The ecommerce industry is booming. This year, worldwide ecommerce sales will exceed $5 trillion for the first time, accounting for more than a fifth of overall retail sales.
But as industry spending grows, so does the competition. Direct-to-consumer brands are entering the market at record speed, advertising costs are rising, and customer expectations are at an all-time high.
Surviving in this new ecommerce landscape will require a unique vision and strategy. That’s why we’re rounding up key insights from thought leaders in ecommerce. From marketing to tech, we’ll outline the top ecommerce challenges of 2023 (and how to overcome them).
1. Direct-to-consumer brands are driving competition
It’s easier than ever to start an ecommerce business. Ecommerce platforms like Shopify and Magento make it relatively simple to launch an ecommerce website. The shift towards SaaS (software as a service) makes innovative software attainable–even for those with limited budgets and experience.
These intuitive solutions have given rise to an influx of direct-to-consumer (DTC) brands. The most successful DTC brands are known for delivering quality at a better price by cutting out the middlemen.
And going direct-to-consumer doesn’t just help these brands cut costs. They’re also able to establish a direct connection with their customers and their data. This puts them in a position to really understand their customers and control the customer journey.
As a result, DTC brands are able to provide high-quality customer experiences. They’re able to listen, engage, and react to the needs of their customers. They are setting a new standard for convenience, speed, and personalization.
In short, the democratization of technology has led to a rise in both new market players and customer expectations. Brands will need to adapt quickly to this new reality.
Key recommendations
Traditional retailers need to reverse-engineer the success of direct-to-consumer brands. In fact, according to Web Smith, founder of the go-to DTC newsletter 2PM, a lot of incumbent companies are becoming better at DTC strategies than those that began as digital natives.
“Whether they've done so by acquisition or by bringing in talent to help them navigate a new ecosystem—a lot of these major retailers are becoming really good about either private label or building brands of their own that resemble the same spirit of the DTC industry,” says Smith.
Smith goes on to outline some of the key characteristics that successful DTC brands share; They are authentic, they prioritize ecommerce branding and aesthetics, and they are good at building an engaged community on social media. They also pursue brand partnerships and tend to want to make a social impact.
In short, you don’t need to be a DTC brand to act like one. There is an opportunity to learn from these DTCs to improve customer experiences and strategies.
2. Digital advertising costs are rising
Digital advertising costs are rising for a number of reasons. As we mentioned above, there are new ecommerce brands entering the market every day. These new DTC players are investing heavily in advertising, almost exclusively on digital channels, which is driving up the cost.
But it’s more than that. The pandemic caused traditional, global retailers to shift their advertising budgets online, too. They are moving away from traditional channels like television and radio in favor of digital channels.
And lastly, to pile on to the situation, Apple’s iOS 14 and 15 are also making it harder to get a decent return on ad spend. Now Apple users have to agree to device tracking in every app. This makes it harder to target and personalize ads, which often means brands need to spend more to be effective.
The cost per click for paid search ads, for example, increased by 15% between the second and third quarters of 2021, which explains why 62% of marketers increased their PPC budgets last year.
Key recommendations
“Now more than ever, eComm brands need to be ready to expand beyond the Google Ads network and diversify their marketing mix. Amazon, for instance, is as much of a search engine as Google–but focused exclusively on products,” says Tory Gray, Founder and Principal SEO Consultant at The Gray Dot Company.
“Adopting alternative channels like TikTok and Pinterest–as well as influencers, brand ambassadors, content marketing, and other creative forms of collaboration/diversification–will be important avenues as brands adapt to ongoing competitive pressures.”
“eComm brands also need to be conscious of post-covid changes in search and consumer behaviors. What was considered ‘up’ in terms of demand and online spending may be ‘back to normal.’”
“And now, there are NEW normals to adjust to, which can impact a lot of things, ranging from advertising and media spend budgeting to benchmarking and reporting. It’s a very dynamic time, to say the least, and brands need to be ready to pivot outside of their comfort zones,” says Gray.
3. More customers are switching brands
According to McKinsey & Company, Over 75% of U.S. consumers have changed shopping behavior and changed to new brands during the COVID-19 pandemic. The top three reasons for shopping for a new brand were value, availability, and convenience.
“For example, you see new direct-to-consumer brands popping up all over the place. Because there’s a very low barrier to establishing yourself as a brand, they’re willing to spend on customer acquisition” explains Jess Huang in a McKinsey & Company interview.
“So it’s not that consumers are necessarily becoming less loyal, it’s just so much easier to access them and so much easier for them to try something new. So brands are really trying to figure out a way to develop and maintain that relationship with the consumer,” says Huang.
Key recommendations
To develop and maintain relationships, brands must own the entire customer experience, from discovery to delivery and beyond. Every "click" along the customer journey must be seamless towards the path to purchase.
According to Forrester, the key is to get conversational. Research shows that conversational, messenger-based experiences now play a critical role in improving customer retention, business efficiency, and customer satisfaction.
“Across the board, customer support leaders are fully aware of the increased pressure to meet and exceed both customer and stakeholder expectations—and decision-makers agree that leveraging and scaling customer conversations is key to rising to the occasion.”
“In fact, nearly seven in 10 (69%) believe the strongest customer relationships are built through personalized, messenger-based support experiences.”
4. Supply chain concerns will continue
Unfortunately, we are not out of the woods yet with supply chain issues. The issues at ports, warehouses, and manufacturing plants will continue into 2022 and beyond.
“Frequent supply chain disruptions aren't going anywhere,” explains Yoni Mazor, Chief Growth Officer & Co-Founder of GETIDA. “The latest is an omicron outbreak in China–sending jitters through global supply chains as manufacturers and shippers deal with local restrictions and lockdowns.”
“The cost of shipping inventory and supplies around the world rose sharply during 2021, although it has recently been cooling off a bit from the surge. But predictions of a further decrease could prove premature, as omicron continues to cause price spikes throughout the global supply chain,” says Mazor.
Key recommendations
The road to overcoming supply chain challenges is a complicated one. However, it will start with understanding the current pain points and suppliers. Jim Yarbrough, Global Intelligence Program Manager at BSI, urges companies to go beyond the normal routine questions when vetting suppliers.
“Basic, surface-level questions like ‘can you produce the goods?’ ‘can you do it for a competitive price?’ ‘can you do it on time?’ – no longer cut it when vetting suppliers, as these should be accompanied by risk-assessment questions,” says Yarbrough.
“It’s crucial to have the right data and intelligence in the initial stages of a new collaboration to make informed decisions about how to allocate resources. Organizations will also need to remember that a supplier relationship is always evolving, and by asking the right fundamental questions, they will be better positioned to see the whole picture and not just a snapshot in time.”
5. Traditional ecommerce technology has reached its limitations
Finally, to adapt to the ecommerce challenges we’ve outlined, brands will need better technology. Many brands are waking up to the fact that their ecommerce tech stacks are not flexible enough to meet customer expectations.
“Consumer demands and needs are different from a decade ago. If you are using an outdated technology architecture to deliver current customer expectations and grow your business, you are working hard and not smart,” says Sree Sreedhararaj, CTO of Sephora.
One of the main problems, according to Sreedhararaj, is that many ecommerce businesses are limited by their current software platforms. Many of these platforms are monolithic, meaning that they are all-in-one solutions where everything is composed in one place.
Some examples of monolithic software platforms for ecommerce include Salesforce, Shopify Plus, Magento, and BigCommerce. While these platforms can be great solutions for SMBs, global retailers–with complex requirements–find that these platforms no longer meet their needs.
Bob Strudwick, former CTO at ASOS explained why the fashion retailer moved away from a monolithic system back in 2017: “We needed a platform that would enable consumers to shop in their own language and to choose payment methods and delivery options appropriate for them.”
“We needed it to be flexible so that we could try new things in the presentation layer, in the way that consumers interact with us. Currently, that means a mobile-first strategy, and in the future, it will mean conversational commerce and augmented reality. It will mean integration with social platforms,” explained Strudwick.
So while small DTC brands are capitalizing on intuitive all-in-one platforms, large, global companies are finding they are no match for their current needs.
Key recommendations
Both Sreedhararaj and Okunde urge ecommerce brands to work on the foundation required to suddenly pivot and change to market needs. They are advocates for composable technology, which enables more digital flexibility.
A composable approach allows for a more tailored technology stack, specific to business and customer needs. It gives ecommerce brands the agility, flexibility, and the ability to keep up with shifting consumer demands.
In fact, Gartner predicts that by the end of 2023, organizations that have adopted composable architecture will outpace the competition by 80% in the speed of new feature implementation.
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