Behavioural psychology > Cosmetic changes

Behavioural psychology > Cosmetic changes…that’s what a new report on Ecommerce by Qubit claims. Now, the company it has to be said has somewhat of a play here selling behavioural technology. According to the company, “Qubit’s technology prioritizes the biggest opportunities for revenue generation so you can deliver personalization that makes an impact”. Yeah.

Regardless of this, the report itself is well worth your time. *Spoiler Alert*…these were the key findings in order of importance:

  1. Scarcity
  2. Social proof
  3. Abandonment recovery
  4. Product recommendations
This figures; some of the most successful ecommerce stores are classic examples of these e.g. Amazon’s product recommendations. Perhaps but not totally unsurprising is scarcity – this very concept is winning offline (Zara, HM etc). What’s worked for your ecommerce store? Let us know in the comments.

A Primer on Sourcing

What sets a successful production run apart from the rest is a company’s initiative to engage with a manufacturer while maintaining their relationship. If you’ve been looking to start producing your products overseas, it’s about time you tried. What are you waiting for!

Nathan Resnick has written an excellent piece on sourcing goods from China that can be applied to any business (regardless of sourcing country).

Go to A Better Lemonade Stand to read more.

The Extraordinary Effectiveness of SMS Coupons

The-Extraordinary-Effectiveness-of-SMS-Coupons

This is a guest post by Orla Forrest of Neon SMS, an SMS Marketing company (http://www.neonsms.ie/).

Marketing campaigns are measured not by how cool or flashy they seem, but by how much money they recoup for the company and whether the investment in the campaign is made back through customer engagement. Therefore, any decisions regarding the execution of the campaign need to be made carefully. For instance, the success or the failure campaign could boil down to the selection of medium through which it is executed.

That will depend on the specifics of the campaign and its target market, but by and large, SMS proves to be the most successful channel by a distance. Its average peak redemption rate is a staggering 85%, which is more than four times greater than any alternative channel, so SMS is a proven winner.

What makes it such an attractive medium for ecommerce? Its convenience is a major plus point, as customers will get the message on their phone and know exactly how to redeem the coupon. The timeframe from the sending of the coupon to its redemption is far shorter than with other channels, as people will have their phones on them the whole time and redemption is usually as quick as sending a short code or keyword. Email, by contrast, tends to go over people’s heads and be ignored, while paper coupons just seem old-fashioned and can easily be left at home by mistake. Your phone, on the other hand, always makes it out the door with you.

For ecommerce providers devising an SMS coupon campaign, the key is in its simplicity. Make it as easy and quick as possible for customers to redeem the coupon, or else they probably won’t bother. Be sensible about the timing and frequency of delivery, too. Send it during evening downtimes rather than first thing in the morning when people are at their busiest at work. Messaging customers once a week is usually the best balance between consistent engagement and not flooding them with messages to the point of nuisance.

What China Reveals About the Future of Shopping

China has more e-commerce activity than any country in the world today. According to China’s National Bureau of Statistics, Chinese consumers spent $750 billion online in 2016—more than the US and the UK combined. That is a jaw-dropping number, but even more interesting is how differently China’s digital marketplace, technology platforms, and online behaviors have evolved compared with those in Western markets.

Read More at BCG

Chewy Acquired by PetSmart

In a deal announced by the best ecommerce reporter, Jason Del Rey, Chewy.com has been acquired by PetsSmart for over $3 billion. Yes, billion. Similar to the recent Walmart purchase of Jet.com, is this nuts?

Forbes recently wrote about the company, of particular interest:

One pet industry veteran, who says he knows three people who are familiar with Chewy’s finances, doubts the company will reach profitability. He says Chewy’s average sale is $75, its average margin after discounts 30% and its average cost of delivery–which Chewy offers for free on orders of more than $49–around $12. A competitor estimates that Chewy’s customer-acquisition cost could run as high as $200 per first sale, given that the company pays to appear at the top of Google searches for each of the hundreds of brands it carries. “The bottom line is that Chewy is incredibly predatory, and they’re willing to lose money to grow their volume,” says the industry veteran.

So, it’s likely Chewy, like Jet, is unprofitable and will be for some time if not ever. But co-founder Ryan Cohen says he is convinced that e-commerce will eventually take at least 50% of total pet product sales and that Chewy will log more than $5 billion in revenue by 2020.

Potential. That’s the price paid by PetSmart and others for what perhaps the future of ecommerce and retail will look like in a few years.

One Brand to Rule Them All

Six years after purchasing the competing online retailer for $545 million, Amazon is shuttering Quidsi, citing struggles to make the unit profitable. The decision will affect about 263 jobs in New Jersey, where the company is based, according to Bloomberg.

Quidsi is the owner of Diapers.com, Soap.com, Wag.com, BeautyBar.com, Casa.com, and YoYo.com. Its founder, Marc Lore, begrudgingly sold to Amazon amid a pricing war. He went on to found Jet.com and sold that to Walmart, where he now runs e-commerce. Read more from Bloomberg here.

It’s commonly accepted in bricks and mortar retail that to capture as much market share as possible, multi-brand formats are required. Retailers in fashion (Zara and HM) or grocery (Walmart and Tesco) operate under numerous brands whilst utilising a common backend infrastructure in product, warehousing and logistics. So, how about E-commerce?

Well, Amazon’s strategy of operating under the Amazon banner might be a hint at what’s to come. The marginal cost of software has perhaps fooled companies into a broader brand portfolio when in fact, it pays to be singularly focused on your flagship brand. After all, even if you continue to operate multiple brands, applying the 80:20 rule, it’s usually that one flagship brand that makes the vast majority of revenues/profits.

What do you think? Should you put all your resources behind one brand or spread risk and capture market share with multi-brand? Let us know in the comments.

Declining Online Advertising ROI

Anyone in ecommerce – particularly those selling third party brands or running marketplaces – know the important of online advertising. Without Google Adwords or Facebook Ads, many remaining pure-play ecommerce websites would be doomed. And offline counterparts would struggle growing their online business. But ad placement has become extremely automate these days and it’s destroying any kind of ROI from online advertising. So as a online merchant, do you increase online ad spend or focus on ‘organic’ customer acquisition? (or dare I say it, offline advertising!?)

Below are five companies who provide some details about their online advertising budget: Ebay, Amazon, TripAdvisor, Expedia and Priceline. Combined, they have spent over $10 billion on online marketing in FY2015, mainly on digital ads. Their ROI of online advertising is declining: businesses need to spend more for every additional dollar of sale.

Change in advertising and sales, from 2010 to 2015 (source: SEC 10-K filings)

online ad 2

Since 2010, their online ad spending outgrew their online B2C sales. This is a general trend in e-commerce: Google’s revenues are up 156% from 2010 to 2015, while online B2C sales roughly doubled. This is clearly not sustainable.

Now one might say online advertising (and advertising in general) can always be improved. However, the marketing departments of these huge online businesses are already well versed in online ads, true insiders to the market, and even their advertising efficiency is declining. One can only imagine the dreadful returns for outsiders, companies like Verizon or Walmart. Very few companies are transparent in their ad spending, so it’s impossible to really know what’s going on in their marketing departments.

The decline in bang for every ad dollar spent is proof that the expansion of online advertising is being done to the detriment of customers, in ever less productive campaigns.

Automation

The growth of ad exchanges, demand-side platforms, and programmatic buying has removed much of the need of human intervention in the process. User tracking enables advertisers to identify in real-time who is visiting any given website, and to match the visitor with an ad, instead of relying on the website’s content to draw an approximate profile of who might be viewing the webpage.

Automation has brought down the cost of deciding whether it’s worthwhile to place an ad, and user tracking has made websites’ content less relevant. It has become economical to place ads on low-end websites for cheap, because the marginal cost of placing an ad has become so low.
This means that the growth of online advertising has happened on subprime ad space. The industry’s argument is that it’s still worth their customers money, thanks to algorithms that check everything about the user, his browsing history, the cookies on his browser, his hardware data. This is a compelling case, because the prime as space on the Internet (websites such as The Economist, the New York Times) are very expensive. However, customers paying for their ads to be displayed have practically no way of making sure their ads are being displayed to the right people.
Brand

Moreover, the industry has been pushing for more advertising budgets to be allocated to “display ads”, particularly on mobile, where Internet users click on ads much less than on desktops. The huge red flag with this practice is that customers have no means of knowing if their ad dollars are being spent efficiently. With pay-per-click, at least someone is coming to their website. With display ads, they are merely paying for exposure and such vague concepts as “brand awareness”.

It’s not even clear if a visitor actually sees a “display” ad, and the industry is trying to set up a “viewability” standard for this type of ads. Currently, it is assumed that an ad has had a “reasonable chance of having been viewed by the visitor, if at least 50% of its pixels were displayed on the visitor’s browser for at least one continuous second”. This definition alone lets you understand how murky this type of advertising actually is.

“Display” caught up with pay-per-click in 2015, and is projected to reach $32.2 billion in the US in 2016, vs $29.3 billion for PPC. But the bigger question is, has time caught up with online advertising as a whole? And if so, as a merchant, what do we do about it? Is brand the solution and future of marketing period? Share your thoughts in the comments.