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January 22, 2018
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
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