Recent announcements by Google and Amazon show that they continue to innovate, expand and evolve fundamental business models for retail and the overall user experience they deliver.
The experience of buying things online is progressing and becoming more frictionless across a wider range of platforms. It is getting increasingly easier to find and discover products, try (view, review) and buy them within a number of different platforms depending on where we are, what we are doing and what we are buying. Search on your phone, research on your desktop and buy via your Amazon Echo.
Amazon and Google want to be there at the key moments that define each of our individual paths to purchase, moments of inspiration and recollection.
Multi-platform commerce enables both Google and Amazon to capture intent and impulse with our overall path to purchase. Both companies are simultaneously trying to meet our rapidly evolving shopping patterns while also trying to influence the way we shop, when we shop and how we shop.
CHANGING BUSINESS MODELS
Marketplaces and Going Direct are two key business models most impacting the retail landscape at the moment. Success for both retailers and brands depends on if, when and how these models are deployed.
What about the New Marketplaces?
A recent announcement by Google indicates their intent to become an e-commerce marketplace. They announced Google Shopping Actions, which is essentially a universal shopping cart that allows consumers to shop and buy things that they search for. The announcement promises to tie together a number of disparate services offered by Google – Google Search, Google Express and Google Assistant. In their ideal world, consumers could search for things by voice or by text and then add them to a shopping cart and check out whenever and wherever.
Google realized that by just providing search, they were not fully controlling the path to purchase. When it comes to buying, people are using search to figure out where to buy specific things. In the past, Google provided the search, Amazon provided the checkout. But consumers and shoppers are now going directly to Amazon when searching for products. With Google adding the checkout capability, they hope to level the playing field and make themselves a marketplace for other retailers.
Several big retailers were part of the initial announcement including Walmart, Target and Ulta. At the outset, we can think of this as a mall or market where you can see ads for any product or service but only be able to buy directly from these initial retailers. Everything else is a click-through, most times ending up as an Amazon purchase.
Many retailers (Amazon, Walmart) have morphed into hybrids, operating both as retailers and marketplaces. Over the past couple years, specialty retailers (e.g., Crate and Barrel) have started integrating marketplace models to better serve their customers’ buying needs. They are now using careful curation and offering products and services that meet those needs. These retailer-driven marketplaces will join the existing specialty/vertical (e.g. Etsy) and horizontal (e.g., eBay) marketplaces. At this point in time, according to Euromonitor International, Amazon dwarfs other U.S.-based marketplaces.
The appeal of marketplaces are their endless assortment and lower prices. Retailers have predominantly been closed environments in which the products and services are carefully selected and merchandised. In open marketplaces, you run the risk of trading on compelling price points for quality.
With the challenges facing traditional brick and mortar wholesale-based retail, marketplaces will continue to grow as important distribution channels for both retailers and manufacturers. At the same time, Amazon and Google have shown an appetite to rapidly innovate and raise the bar by making their marketplaces and shopping environments more intuitive and immersive. The additional IoT interfaces (smart home devices like voice assistants), capture user intent in more places and contexts within the path to purchase. And, by adding more platforms, they are enabling shoppers to act on their intent by making it easy to save, buy and share both products and services offline and online.
Why Go Direct?
As retailers increasingly adopt marketplace models, brands are leveraging direct-to-consumer approaches via apps or e-commerce sites, pop-up stores, showrooms and selling on social media (Fung global Retail & Technology).
For the most part, going direct provides more control, better margins and most importantly, data on the end consumer. In the past, the department stores and mass retail outlets controlled most of the shopping data for their customers.
Within the “direct” model, there are a number of variants that have emerged depending on whether you need to own or simply rent something and whether you want something on a one-off transactional basis or on-going (monthly, weekly, quarterly). The subscription model has proven quite effective for products you need to replenish on a regular basis: razors, ink, pantry items.
Coresight Research identified five reasons why apparel brands and startups are adopting DTC approaches:
- Better Customer Engagement – full control over the brand touch points
- Higher Operational Efficiency – easier to predict demand when not dependent on wholesalers
- Better Margins – higher gross margins and better return on invested capital
- Speed – ability to respond to consumer data in near real-time (e.g., promotions)
- Alignment – ability to have teams dedicated to better serving customers (e.g., end-consumer, wholesale buyer)
Buying vs Shopping
Buying is only one aspect of shopping. When we buy or purchase something, we have already gone through the process of deciding what we want to buy and where we want to buy. After those decisions have been made, we are left with how we want to pay for it (cash, credit) and how we want to acquire it (pick up, delivery, etc.).
Often, buying comes down to findability whereas shopping is more about discovery. We have different expectations for the buying experience vs our shopping experience.
Eliminating friction is often a desirable aspect when simplifying the buying experience. When shopping however, the points of friction – the detours, meandering and breaks – can make for a pleasant shopping experience.
Searching is often the way we find things. Searching is most often driven by an objective; something must be replaced, ingredients are needed for a recipe, parts are required for a project, or we have a specific occasion or event to fulfill.
Amy Vener, Head of Retail Strategy at Pinterest, recently spoke at ImpactNY (April 2018). She noted that retail is rooted in creating inspiration in people’s lives and stressed that fundamentally, retailers need to inspire.
Inspiration, a key dimension of discovery, is required to be able to sell things consumers who were not planning to buy. Pinterest is investing in visual discovery and have been experimenting with a number of features, e.g., Flashlight (visual search), Shop the Look, Lens, etc.
How we shop is driven by our intent (leisure / entertainment, economic / save money). Do we set out to find something or are we open to discovering something or both? Inspiration is fundamental to this. Before online, stores, weekly ads / inserts and catalogs were primary vehicles for driving inspiration.
The term experiential commerce is used to talk about the experiential aspects of shopping and not necessarily just buying. Many physical retailers have understood the increasing need for their stores to become shopping experiences versus buying experiences.
There have always been experience-based shopping environments, from downtown arcades, to department stores and then malls. Now, traditional brick and mortar stores are stepping up to provide experience-based shopping driven by both consumer demand and a need to diversify and support their multiple brand touch points.
Companies such as B8ta are operating stores within stores for companies using a retail-as-a-service model that delivers experiential retail together with data-driven insights. For example, in Q4 Lowe’s announced their foray into experiential retail. After a successful pilot with B8ta, they expanded this store-within-a-store to 70 stores nationwide. The initial focus is to provide a better and more informative smarthome shopping experience by letting consumers be hands-on with products in a fully immersive space.
Best Buy has capitalized on this store-within-a-store, experiential model. They carved off specific spaces and basically offered them for sale. Before this change, they were suffering from showrooming in which people would go in-store and browse and then buy online via Amazon. As pointed out by Thales Teixeira at HBR, they are capturing value both from “browsing” (due to renting out the space to manufacturers) and from “buying” (in-store and online purchases).
Some of the success and attraction of dollar and discount stores with both millennial and higher income households can be attributed to an experiential element. Finding deals, “hunt experiences” can be a major draw at both Dollar Stores (Dollar General, Family Dollar, etc.) and TJ Maxx.
Experience has always been a part of shopping and commerce as we’ve moved from shopping at homes via catalogs, to shopping along main street to shopping at malls and now online marketplaces and subscription services.
Moving Forward in Retail
Retailers are aggressively optimizing and integrating their commerce across platforms (unified commerce). Removing friction throughout the path to purchase is being prioritized (by both marketplaces and retailers) over the ability to enable consumers to discover and be inspired both online and in-store.
While online marketplaces are providing endless isles
at unbeatable prices, they are often lacking areas where retailers distinguish themselves such as merchandising and customer experience. Two aspects of shopping, the process of findability and discovery, are rapidly being transformed by technology and design.
The act of searching is becoming verticalized, visual and voice-based. And, with mobile and the digitization of offline retail, the act of discovery (and inspiration) is starting to become a personalized, contextual and visual experience.
As we’ve seen with Best Buy, there is a need to embrace and monetize experiential retail associated with browsing and discoverability, both crucial elements of the overall shopping experience. They’ve successfully innovated around the in-store experience. Michelle Grant notes that “For retailers that decide not to embrace the marketplace model, there are three main differentiators to remain relevant: loyalty programs, merchandising and experiences.”
- The department stores and retail formats based on the traditional wholesale distribution of national brands have suffered when compared to both the price-based and premium-based providers. Wholesalers and retailers that do not have their own brands (e.g., offer private label) will increasingly lack differentiation. According to Nielsen’s Total Consumer Report, store brands have grown 3x the rate of national (manufacturer) brands in 2017.
- Brands (manufacturers) must find new business models (access-based versus ownership based, subscription services, etc.) and innovate around touch points and user experiences.
- Omnichannel shopping will increasingly require that offline and online stores work together vs compete. The offline stores to become much more experiential “shopping” environments than traditional buying environments.
- The addition of more interfaces and brand touch points through Mobile/Digital and the Internet of Things (such as voice assistants and smart home devices), are impacting fundamental business models as well as the overall user experience.
- Having just gone through a period of brands and retailers adding online “digital” capabilities, we are also seeing digital- and mobilefirst brands and retailers (Harry’s, Casper, Warby Parker, amongst many others) going offline – using direct mail, building stores, sending printed catalogs.