Consumer demands have drastically increased on the coattails of technological advancements."
The world of e-commerce is as exciting as it is challenging. The opportunities for success are boundless, but the obstacles can be daunting, as the waters brands and retailers are navigating are virtually unexplored.
The often forgotten, simple truth is e-commerce, like every other retail channel, has one purpose: the exchange of goods. Still, what it takes to move goods from production to consumption via e-commerce — especially pure-play e-commerce, where online shopping is fulfilled through direct delivery — is vastly different from traditional retail channels.
As brands plan and forecast for pure-play e-commerce, they face new challenges because the way sellers sell is different, the way shoppers shop is different and the ways consumers want to purchase and receive their products are different. To create a successful e-commerce business, consumer goods companies need to build a model created specifically for e-commerce. In short, they need to rethink the three key areas that drive sales in physical stores and flip them on their head.
In brick-and-mortar sales, brands typically have a high level of confidence around assortment strategy with the right breakout of hero SKUs, innovation SKUs, seasonal SKUs, etc. With pure-play online assortment, those identifiers are still important, but likely moot if the products can’t withstand the physical, fast, still-evolving supply chain journey. Glass? Good luck. Liquid? Questionable. Heavy and cheap? I wouldn’t.
Still, even if a brand’s assortment includes liquids in fragile or heavy (or both) packaging, or other challenging traits, it doesn’t mean e-commerce is a no-go. It means the brand must adjust by getting ahead of the channel’s growth and thinking differently about how products are packaged, stored and shipped to the customer.
One laundry detergent manufacturer, for example, rethought its existing packaging — heavy plastic jugs that were not e-commerce friendly — and created a bag-in-the-box package that was a more durable and profitable solution for selling online.
Or consider the transformation of mattress sales, which were once confined to department stores and showrooms, with deliveries made by truck days or weeks after the purchase. The category has been massively disrupted by foam mattresses sold online and shipped overnight in airtight bags, a development that has completely changed the way customers shop for and invest in a product that is found in every home.
Pricing and Profitability
With the evolution of e-commerce, consumers are basking in a “buyers’ market.” Consumers collectively say, “Jump!” and retailers ask how high. Consumer demands have drastically increased on the coattails of technological advancements. We all want products faster, cheaper and in a broader assortment than ever before, all of which comes at a hefty price that none of us want to pay. Don’t even think about asking us to pay for shipping, especially if it takes more than two days!
Bottom line, getting products to consumers at a rapid pace is expensive and is being built into consumer goods manufacturers’ cost of business through annual terms, terms for product placement and promotion, and fees related to moving products through the supply chain to the consumer — and a growing list of others. Most manufacturers launching their pure-play e-commerce businesses are seeing their fees go up just as price matching is driving retails down, impacting their margins and retailers’ margins.
To drive profitability, most brands need to go back to the drawing board, factoring in the much higher cost of doing business on e-comm platforms. To start, they need to thoroughly explore the open marketplace to understand where price matching is happening and aggressively implement unapproved seller enforcement strategies.
To maintain margins, brands must revisit product assortment and sell SKUs that are unique to the channel, building multi-unit pack sizes, unique e-comm variants or specialized sizes that allow them to manage online margins separately from offline margins. Brands that are frustrated by price matching as retailers compare their catalog apples to apples must stop selling the same apples everywhere.
Assortment and Selection
Managing product assortment online is complicated. Although an assortment may be successful in physical stores, it may be unprofitable or unsustainable in the e-commerce environment. To solve, successful brands usually complete robust price/packaging analysis which, most often, identifies items that list at a higher retail price point to help balance out the high cost of freight and logistics.
Unfortunately, we have all seen attempts by brands to make profitable changes to their catalog that lead to head-scratching pack sizes and variations, such as these real-life examples:
- Six 32-ounce jars of mayonnaise
- 4,000 medium cotton balls
- 12 large bags of cheddar and horseradish potato chips
Most consumers who buy online do so for convenience, according to a panel survey by eMarketer. But convenience is negated if a shopper isn’t able to find the product she wants or needs, or, worse, finds it in a size that’s not meaningful for the purpose it serves.
The size/price/value balance is essential in building a healthy e-commerce business. Brands must dig deep into data and insights, tying them back to the target shopper and their behaviors, to effectively direct strategic packaging and assortments.
Insights can be garnered from other sellers in the marketplace, too. What is and isn’t working? How are your products consumed or used? How often are they purchased and how do purchasers normally build their basket?
These questions are just the tip of the iceberg. The development of tailored packs, bundles and multipacks will not only create new items on the digital shelf, but build a foundation for healthy and sustainable growth in the e-commerce channel.
In the words of Jeff Bezos, “What’s dangerous is not to evolve.” To grow business and drive brands into the future, product makers need to invest in the new and feel invigorated to explore the unexplored.