If we could quiz American consumers from the early years of the twentieth century to get their impressions of today’s high-tech online shopping experience, how do you imagine they might react?
On the one hand, the idea of accessing an always up-to-date electronic mail-order shopping catalog – in full color no less – and receiving delivery of the goods in just a day or two – might surprise and delight them.
On the other hand, they might be even more astonished that today’s impressive online catalogs are not offerings from famous names familiar to them in their day, such as Sears Roebuck and Co. (founded 1892) or Montgomery Ward (founded 1872), but rather from those they’ve never heard of, including Amazon.com and Walmart.
Is it all a bit of history repeating, just with new names?
Join us as we take a look at the 10 top factors governing e-commerce as it continues to win the fight for consumers.
1. Closing the Sales Cycle: Advantage goes to E-Commerce Giants, but Congress is Weighing Limits
How has e-commerce cemented its position as a dominant sales channel?
For one, the coronavirus pandemic (and associated lockdowns) has helped considerably. According to some experts, the adoption rate of online shopping jumped ahead by as many as 10 years as a result of the pandemic.
The reasons for this are clear. Many of us were staying at home during the pandemic, making the prospect of visiting a store in person less desirable, not to mention the very real possibility that the products you would be looking for might be missing from store shelves due to the supply chain shortage issues.
There are other reasons for the growth of e-commerce adoption as well.
For example, user interface and user experience experts (UI and UX respectively) have been busy making the online shopping experience simpler and easier – so easy in fact that a 3-year-old toddler recently ordered nearly $2000 of furniture from Walmart on his mother’s phone.
But with increased growth comes greater responsibility.
Keep in mind, for example, that back when Sears Roebuck and Montgomery Ward were in their heyday, there were major concerns about their potential monopolistic business practices and the negative impact they wreaked on small retailers in small towns across the country.
Similar concerns about online shopping are arising today as online retail giants, including Amazon, Facebook, Google, and Walmart, attract a rapidly growing number of consumers onto their platforms.
Congress has taken notice and has proposed several new legal constraints directed at giant tech companies to prevent potentially anti-competitive business practices, including companies steering customers to their own products at the expense of other (usually smaller) competitors.
2. Gamification of Shopping: “Pavlovian” App Design Drives Demand
There are other reasons for the growth of e-commerce applications, ones that are either genius or insidious, depending upon your point of view.
Either way, there is no doubt they are effective.
What are we talking about?
The answer is “gamification,” in which products (particularly online e-commerce software apps) are designed to repeatedly make demands our attention, whether through the “ping” of online sales alerts promising special deals (midnight Woot sale, anyone?) or by achieving higher reward levels (and the promise of greater discounts) through repeated purchases.
Stanford Business School lecturer Nir Eyal literally wrote the book on the subject: “Hooked: How to Build Habit Forming Products,” and it’s reportedly found on the shelves of many product managers and programmers at tech startup companies around the world.
Indeed, many product designers and developers embed this gamification concept into the core design of their products, often in the form of a “freemium” offering, which provides free content all the while tempting the user to “upgrade” to higher-level “paid” functions which provide greater “rewards.”
How does Eyal feel now about the impact of his book on society?
Not very well, it turns out.
His second book is titled “Indistractable: How to Control Your Attention and Choose your Life.” In it, he recants on promoting the creation of habit-forming tech products in the first place and advises us how we can take back control of our lives by eschewing them entirely.
But to mix our metaphors, there is no use to close the barn door after the genie is out of the bottle…
3. E-Companies Lock in Ongoing Revenue Streams with Subscription Sales
Freemium business models and in-app purchases are part of the larger subscription purchase trend that has helped lift e-commerce profits to new levels.
Steering customers away from one-time purchases to subscription purchases not only helps increase sales volumes but it also smooths out the sales curve. This not only dramatically reduces the marketing spend necessary to generate new sales, it also helps lock in customers from purchasing products or services from a competitor.
(It also builds directly on the time-honored sales maxim that the best prospects for future sales are the customers you already have.)
How successful are subscription sales?
Apparently, it’s successful enough to warrant its own consumer backlash.
In a sign of the rising (un)popularity of subscription sales, there is a new widely promoted app called Truebill that claims to make it easy for consumers to get out of subscription purchase commitments they may have made and forgotten about.
4. Omni Channel’s Rising Stars Lie outside the Brick and Mortar Universe
The omnichannel concept was supposed to be the big hope for traditional brick-and-mortar retailers to stave off the encroachment of pure play e-commerce companies.
Companies like Walmart, Target, Home Depot, and Lowes realized they could leverage their thousands of local store outlets by converting their stockrooms into mini distribution centers (DC) – turning what was considered a disadvantage (a sprawling retail footprint) into an advantage – by offering multiple (e.g. omni) sales channels to consumers, including ordering online and picking up at the local store, or having the local store deliver to a nearby consumer’s home.
Has it worked?
Yes, in many cases.
However, some stubborn IT integration problems continue to persist, especially among stores that primarily rely on human pickers to gather goods from in-store shelves (rather than dedicated warehouse storage). Often these retailers discover after the fact that the inventory levels recorded in their central databases are out of whack – leading to untimely online sales cancellations and delays – and lost business.
But two can play at the omnichannel sales game.
In a twist, Amazon (and later Walmart) realized it could create its own version of an omnichannel as well – by hosting thousands of third-party businesses onto their sales platforms and flooding the zone with an even larger inventory of specialized products. This approach also brings more customers to their e-commerce platforms and allows them to earn sales commissions from the vendors hosted on the platforms as well as the opportunity to upsell these vendors on end-to-end fulfillment services where Amazon or Walmart holds the product inventory and makes the delivery. Amazon has even taken this one step further by renting out the data platform (AWS) that it uses to power its logistics operation to other companies.
As a result, thousands of virtual sales companies have come into existence that rely on these platforms, many of whom never physically touch the products they sell, instead, relying on retail giants such as Amazon or Walmart to perform the role of third-party logistics (3PM) operators that hold their inventory and “drop ship” them to customers.
5. AI Takes on the Automation of Sales and Marketing Campaigns
“Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”
Attributed to famed New York retailer John Wanamaker
Because so much of online purchasing activities – from initial contact with a prospect straight through to a “conversion,” e.g. sale, can be tracked using cookies, user sessions, or online credentials, the age-old adage that we can’t figure out where we are wasting money on advertising is less accurate than in earlier days when marketers relied on tools such as print advertising or direct mail.
For every action, there is a reaction. These increasingly strict privacy regulations are driving companies to push as many users as possible away from company websites in favor of standalone company-branded apps (such as the successful app from Starbucks) – as these apps serve as “walled gardens” that allow companies free reign to track every aspect of their prospective customer’s behavior.
However, it is becoming an increasingly overwhelming task for ordinary human-powered marketing teams to make sense of the huge amount of collected information, so companies are rapidly turning to AI-based Big Data toolsets to mine terabytes of data to find purchasing insights and other important clues to consumer behavior.
In an ideal world, these insights can help predict future demand, which is useful information for production planners and purchasing agents as well as supply chain managers. Hopefully, it can also provide useful insights into new purchasing trends, which can give product designers and marketing planners useful information on what kind of products to introduce in the future.
AI-based systems can automate traditional demand generation campaigns as well, e.g. those block-and-tackle marketing activities (through online tactics such as “drip” marketing or “recommendation engines”) that can help move a prospect through the sales funnel in a stepwise fashion until they are ready to make a purchase.
6. Social Marketing Tops the Charts as User Rating Review Sites Decline in Influence
Some marketing strategies used in e-commerce have faded in importance over time. One example is online user reviews, which are suffering a credibility crisis in the eyes of many consumers due to the widespread presence of “fake” reviews, either encouraged by users participating in reward schemes or written by “review bots.”
In place of “starred reviews,” many would-be purchasers are instead turning to video product reviews produced by independent content makers on video sites such as YouTube. The quality varies – for every 10 braindead “unboxing” or “shopping haul” videos, there is one genuinely useful product review by someone with real-world expertise.
Project Farm undertakes very comprehensive product tests on their YouTube Channel.
Savvy marketers have taken note of this trend and regularly send product samples to key YouTube channels to encourage them to review their wares, often offering special affiliate links for product discounts. Not all YouTubers accept these offers; for example, Project Farm (see video above) does not.
As such, these product review sites fall under the category of social media “influencers” – though we’re sure many of them wouldn’t appreciate that moniker.
That’s not the case for the dominant species of social media influencer, the Instagram influencer – many of whom ply their trade creating a glamorous lifestyle in hopes of garnering enough followers to justify their efforts to pitch their social media presence to advertisers. The end goal is to land a lucrative product placement deal or other promotion (collectively known by the unflattering term “spon-con”).
What’s in it for companies? They seek to leverage influencer endorsements to reach coveted demographics and serve them a unique brand message or special offers on exclusive products or services.
Marketers are also evaluating other new media platforms, such as the burgeoning podcast industry, for advertising and marketing opportunities; however, corporate-branded podcasts, for the most part, have not caught on, possibly due to a lack of credibility compared to more “organic” podcasters.
But for companies with their eyes on the future, the Holy Grail is the TikTok social media platform, a reincarnation of Vine that has captured the hearts, minds, and wallets of the youngest generation of online users. (TikTok recently displaced Google as the most visited domain on the internet.)
Unlike other social media platforms that encourage users to build up a following over time to gain internet fame, TikTok features a unique algorithm that promotes relatively unknown content producers (e.g. content with low views) and turns them into viral sensations, making it the place to be for marketers targeting young consumers – at least until the next hot social media platform comes along.
7. Get Ready for the Great Metaverse Gold Rush
One social media platform that has lost ground among younger users is Facebook, which is increasingly viewed as a place for “old people.” This perception comes at a sensitive point in the company’s history, as it faces increasing scrutiny over whether its family of platforms (including WhatsApp and Instagram) is responsible for spreading misinformation and conspiracy theories – as well as undermining the self-esteem of users, especially young women.
Sensing an urgent need for a reset, Facebook has gone full volte face, changing its corporate name to Meta and launching a broad initiative to build its version of the metaverse – a simulated 3D cyber world.
For those of us with long memories in the field, there is some skepticism given the long history of computer graphic initiatives that failed to live up to the hype, including the Autodesk Cyberspace Developer Kit (1989) (which launched with a presentation that includes a pitch by psychedelic drug advocate Timothy Leary!) and the VRML web standard for defining virtual worlds on the internet, which dates back to 1994.
On the other hand, today’s computer game technology has advanced dramatically since that time – to the point that even moderately priced gaming computers are capable of creating immersive virtual reality worlds. Also helpful for Facebook, err Meta, is the fact it now owns one of the leading VR headset innovators, Oculus.
Sensing a need to cover its bases, Microsoft recently announced its plans to game publisher Activision, which will give the company new IP to pursue a metaverse virtual reality strategy of its own.
Meanwhile, marketers at major corporations are not taking any chances. While it’s not clear whether Meta’s metaverse will be a hit (or a failure) many companies are snapping up graphic content production shops that can produce 3D content.
And they are also staking expensive claims for prime “metaverse” real estate in Meta’s virtual world – banking on the idea that it will pay off, or prevent a competitor from gaining a “location, location, location” advantage over them, or both.
Time will tell whether the public will adopt the latest generation metaverse technology and whether it will become a major driver of user engagement (and online sales) or not.
8. The Need for Speed Hits the Wall of Logistics and Supply Chain Woes
So far, we’ve touched on the generally positive and successful aspects of the e-commerce fight for consumers.
However, things are not all rosy.
Amazon is setting the pace for fast deliveries, offering two-day or fast deliveries for its subscription-based Prime members.
To get there, Amazon has had to hire record numbers of warehouse and delivery workers, as well as dramatically increase the footprint of its warehouse distribution centers (DCs) – many of which are now located in formerly disused shopping mall locations.
And Amazon’s competitors are largely following suit, which is setting up a scramble to find enough warehouse facilities to handle the large amount of e-commerce inventory as well as to hire enough workers at a time when many prospective hires are resigning from their jobs in favor of new opportunities (the Great Resignation). Increased salaries are helping, but this is also driving up costs.
Compounding the problem are supply chain shortages and workers out on sick leave due to Covid – both here in the US as well as overseas (where many products originate) as well as throughout the supply chain system, from cargo ship merchant marines to port workers to truck drivers.
9. Organized Theft Plagues Brick-and-Mortar and E-Commerce Alike
Theft is another issue facing both traditional brick-and-mortar stores as well as e-commerce companies.
In the case of traditional retailers, there are shocking reports of increased shoplifting activity, including organized mobs that swarm into stores and overwhelm security systems. Companies such as Home Depot are fighting back with increased security measures, including enhanced sensors built into products (such as motorized hand tools, such as saws or drills) which must be electronically “authorized” during checkout – otherwise, they won’t function when turned on – rendering them useless for thieves wanted to fence the goods on the black market.
E-commerce companies are facing their own issues with theft as well.
There are recent reports of e-commerce warehouse and truck trailer break-ins across the country – thieves are even stealing entire postal vehicles full of packages – as criminals go after expensive items in storage or in transit. In one especially brazen type of hit, looters have been found stealing packages from slow-moving or parked Union Pacific freight trains in east Los Angeles.
“Porch pirates” stealing packages left by delivery services at consumers’ homes also remains an ongoing peril for e-commerce companies. The bank loan company Lending Tree commissioned a survey in 2021 and found that 1 in 5 consumers experienced a package theft during the pandemic, with an average loss of $106.
Given these losses, it’s easy to imagine that Amazon has theft in mind as it promotes its Ring doorbell video cameras. Others, such as YouTuber Mark Rober, have made porch theft their cause célèbre – Rober’s famous videos of his deceptive “honey pot” packages not only attract thieves but also viewers – with more than 20 million viewers delighting in watching the spectacle of these fake packages exploding in thieves cars and living rooms – shooting out glitter bombs and noxious fart smells.
10. Sustainability Efforts Take a Hit due to Overflowing Customer Returns
But on a more serious note – the widespread shift to e-commerce has raised serious concerns about sustainability as well.
Take the issue of returns, for example.
E-commerce sellers often offer free returns as a sales incentive, but the number of returns is staggering: UPS alone estimates it will handle more than 60 million returns during the month after Christmas 2021 – setting a new record.
Historically returns have always been a thorn in the side of the retail business due to their outsized cost for processing and restocking. However, some e-commerce companies have been caught out trying to take a shortcut by simply dumping returned products into landfills.
A 2019 study by Optoro estimated that 5 billion pounds of returned goods end up in US landfills each year (!) and that simply hauling the goods away produced 15 million tons of carbon dioxide emissions. (By our calculations, that’s the equivalent amount of pollution caused by 3.2 million cars driving for a full year…)
Some retailers, such as Amazon, have taken notice and are now taking steps to re-market returned goods by restocking them and selling them at a discount, auctioning them off to wholesalers, or opening Amazon-branded retail shops which sell returned products.
Another big question we need to ask as a society is whether we need to be able to order individual items for rapid delivery – rather than combine our orders into larger shipments which would presumably reduce the need for packaging and cut down on the cost (and environmental impact) of multiple deliveries.
Warehouses and distribution networks could also become more sustainable in other ways, including net-zero facility designs. This is an important topic that we will address in an upcoming article, so stay tuned.
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