Ecommerce is going through a challenging phase, not for customers, but for most of the pure play ecommerce firms. Discounting models have increased losses, reduced profitability of the model and has left the future of quite a few established ecommerce players in jeopardy. And all this at a stage when ecommerce has not even matured in most markets. What once seemed to be a smart move towards new customer acquisition has now become a necessary evil to keep sales going on. We frequently hear news of companies trying to reduce discounts in a bid to reduce losses, but most of us in the industry know how that works out.
Morning 1 – Company decides to slash discounts. End of day, company has made one third of regular sales. Pressure from investors! Competitor pressure.
Morning 2 – Alright folks! 80% discount on products is back!
So where did it go wrong? It all went wrong when someone thought that marketing department can be run by excel sheet experts – who do not understand the nuances of marketing, but are adept in looking at numbers and making excel sheet talk your language. There was an article some time back about how good performance marketing can actually be bad marketing. It made a lot of sense, because companies who boast of improving digital marketing efficiency never end up getting more sales.
Sales numbers remain stagnant (unless your sales drop by 50% and go up by 50% after couple of months and you make a PR out of it) even if your channel performance shows improvement month on month. So is it an attribution issue, or an issue of one channel cannibalizing other organic channels? Improved performance on retargeting for example can be due to your retargeting channel eating up sales which would have anyways come from CRM or customer making a purchase without any push. But how do you validate that? Go back to excel sheet, run multiple analysis and come up with a number driven reason? If excel sheets could make your future, every ecommerce company would be profitable.
The real reason is very simple. If you remove the essentials of marketing, brand building, increasing recall value, creating a Unique Selling Point for your brand, people will only come to your site for one thing – discounts! There will still be loyalists, who come to your site for the brands, or user experience, or the collection. They are the ones who gave you one third sale on Morning 1 above.
If you remove the essentials of marketing, brand building, increasing recall value, creating a Unique Selling Point for your brand, people will only come to your site for one thing – discounts!
Does brand building mean sending emails about new arrivals or brand launches to your most engaged users? I’m afraid not. A performance marketer in today’s scenario might jump up saying yes. But somewhere a true marketer would die once more in his grave.
I had the fortune of meeting quite a few ecommerce founders at various stages of business. Barring the top ones who are in a mad rush to survive, everyone else had the same input – no discounts please, or we want to build a healthy profitable ecommerce business that people love to buy from, or we want to create a strong and powerful brand with extremely strong recall. One brand owner even asked me – can you create a Starbucks for ecommerce for my business, where people visit without any discounts?
Yes we can and that is the true challenge, but are you willing to spend that time and money behind brand building to reach a point when loyalists drive your profits, and you introduce performance marketing for that incremental sales as and when needed, even if perpetually? Or is a mail from your competitor offering 30% extra discount going to break your will?
This article was originally published on ETRetail
By Soumajit Bhowmik-Investor, Director – Ecommerce, Capillary Technologies
‘eCommerce’ seems to be the buzzword these days, with many brands moving towards omnichannel and online-only transactions. While the old brick & mortar model presented many challenges, online shopping has come up with its own set of complexities. eCommerce site owners are stuck with an unsolvable rubik’s cube, making it imperative to constantly improve, adapt, learn and implement changes in a race towards sustainability, profitability and scalability.
At a very basic level, eCommerce has four levelers: platform, channel, assortment (or catalogue), and pricing. Platforms can range from websites, mobile cross-browsers, responsive and WAP sites to individual applications; channels are where you market your platform; the catalogue drives your revenue, and pricing determines your brand positioning, evolving your customer acquisition strategy, product margins etc. A play among these levelers determines where you can position yourself in the market and the kind of scale or revenue you can generate from your online store.
Without getting into platform specifics, the selection of platforms which need to be used by your eCommerce business should be based on your business goals and budget constraints. An app doesn’t always generate more business than a web portal, nor does it always have a greater conversion rate. Because while an app does offer you greater RoI’s than web portals, but apps as a platform demand more investment to achieve their full profiteering potential. The conversion rates of a platform is yet another puzzle, as there is no standardized benchmark for conversion and would therefore need constant improvement. For some eCommerce players, the conversion rate is more than 2.5%, while for others it has been lower than 0.1%.
When you have multiple platforms, there will be one question which will always need addressing– Is there one particular channel cannibalizing revenue from another? One might feel that investing in web portals is of little use, and it would make sense to invest more heavily on an app. But if you cut off the discovery platform, there might be a huge dip in app generated revenue. Of course you would not see the dip since the transition of shoppers from web only to to app will balance the overall dip, but customer acquisition costs and repeat purchase rates will definitely show some fluctuation.
How then, should one validate the importance of a platform? The answer, to some extent, lies in seeing a unified and unbiased view of customer across all the spaces.
Marketing budgets get split across channels for various purposes. One of them is brand marketing (offline and online), which includes display networks, banner inventory buyout, video promotions, offline marketing and organic social media marketing. The other part of channel marketing is to drive revenue, typically known as performance marketing channels. They include segments such as search engine optimization, inorganic social marketing and affiliate marketing. Budgets are plotted against the revenue generated by each of these channels (RoI or CIR as KPI), and are increased or decreased depending on their performance.
Now if someone visited your site, added something to their cart and left, there are high chances of them purchasing the product at some point in the near future. Live campaigns in CRM will also increase chances of driving them to make the purchase. But in the middle, retargeting shows up some ad on Facebook, and the user buys your product that channel instead. You lose out on an organic or CRM sale but get better Retargeting performance. Result – net revenue remains the same while the budget increases. These are common loopholes and can be seen regularly in the eCommerce industry.
Which channel gets attributed to a sale and which channel should be scaled up are two questions very closely related, yet we are nowhere close to a clear answer. The most convincing solution seems to be multi touch-point analysis and understanding customer behavior simultaneously, across all channels.
All of this points to one thing – understanding customer behavior. Not just across platforms, but also across channels. If your analytics team can get you data which tell you what percent of customers visited your app, browsed through products, and then went to a web portal to make a purchase (or vice versa), and what has been the channel wise flow from discovery to purchase, we can improve any customer acquisition and conversion funnel much better.
As the eCommerce industry is evolving, every aspect of it is becoming smarter. Progressive web apps for mobile web, programmatic marketing for display, multiple payment options, international shipping, shop the look for fashion eCommerce, app deep-linking and deferred deep-links, customized feed for retargeting and google shopping ads, scheduled push notifications for serving at the same time, etc, are all focused towards improving conversions and revenue. If one can constantly keep customer convenience and superior customer experience in mind as well, we are evolving in the right direction!
Author: Soumajit Bhowmik, Director of E-commerce at Capillary Technologies
Even if you’re a beginner, you’ll know that there are a few terms the eCommerce industry swears by – RoI or CIR, Conversion Rate, Customer Acquisition Cost, Customer Lifetime Value are some of them. Everything was nice and simple with the Desktop and Mobile Web was it not? You had organic channels which grow month on month and you have inorganic channels which yield revenue as per spends with improved RoI per channel (If you are optimizing the channel that is).
But then came across that monstrosity called “App”, with no respect for its behemoth predecessors. It shot up the chart for highest conversion rate, could generate more revenue than its parent website, and when its marketing could reach its highest scales, lead to easier customer retention or reactivations. Some players went App Only, some reduced discounts on the website to promote apps, and an insane rush began to overtake the world of online retail.
Now that you’ve been indoctrinated into the game of app marketing, there are a few issues that you should know everyone faces, all solvable, but only with a bit of a push:
Scaled up eCommerce companies:-
- High uninstall rates for apps
- App Store Optimization – when your competitor gets paid reviews and incentivized download to top the charts.
- App Attribution Tool and CRM
Companies starting off with App marketing:-
- App installs – where and how to scale?
- App activation – how to get installed customers to make the first transaction?
- App Install, Traffic and Revenue Attribution – well this is common for both!
- Cost Split – how much should go to App vs Desktop?
- Poor RoI at initial stage
Let’s dwell upon 2 major pointers here for the sake of your time and my space. How does app RoI grow exponentially, and what are the best practices to effectively scale app downloads.
An an example, If your cost per download is 100 INR, the average order value is 800 INR and your app activation rate is 5%, let’s see how the math works out.
Month 1 – 100 installs, 10000 INR cost, 5 Activations, 4000 INR Revenue – Loss!
Month 2 – Another 100 Installs, 10000 INR cost, 5 new activations + 2 activations from previous month, 5600 INR Revenue -Loss!
Month 3 – Another 100 Installs, 10000 INR Cost, 5 new activations + 3 Old install Activations + 1 Repeat purchase, 7200 INR Revenue – Loss!
Month 4 – Another 100 Installs, 10000 INR Cost, 5 new activations + 5 Old install Activations + 3 Repeat purchase, 10400 INR Revenue – Break Even for the month!
By Month 10 – Another 100 Installs, 10000 INR Cost, 5 New activations + 20 Old install Activations + 40 Repeat purchase, 52000 INR Revenue – 5X RoI
And it keeps growing. By Month 10, you have 1000 unit install base, 100+ active customers, who would give you repeat transactions through effective CRM without spending on downloads anymore. Now put the whole model on scale, where you spend 50 Lac INR a month. Imagine the RoI (sustainable) that you can achieve.
Best practices for app install scaling? Use social media app installs, use SEM for app installs, use display boards and affiliates. The only real scalable channel beyond a point here is affiliates, and with that channel comes junk traffic, junk installs, high uninstall rates, and lower CLTV. My first 2 pointers for optimizing affiliate channels – do not go for incentivized downloads of app, and give the affiliate channel activation percentage benchmarks for the CPD that they will be paid. Do not pay if activation rate (Day 30) is below a certain percentage.