I recently had the pleasure of speaking to Michael Ross, co-founder of eCommera, an eCommerce technology provider with whom Ogilvy has formed a partnership. Our two companies offer end-to-end, eCommerce solutions to clients. At the Retailing 4.0 event hosted by WPP in London this past May 31st, eCommerce was the topic of the day, including “How to Make Money in e-Commerce.” Michael told the audience “Companies need to re-think their models of growth and profit” – the economics of physical retail cannot be successfully replicated online.
IS : Michael, what do you see as the challenge for our clients, when you say they need to re-think models of growth and profit?
MR : The challenge is for our clients to embrace the fact that online retail is fundamentally different from physical retail. Online retail is a series of complex, real time, interrelated activities. Pricing can change by the minute depending on stock and demand, algorithms determine the value of cross promotions in real-time and the volume of data exceeds what most clients are accustomed to. Clients find themselves operating in a trading environment which is very different from an offline store environment.
IS : Michael, in the panel discussion [at Retailing 4.0] you spoke about some of the key success factors for our clients to better manage growth in the complex eCommerce environment. In addition to the economics of online retail being different from offline, you also spoke about multi-channel and mobile marketing challenges. Can you please elaborate on this?
MR : Yes, there are three things our clients need to consider. Firstly, about the economics of online retail, our eCommerce clients need to have a single-minded focus on getting the cost structure per order right. (Unlike our retail clients, where the economics is getting the right cost structure per store in place). Online, the critical costs are either variable per order (picking, packing, packaging, postage) or are crystalized per order (marketing, promotions). Understand what happens to profit when different levers are pulled (e.g. free delivery, vouchers etc) and what it does to profit per order and volume of orders is critical to profitability.
Secondly the cross-channel effect; customer behavior today is complex. Some customers browse online and purchase offline, others browse offline and purchase online. It’s a complex and non-linear journey. Customers shop across multiple sales channels but with an expectation of receiving a consistent, end-to-end brand experience. It’s estimated that today some 60% of EU sales are affected by web research prior to purchasing on the High Street. Therefore to manage effectively cross-channels, our clients need to understand:
- What are the key Customer Journeys? In other words, how do customers use each channel and in what order? Which pathways are most profitable?
- What causes multi-channel activity? Is online driving offline, or is offline driving online? How does online marketing spend drive offline purchase.
Thirdly our clients need to consider the mobile effect. Customers can scan products, check prices, browse competitor sites and purchase on their mobile from anywhere, including in the store.
On one hand mobile is “another browser” and e-tailers need to ensure their sites are shop-able. And on the other hand, mobile is increasingly taking on a more complex role which necessitates thinking about mobile in a new way. Their impact on retail sales will be far greater than previously imagined. Be prepared for price comparisons via the mobile, be ready to provide brand and product information via the mobile and if you are a retailer consider near-store offers.
IS: Thank you Michael.