistics setup. We foresee fulfillment will move from a slow-moving process with long platform and vendor cycles to a “system of innovation” with a lot of disruption/new methods is coming fast over the next 1-3 years. Just look at last-mile delivery and how much Coronavirus has changed perspectives here.
During the Coronavirus shutdown, Amazon saw an increase in negative customer reviews. This was not because of product disappointment, but because the shop promised an earlier delivery than could be achieved due to the pressured market. Delayed deliveries were perceived as a letdown and affected the entire customer experience. Delivery and fulfilment are also the root causes of most customer service requests seen in call centers.
5. External Visibility
In recent years, more and more companies understand the importance of SEO and SEM, and are investing heavily in those areas. This is not limited to the fact that Google and Facebook have made it extremely easy to follow shopper behavior on daily basis. However, as intensity increases, this battle-zone starts to focus on your web-quality score and performance and your visibility on all social media platforms. We have identified this as the battle-zone that most e-commercers are fighting right now. SEO screen space has been limited due to Google Shopping and Google Ads but it is still important. SEM has turned into a data game where the granularity and precision of your Google Shopping feed are key – and with automation, this becomes less of a differentiator. Finally, social media’s role as either simply a top-funnel activity or a scalable transaction generator is constantly a dilemma to review.
In short, you need to utilize these standardized processes and platforms, and also focus on creating a differentiating message. We expect that this space will become more and more crowded, while competition will intensify significantly over the next couple of years.
6. Omnichannel Experiences
The next competitive level is particularly relevant for those companies that have stores or physical businesses in addition to their e-commerce platform. Here, omnichannel is the hot buzzword of the battle-zone. It typically begins with a need for an app, where the company can interact with their customers on their own terms and outside the screaming and crowded marketplace. As competition intensifies, many different consultants will try to nail “true omnichannel” – however, omnichannel is a Nirvana that no company has reached (or will ever reach), though they all strive for it. In reality, connecting the physical and digital experiences, stocks, merchandise prices, promotions, marketing efforts, etc. is complex and extremely expensive. The key learning for us in recent years has been to focus more on what companies can do well instead of investing a lot of money in initiatives that neither the business nor the customer will ever use. But hey, you are more omni after the investment.
As you can surmise, we have seen our fair share of overpromising omnichannel deck slides and marketing materials. What we do like about omnichannel is looking at it as another data point and factor in the customer experience, then finding the value for businesses and customers. Omnichannel is much more than all the features that companies want to build – it is a way to serve your customers well, regardless of where and when you serve them. A good place to start is trying to understand the true value of each channel and how/where they generate value for each other or together. Despite our cynical view on omnichannel, we do see it as an intense battle-zone - both now and in the coming years.
7. Great Customer Experiences
As the competitive factors become more advanced, some e-commercers start to realize that the next step, besides what already has been mentioned, is to create great customer experiences. We all know or remember the few great experiences that we actually talk about with friends and family. Here, we are not just talking about a good check-out flow with strong conversion rates; we are talking about unique and dedicated customer experiences that differentiate the company from its competitors.
Besides finding the select few experiences fitting your offering and doubling down to make a great experience for your customers, access to data is a must to deliver this experience. However, due to privacy concerns and regulatory laws, the loss of third-party cookies has led to challenges when trying to track and understand buyer behavior online. Savvy e-commercers use this information to personalize the experience or to create the optimal experience for customers when they meet your brand. The first step for everyone is to take control of their first-party data and use those insights to make the right decisions for their business, delivering on the all-important customer experience.
We call this area an advanced battle-zone because building truly great customer experiences requires several things: great people, great data, and a flexible system landscape that can serve as a great digital experience. This requires that you separate your system landscape because you have hit the glass ceiling of growth within standard platforms such as Shopify, Salesforce, SAP, etc. Great customer experiences are your first step towards customer loyalty and highly satisfied customers (NPS).
8. Customer Lifetime Value
The next competitive level is also quite advanced because here, companies are competing on Customer Lifetime Value (CLV). But competing on CLV requires that you know your customers across all the different touchpoints you are using. Nowadays, most companies have identified that they need a Customer Data Platform (CDP) for collecting all the data they can get from the different touchpoints. However, most companies we have met have no idea of why they need it and how to generate value from it.
Recently, the Danish association for E-tailers (FDIH) launched its first half 2021 results, and they show that the staggering number of 70% of all e-commerce purchases are through a webshop that the customer has used before. Therefore, all companies in intense competition need to understand their customers’ frequency, engagement, recency, and monetary value.
This requires advanced skills and systems to help companies navigate through the jungle of marketing automation tools that claim they can do this automatically– because they really cannot. First and foremost, it starts with identifying which customer journeys and/or moments of intent that you need a CDP to improve. Or maybe, start somewhat smaller by just determining which products generate the most profitable orders in an identified timespan, making it much easier to start and generate valuable data. Start by serving your customers with the absolute best experiences and products, because the higher they evaluate the next experience they have, the more likely is it that you’ll see them again, hence higher CLV. Unfortunately, we see companies tend to propose products and experiences with high margins but lower customer satisfaction scores, which will erode CLV. So, start small – simply by promoting your best experiences/products.
9. Business Revenue, Cost, and Process Optimization
The next level of competitive battle-zone is internally focused, and some might argue that it should be lower on the list. However, most E-tailers can thrive in their market and still be sloppy on business costs and processes - mainly because money is cheap in the market and e-commerce shop valuations are sky-high.
We do see the most advanced retailers starting to be very cautious about creating profitability from lowering costs and investments in systems and processes. One example is the fact that many shops don’t understand the cost of a customer request in customer service. We know from large companies that efficient customer service organizations use roughly €8 per customer request as a benchmark. The best companies know and understand the cash contribution from each order coming in daily. They track all cost components in their P&L at the unit/basket level and have a clear view of where costs should be heading to turn it into a competitive advantage.
As headwind increases, companies need to start working on their cost and process effectiveness. As a clear consequence, we see the frontrunners starting to focus on POAS instead of ROAS, which requires a full and transparent view of P&L and customer feedback to buy AdWords and create profitable and extraordinary customer experiences.
and then what?
We want to turn our attention to the competitive battle-zones, since we believe that an understanding of them, how they affect you, and how you can work on them is an essential starting point. You need to have an educated view on how you address each of these. As a next step, you need to decide where you double down in 2022 to get back ahead of the curve in your competitive landscape. In other words, you need to master your battle-zones to gain a true stronghold because it still holds true that “what you spent your time and attention on is typically what you get really good at...”
In order not to make it too philosophical, we want to highlight a few things you can do now. You can start reflecting on the following five crucial questions concerning battle-zones.
- Where do you spend most management time and focus – and is this the right priority?
- Where do you invest, and is your investment focus correct and balanced?
- Do you have the right and best people in each battle-zone, and do you have sufficient diversity to solve and master each battle-zone?
- Are you using data sufficiently to make and improve your battle-zone performance?
- Which competitors are you looking at, and should you look more broadly?
Our experience is that these meta-questions are often overlooked and under-discussed when daily business kicks in. We also highly recommend that you get closer to what happens in customer service and get a better understanding of your data foundation – because it is in the details from the battle-zones you can detect whether you are lucky or you are actually doing things very well.
We sincerely hope that you find value in this article, and hopefully, it sparked the inspiration to review some of your activities. If you want to continue the conversation, please do not hesitate to reach out to Carsten Pingel.
About the Authors:
Carsten Pingel has been working within digital strategy and business development for the last 15 years. Former experience includes acquiring and scaling high-growth, multi-brand e-commerce businesses, and enabling digital transformation in the largest Nordic media group, Egmont, business development and strategy at Copenhagen Airports, and board positions in high growth e-commerce and SAAS companies. Now Carsten is leading the strategy consulting unit within Valtech, helping companies in their digital transformation, and utilizing data to accelerate growth.
Toke Lund has been working within management consulting, heading up the strategy office and the consumer insights office at the LEGO Group, driving digital transformation at Salling Group, and working as a digital strategy consultant at Novicell. Now Toke has founded Enterspeed, a software company delivering a high-performance product called “The Headless Hub.”