There is a very common misconception when it comes for companies to decide about how to approach E-commerce.
I am referring to companies that sell through store based retailers. Think Nike, as an example.
Right now, many of these companies are still experimenting and trying to find the right approach to E-commerce.
Typically, the first thing they try to address is how to sell directly to consumers through their own online shop. This is the most common way management look at E-commerce in such companies.
Here is the big misconception: whatever you’ll manage to sell online through your own online shop, it will never be as much as what you could sell through online retailers (a.k.a. e-tailers). This aspect is very often overlooked.
My take is that out of your 100% of online potential sales, e-tailers will account for at least 90% of the total, not less.
Where should you put your focus on then?
The route to market for these companies should start from understanding consumer behaviors online.
Where do your category buyers find information online? Where are they already buying? Which e-tailers are dominating sales in your category?
From here you can start designing your route to market.
Competing with the Amazons of the world for traffic, marketing, fulfillment or customer service capabilities is very tough, to say the least.
You better make these e-tailers part of your route to market. You better master internally how to sell through them. You better stop avoiding them.
It’s not late.
Nike has just announced that it will start selling on Amazon, directly (full control of brand, prices and fulfillment).
What about selling through your own website?
As a consumer, on your own website I expect to get to know better who you are as a brand. And learn about your offerings. And yes, to buy any of your products right from your website. Or, after learning from you, to buy somewhere else online if I find better prices. And that’s just right.
The gold in the E-commerce world is to be found in the wider reach and sales you can get for your brand through e-tailers. Where the vast majority of your category buyers are shopping online.
What do you think?
Photo by Brook Ward
Is conversion rate the ultimate number for your E-commerce? Is it revenue per user?
Companies approaching e-commerce find themselves squeezed by two forces: money making and branding.
When your website sells AND tells the STORY of your brand, then big fights start.
What goes on the home page? Our brand video or the last promo campaign?
How to balance commerce and branding?
Some solve the problem creating different websites. Hi! This is us! Want to buy? Then go there.
What is missing in such a debate?
Yesterday I had a casual conversation on the topic with my old friend Claudio Tonti. He put things from an unusual angle.
When you focus all your efforts on your conversion rate, say 3% (very high for a brand selling directly to consumers through multiple channels), and you keep pushing and pushing to improve it…
What about the remaining 97% of visitors?
Are you serving them?
97% of the time your website is serving people that are not buying yet.
They may be buying in 3 years time.
You want to make the right impression to your 97% of not buyers. You want to welcome them, make them understand who you are, why you exist.
You want to let them understand how their life will be better when choosing YOU, your brand.
Finding the right balance between Brand and Commerce for companies that are not pure e-commerce players is biased.
We are focusing on today’s measures (Revenue, AOV, RPU, CR, etc.).
We have no similar focus on what we are building (or not) when dealing with the 97% left.
I argue that your website can serve both goals well at the same time.
Just let’s do not forget that we are delivering a branded experience.
You can enter a boutique of a renowned brand at the “Avenue des Champs-Élysées” and still buy, right there. That does not imply your shopping experience should feel like buying in a supermarket.
What is the ultimate number of your E-commerce store?
The one reason Uber and the collaborative economy are taking over the world and what we can learn from it.
I tried Uber for the first time back in August 2014. I was in Berlin (Germany) during the last European Swimming Championships. I used them every day for four days in a row. So I got a good sense of what Uber was all about.
The best way to describe my experience is through the questions that the drivers asked me during my rides. Here are some of them:
- Sir, do you want some water?
- Would you like to connect your iPhone to the sound system and listen to your favorite music?
- Is the speed OK?
- Is the temperature OK?
- Would you like some mints?
All of these questions alone offered a very different experience from standard taxis.
The Uber cars were clean, there was no bad odor whatsoever, the fare was clear, no need to ask for a receipt, no need to waste time paying as everything was handled by the mobile app.
After that summer, I continued to use Uber in other locations like London and Milan. The level of service was similar.
Nobody wants to get back.
I had to take real taxis anyway, mostly because an Uber car was not available. On those occasions, I could compare the two services in the same city and the routes they followed.
Uber won hands down! I paid less with Uber; I was faster with Uber.
In Berlin, the trip back from a restaurant to the hotel was done by Uber (9 minutes) while we got to the restaurant by taxi and paid more for a longer trip (16 minutes). The taxi driver took a longer route that seemed to us unjustified.
How is it possible that in such a short period of time Uber has managed to put together such a better service and experience, despite all the odds?
The secret sauce – Incentives!
As an economist, I know incentives do work. What is amazing is how you can touch and feel them using Uber. Simply put, everything works because Uber drivers have a strong incentive to perform: if they get low ratings, they are out of business. Simple.
Now you understand the reason behind all those nice questions, clean cars, correct fares, etc. The root cause of all that are the incentives.
As soon as the ride is finished, the Uber app will prompt you to rate and review your experience with that driver. And the driver does the same with you so that other drivers won’t get in trouble with problematic customers in the future.
It is so simple and so powerful at the same time.
The key is in the proximity between the behavior and the incentive. They are very close and tangible and this impacts the driver’s behavior a lot. If they deliver a good experience, they get a reward soon after the ride. That makes the incentive so powerful.
You never drive through an intersection with red lights if you know there are cameras or if a police car is around. You pay for parking if you are sure someone will check your parking ticket, etc.
The closer the incentive (punishment or reward) to the behavior, the more effective it is.
Can we use incentive proximity?
I think we can use incentive proximity as an agent of change. Or at least it could be a very important ingredient. A few ideas:
- Why are so many bonuses tied to yearly performance?
- Why are employees’ reviews done once per year?
- How is your customer service team rewarded for going the “extra mile”?
At first glance, I would say that Human Resources, Sales and Customer Services are three areas where there is a lot of room for experimenting with incentive proximity.
Where in your organization would you experiment with it?
I wrote the following piece as a “reflection paper” soon after a business simulation exercise. It was part of the Business Execution module of my EMBA course. We worked in 5 to 7-people teams and we were competing in the microcomputer market using a business simulation software against seven other teams.
In the piece, I connected the experience I had during the simulation with a couple of episodes I experienced during my childhood and described one important lesson learned for the future.
I remember being asked to read aloud in front of my class when I was 10 or so. You don’t want to look stupid in front of your friends. That is why I found doing it so difficult. Then, someone taught me a trick: to keep my eyes ahead of what I was actually pronouncing. I tried, found it difficult, tried again and again until I found myself reading so well I could not believe my ears!
Anticipating what I was going to pronounce also allowed me to set the right tone and to keep just the right pace of reading, with no unnatural interruptions. It was counter-intuitive, but it worked wonders. I was pronouncing something and reading something else at the same time. Difficult and so effective at the same time!
Some years later, I read an interview with a football professional in the newspaper. He was considered one of the fastest strikers of his time. When asked about this quality, he said he was not any faster than most of the other strikers. He was very good at anticipating a possible pass and used to sprint ahead of his opponents. He mastered this skill and because of it, he managed to be a successful striker and was considered a very fast one!
The Business Simulation Exercise
A couple of weeks ago, during my participation at a Business simulation with my team, I felt an “Ice Bucket” kind of sensation over my head. It happened when I realized a big mistake we had made during the exercise. Then I connected it to my “reading aloud” and “football interview” experiences.
The team momentum was just great. We were having encouraging results, as we had become market share leaders in one of the segments we were focusing on. The time pressure was high and we were working hard on putting together the necessary work to make the right decisions … to keep winning in the next quarter too. Then, one person from another team entered the room and offered us a licensing agreement regarding the secondary target market we were competing in. We turned the offer down. We felt strong, with a clear strategy, and we didn’t want to buy technology from others to create our “secondary core products”. We thought we could rely on our own capabilities instead.
After several quarters, even though we were doing well in terms of sales and cash generation, we realized we were not going to be able to be leaders in two different consumer market segments at once! Or … we could have been! If only we had that extra piece of technology that our competition offered us a few quarters before, we would have been in a much better position! At that moment, I felt an “Ice Bucket” over my head and connected this eye-opening episode to my previous experiences of “reading aloud” and “understanding football”.
If only we had been aware of the importance of “thinking ahead”, of keeping our eyes on the horizon, rather than being absorbed in solving current problems. If only.
Post Exercise Reflections
1. The world out there will always be bigger than you.
We felt strong. We felt we wanted to be like Apple and be masters of our own technology universe. We wanted to be “owners of the technology” in the segments we were going after. We forgot we were a start-up! We forgot that this was a marathon rather than a sprint. We forgot to think that whatever we decided, whatever the resources we may manage to use … the world out there would always be bigger than us! We forgot to understand that other companies were investing as much or more than us in similar technologies that were targeting the same market. We took a great risk. We could have been forced out of the market by the other company’s alliances. We forgot to think ahead.
2. You are part of a system called “company” that it is part of a bigger system called “industry”, that it is part of a bigger system …
Another important angle of this “lesson learned” was that even if it would be impossible to anticipate all of the cause & effect relationships that would have followed every decision taken, we still tended to underestimate what consequences decisions would have on the company as a whole. Furthermore, we underestimated the effect that the external world (e.g. industry practices, status of the economy, etc.) has on the company itself regardless of our decisions. For example, we gained a lot of labor productivity starting with a relatively low wages policy plus a pension fund for our employees. As we moved forward, we raised salaries according to company results. Productivity went up! Other companies that started with higher wages and did not modify them over time suffered from a low increase (or no increase) in productivity instead. In this case, we were lucky. Again, understanding the whole picture before making decisions would have been the best choice.
3. Everybody is biased.
I was amazed at listening to our appointed “team member CFO”. As we were discussing about where to invest the company money, our CFO, who in real life has a background in Sales & Marketing, was talking exactly like the most seasoned “old style” Chief Financial Officer! He was very cautious about expenses and he was asking all the time to cut marketing investments and to look closely at our cash flow statements. This was hilarious and at the same time, eye-opening. It’s one thing to pretend to understand other people’s point of view, and a different thing to actually put yourself in somebody else’s shoes.
Considering other people’s point of view should be more than just a “pretending to be listening” game. Most people really care about what they are doing and so it is worth listening to those who care: they will help you to anticipate possible problems or to take advantage of opportunities you will never see otherwise.
From being Reactive to being Proactive – the lesson
What I know now, after this experience that let me to “connect the dots” of some other apparently unrelated episodes of my life, is that I should always try to anticipate the consequences of my decisions, from a personal point of view, to a department, company, industry, and economic point of view. As everything is part of something bigger, trying to anticipate these consequences will help me to make better decisions. This means going from being reactive to being proactive. And I should know by now that it is not easy. Instead, it is counter-intuitive and it is hard. But if it feels like that, then it means that I am “reading aloud” my job in the right way, that I am looking around faster than the average person, like the football striker I read about some years ago.
How often do you manage to stop and think ahead about the consequences of your decisions? How does your thinking change your assumptions and decisions?
What follows is a short essay I completed for my Managerial Economics module, part of my EMBA course I am taking at the Hult International Business School and it is inspired by the “Zero Marginal Cost society” envisioned by Jeremy Rifkin.
What close are these snapshots from what will actually happen by 2035?
Martin wakes up. It’s 11 o’clock. He takes a shower and meanwhile reads the news & check his emails on the shower glass. He picks up a pair of jeans, a t-shirt and a jacket and go to a Cafe where he gets a Latte, some fresh fruits and a croissant. The place has about 35 tables. Each one accommodates 4 to 6 people. There are some whiteboards around.
In the world of Martin, most people work in the service economy which lately has grown mostly in the fields of the arts, culture, filmmaking, entertainment, theatre, food & cooking, education, sports, wellbeing, health, information technology, design and many other jobs that require lots of common sense. Yes, these are the jobs that robots cannot do yet. Common sense is a difficult task for robots and artificial intelligence. Plumbers, artisans, pizza makers, baristas are some more examples of jobs that still need human common sense.
Luckily enough, robots do most of the jobs anyway. The marginal cost of almost anything is low, allowing the society as a whole to be as productive as ever, with little direct labor involved. More value now is being created from the same amount of capital and work.
Using the internet and the data coming from the trillions of sensors embedded in everything, there is hardly any waste of resources: transportation, energy, people, infrastructure and beyond. We have never been as rich as today.
What drives the economy is the most human part of people: creativity. It is “creativity” that fosters innovation. And creativity nowadays is hardly owned by corporations. As most people are knowledge workers connected to an ever changing marketplace of opportunities, people work on projects based on personal preferences and fit.
Everybody is a company, everybody is a brand.
This has led to almost total flexibility in the workforce, with companies hiring on a project basis and looking for the best talent, wherever is available.
Martin does not own a car or a house and tends to rent almost everything he uses. As most people of his generation, does not have an interest on owning things. It is not a status symbol as it used to be in the past. The relationship of people towards “things” has dramatically changed over the past 15 years as people are more conscious on the impact of their purchasing decisions on the planet. This is why owning stuff that would stay idle most of the time is seen as a negative trait from society.
The social impact each company has on society has become a real business driver. As people can get similar products from companies that do have a positive impact on the society, companies are competing on the good they are doing to the world as a way to gain customers preferences.
Martin lives in the niche economy. Thanks to the availability of technology, knowledge, information and low cost of products or services creation and delivery, a whole new range of micro, small and medium enterprises have grown, contributing up to the 82% of the total value added creation in the economy.
While Martin is sipping his Latte, he votes for 3 new law proposals that are being discussing at the parliament. After the great pressure that most governments suffered from the community about its decisions via Social Media, nowadays is common to consult the broad population on many decisions of public interest.
The Government has the main goal of keeping the neutrality of the internet and to govern intellectual property in such an open world to keep “the platform” open and accessible to everyone who is part of the community.
Martin now lives in a world where he counts more than ever. A world where everybody has the possibility to emerge and, for the very same reason, it is difficult to do so. It is a world of niches and communities of interests that go beyond old national borders. Communities that drive specific markets dynamics and that big companies have hard time to understand. Ironically, the globalization was not what many had in mind at the beginning of the century: the homogenization of consumer preferences. It turned out to be the other way around: every community has its own version of fashion, music, food, believes, and more.
Martin lives in the society of no more-middlemen. Even retail spaces are now places of relationship with brands, more than places where to buy products. Car dealers, brokers, real estate agents, travel agents and the likes are portraits of the past.
Martin goes back home. Kisses her daughter, brings in his japan-mex dishes dinner. Before going to bed, checks his energy account and discovers to be richer than the day before as he is producing his own energy. Then he closes three projects he was doing for three different companies.
For Martin, tomorrow will be another day where to create his own future.
A few days ago I was at the Top Management Forum as a speaker. I was invited to contribute on the “marketing automation” subject.
As I have witnessed the contamination of marketing by technology in the last 10 years, it was a good occasion to stop and think about this trend and have a look at what’s coming.
Here is my take, based on some thoughts I developed before the conference and I shared with the audience.
1. The fundamental rules of marketing have not changed.
I see a lot of “new marketing” bla bla bla going on because of technology innovation. Still, I think that if the basis of marketing were always taken into account, most of the nowadays campaigns would be way more successful.
I see over and over again that time constraints, pressure etc., make most marketers forget to answer the most basic marketing questions in the first place: who exactly is the buyer? what the buying cycle looks like? Etc.
If these questions are not answered beforehand based on data or feedback then there is not such a software that will make your campaign successful.
Technology has changed completely the context where the marketer operates, not the fundamental laws of marketing.
2. One to one personalization is here, now.
The tools to really have a one to one personal communication with each one of your customers are already here. Making it happen is the exception though.
You can listen to what is being said about your brand and products, engage in conversations, integrate social data into your CRM systems, nurture your leads, trigger personable communications along each step of the funnel: awareness -> consideration -> intention -> purchase -> support -> loyalty -> advocacy. This is all possible today.
Communicating with an human voice is another still to see feature. Work on it please. Indeed what you normally see from companies are clear robot messages. And no human like to talk to bots via email etc.
Most companies are not taking advantage of new technologies or not using them properly as they forget the human nature of social media conversations.
3. Mass communication is (almost) dead
See young people nowadays. They don’t watch TV anymore. The have thousands of choices and they decide what to see, when and where using on demand TV, music, cinema etc.
What is the implication of this? Well, if they don’t care anymore more about you… they still care about stuff they are interested in. More precisely, they are interested in stories that fit their worldview.
The good news is that you still can dialogue with your potential customer in a more targeted way. How? Creating stories they want to hear from you.
Today life is a stream of stories flowing from our connected world of friends, family, and whoever we decide to follow (influencers).
Finding a way to create your stories is the key of the communications of the future. We are heading to something that looks like the mass customization of messages.
Advertising and stories are merging. It will be increasingly difficult to tell what is advertising and what’s not as we’ll see more and more stories that are either interesting, entertaining or at least useful for us.
Companies must embrace this new context in order to get in touch with the connected target audience.
4. The marketing department of the future will invest much more in technology because data will be at the core of decisions and communications.
Here is a practical piece of advice. Traditional companies will see fights between IT and Marketing managers. Why? Because there are two different cultures at play. The new marketing people are getting used to digital technologies and data and they want and need to use more and more of them.
Digital technologies are not the standard type of solution you will find in enterprise level kind of software. IT people are typically skeptical about new digital technologies (open source, web based stuff from unknown vendors) which very often cost a fraction of a fraction of the “enterprise level” alternatives.
You must be aware of this dynamic as marketing automation means the integration of digital technologies into more typical enterprise level software. Make sure your marketing people projects won’t be killed by the IT more conservative and powerful crowd.
As you want to be a market leader, you want to move faster than competition. To achieve this, you must invest in training of all your marketing and communications people.
All in all, my suggestion to the people listening was condensed in these 5 points.
Then I told them why this matters: if you can increase your conversion rate by 25%, everything else equal, then you’ll get 25% more business, now. And my experience tell me that every company has a big conversion rate improvement potential. It’ a rough diamond and its there, right in front of you.
Through marketing automation you may also be able to increase repeat sales, test new ways to add people to the top of your funnel and more.
Technology is available and is abundant and is not expensive. So I invited the attendees to test, test, test and results will come.
image credit: donsolo