The Pricing Blog by Omnia Retail

Our pricing experts cover all the latest trends, Omnia pricing events, customer insights and pricing strategies on our Pricing Blog.

14.02.2024

How to use markdowns to manage stock throughout the Product Life Cycle

Any e-commerce seller knows how tricky markdowns can be. You don’t want to markdown stock too early when it could be selling at a higher price, but you also don’t want to markdown too late and end up with old stock you can’t sell. There’s no one-size-fits-all solution for this challenge, but aligning markdowns with your life cycle strategy is a great way to maximise sales and minimise leftover inventory, all without sacrificing margin. Here’s Omnia’s recommendation for how to do it. An overview of life cycle strategy The Product Life Cycle (PLC) refers to the stages that a product typically goes through, from its initial introduction to the consumer market to its eventual decline. These stages help e-commerce businesses understand how to manage a product's marketing, pricing and inventory strategies over this cycle. The PLC is usually broken down into four stages: 1) Introduction Characteristics: This stage begins when a new product is introduced to the market. Marketing Focus: The primary focus is on creating awareness and generating initial interest in the product. Marketing efforts may include online advertising, social media campaigns and influencer marketing. Pricing: Prices are often set competitively to attract early adopters and build a customer base. Inventory: Inventory levels are usually low to test the market's response and prevent overstocking. 2) Growth Characteristics: In this stage, the product gains popularity, and sales begin to increase rapidly. Marketing Focus: The emphasis shifts to expanding market share and customer acquisition. Marketing efforts may involve scaling advertising campaigns and targeting a broader audience. Pricing: Prices may remain stable or even increase if demand is strong. Inventory: Inventory levels may need to be increased to meet growing demand, but careful management is essential to avoid overstocking. 3) Maturity Characteristics: Sales growth stabilises, and the product reaches a saturation point in the market. Marketing Focus: Marketing efforts aim to maintain market share, differentiate the product from competitors and retain loyal customers; for example, product updates, loyalty programs and customer engagement. Pricing: Prices may become more competitive as the market matures and more alternatives become available. Inventory: Inventory management becomes critical to prevent overstocking. 4) Decline Characteristics: Sales start to decline, often due to market saturation, changing customer preferences or the introduction of newer products. Marketing Focus: The focus shifts to clearing out inventory, possibly through stock markdowns, promotions or bundle deals. Discontinued products may be phased out. Pricing: Prices are typically reduced to encourage remaining inventory to sell. Inventory: Careful inventory management is essential to avoid excessive carrying costs for unsold products. It's important to note that not all products follow this linear path through the entire product life cycle. Some products may skip certain stages, experience shorter or longer cycles or even go through cycles repeatedly due to updates and rebranding. Think of a product like Coca-Cola, which has been around since 1886. The product has gone through many iterations and experienced a close call with the decline stage and product death when the company rebranded and changed the formula to “New Coke” in 1985 – this only lasted 110 days before reverting to the original formula. As professor Hermann Simon points out: '' And the real art of pricing is not so much in determining whether a price is high or low but to differentiate pricing across customers across value across space and time. That will be a big challenge for software and for everybody involved in this area.'' Effective product life cycle management involves continuously monitoring market dynamics, being agile in responding to changing customer needs and competitive pressures and adjusting strategies accordingly – for instance, by aligning markdown strategy with where a product is in the PLC. Folding stock markdowns into the PLC Markdown: A reduction in the original selling price of a product to stimulate sales, optimise inventory levels, attract customers or respond to competitive pressures. Markdowns typically involve lowering prices temporarily, either through percentage discounts, fixed amount reductions, or promotional offers. Markup: An increase in the price of a product above its cost in order to cover the cost of goods sold (COGS), expenses, overhead and to generate higher profit. This is typically expressed as a percentage or a fixed amount. Many retailers and brands think of markdowns as a loss centre that can’t be avoided. But while poor planning and product failures can certainly force markdowns, they can also be planned for in advance and used in combination with PLC strategy to manage assortment levels through their lifetime. The goal of this strategy has two parts: To ensure the site does not sell out of specific products too early and to avoid being left with a lot of overstock. This strategy is relevant for all e-commerce sellers who hold inventory, but it’s especially important for D2C customers. What do PLC markdowns look like in practice? Here’s a hypothetical scenario to illustrate this idea. The Fashion Store has a sweater for the spring collection, which they will stop selling in August. There are a few ways they can combine markdowns with the PLC strategy here: Tag the product based on its life cycle stage (introduction, growth, maturity, decline or simply new, regular, old) and markdown based on this tag Connect the age of the item in days to the life cycle stage and markdown based on this age Use the stock level as an additional variable next to PLC in a markdown strategy Add Sell Through Rate as a variable to steer price increases Add average margin calculations to steer price decreases; for example, when pricing competitively Let’s say The Fashion Store defines its markdown strategies based on the life cycle stage. When the product is new and has a lot of stock left, they can keep the following position 3 in the market. If it is new and low on stock, they can continue pricing at the recommended retail price (RRP), as it’s better to price less competitively to achieve more margin and avoid selling out. As the product hits the next life cycles, The Fashion Store can slowly decrease the price based on current stock levels of the sweater. In the last stage (decline), a competitive price (match, undercut or follow cheapest market price) should be set – particularly if the product still has high stock at the end of its life cycle. Using additional variables in the strategy like margin calculations, Sell Through Rate and stock gives them the ability to dynamically switch between higher and lower prices, between highly competitive and minor discounted prices. Results: This strategy helps The Fashion Store avoid having high stock leftover by the end of the product’s lifetime. Because of this, they also can avoid a situation where they must significantly decrease the price all at once, by perhaps 50 – 70%, and instead have marginal, healthier decreases over time. Strategic markdowns can actually increase profitability Research from US retail think tank Coresight and inventory optimisation firm Celect found that retailers were missing out on significant revenues – 12% of total sales – due to markdowns. The “senior retail decision makers” who were surveyed blamed more than half (53%) of those unplanned markdowns on “inventory misjudgments.” But when sellers have proper inventory management and plan ahead to use markdowns as part of the PLC, it positively impacts sales and profitability. Let’s go back to The Fashion Store example and consider hypothetical prices: If the sweater we discussed has a cost of goods sold (COGS) of €25 and a retail price of €50, and the company has ten of them, then they would need to sell at least five at full price to break even. However, if The Fashion Store was able to choose the right level of markdown and sell all ten at the lower price, then they would achieve three objectives: Reach break even point Increase profits with each item sold Avoid unsold stock In this example, the right markdown price would be €40, as this would lead to a profit of €110. How to implement markdowns using Omnia This example is just one of the countless ways markdowns can be used to optimise stock at each stage of the PLC. But it doesn’t stop there – along with stock levels, a number of other data points can be used in Omnia to determine pricing throughout a product’s life cycle: Below are some use case examples of how Omnia customers have combined the PLC with metrics like time since launch, stock levels, seasonality and promotional dates to set pricing rules. To learn more about how you can incorporate markdowns as a part of your pricing strategy, click here.

Pricing Strategies, Pricing, E-Commerce

14.02.2024

Omnichannel dynamic pricing: Competition, comparison and consumer behaviour

Think back to the last expensive product you purchased. Maybe it was a wearable like the newest Apple Watch, a pair of running shoes, or a new TV. How did you go about making your purchase? Did you just buy the item in one click? Did you see it in-store and immediately hand over your debit card? Or did you first research online via social media and comparison sites, then experience the physical product in-store, then research prices online to decide where to buy? As consumer behaviour evolves and the younger, more tech-savvy generation gains more experience in maximising their value for money, brands and retailers must evolve to meet these shoppers where they are and win the sale. These changes, amidst a wider shift toward omnichannel selling, call for a more thoughtful approach to the interaction and synchronisation of online and offline pricing. Businesses are spending more time and resources on building omnichannel pricing strategies that can succeed – and be implemented – across all points of sale. In this article, Omnia explores the evolution in consumer behaviour and price comparison and how omnichannel brands and retailers can use dynamic pricing to bridge the gap. How does a consumer make their decision to buy? Today’s consumer is investing more time and effort in the research stage before making a decision about if they should buy, and if so, when they should buy and from whom. 44% of consumers say they are spending more time planning their shopping trips to brick-and-mortar stores, while about half say they’re spending less time just browsing in physical stores. The retail analyst, Natalie Berg explains: "There's just so many different ways to shop today. And as shoppers, we don't think in channels. We just want to shop and we want a seamless experience across the many touchpoints that exist today. But we're channel agnostic and we're device agnostic. Retailers have had to work really hard behind the scenes to make this a seamless experience." Google Trends has found some compelling insights on these omnichannel consumer behaviours since 2023: About one-third of consumers are spending more time on their decision-making, considering more brands, stores and retailers in the process 65% of consumers are more likely to research a product online, even if they plan to buy in the store And vice versa: 59% are more likely to go to stores to physically see or touch a product, even if they intend to buy online The trend is even stronger around the holidays: Consumers used online search before 96% of in-store holiday shopping trip It’s clear that online and offline are colliding, and as the data above shows, the buying journey can take many paths. Some consumers might research online first – watching unboxing videos from their favourite influencers, searching the product on social media or comparison sites – then go in-store to experience the physical product. Even after all that, they might conduct more price research online to decide whether to buy online or in-store, or whether to buy from a different seller altogether. Others might browse in-store first to get a feel for what they like, then research reviews, prices and other factors online before deciding if or where to buy. There are countless paths to purchase, and shopping behaviour is influenced by a number of factors: Price: The higher the investment, the more likely it is that the consumer will invest more effort and take the time to research Complexity: If a product is more complex, it is more challenging to get a full picture. A technical description does not always reflect the experience; for example, do you know offhand how loud 48 dB will sound in a pair of headphones? Experience: The five senses contribute to emotions, which can lead to consumers making a purchase. Experiencing a product and all its sensory information first hand can be a significant factor in the shopping journey. Returns: How easy is it to return a product? For example, consumers might be more likely to research items that are fragile or those cannot be returned due to hygiene reasons, versus something like a sweater that can easily be sent back. Brand: If the experience and association with the brand is exceptional – for example, the in-store service – a number of shopping behaviours could be impacted. The consumer might be more likely to want to shop in person and to go through with the purchase, and they are likely to be willing to pay a bit more. Competing in the price comparison stage Once a decision is made to purchase the product, the modern consumer is savvy enough to compare prices online. This means sellers across channels are competing on price, and if you’re an omnichannel brand or retailer, you’re essentially competing with everyone. In these highly competitive environments, dynamic pricing is an effective strategy to capture more sales and take control of your assortment. Omnichannel brands and retailers benefit from dynamic pricing in a number of ways, including: Competitive pricing advantage: Dynamic pricing adjusts prices in real time based on market conditions, competitor pricing and predetermined pricing rules. This ensures that prices remain attractive to consumers compared to other options in the market, which is particularly important when a shopper starts researching prices online. Maximising revenue: By dynamically adjusting prices at a higher frequency, retailers can set prices that reflect current demand, customer behaviour and other market variables, boosting revenue over time. Inventory management: By adjusting prices based on inventory levels, retailers can promote products that need to be cleared quickly or maximise profits on high-demand items. This is especially helpful when managing stock for both brick-and-mortar stores and online sales. Seasonal and promotional pricing: As mentioned previously, merging online research with brick-and-mortar shopping is even more relevant during holiday events, with consumers using online search before 96% of in-store holiday shopping trips. Dynamic pricing gives omnichannel retailers and brands the flexibility to respond to seasonal trends, demand fluctuations and promotional events. Real-time market changes: External factors, such as changes in the economy, weather conditions or geopolitical events, can impact consumer behaviour and market dynamics; changes that retailers can more quickly adapt to using dynamic pricing. Agility and flexibility: As online and offline become more intertwined, omnichannel sellers need to adapt and respond quickly to new information and competitor pricing updates. Bridging the pricing gap in omnichannel Omnichannel brands without a cohesive dynamic pricing strategy can face unnecessary losses and fractured pricing between channels. The challenge is this: How do you match your offline store to your online store while still competing with your key competitors? Consistency across online and offline channels is crucial. Omnichannel sellers have to find ways to synchronise both pricing strategies in order to provide a seamless experience for consumers and avoid losing sales or loyalty if a consumer or price comparison site spots a discrepancy. This is a common challenge. Many retailers struggle to align pricing: Their online prices change frequently, while their offline products are far more static. It’s easy to change an online price any time, but the retailer doesn’t want to change in-store prices every time if they are simply printed on signs, tags or stickers. There are a few ways to mitigate this challenge with the help of Omnia Retail dynamic pricing software. Electronic shelf labels (ESLs) This is the easiest way to match online and offline pricing. It requires more financial investment and IT infrastructure, but saves on costs by decreasing the labour and time needed to update prices. Image source If the cost of purchasing ESLs is too high, retailers can rent them (which tends to be far cheaper than buying), either for the whole assortment or just high sellers. One thing to consider with ESLs is timing. You don’t want a price to change on an ESL if a customer is standing right next to it. Imagine you’re shopping in a store, and the price on a product suddenly jumps from €100 to €110. The product hasn’t changed in the last five seconds, so it’s unlikely you’ll think it’s fair that the price has suddenly increased by 10%. To mitigate this, retailers might choose specific hours to change prices, either when the store is closed or during slower hours for foot traffic. Other retailers offer a discount if a customer comes to them after having found a cheaper price online compared to in-store. Fixed price adjustment days Another option is to decide on fixed days when you will align online and offline pricing, and adjust your repricing frequency to match. Compared to the ESL option, this is suboptimal, but it will allow you to synchronise prices at a level that does not exceed your shop floor staff capacity. This option will also decrease the chance of consumers walking out after checking online and discovering that either 1) your prices don’t match your own website or 2) your competition sells it for far cheaper. While providing great in-store service and experience adds value that consumers may be willing to pay more for, they are still likely to leave if the price difference is too large. Gaining clarity first on the following questions will help retailers to set this process up: Which key assortments are your revenue/margin drivers? How can you segment the online competition toward this assortment? Is there a pattern of which days the segmented competition is repricing their products? Answering these questions will tell you which assortments to prioritise, as well as which days your segmented competition is adjusting prices so you can do the same. Dynamic pricing made simpler with Omnia As consumers become more research savvy and the lines between online and offline shopping continue to blur, retailers and brands – especially those operating in an omnichannel environment – will need to adjust pricing strategies to win over the competition. If shoppers are researching on multiple channels, then those retailers and brands must be consistent and competitive across all points of sale. Omnia’s dynamic pricing software enables retailers and brands to bridge the pricing gap in omnichannel. Our customers who utilise ESLs use Omnia’s dynamic pricing software in a number of ways to make this strategy more effective: Understanding which products are more competitive in the market and which are not. For brick-and-mortar sales, only the competitive product prices need to be changed more frequently. Setting up the frequency at which Omnia sends data for their brick-and-mortar products, according to their ESL pricing strategies. This can be done in three different formats: CSV, XML and JSON. Omnia's output can be placed automatically to an (s)ftp location from where your ESL system can pick up the latest pricing data. Using Omnia’s filtering capabilities to decide which parts of the assortments you want to include in the reports used to change the products' prices on the ESL. This means that you can make a differentiation between the fixed-price products and the products that you want to change dynamically. Aligning online and offline pricing (where relevant). Omnia data enables customers to remove discrepancies. For example, one Omni customer used to do their offline repricing manually – a tedious and time-consuming process. Now, they use ESL software connected to the Omnia output, making it faster, easier and more accurate.

Pricing Strategies, Omnichannel Retail, Consumer Behaviour

21.12.2023

Product bundling: The psychology for consumers and benefits for sellers

Brands and retailers have long used the strategy of bundling, combining two or more products into a separate product bundle, to boost sales and profits. Whether it’s brands choosing to bundle products, such as socks and underwear for men; or food retailers bundling vegetable staples like potatoes, tomatoes and onions; this age-old tactic has often proved successful for sellers while also benefiting the end consumer. In this blog post, Omnia delves into the intricacies of bundling, exploring its benefits for sellers, impact on consumer spending and the psychology behind its effectiveness. Why do brands and retailers bundle products? Bundling two or more products together can have a number of benefits for e-commerce sellers, helping to capture the attention of both the casual browser and the ready-to-buy shopper. 1) Increase sales and AOV Selling a bundle to a customer rather than a single product is an instant boost to both sales and average order value, or AOV. If a brand uses a bundle to cross-sell related or complementary products, that will increase the total value of the sale, so long as the bundle was priced in a beneficial way. Example: A sporting goods retailer typically sells one rugby jersey at a price of €75, but bundles that rugby jersey with a t-shirt and a hoodie from the same team for €140, increasing the value of each individual sale and pulling up the AOV. 2) Optimise inventory management No merchant wants to deal with deadstock and unnecessary inventory costs, and it’s estimated that 20 to 30 percent of inventory is deadstock for the average e-commerce seller. Bundling allows brands and retailers to efficiently move excess stock by combining it with other items, which minimises losses associated with unsold individual products while also creating perceived value for the customer. Example: A D2C makeup brand might combine a slower-selling makeup brush with a best-selling makeup palette, ensuring the products will move quickly to free up the warehouse and reduce waste. 3) Decrease marketing and shipping costs Selling items in a bundle means you can promote a set of products as one product, paring down marketing costs, and also ship them as a bundle, which leads to less packaging and overall shipping costs. Example: Rather than selling and shipping every accessory for a phone separately as the consumer realises they want it, promoting all accessories, such as phone cases, headphones or extra chargers in a bundle at the time of purchase means they can be shipped in one box. 4) Take advantage of seasonal peaks Product bundling can also be used to capitalise on peak shopping times for certain items, such as during the holidays or over the Summer. Example: Bundling outdoor toys and games, such as water guns, pool floats or inflatable pools, as the summer approaches allows a retailer to capitalise on the fact that families will typically spend more time outdoors and in their gardens and pools in warmer weather. Discover how dynamic product bundles can optimise your pricing strategy and increase your revenue. Schedule a demo Consumer psychology: Why is bundling effective? Although bundling can seem like a simple concept – combining multiple products into one set, perhaps at a slight discount – there are more subtle factors at play that influence consumers on a psychological level, leading to increased spending and the other benefits for the seller listed previously. First, bundling can enhance the perceived value of the bundled products to the customer: When the shopper sees two or more items bundled at a discounted price, their perception tends to be that the total value of the bundle is higher than the sum of the individual items’ values. This point is amplified even more when a seller makes it clear how much money is being saved by buying the bundle rather than each product separately, as this example from beauty retailer LOOKFANTASTIC shows: “Worth over £150, yours for just £50!” The perceived quality can also be adjusted up or down depending on the actual items included in the bundle. A study titled “The effects of price bundling on consumer evaluations of product offerings'' from researchers at the University of Michigan Business School, Johannes Gutenberg Universität and Universität Mannheim discussed the phenomena of averaging, anchoring and adjusting: Averaging – Consumers look at a bundle of products and their “ratings” of each component are averaged or balanced into an overall evaluation (Gaeth et al., 1991) Anchoring and adjusting – Buyers tend to anchor on the most important product in the bundle, then adjust their evaluation by taking the less important items into account (Yadav, 1994) Athletic Greens, a D2C nutrition and supplement brand, uses these tools in their bundles. For anyone who signs up to subscribe for monthly deliveries of their AG1 powder, rather than making a one-time purchase, they receive as part of the bundle a “starter kit” with a premium jar and branded shaker bottle, as well as a discount on the monthly price. The jar and shaker likely don’t cost the company much even if they are labelled as premium, especially as a one-time bonus, but it gives a boost to the perceived quality of the whole offering. It’s worth noting that, especially when selling high-value items, these phenomena can actually bring down the perceived quality of a product, so sellers need to be careful which items they choose to bundle. This is referred to as the “presenter’s paradox”, where adding more items that are perceived as lower quality will bring down the perceived average value and therefore overall value of the bundle. Source: CXL.com A commonly used example of the presenter’s paradox is with an expensive bottle of wine. Let’s say you buy two of these $5000 bottles to give to two different work clients. To one, you give the bottle by itself, while you give the other the bottle in addition to a set of plastic cups. Although the actual monetary value of the second gift is higher, the perceived quality is lower. Bundling can also impact consumer behaviour by lessening the number of choices a shopper has to make. The paradox of choice, sometimes called choice overload, suggests that having a large number of options requires more effort from the decision-maker, and can actually leave us feeling unsatisfied with our choice. The phenomenon of FOMO (fear of missing out) is also at play here, as consumers might have a fear that there may have been a better option than the product they chose. When a bundle is offered to the consumer, it simplifies the decision-making process down to choosing whether the bundle meets their needs, rather than evaluating each individual product. This is more convenient and decreases the cognitive effort required to make a purchase. Amazon, as the biggest marketplace in the world, is notorious for having seemingly endless choices, with a catalogue currently consisting of more than twelve million products. As one way to combat the paradox of choice, Amazon includes a section on most product pages that either recommends other products to pair with the item, such as “Buy it with”, or suggests items based on the behaviour of other shoppers like “Frequently bought with”. The interesting thing about this Amazon example is that the bundle doesn’t have to include a discount. In the screenshot below, you can see that Amazon suggests another hat and a scarf to pair with the Tommy Hilfiger hat. None of the items are offered at a discount, but the cognitive effort required is lower if the buyer simply wants to allow Amazon, or the behaviour of past shoppers, to make the decision for them. Is bundling worth it? Bundling is a common promotional tactic for e-commerce businesses, and tends to be effective because it’s usually built around price, the most important “P” in the marketing mix. There are many use cases where bundling is worthwhile for sellers: When you want to group more products together to boost overall sales and AOV When you want to move inventory quickly, whether to clear out deadstock or just make room for new products When you want to offer a great value to customers, to reward and encourage loyalty When you want to decrease the potential for choice overload and help your customers easily find and purchase complementary products However, as with any promotional tactic, there are downsides to consider. When done incorrectly, bundling can weaken a brand’s reputation, or pull down the perceived quality of a high-value product, as with the presenter’s paradox. It often involves discounting, which cuts into margins. If customers only buy bundles and never individual products, it can have a long-term impact on profits and will require businesses to be very strategic about how they price. Ultimately, the success of bundling comes down to each individual e-commerce seller. The question you must answer is this: Can you build a bundling strategy that delivers value to your business and your customers without hurting your image or long-term profits? If so, bundling can be a great way to move inventory quickly, boost sales and AOV and deliver more value to customers. Read about more interesting blogposts here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What our the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Pricing Strategies, eCommerce, Consumer Research

21.11.2023

How to optimise product listings to win the marketplace Buy Box

Marketplaces are one of the best channels for brands and vendors to create a successful e-commerce business. However, considering how many vendors are listed on the many marketplaces, not everyone can be highly successful at making sales. How do some find success and others don’t? A lot of it comes down to the quality of a vendor’s product listings, and whether or not they win the ultra-important Buy Box. In this article, Omnia breaks down the unique aspects of product listings on marketplaces and offers some best practices to win the Buy Box. Why product listings on marketplaces are a special case E-commerce businesses should be treating their marketplace product listings differently than listings on D2C or retail channels. Because there are so many sellers competing for sales on marketplaces – for example, Amazon has 9.7 million sellers globally, with about 2 million active sellers – the listings on these sites must be optimised if the vendor wants to stand a chance against other sellers. The fiercest competition is around who wins the Buy Box, where one listing will be shown with the “Add to Basket” or “Buy Now” button, while offers from other sellers are shown in a secondary position. The example below shows the Buy Box for a Cerave skincare product on Amazon. In a majority of cases, the vendor who wins the Buy Box will win the sale. On Amazon, 82% of sales go through the Buy Box, and the figure is even higher for purchases made on mobile. Some vendors, such as Zalando, claim not to have a Buy Box, likely to avoid consumers seeing their platform as one where prices can change within minutes due to high competition. “We do not want to enable a price war. Therefore, only one vendor offers a product. If more vendors offer the same product, convenience decides who is listed on the platform. This is calculated by an algorithm on the basis of factors such as shipment speed, trustworthiness and return speed. There is no pressure on price to win any kind of Buy Box.” Zalando’s VP of Direct to Consumer Carsten Keller Regardless of how a specific marketplace chooses to word their offerings, for the sake of simplicity, we will refer to the existence of a Buy Box if there is competition among third-party sellers and the marketplace must make decisions about which offer is shown to the end consumer. Best practices to optimise product listings and win the Buy Box In order to even be in the running to win the Buy Box, sellers must have optimised product listings that check all the key boxes. Let’s first run through some best practices for improving product listings for marketplaces in general, then go over some tips for specific marketplaces. General product listing best practices Optimise product titles: Marketplaces may have slightly varied requirements for certain aspects of product titles like character count, but a few things are consistent across sites. Product titles should include relevant keywords and provide the necessary product information without sounding like spam. Keep them concise and descriptive, covering attributes like brand, make, model, size, material or colour (where relevant). Also consider including nouns that customers often search for: “Adidas Stan Smith sneakers” versus “Adidas Stan Smith”. Use high-quality, eye-catching visuals: Each product listing should include high-resolution images from multiple angles to showcase your product. Clear, well-lit photos help build trust and provide customers with a better understanding of what they're purchasing. Videos showcasing the product are an added bonus here. Write detailed product descriptions: Write informative and engaging product descriptions. Highlight key features, benefits and any unique selling points to help potential buyers make informed decisions. Make consistent updates: Product listings shouldn’t be stagnant; continue to update the information and visuals to keep them fresh and ensure they are optimised for current trends. Analyse what’s working and what’s not so you can make changes to improve performance. You’ll also need to keep an eye on marketplace rules; if they change which types of media are allowed, for example, you’ll want to optimise for that. Localise content: If the marketplace services multiple countries or regions with different languages, make sure content is localised. That means listings are translated into the necessary languages, but also that the correct currencies are displayed and the audience you’re speaking to is reflected in the copy. Automate where possible: Especially when selling a high volume of products, it’s important to auto-populate listings when possible, whether for language translation, promotion, or something else. Manual updates will be much trickier as the volume grows, and if a product listing ends up being outdated, it can hurt your chances at the Buy Box. Use dynamic pricing: Price is one of the major factors that decides if you win the buy box. In some marketplaces, like Amazon, you will have to be priced within the top sellers to stand a chance of winning. For other marketplaces, price is a little less dominant, but you still need to be within a certain range of your competitors. As competitor prices are continuously changing, having the ability to dynamically reprice will ensure you are always still within the range. Dynamic pricing software like Omnia can help with this. There are other factors that have less to do with product listings, but are still known to impact who is shown in the Buy Box. These include: Shipping speed: Offering fast shipping will help in two ways: 1) it’s rewarded by the marketplace itself, and 2) it increases likelihood of positive customer reviews, which also boosts Buy Box prospects. Stock availability: If a seller runs out of inventory, the Buy Box will go to someone else. These levels also need to be consistent. Customer service: Both the marketplace and the customers will take note of sellers that respond quickly to customer questions and issues. Marketplace-specific best practices for product listings Whether they call it a Buy Box or not, marketplaces with third-party vendors selling the same products will have an algorithm to decide which offer is shown. Some marketplaces are clear about what it takes to win their Buy Box, but for most marketplaces, the “secret sauce” of the algorithm is unconfirmed. Many in the industry have studied the Buy Box on different sites to understand what makes a winning product listing. Amazon There is unfortunately no easy shortcut to win the Buy Box on Amazon. However, there are a number of factors that have been shown to impact which offer is shown, and BigCommerce even put together a cheat sheet ranking metrics by their impact on the Buy Box: eBay eBay has its own search engine called Cassini, which prioritises showing products with the highest conversion rates. To convert more searches and win higher placement, keyword choice is crucial, and sellers can use Cassini’s internal keyword research tool to find the right primary and secondary keywords. These should be used in every field in the product listing for best results. Bol.com Bol refers to their Buy Box as the “Buying Block”. Industry experts at Omnia have found that the battle for the Buying Block is won by the seller that has the best offer in terms of price, delivery time, inventory levels and customer service. Service and ratings are used more as a threshold, meaning that if a seller reaches a certain level, their other factors like price determine the Buying Block win. Zalando Omnia ran a pricing analysis on Zalando before, during and after Black Friday 2022. The results indicated that, historically, price was likely not the main driver for winning the Zalando Buy Box; however, during the Black Friday period, pricing became a top factor, sparking lower prices and tougher competition. With Omnia’s data, a price-change ratio of 0% means the price never changes. A ratio of 100% means the price always changed at every 15-minute observation time stamp. A ratio of 1.5% would indicate a price change once per day. As you can see in the chart above, the price-change ratio on Zalando grew to an average of 7% during the Black Friday period, indicating that the price would change once every five hours. Outside of competition scenarios like Black Friday, Omnia found two other factors that influenced the Buy Box: Shipping speed: Omnia data suggests that to win the Buy Box, a seller must have a maximum delivery period of four days; but this goes even lower if there is more vendor competition for a specific product. Stock availability: As the chart below indicates, the Buy Box changes at a rate of 2.1% when all products are available. When products are unavailable for up to 24 hours, however, the rate doubles to 4.09%, indicating the importance of stock availability as a seller on Zalando. Conclusion While much of the industry conversation around Buy Boxes often focuses on price, Omnia data and the other studies quoted above show that product listings and other convenience factors like stock availability, delivery times and even customer response times can also impact who wins the Buy Box. Especially during times of high competition like Black Friday, or when selling products with many competing vendors, each marketplace seller must craft high-quality and compelling product listings, and find the right competitive pricing strategy to set their offers apart.

Retail Trends & Research, Amazon, eCommerce

09.11.2023

E-commerce Shipping: A Guide on Costs, Speed and Environmental Impact

There are pros and cons to every method of shipping, whether international or local, and there’s also no “right” answer. Every e-commerce business is different, and the right shipping strategy depends on factors like budget, product assortment, who your customers are, where the business is based geographically and more. Rather than giving tips for which shipping methods are best or which ones a business should use, we’re breaking down some of the most common methods in three key areas: cost, speed and environmental impact. Cost: How much does it cost the seller to ship the product to the buyer? Costs to consider include carrier costs like shipping labels, packaging, fulfilment, insurance and overhead. Speed: How much time does the shipping method take? How long between the customer making the order and receiving their package? Environmental impact: What effect does the speed and method of shipping have on the environment, from carbon emissions to water pollution and more? Delivery methods for e-commerce: Cost, speed and environmental impact Same-day delivery Same-day delivery is becoming more popular and is the fastest-growing segment in the last-mile shipping environment, growing at 36% annually. In Europe, same-day delivery accounts for about 5% of total deliveries. E-commerce giants with large-scale supply chains tend to cover this especially well; Amazon already delivers to nearly three in four customers within 24 hours. The same-day delivery market is forecasted to reach $26.4 billion (USD) by 2027. The term “same-day delivery” can mean different things depending on the seller; in some cases, orders placed by a certain time will arrive by the end of the same calendar day, while others may just mean delivery within 24 hours. Typically, for same-day delivery to work, sellers need to have distance limits or cut-off times for when the order must be placed by to qualify. It’s also worth noting that same-day delivery is not always possible; it’s more likely to see it as an option in large cities or in more populated areas of Europe, for example, compared to the US, Canada or rural regions in other countries. The cost of same-day delivery, both monetarily and to the environment, depends on the carrier and the region. With traditional carriers such as FedEx, UPS or DHL, same-day delivery can be quite expensive and have a higher environmental cost. As Earth.org points out, “when dealing with a one- or two-day shipping window, [carriers] are often forced to send out trucks that are filled at half their capacity, generating more traffic and thus emissions.” However, especially in larger cities across the globe, there are many carbon-neutral alternatives available. For example, there are newer carriers like Budbee from Stockholm whose offer from the start was same-day delivery, with electric vans that are cheaper and carbon-neutral. There are also bike couriers in some markets, like Stuart in London or Cycloon in the Netherlands, that offer same-day delivery directly from stores. In these cases, same-day delivery is fast, carbon-neutral and not necessarily more expensive than slower shipping options. Overnight, two-day and expedited shipping The environmental impact of overnight and other speedy shipping methods like two-day and expedited is highly dependent on the area. Within regions like France and Germany, for example, overnight or two-day shipping may be the cheapest option at many carriers, and the environmental impact is mostly based on context, such as the type of parcel, location and other factors. However, overnight or expedited shipping in regions like North America, Australia and APAC can be expensive, especially when transported by air versus sea or ground shipping. A study performed in China on the carbon footprint of shipping options found that emissions from air shipping were 65 times higher than sea shipping. (Note that sea shipping is simply not an option in certain regions like North America and Australia.) Higher speed can also mean higher costs, in some cases. Air cargo typically costs more because of the need for faster delivery times and high fuel costs. Ocean freight, however, uses larger vessels that can transport more goods for longer distances, which is why it tends to be 12 to 16 times cheaper than air freight. In general, retailers who want to use overnight and speedy shipping options without high cost or environmental impact certainly can do so, as long as they find the right carriers to partner with and take into consideration 1) the region they are operating from and 2) the regions of their shoppers. Two- to three-day shipping Two- or three-day shipping, sometimes called priority shipping, is one of the more common types in e-commerce. It is slower than overnight, same-day and expedited options, but can still get items to customers faster than standard economy shipping in some markets. In European countries, the cultural differences between countries and delivery networks create discrepancies in what is considered “priority shipping”. For example, in urban areas like Stockholm or Oslo, it’s considered normal to offer overnight delivery, while in other parts of Sweden and Norway, shipping times are far longer due to the large distances – hence the offering of priority shipping options in these specific regions. In general, consumers are more likely to complete a purchase when it’s delivered faster than usual: In North America, up to 85% of shoppers are more likely to buy when two-day delivery is offered. The cost of two-day shipping is highly dependent on how far the item is being transported. For shorter distances, ground shipping can be used; this is why sellers with fulfilment centres or warehouses in different regions are more likely to be able to use this option. For longer distances, air cargo is used to guarantee the two-day turnaround; however, this has a higher cost and a larger environmental impact. In some cases, “fast delivery” – which encompasses all shipping options where orders are delivered within one to three days – will require some air transportation, meaning sellers can’t take advantage of full truck load capacities. This results in the need to dispatch more frequently and increases the total cost of transportation and environmental impact. A simulation model run by a team of MIT researchers in Mexico, for example, showed that “fast shipping produces significantly higher CO2 emissions since it imposes a challenge for cargo consolidation.” Their findings indicated that fast shipping increases both total CO2 emissions and costs by up to 15% and 68%, respectively. In Europe and other large metropolitan areas around the world, fast delivery does not necessarily cost more or require air transportation, decreasing the environmental cost. Standard shipping This may be called economy, regular, basic or ground shipping depending on the country or region, but it’s simply the cheapest shipping option available from the courier. Items sent by standard shipping typically use ground transportation and take longer to arrive. Here are some examples of how long standard shipping takes for domestic orders in Europe, the US and UK: Netherlands: 1-2 working days Germany: 1-2 working days France: 1-2 working days UK: 2-5 working days United States: 3-5 working days Costs to use standard shipping vary by country and courier. As for the environment, the typical saying is that “slower is greener.” According to research by Josue Velazquez, a research Scientist at the MIT Center for Transportation and Logistics, e-commerce customers who wait up to five days for home delivery “could help decrease carbon dioxide emissions by about 30% in the last mile of a delivery.” However, as with other types of shipping, this is all dependent on location. International shipping Shipping packages internationally can vary widely in terms of cost. While domestic shipping often has a flat fee, shipping to other countries may lead to additional costs in areas like customs and customs brokerage, as well as ground, maritime or air transportation. Speed also varies with international delivery. Shipping from the US to Europe, for example, can take anywhere from 10-16 business days with economy delivery services, or as few as one to three business days with an expedited courier. All European countries have their local domestic “postal” networks that are now used for delivering parcels. These networks stop at the country borders and therefore companies need international line haul transportation networks to "inject" parcels into the local networks of their neighbouring countries. This may lead to one or two additional delivery days. On the environmental side, international shipping of any speed can have a high environmental impact, as it typically requires multiple legs of transport and at least some involvement of air or ocean cargo. Eco-friendly shipping “Eco-friendly” is not a clearly definable term, and it means different things depending on the e-commerce seller. Generally eco-friendly shipping can involve any of the following: Recyclable or compostable packaging Carbon offset options Smaller packaging size Ground-based shipping versus air or sea Slower shipping An e-commerce sustainability survey by Sifted found that consumers are interested in these options. 91% wanted an eco-friendly shipping option when they checkout, and 57% are willing to pay an additional 10% for eco-friendly packaging and shipping. While the cost of using eco-friendly packaging can be higher, using less harmful shipping methods like ground and standard shipping can actually be cheaper for the seller and the shopper. Alternative delivery (parcel lockers, click and collect) Many e-commerce sellers are choosing to offer additional delivery options. A global survey of supply chain executives found that 44% offer click-and-collect (including products that are not shipped and sold directly from stores) and 11% offer collection points. These options can decrease costs for shippers if they are able to group packages, and may increase the speed of delivery in some cases. Whether delivering to a parcel locker or collection point makes a significant difference to the environment depends on what one considers “significant”. During the last-mile delivery stages, the previously mentioned study in China found that total emissions produced for home delivery were 0.012 kg CO2e higher than delivery to a collection point. Source: AZO Cleantech 2021. Talk to one of our consultants about dynamic pricing. Contact us Which shipping method is best? It’s up to the consumer During a talk at Omnia’s annual Price Points Live event in 2022, Dr Heleen Buldeo Rai, a researcher at the Université Gustave Eiffel in Paris, spoke about how it’s really up to the consumer to choose delivery options, not the retailer. With the industry standard set at free delivery, most consumers are no longer willing to pay for shipping; they are, however, willing to wait longer or to “click and collect” their purchase. A study she conducted with colleagues in Belgium – with similar results seen in Netherlands, Bolivia, China and Brazil – found that while 81% of consumers would say yes to free next-day delivery, that number only dropped by three percentage points when offering free delivery within three to five days. When a slower shipping method is used, there is a positive impact on the company’s costs as well as the environment. This study could indicate that consumers are willing to make this trade-off, if retailers use the information to properly motivate them toward eco-friendly delivery options. Customer demands may outweigh shipping costs in the end Since 2010, global e-commerce sales have increased by nearly 800%. That’s great news for all the e-commerce sellers out there and for the customers who want to shop online, but there is a fragile balance to maintain. We all saw the strain put on supply chains during the COVID-19 pandemic: An EY of survey supply chain executives across industries found that only 2% of respondents said they were “fully prepared” for the pandemic. 57% said they were affected by serious disruptions, with 72% reporting it had a negative effect on them. While that situation is not a daily occurrence, the growth of fast shipping, combined with the steady uptick in e-commerce sales each year, is putting its own stressors on the logistical capabilities of our global shipping network. In order to keep the global supply chain from collapsing as e-commerce volumes increase, and to boost environmental protections, it may become more necessary over time for customers to make trade-offs and accept slower shipping times. As data from Sifted showed us earlier, nine-in-ten consumers wanted an eco-friendly shipping option when they checkout, and eigh- in-ten would wait at least one extra day for their delivery if that meant it was shipped more sustainably. Increasing the amount of orders that are shipped slower would have significant positive impacts on the environment, while also saving e-commerce businesses on their delivery costs – but not every consumer will be willing to accept slower shipping. It’s a tricky balance, indeed. Retailers and brands who sell online must balance this need for sustainability with a positive customer experience and reliable and flexible delivery, all of which adds up to customer loyalty over time.

Research, eCommerce, Consumer Behaviour

17.10.2023

How will stubborn inflation impact e-commerce’s 2023 festive season?

If there is anything 2023 has taught retail and e-commerce leaders, is how resilient the consumer can be. As inflation predictions for the year remained lower than real-world inflation, and as food and gas prices continued double-digit increases around the globe, consumers still found ways to spend - albeit more consciously and strategically. In the July report of the International Monetary Fund’s (IMF) World Economic Outlook projected that global headline inflation will fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. However, in the US, groceries are up 4.9%, electricity is up 3% and rent has increased by 7.7% as of September, creating the stirrings of a lackluster season of spending as the final quarter of 2023 begins. Despite mixed feedback on factors creating roadblocks for consumer spending, there are some positives that reveal to Omnia that, as the final quarter of 2023 begins, consumers will prove their robustness once more: Stronger spending in the US over the Summer and higher consumer confidence throughout Europe’s biggest economies. Let’s delve into the nitty gritty to find out if e-commerce and retail can expect a prosperous festive season. Festive season 2023: Consumer spending predictions At the start of the fourth quarter of 2023, Mastercard’s SpendingPulse Report found that consumer spending for the festive season will result in a 3.7% year-on-year increase in retail sales - a result that has not been adjusted for inflation. The report, which monitors online and offline payments in retail, gives a nod to continued consumer resilience, despite the aforementioned staggered disinflation and economic growth. Compared to 2022, in which the festive season performed better than expected due to pent-up demand and left-over stock, a rebalancing effect will likely take place in 2023, as brands and retailers do not have built-up inventory and consumer demand to rely on to make additional sales. Steve Sadove, senior advisor for Mastercard predicts that “With numerous choices and tightening budgets, you can anticipate shoppers to be increasingly selective and value-focused.” He adds that “the most effective holiday strategy will be to meet consumers where they are - personalised promotions to in-store experiences will be key in doing so.” E-commerce will see larger growth from consumers than brick-and-mortar The report found that omnichannel shopping with continue to grow, however, e-commerce purchases will experience greater support with a 6.7% increase while in-store shopping will see a 2.9% increase year-on-year. On the verticals side, electronics will see the greatest increase at 6%, groceries at 3.9% and apparel at only 1% increase compared to 2022’s season. Global economic overview: Disinflation slower than expected, advanced economies stagnate on growth “Global economic activity has proven resilient in the first quarter of this year, leading to a modest upward revision for global growth in 2023,” Pierre-Olivier Gourinchas, the International Monetary Fund’s (IMF) chief economist, said in a statement. “But global growth remains weak by historical standards.” The July 2023 edition of the IMF’s World Economic Outlook announced it expects global growth to be 3% in both 2023 and 2024. Compared to the projections made in April, this was an increase of 0.2 percentage points for the 2023 estimate, while the 2024 projection remained unchanged. A number of factors have contributed to the more positive economic outlook. The World Health Organisation (WHO) declared that COVID-19 is no longer a global health emergency, economic activity is steadier and supply chains are flowing better. But even with these improvements, the 3% growth projections are still lower than pre-pandemic levels: Annual global economic growth averaged 3.8% from 2000 to 2019. In 2022, global growth was 3.5%. Inflation in key markets impacts overall growth Looking specifically at the markets that pertain to Omnia’s clients - the US, UK, and Euro zone areas - the same IMF report shows that the slowdown in inflation is more concentrated in advanced economies such as these, which are projected to see growth rates fall from 2.7% in 2022 to 1.5% in 2023 and 1.4% in 2024. Source: IMF World Economic Outlook 2023. In the US, growth is projected to be 1.8% in 2023 and just 1.0% in 2024. The country continues to struggle with some of the worst inflation since the 1980s, with the US central bank raising rates from 0.08% to over 5% since March 2022. However, inflation is progressively easing in the US: In July 2023, inflation was at 3.2%, down from the June 2022 peak of 9.1%. Still heavily impacted by the sharp spike in gas prices caused by the start of the Russia-Ukraine war in 2022, growth in the Eurozone area is set to decelerate, projected to achieve only 0.9% growth in 2023 and 1.5% in 2024. From 2021 to 2022, gas prices across Europe increased by 150% as the continent’s largest supplier of gas, Russia, ceased its supply to the continent. Germany, in particular, is struggling to overcome inflation and energy costs, making it the only advanced economy projected to contract in 2023. Growth in the UK is also trudging through: After achieving economic growth of 4.1% in 2022, the second-highest among the advanced economies, the country is projected to grow by only 0.4% in 2023. In July this year, inflation was 6.8%, the lowest it’s been since February 2022. This improvement is desperately needed, as the UK experienced seven months of double-digit inflation between September 2022 and March 2023. Going into festive shopping, how are consumers feeling? As we move farther beyond the end of the COVID-19 emergency and start of geopolitical tensions in Europe, consumer sentiment seems to be improving globally, but is still in the negative range in many regions. Consumer confidence in the Eurozone is still low this Summer but did increase to -15.1 in July 2023, its highest level since February 2022. This has been fuelled by improvements in the consumer’s view on their household’s past and future financial situations, as well as the expected general economic landscape in their respective country. According to McKinsey, consumer confidence around mid-2023 was at its highest in Italy, Spain and Germany, which is surprising considering Germany’s projected growth rate for 2023 is a contraction and not an expansion, which was discussed earlier. Source: McKinsey & Company. Across the Atlantic, consumer confidence in the US hit its highest level in two years in July 2023 and remained consistent throughout their Summer months at the end of the third quarter. This has led to increased consecutive spending, with retail sales rising 0.7% from June to July, and a 3% year-on-year increase for September. At the same time, the impact of inflation can still be felt: In July 2023, the typical American household spent $709 USD more than they spent two years ago to purchase the same goods and services. The good news is that, throughout the third quarter, inflation continued to decrease. Looking ahead to 2024 Consumers worldwide continue to balance the pressure of higher prices with their desire or need to spend, while their governments attempt to rein in inflation and stimulate growth even as macroeconomic tensions continue everywhere. And, while consumer sentiment does seem to be improving since the close of the COVID-19 emergency, levels remain below pre-pandemic norms. As for inflation, the IMF predicts global headline inflation to fall slightly from 6.8% in 2023 to 5.2% in 2024. The organisation projects that underlying core inflation will decline more gradually, showing a slower decrease than what was predicted in 2022. The results of consumer spending for the 2023 festive season will all depend on a country’s labour market, their disinflation rates, as well as the consumer’s ability to access savings or credit. These are the factors that intertwine to create the pool of possibility for consumer spending. With consumer sentiment increasing (ever so incrementally) and a more robust consumer, e-commerce and traditional retail can look forward to an abundant shopping season.

eCommerce, Consumer Behaviour, Inflation

10.10.2023

The Shape of D2C in 2023: How Established Brands and DNVBs Are Finding Success in E-Commerce

Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the consumer’s doorstep. D2C sales models are the perfect pairing: With all middlemen removed, the seller has total control over the customer experience. In 2023, both established brands and digital native vertical brands (DNVB) are pursuing D2C strategies across a huge range of e-commerce verticals. In this article, we’ll highlight three especially interesting and competitive verticals in e-commerce – Electronics, Sports and Home & Living – and look at the current state of D2C businesses within these categories. Trending Verticals in E-commerce Worldwide e-commerce revenue is projected to reach €3.79 trillion in 2023, with the highest-selling verticals being fashion; electronics; and toys, hobby and DIY. Omnia is especially interested in analysing verticals with multiple retailers selling the same or comparable products that consumers research heavily online. These verticals offer significant dynamic pricing opportunities, since price fluctuations are constant and competition is high. Electronics Consumer electronics continues to be one of the reigning e-commerce champion verticals, with sky-high sales over the last decade and further growth as work from home becomes a more established workplace vision for some professions. It is the second-most popular e-commerce category behind fashion, with expected revenue of €839 billion in 2023, or 22.1% of all online sales. Sports Sporting goods are a fast-growing e-commerce vertical, with 43.7% of sports products being bought online. The sports category is an interesting case because of its high Average First Order Value (AFOV). Businesses with high AFOV need to make a profit on every transaction, because repeat purchases are not as common in other verticals. The AFOV for sports businesses is extremely high, but it has one of the lowest levels of 12-month growth in Customer Lifetime Value (CLV). This is especially stark compared to a category like Pets, which has the highest rate of repeat purchases by far. The sports vertical is continuing to grow in the post-pandemic landscape, with businesses in the US, UK and Europe seeing a boost in revenue and traffic in the first quarter of 2023 compared to the end of 2022: US sports businesses achieved nearly 10% in YoY revenue growth The UK and Europe are both still in negative territory for revenue change; about -20% YoY. However, this is a rebound from Europe being about -35% and the UK being about -30% at the end of 2022. Home & living As displayed above, the home category, like the sports vertical, has a high AFOV and a low rate of repeat purchases, sitting at 1.2 for the average first-purchase value. This puts pressure on businesses to achieve sufficient profit margin on each product. Home goods have faced some post-pandemic challenges, as people spent less time at home and less money on home improvement. This vertical has been slower to bounce back than other categories in terms of year-on-year revenue change, but businesses in the UK and Europe did see an improvement in Q1 2023 compared to the end of 2022. However, “improvement” is a relative term, as the YoY revenue change was still between -15% and -20% for the UK and Europe at the start of Q2 2023. Talk to one of our consultants about dynamic pricing. Contact us Current State and Outlook of D2C in E-commerce Direct-to-consumer (D2C) brands are continuing to grow worldwide, with nearly two-thirds (64%) of consumers making regular purchases directly from brands in 2022. This D2C wave is present in a wide range of markets: in the US, D2C is forecast to grow to $213 billion USD by 2024; in Germany, D2C revenue was already valued at €880 million at the end of 2021; and in India, total D2C sales was $44.6 billion USD in 2021. There are two types of brands that sell D2C: Digital native vertical brands (DNVB): Companies that were born online and have a strong digital presence. These companies often sell niche products directly to consumers through e-commerce platforms and social media, bypassing traditional retail channels. Established, traditional brands: Companies who have built a long-standing presence, reputation and customer base through various channels, including brick-and-mortar retail, advertising and other marketing efforts. These brands may have a strong online presence as well, but their roots are often in traditional manufacturing and distribution. In the US, 40% of established brands are already implementing a D2C growth strategy. It’s a headline-grabbing topic of conversation, but how significant is the role of D2C in the wider e-commerce landscape? D2C sales would account for one in seven e-commerce dollars in 2022. And while DNVBs are often the brands capturing media attention, since they are generally more social media savvy, established brands are projected to account for 75.6% of D2C e-commerce sales in the US in 2023. In fact, the D2C online sales for established brands have had a higher growth rate than DNVBs since 2021, although both types of D2C brands still show strong growth. Challenges for D2C Brands Every operator in the retail space faces its own unique challenges, but D2C brands are a unique case. They retain more control over their customer relationship, products, pricing and supply chain dynamics, but they also hold responsibility for the entire end-to-end experience and whether their product makes it into the hands of consumers. Challenges for D2C brands in e-commerce include: Customer Acquisition Costs: Competition for digital advertising space is high, and as a result, the cost of advertising on social media platforms, search engines and other channels can be quite expensive. This can be especially challenging for D2C startups and small businesses with limited marketing budgets. Supply Chain Management: D2C brands typically manage their own supply chain, which can be complex and time-consuming. From sourcing raw materials to manufacturing and shipping products, there are many moving parts to manage. Delays or disruptions at any point in the supply chain can impact product availability and customer satisfaction. Competition from Established Brands: As mentioned earlier, established brands with existing customer bases and sizable marketing budgets can be formidable competitors for DNVB brands. These brands often have more resources to invest in marketing and customer acquisition, and they may have stronger brand recognition and customer loyalty. Customer Experience and Service: D2C brands are often held to higher standards when it comes to customer experience and service. Customers expect a seamless, personalised experience when shopping online, and any issues with shipping, returns or customer service can lead to negative reviews and damage the brand's reputation. Scaling Operations: As D2C brands grow, they may struggle to scale their operations while maintaining quality and consistency. This can be especially challenging when it comes to managing inventory, production, and shipping logistics. D2C Maturity in Key E-Commerce Categories: Electronics, Sports and Home Let’s return to the three e-commerce verticals we discussed earlier. Each of these has its own level of maturity, as well as successful D2C brands, both established and DNVB. Electronics The consumer electronics vertical is relatively mature when it comes to e-commerce D2C sales. Over the past decade, there has been a significant shift in the way consumers purchase electronics, with many people choosing to buy products directly from brands online rather than through traditional retail channels. Established brand: Apple Apple has long used D2C retail operations to drive customers into its “walled-garden ecosystem”,and has made clear its plans to continue investing in D2C. It’s clearly working: the company was able to triple its market value to $3 trillion between 2018 and 2022. DNVB: Anker Innovations Anker, a Chinese mobile charging brand, is considered a pioneering DNVB. While they also sell via Amazon and other marketplaces, a majority of their sales still come from D2C. Sports The sports vertical has been growing more mature with D2C sales, as has been evidenced by the number of new DNVB brands such as Gymshark as well as established brands taking major steps to ramp up D2C efforts. Nike, for example, announced in 2021 that they would stop selling sneakers at American shoe store chain DSW, another in a long line of breaks with traditional retail. Reports like this are signals that, with Nike as one driver, the sporting goods and apparel sector is developing and maturing quickly, which are changes that retailers will need to adapt to. Established brand: Nike Nike has an established presence in traditional retail channels, but the company’s D2C operation, NIKE Direct, has been extremely successful in both e-commerce and brick-and-mortar. In 2022, it accounted for approximately 42% of the brand’s total revenue. DNVB: Peloton Peloton is one of the most successful examples of sporting DNVBs, having been born online before growing across different distribution channels, customer segments, geographies and categories. Home & Living The home and living vertical, which includes product lines such as furniture, cookware, bedding and more, is a strong D2C market due to its low barriers to entry and lack of strong retail competition. Established brand: Vitra Swiss company Vitra has been operating as a family business for 80 years. The company designs and manufactures designer furniture for use in offices, homes and public spaces. DNVB: Westwing Westwing was founded to be a “curated shoppable magazine”, where consumers could find beautiful home & living products online. The company is now present in 11 European countries and generated €431 million of revenue in 2022. D2C Brands and Dynamic Pricing Aligning prices with retailers for your entire product assortment is no small feat, which is why dynamic pricing software is so essential for brands who utilise a D2C sales channel. As Roger van Engelen, Principal at A.T. Kearney, told Omnia in a 2018 interview: “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” Keep in mind that most major retailers are already using dynamic pricing software for their e-commerce shops and to ensure products are competitively priced. As a brand, your use of Omnia will help you follow a market price even within strict limits.

Dynamic Pricing, Direct to Consumer, eCommerce

10.10.2023

Solving the puzzle of e-commerce organisational structures

As any business owner or leader knows, building out the organisational structure of a company or team is one of the trickiest puzzles to solve. Do it right and the organisation will run smoothly and produce ideal outcomes; do it wrong and things can quickly grind to a halt or implode altogether. This is also the case when structuring an e-commerce organisation. With the rapid pace of the retail industry and the constant evolution of online sales, it’s crucial to build a division that can be flexible and effective, no matter what may change. In this article, Omnia explores the nuances of the structure of e-commerce businesses, how organisations should approach the topic and where pricing fits into the larger picture. Structure of the modern e-commerce department In 2023, the structure of e-commerce departments can vary widely depending on the needs of the business. Each member of the team has a crucial role to play in ensuring the organisation runs smoothly and that customers receive the products they’ve purchased online. Typically, an e-commerce organisation will have some combination of the following roles: From the top: E-commerce manager/Director of e-commerce/CEO The captain of the ship oversees all areas of the e-commerce organisation including marketing management, customer service, product management, KPI tracking, analytics and reporting, and partnership management. The marketing team The success of a marketing team can make or break an e-commerce department. Members of this team can include: Marketing manager: This person leads the full marketing team. The Marketing Manager is responsible for spreading the word about the products in your online store by analysing and building strategies based on customer data, trends, competitor insights and market changes. They are also responsible for brand building, creative strategy, and multichannel strategy. Graphic designer: The designer can take care of all the necessary visuals within the corporate identity (CI), from logos and social media graphics to charts and data visualisations for blog posts or sales materials. Content or copy writer: This role is responsible for writing compelling text for product descriptions, website content and marketing campaigns. A successful content writer will also have some level of SEO knowledge to ensure copy is optimised for successful Google search results. Development and IT team The website is the beating heart for every e-commerce seller. All e-commerce companies will need developers to build and maintain the company’s website and software systems. The UI/UX designer can also fall under this department. Copy writers will often work closely with UI/UX designers to ensure that the text used on an e-commerce store falls within the brand’s tone and identity. One of the most important responsibilities for the development and IT team is to optimise the performance of the website across devices, ensuring high availability and uptime so customers aren’t waiting too long for the storefront to load. Another key role is to integrate any chosen third-party services or SaaS solutions, like Shopify or BigCommerce, while ensuring data security and maintaining a structured product catalogue. Operations team The ops team’s job is to keep the actual operation of the online store running smoothly from day to day. Some key roles that may be hired for include: Logistics manager: This role is responsible for the accurate and timely delivery of supplier orders to the company’s warehouses or directly to consumers’ homes. Inventory manager: This team member keeps track of all products being sold by the store, most importantly ensuring that the number of goods displayed as available on the website actually matches the number stored in the warehouse, to avoid any accidental overselling. Fulfilment team: Fulfilment teams ensure all orders coming from the website and other channels are correct and complete, then locate the items, pack them for shipment, add shipping labels and work with carriers to get the orders from point A to B. Supporting departments may include Human resources which plays an important role in growing an e-commerce business, as they recruit, hire and onboard all incoming talent for the business. In addition, a customer care department for shoppers to receive support with questions, complaints and returns. Examples in practice: New Balance and Fenty Beauty A number of brands are finding success with a more modern, agile e-commerce organisational structure. New Balance, for example, made some big changes in 2021. “We’ve introduced agile into the entire organisation. We’ve developed 90-day sprints, which have allowed us to put together several building blocks that have accelerated our growth ambitions,” said CEO Joe Preston. Fenty Beauty, a D2C brand started by singer Rihanna, is another interesting case study. Rather than entering the market on their own like other beauty brands – Kylie Cosmetics, for example – Fenty was created in partnership with LVMH’s Kendo Beauty division. This allowed the brand to launch on a global scale at 1,620 stores in 17 countries almost instantly in 2017, referred to by LVMH as “the first-ever global beauty launch in history.” Having LVMH as a partner gives Fenty access to global distribution through Sephora, one of the largest omnichannel beauty retailers in the world. This gave the brand quality merchandising and product placement both online and offline right from the start. The pricing puzzle: Where does pricing fit into the e-commerce equation? Nothing is written in stone when it comes to pricing, and the “right” answer will be different for every organisation. At Omnia, we have seen pricing sit within a number of departments, depending on the business: Business Analytics, Marketing, Sales or Buying, for example. For more mature organisations, we tend to see pricing within the e-commerce organisation. Within that e-commerce structure, where exactly does pricing fit, and more importantly, who owns responsibility for it? Having pricing ownership clearly assigned to a specific manager or team ensures the business can meet objectives and nothing falls through the cracks. Operating the pricing platform, especially when using dynamic pricing software where rules are set and pricing can change constantly, is a key role and core to the success of the overall business. Below, we’ll cover some observations from the Omnia team: The roles we commonly see owning pricing within our customers’ teams, and an example pricing structure we see frequently within more mature e-commerce organisations. Pricing roles and responsibilities we observe From our observations of the Omnia portfolio, which ranges from large enterprises to small businesses, we see that the pricing role differs per business size and type. Typically we see three roles: Strategic pricing managers or project managers This person is typically responsible for optimising pricing strategies to maximise the bottom line impact of pricing on revenue and margin. For some, pricing may be one of the focus areas of their role, but does not account for 100% of their time. Often, this person is the decision maker for which strategies will be applied now and in the future, meaning they need to take all social, economical and business decisions into account to initiate the right strategy and measure impact. They may be responsible for planning and initiating internal processes that influence pricing, such as the frequency of repricing, involving other departments like purchasing for decisions on stock, and working with marketing to create promotions. This person may manage a team of diverse people who are pricing specialists, category managers or brand managers who manage the day-to-day pricing strategies and alterations. They may also have an analyst available in their team to monitor and manage results. Operational pricing specialist The pricing specialist often reports to or works closely with pricing managers or the project management team to achieve set business goals. Alternatively, they could be the only responsible person for pricing, reporting directly to the budget holder or decision maker with the ROI of pricing. This role often includes a market research component, using this information along with data on actual customer engagement with products to create relevant reports for category managers, who then take action for repricing. Sometimes, these specialists are responsible for repricing over categories in different territories. This makes them the point of contact internally for questions relating to pricing alterations, and they may need to be able to make adjustments upon request, explain pricing logic and tackle issues. Category manager or brand manager The category manager or brand manager is responsible for a certain set of the assortment being sold within an organisation and is generally responsible for the 4 P’s (Price, Product, Promotion and Placement) to maximise sales and profitability of their products. They will generally have revenue and margin targets as well as stock management responsibilities. These managers are specialists in their own categories. They know their specific markets as well as developments related to their assortments, rules and regulations. They also tend to be on top of all price changes, as alterations will immediately affect their targets. Example of mature pricing organisation Members of the Omnia team have pulled together their observations of how a pricing organisation is commonly structured in a mature e-commerce department. There are three main levels to this structure: Commercial policy alignment: Most of the time, in collaboration with management and all stakeholders, there will be some sort of alignment of commercial policy for different categories and products. Pricing project lead: This person leads pricing across all countries and markets and translates commercial policy into specific strategies, which can then be applied to the pricing software and pricing logic and transferred to local teams. This person is responsible for creating all the pricing rules, which local teams can then adjust according to their own markets. Pricing implementation: This level could include a range of roles responsible for actually putting the pricing strategies and rules into place, as well as localising them for different markets. Local pricing specialists, for example, can implement local campaigns and pricing strategies within the boundaries of the global commercial policy with approval of their pricing project lead. Business or pricing analysts may be available to analyse potential new strategies and to improve results, although these roles are typically shared with other areas and not only pricing. In more complex global organisations, a deployment manager can lead and initiate pricing in new territories and markets. Overall, pricing is highly iterative within these teams and tends to work in a cyclical way. The pricing lead sets the pricing rules, which are implemented and localised by a specialist, then someone analyses the results and that information is sent to the pricing lead and specialist to adjust the rules. Just like dynamic pricing itself, the team is never stagnant, and feedback passes through each level in both directions as everyone works to find the right pricing for each product line. As you build out your e-commerce organisational structure for the first time, or revisit and revise an existing structure, understanding the nuances of this function is essential. Any retail business hoping to succeed in e-commerce first needs the proper structure in place to enable all teams to collaborate and thrive. Omnia would love to hear more about your company’s e-commerce and pricing organisation. Let us know: What does your pricing structure look like? What would you change if it was up to you?

Pricing Strategies, Pricing, E-Commerce

10.10.2023

These are the vertical marketplace champions in Europe's strongest economies

Vertical marketplaces occupy a unique role in e-commerce: While the well-known giants try to encompass all categories, vertical marketplaces cater to specific and often specialised customer needs and interests. Selling through one of these marketplaces presents a number of opportunities, including: More targeted audience Competitive advantages versus less specialised marketplaces Brand and community building Increased trust and credibility among shoppers More flexibility and reduced competition Higher buyer intent In this article, Omnia explores some of the vertical marketplaces to know in four key European markets across four categories. Leading marketplaces for top e-commerce categories Many of the leading marketplaces in Europe are all-in-one sites where shoppers can find products across many categories; For example, Amazon, eBay and bol.com. In this article, we’d instead like to focus more on the vertical marketplaces that are largely, if not entirely, focused on one particular category. We will explore a selection of marketplace champions for Germany, Netherlands, the UK and France across four categories: Fashion, Home Goods, Beauty & Care and Baby Care. Fashion marketplace champions: Germany Zalando: Fashion retailer that also offers a marketplace for external brands to sell their products through their marketplace. Zalando is the leading online store for fashion in Germany, with global revenues reaching €10.3 billion in 2022. About You: Online fashion retailer with marketplace offering similar to Zalando. Netherlands Zalando: Like Germany, Zalando is also a major fashion marketplace in the Dutch market. Wehkamp.nl: A marketplace headquartered in Zwolle, Netherlands. The site offers a few other categories as well, but is mostly focused on fashion. Wehkamp is not a fully open marketplace, but focuses on a selected number of sellers. United Kingdom ASOS Marketplace: This branch of ASOS, which launched in 2010, gives independent brands and vintage boutiques a chance to sell to women with high-end and unique taste. MatchesFashion: Another online marketplace for luxury fashion lovers, MatchesFashion has been around since the 80's. However, their longstanding existence in fashion retail has served them well, allowing them to create an omnichannel marketplace business model with a thriving online website and three physical locations in London. France SHEIN: An established fast fashion retailer that has been expanding its marketplace offering in 2023, selling its own fashion items alongside products from third-party sellers. BrandAlley: Based in the UK, BrandAlley is a popular members-only flash sale website. High-profile brands can sell their products on the marketplace via multiple sales each day. Home goods marketplace champions: Germany Home24: One of the leading home goods retailers in Germany, the site has also expanded its marketplace for brands and partner sellers in the category. Wayfair: A major home goods marketplace selling more than 14 million items from more than 11,000 global suppliers. Westwing: A leading home brand and marketplace in Europe. The site sells Westwing’s own products alongside products from third-party sellers. Netherlands Leen Bakker: While this company has been around since 1918, its online marketplace opened in 2020. Selling on this site gives brands and retailers access to one of the largest groups of customers in this category in the country. Home24: This marketplace also has a large presence in the Dutch market, with a large range of home goods. United Kingdom Argos: This must be one of the UK's longest-standing furniture retailer-turned-marketplaces, starting in 1973. Today, Argos' online marketplace attracts nearly one billion shoppers per year and stands as the third-most-visited retail website in the UK. ManoMano: With a hard-to-forget name like ManoMano, this marketplace has established itself deep within the UK's home DIY, improvement and gardening vertical. It sells more than 1.5 million products under 5,000 partner sellers. France La Redoute: A well-known French marketplace with a significant online presence. They also offer fashion items but have a wide selection of products in home decor and furniture. Maisons du Monde: A French furniture and decor company founded in 1996, Maisons du Monde also launched a marketplace that makes up a significant portion of French revenues. Beauty & care marketplace champions: Germany Zalando: Beauty is the other main category for Zalando, besides fashion. Through the partner program, brands can sell beauty products across ten markets, with Germany being one of the biggest. Flaconi: An online beauty retailer and marketplace that specialises in cosmetics, fragrances, skincare and hair care products. Netherlands LOOKFANTASTIC: The UK-based e-commerce store is popular in the Dutch market and covers products across all beauty and personal care subcategories. De Bijenkorf: While De Bijenkorf has a line of Dutch department stores, they also have an online marketplace available for brands to sell through. United Kingdom Feelunique: This is another story of an online store that added a marketplace later on; in this case, in 2017. Feelunique operates its marketplace in several markets and was purchased by Sephora in 2021. Boots Marketplace: Boots.com, the head division of Boots Marketplace, earned the top spot for net sales in the beauty and personal care e-commerce market in 2021, earning $597 million. Boots Marketplace is a new branch, launching in 2022, remaining in the beauty and personal care vertical. Harvey Nichols: This marketplace offers products from vendors in multiple categories, from beauty to accessories to food and wine. France Nocibé: A popular French beauty retailer that operates both physical stores and an online platform. They sell products from their own inventory as well as third-party sellers. Zalando: While Zalando is mostly a fashion marketplace, its secondary category is beauty, which was launched on the site in 2018. Baby care marketplace champions: Germany Babymarkt: A popular source for baby and toddler supplies. Started as an online store and later expanded to include a marketplace. Idealo Baby and Child: Idealo is one of the best-known marketplaces in Germany, with brand awareness at 88%. The site’s baby and child category covers a range of products, from strollers and clothes to diapers and high chairs. Netherlands Kleertjes.com: The largest online store and marketplace selling branded clothing and shoes for babies and children in the Netherlands. Babypark: Offers a range of items for babies and children ranging from strollers to full rooms. Along with the online shop and marketplace, there are ten “megastores” across the country as well as one in Germany. United Kingdom Bndle: An online marketplace that connects parents and families with independent baby brands. The marketplace was started by two new parents who wanted “one destination to browse and shop for cool baby brands and access expertise.” Emma’s Diary: This is actually a website for baby and parenting advice, but has expanded to include “The Baby Marketplace”, where shoppers can find products from a range of brands. France Bebeboutik: A baby care company divided into two complementary websites – one focused on flash sales and the other a third-party marketplace. La Redoute: Another of La Redoute’s verticals is baby & kids, covering products for the home as well as clothing and shoes. The popular website represents a solid opportunity for brands selling in France, with over 12 million unique monthly visitors. Talk to one of our consultants about dynamic pricing. Contact us Are vertical marketplaces taking the place of e-retailers in the future? The number of marketplaces continues to expand, and while major players like Amazon, eBay, Rakuten and Alibaba are growing year after year, vertical marketplaces are also increasing in prevalence to cover certain categories or serve specific shopper groups. According to one study from Cross-Border Commerce Europe, the top 100 cross-border marketplaces generate turnover of €128 billion in Europe. They also found that marketplaces grew by 22% during the COVID-19 pandemic – growth that is expected to continue in the next few years. With 59% (€141 billion) of the total cross-border e-commerce market in Europe generated by marketplaces, every stakeholder in e-commerce should be paying attention to the vertical and vertical marketplaces, as they continue to steal market share from the larger players.

Retail Trends & Research, eCommerce

28.09.2023

The Pros and Cons of Free Shipping for E-Commerce Businesses

Think back to the last time you bought something online: did you pay for shipping? These days, it’s becoming increasingly likely that you didn’t, either because the chosen seller offered free shipping or because you purposefully avoided online shops that didn’t offer it. The practice of shipping products for free has become standard in e-commerce. The Digital Commerce 360 Top 1000 Database shows that 74.4% of retailers offer some sort of free shipping: 20.4% unconditional for all orders, 45.1% with a value threshold, and 14.5% requiring membership in a loyalty program. It’s no wonder that many businesses believe they must offer free shipping to remain competitive in the market. In reality, it’s not right for every seller. This article will cover the historical context of free shipping and some pros and cons to help your e-commerce business make the right strategic choice on the topic. Have we always had free shipping? Unsurprisingly, free shipping was popularised by e-commerce giant Amazon in the early 2000s. After two holiday seasons of offering free shipping to customers spending $100 or more, the company was considering making free shipping available to everyone, but it was cost-prohibitive. According to Brad Stone in his book The Everything Store, this is how the story played out: “Greg Greeley [a finance employee] mentioned how airlines had segmented their customers into two groups — business people and recreational travelers — by reducing ticket prices for those customers who were willing to stay at their destination through a Saturday night. Greeley suggested doing the equivalent at Amazon. They would make the free-shipping offer permanent, but only for customers who were willing to wait a few extra days for their order. Just like the airlines, Amazon would, in effect, divide its customers into two groups: those whose needs were time sensitive, and everyone else. The company could then reduce the expense of free shipping, because workers in the fulfillment centers could pack those free- shipping orders in the trucks that Amazon sent off to express shippers and the post office whenever the trucks had excess room. Bezos loved it. ‘That is exactly what we are going to do,’ he said.” From there, Amazon started by offering “Free Super Saver Shipping” in 2002 on orders over $99, then $49, and eventually $25. Eventually, this turned into the membership program we now know as Amazon Prime. Since then, free shipping has had its grip on the e-commerce landscape, as it allowed customers to demand convenience and speed from online businesses. It’s grown to become a fairly standard marketing tactic, and is often an expectation of customers. “No such thing as a free lunch” – Free shipping isn’t free It’s worth pausing to remind ourselves that free shipping is exactly what we said above: a marketing tactic. There’s no such thing as “free” shipping, since there are costs associated with sending products from businesses to customers, whether for the initial order or a return or exchange. Postage, supplies and even customs fees or import taxes when shipping internationally all have to be paid for by someone. The reality is that either the business pays for shipping or the customer does. If the business offers “free shipping” and pays for it, that reduces their profit margin. If the business wants the customer to pay for the “free shipping”, then the costs of shipping must be added to the price paid for the products themselves. The question for e-commerce businesses isn’t really whether to offer free shipping or not. It’s whether the price of shipping should be included in the display price paid by the customer, or if it will be charged as an extra fee on top. Pros and cons of free shipping This is clearly a complicated topic, so let’s cover some of the pros and cons of offering free shipping as an e-commerce business: Pro 1: It increases conversion rates Since 59% of online shoppers consider free shipping to be a deciding factor in purchase decisions, second only to price, offering free shipping can boost conversion rates for your e-commerce store. Conversely, charging shipping fees can increase cart abandonment: According to Sendcloud research, 65% of European shoppers left a checkout because the shipping costs were too steep. By eliminating visible shipping fees, you remove a potential barrier to purchase and encourage customers to complete their transactions. Pro 2: It brings in new customers Meeting consumer demand is a significant benefit of offering free shipping. When a potential buyer sees that a product comes with free shipping, it becomes more attractive and makes them feel they are getting a better value for their money. To bring in new customers, businesses have to, at a minimum, meet expectations. Since 80% of consumers expect shipping to be free if they hit a certain spending threshold, and 66% expect free shipping for all sizes of online orders, this can play an important factor in attracting new customers to your store. Pro 3: It encourages loyalty and repeat purchases Once you bring in customers, it’s worth doing everything possible to hold onto them. Retention is cheaper than acquisition, after all. Customers appreciate the perceived value they receive when shipping is free, which can lead to them viewing the overall shopping experience as positive. Satisfied customers are more likely to be loyal, returning to your store for future purchases and recommending your business to others. This impact is amplified even more if your competitors do not offer free shipping. Pro 4: It increases AOV In cases where customers need to meet a minimum order value to qualify for free shipping, this can incentivise customers to add more items to their carts, increasing the average order value (AOV) and boosting your revenue. One survey found that 59% of respondents were willing to increase their order size to qualify for free shipping. If you are going to offer free shipping, general industry advice is to set the minimum threshold about 15-30% higher than your AOV to encourage customers to top up their carts. Con 1: It has cost implications Offering free shipping either means absorbing the cost of shipping orders yourself and decreasing your margins, or increasing product prices to cover the cost, potentially decreasing your unit sales. The second option is usually recommended. Shipping expenses, packaging materials, and logistics can become a significant cost for your business, particularly for large or international shipments. Businesses also need to consider how they’ll respond if shipping rates, for example the cost of postage, increases. Free shipping is even trickier if you sell low-cost or low-margin products. In these cases, absorbing the cost is probably not possible if you want to make a profit, but folding shipping costs into the product price can quickly turn a €2 product into a €6 product. Con 2: It creates sustainability issues Sustainability issues are a huge concern when it comes to free shipping, due to the carbon emissions and waste created when shipping higher volumes, faster, to more locations. According to Earth.org: Product shipping and return accounted for 37% of total greenhouse gas emissions in 2020 When shoppers opt for a fast delivery (e.g. 2-day shipping), emissions are far greater than those generated by in-person shopping or slower delivery options Return rates exceed 30% of all purchased goods, adding to the overall environmental impact of the free shipping offer Con 3: It creates logistical challenges To offer free shipping, businesses must be prepared with the proper logistical capabilities. For example, can your distributors handle the volume you will require? How will returns and exchanges work? What speed of delivery is to be expected? How will you ensure the offer is not being abused by customers ordering and returning products often? All of these concerns are amplified even more for small businesses, who may not have the resources or logistics setup available to larger sellers. Our price insights include shipping costs, ensuring you get the most accurate comparisons. Focus on what matters most – the final price! Schedule a call Should your e-commerce business offer free shipping? Whether to offer free shipping, and what the parameters for that offer will be, is a significant strategic decision for any e-commerce business. While it is a helpful way to bring in new customers, incentivise repeat purchases and boost the AOV, there are real sustainability, cost and logistics issues to contend with. Before making a decision, businesses should consider the pros and cons listed above, as well as questions such as: Are there any other options besides free shipping that would incentivise your customers even more? What are the parameters for your free shipping offer? Can you take advantage of bundle shipping, where customers wait a few days longer to get their item so it can be included in a larger shipment? How much does your specific customer base actually appreciate free shipping? What does your market research show about their willingness to pay a bit more to compensate for shipping costs? At Omnia Retail, the prices we scrape online and use to develop insights for users are all inclusive of shipping costs. This is because that’s the price the consumer compares in the end, making it the most important to focus on. Learn more about Omnia ‘s pricing software for retailers and brands here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What our the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Pricing, Consumer Behaviour, E-Commerce

25.08.2023

E-Commerce Brands & Retailers Building Trust with Transparent Pricing

Is there such a thing as too much honesty? In business, and in pricing, opinions differ. The concept of transparent pricing refers to having pricing information readily available and accessible to customers, benefiting both sides: Buyers can make informed decisions, compare prices and avoid overpaying Businesses can improve trust and loyalty from consumers, win more business and avoid angry reviews However, transparent pricing can also have downsides. What if you’re too honest about how you set prices, and customers decide you’re overcharging them? What if competitors use the information to undercut you? In this article, we’ll explore the role of pricing in the overall marketing strategy and how price transparency specifically is used as a messaging signal to build trust. The role of pricing in the marketing mix The original iterations of the Marketing Mix consisted of four P’s: Product, Place, Promotion and Price. Eventually, this expanded to the 7 P’s and added Physical Evidence, People and Process. While each of these areas is important to build a well-rounded marketing strategy, we want to focus today on the role of pricing and how it can be used as a marketing strategy in and of itself. In past articles, we have laid out two main ways in which pricing strategy influences marketing performance: It determines the volume of the marketing budget It influences how effective marketing strategies can be Both of these are certainly true. The price of a product, and its margin, determines how much revenue the company will bring in and how much funding will be allocated to marketing. The price also impacts how customers view a product in comparison to others in the same category, and the price elasticity of that product should be considered when setting a strategy. However, we would argue that we can build upon the second point to see a third way a pricing strategy can impact marketing: as a messaging signal. What if a brand or retailer chooses to be transparent with customers about its own pricing strategy? Regardless of the specific price levels and strategy chosen, what does the act of transparency signal to customers? The question of whether transparent pricing is the right strategy for e-commerce businesses is not black and white, but it is an interesting option to consider. Talk to one of our consultants about dynamic pricing. Contact us What is price transparency in e-commerce? First, let’s go over how price transparency actually plays out for e-commerce brands and retailers. Transparent pricing can be utilised in a variety of ways: Telling customers about all the factors that determine the final price they pay. This can include the cost of manufacturing, distribution, labour and other costs, as well as things like shipping, import duties and VAT. Showing price history. Historical price transparency typically involves showing customers how the price has changed over time, whether through one-time discounts and offers or increases and decreases of the RRP (Recommended Retail Price). Comparing prices across the market. Some brands and retailers show a live view of the price across other channels, so customers can make an informed decision about where to buy. Avoiding surprise costs. Companies ensure there aren’t any hidden costs that appear at checkout. The customer is aware throughout the process of the price they will pay. Explaining price changes. If the brand or retailer decides to increase or decrease the price on a product, or across their entire product line, they might explain the reason and data behind this price change. This may serve inadvertently as a marketing tactic, as shoppers may think highly of a brand that is open about their price changes, which could increase loyalty and sales. Following price regulations. In May 2022, the EU implemented a new directive aimed at bolstering consumer protection and their overall knowledge of a product’s pricing. The Price Indication Directive (PID) (part of the updated Omnibus Directive) stipulates that when a trader intends on implementing a price reduction on an item, they must also show the item’s previous price. The original price, prior to the reduction, is presented as the most recent and lowest price at least 30 days prior to the newly introduced reduction. Omnia Retail offers the only Dynamic Pricing tool with the ability to use and display the lowest price over the past 30 days, enabling e-commerce sellers to stay in line with the Omnibus Price. Learn more here. Transparent pricing case study: KoRo Drogerie One well-known example of transparent pricing is KoRo Drogerie, a Germany-based online shop selling a variety of long-life, natural and processed foods, plus kitchen utensils and cooking accessories. One of KoRo’s five basic principles is Fair Prices: The KoRo concept can and will only work if we pass on our cost savings resulting from the above principles directly to you. Quality must be affordable. Especially in this day and age, we are aware that it is easy to compare similar products from different suppliers. That is why it is KoRo's goal to be able to offer a fair price-performance ratio for all our products. Every consumer must be able to rely on KoRo to take care of the price comparison process so that customers can be sure that they have chosen the best shopping option. KoRo has had multiple versions of price transparency over the years. In the past, the company actually displayed price development history directly on the website, but this has since stopped – perhaps an example of too much transparency or not enough pay-off to make the labour worth it. Now, KoRo is using price transparency as part of their marketing strategy. The company announces via blogs when prices change for their product lines – whether prices are increasing or decreasing. For example, this blog from February 2021 (in German) announced an average price decrease of 5.34% due to changes in the market and a new calculation basis. Two years later, they announced prices would increase by an average of 8.5% in February 2023 as a result of high food inflation in Germany. This transparency is an effective messaging strategy, showing customers that the company can be trusted to communicate honestly and price fairly. This is consistent with the general perception of KoRo, which is famous in the German market for their fair and sustainable approach. The company receives a 4,78 rating on consumer trust website TrustedShops.de. Transparent pricing case study: Everlane US-based fashion retailer Everlane illustrates another version of price transparency. At the bottom of every product page, the company breaks down the true cost of the production process. The Madison Dress, for example, has the following cost breakdown: Past iterations of Everlane’s Transparent Pricing infographics actually included the “True Cost”, as well as Everlane’s final price and the traditional retail price. The brand typically uses a markup of 2-3x, whereas traditional retail is closer to 5-6x. It appears that this part of the infographic is no longer included on product pages, indicating that perhaps the brand decided it was too much transparency. Past Everlane pricing infographic - the bottom section is no longer included Putting pricing transparency into practice Any e-commerce business that wishes to utilise transparent pricing needs to have a solid data foundation from which to build its pricing strategy. Those insights can then enable marketers to make smart marketing choices and build the right messaging around pricing transparency – so the business can use it to increase consumer trust. Whether you should use pricing transparency for your business, and which type to choose, depends on your specific situation. It’s a fine balance: You want to increase customer trust, but you also need to earn a profit. And with some consumer protection laws requiring certain levels of transparency, like the PID and others, it isn’t only a commercial question, but a legal one, too. Transparent pricing has to be managed properly, with the right messaging and data, in order to be effective.

Dynamic Pricing, eCommerce, Pricing

22.08.2023

How Established Brands and DNVBs Are Finding Success in E-Commerce

Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the consumer’s doorstep. D2C sales models are the perfect pairing: with all middlemen removed, the seller has total control over the customer experience. The only middleman we see is the person delivering our package. In 2023, both established brands and digital native vertical brands (DNVB) are pursuing D2C strategies across a huge range of e-commerce verticals. In this article, we’ll highlight three especially interesting and competitive verticals in e-commerce – Electronics, Sports and Home & Living – and look at the current state of D2C businesses across these areas. Trending Verticals in E-commerce Worldwide e-commerce revenue is projected to reach $4.11 trillion in 2023, with the highest-selling verticals being fashion; electronics; and toys, hobby and DIY. Omnia is especially interested in analysing verticals with multiple retailers selling the same or comparable products that consumers research heavily online. These verticals offer significant dynamic pricing opportunities, since price fluctuations are constant and competition is high. Let’s look at an overview of three verticals that check these boxes. Electronics Consumer electronics continues to be one of the reigning e-commerce champion verticals, with sky-high sales over the last decade and further growth as work from home becomes a more established workplace vision for some professions. It is the second-most popular e-commerce category behind fashion, with expected revenue of $910 billion in 2023, or 22.1% of all online sales. Sports Sporting goods are a fast-growing e-commerce vertical, with 43.7% of sports products being bought online. The sports category is an interesting case, however, because of its high Average First Order Value (AFOV). Businesses with high AFOV need to make a profit on every transaction, because repeat purchases are not as common as other verticals. The AFOV for sports businesses is extremely high, but it has one of the lowest levels of 12-month growth in Customer Lifetime Value (CLV). The sports vertical is continuing to grow in the post-pandemic landscape, with businesses in the US, UK and Europe seeing a boost in revenue and traffic in the first quarter of 2023 compared to the end of 2022. Home & Living As you can see in the chart above, the home category, like the sports vertical, has a high AFOV and a low rate of repeat purchases, putting pressure on businesses to achieve a sufficient profit margin on each product. Home goods have faced some challenges post-pandemic, as people spent less time at home and less money on home improvement. The vertical has been slower to bounce back than other categories in terms of year-on-year revenue change, but businesses in the UK and Europe did see a boost to Q1 2023 revenues compared to the end of 2022. Current State and Outlook of D2C in E-commerce Direct-to-consumer (D2C) brands are continuing to grow worldwide, with nearly two-thirds (64%) of consumers making regular purchases directly from brands in 2022. This D2C wave is present in a wide range of markets: in the US, D2C is forecast to grow to $213 billion USD by 2024; in Germany, D2C revenue was already valued at €880 million at the end of 2021; and in India, total D2C sales was $44.6 billion USD in 2021. There are two types of brands that sell D2C: Digital native vertical brands (DNVB) – Companies that were born online and have a strong digital presence. These companies often sell niche products directly to consumers through e-commerce platforms and social media, bypassing traditional retail channels. Established brands – Companies who have built an established presence, reputation and customer base through various channels, including traditional retail, advertising and other marketing efforts. These brands may have a strong online presence as well, but their roots are often in traditional manufacturing and distribution. In the US, 40% of established brands are already implementing a D2C growth strategy. It’s a headline-grabbing topic of conversation, but how significant is the role of D2C in the wider e-commerce landscape? Estimates from Insider Intelligence said that D2C sales would account for 1 in 7 e-commerce dollars in 2022. And while DNVBs are often the brands capturing media attention, established brands are projected to account for 75.6% of D2C e-commerce sales in the US in 2023. In fact, the D2C online sales for established brands have had a higher growth rate than DNVBs since 2021, although both types of D2C brands still show strong growth. Challenges for D2C Brands Every operator in the retail space faces its own unique challenges, but D2C brands are a unique case. They retain more control over their customer relationship, products, pricing and supply chain dynamics, but they also hold responsibility for the entire end-to-end experience and whether their product makes it into the hands of consumers. Challenges for D2C brands in e-commerce include: Customer Acquisition Costs: Competition for digital advertising space is high, and as a result, the cost of advertising on social media platforms, search engines and other channels can be quite expensive. This can be especially challenging for D2C startups and small businesses with limited marketing budgets. Supply Chain Management: D2C brands typically manage their own supply chain, which can be complex and time-consuming. From sourcing raw materials to manufacturing and shipping products, there are many moving parts to manage. Delays or disruptions at any point in the supply chain can impact product availability and customer satisfaction. Competition from Established Brands: As mentioned earlier, established brands with existing customer bases and sizable marketing budgets can be formidable competitors for DNVB brands. These brands often have more resources to invest in marketing and customer acquisition, and they may have stronger brand recognition and customer loyalty. Customer Experience and Service: D2C brands are often held to higher standards when it comes to customer experience and service. Customers expect a seamless, personalised experience when shopping online, and any issues with shipping, returns or customer service can lead to negative reviews and damage the brand's reputation. Scaling Operations: As D2C brands grow, they may struggle to scale their operations while maintaining quality and consistency. This can be especially challenging when it comes to managing inventory, production, and shipping logistics. D2C Maturity in Key E-Commerce Categories: Electronics, Sports and Home Let’s return to the three e-commerce verticals we discussed earlier. Each of these has its own level of maturity, as well as successful D2C brands, both established and DNVB. Electronics The consumer electronics vertical is relatively mature when it comes to e-commerce D2C sales. Over the past decade, there has been a significant shift in the way consumers purchase electronics, with many people choosing to buy products directly from brands online rather than through traditional retail channels. Established brand: Apple Apple has long used D2C retail operations to drive customers into its “walled-garden ecosystem,” and has made clear its plans to continue investing in D2C. It’s clearly working: the company was able to triple its market value to $3 trillion between 2018 and 2022. DNVB: Anker Innovations Anker, a Chinese mobile charging brand, is considered a pioneering DNVB. While they also sell via Amazon and other marketplaces, a majority of their sales still come from D2C. Sports The sports vertical has been growing more mature with D2C sales, as has been evidenced by the number of new DNVB brands as well as established brands taking major steps to ramp up D2C efforts. Nike, for example, announced in 2021 that they would stop selling sneakers at American shoe store chain DSW, another in a long line of breaks with traditional retail. News stories like these are signals that, with Nike as one driver, the sporting sector is developing and maturing quickly, changes that retailers will need to adapt to. Established brand: Nike Nike has an established presence in traditional retail channels, but the company’s D2C operation, NIKE Direct, has been extremely successful in both e-commerce and brick-and-mortar. In 2022, it accounted for approximately 42% of the brand’s total revenue. DNVB: Peloton Peloton is one of the most successful examples of sporting DNVBs, having been born online before growing across different distribution channels, customer segments, geographies and categories. Home & Living The home and living vertical, which includes product lines such as furniture, cookware, bedding and more, is a strong D2C market due to its low barriers to entry and lack of strong retail competition. Established brand: Ikea Ikea has always been a direct-to-consumer brand, but is not a DNVB due to its brick-and-mortar origins. In the wake of the pandemic, Ikea’s online channels had more than 5 billion visitors and an increase of 73% in e-commerce sales during FY 2021. DNVB: Westwing Westwing was founded to be a “curated shoppable magazine”, where consumers could find beautiful home & living products online. The company is now present in 11 European countries and generated €431 million of revenue in 2022. D2C Brands and Dynamic Pricing Aligning prices with retailers for your entire product assortment is no small feat, which is why dynamic pricing software is so essential for brands who utilise a D2C sales channel. As Roger van Engelen, Principal at A.T. Kearney, told Omnia in a 2018 interview: “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” Keep in mind that most major retailers are already using dynamic pricing software for their e-commerce shops and to ensure products are competitively priced. As a brand, the software can help you follow a market price even within strict limits. No one wants a market-wide price race to the bottom, or to anger retailer partners. To stay better aligned with your partners and pricing strategy, and to start gathering better data on your shoppers, try Omnia Dynamic Pricing free for two weeks.

Dynamic Pricing, Pricing, E-Commerce

22.06.2023

How do brands become and stay relevant?

Are there any brands you used to love as a kid that are no longer around? What about brands that have lasted from before your childhood until the present day? Looking at the differences between these long-established brands and the ones that didn’t last can offer valuable insight for today’s brands: How do you become and stay relevant long into the future? What is the difference between Nokia or Blackberry, who were extremely popular in the early 2000s in the mobile telecommunications category but couldn’t evolve to keep up with the market, and Apple or Samsung, who are the current market leaders to this day? In this article, Omnia identifies some key lessons to be learned from established brands that have stayed relevant over time, as well as highlighting some real-world success stories. Lessons from established brands that have managed to stay relevant 1) Be intentional about your pricing and discount strategy Different brands will approach pricing in different ways, as they should – each one is different. Think of a luxury brand selling high-end clothing: Customers go to this brand with high expectations of quality and status. They also know in advance that they will pay a high price for those goods, and likely don’t expect many discounts. With a low-cost brand that targets more price-sensitive consumers, however, price is the main decision factor, and discounts may be expected more often. Both of these strategies are valid; what the most long-lasting brands have in common is that they are intentional about their pricing and discount strategy. Brands have to consider questions such as: If you offer discounts, how will discounting impact our brand image? Will our customers see us as a discount brand? How will this impact our margins? Is it a viable long-term strategy? What else can we do to ensure our perceived value isn’t tarnished, for example, better service or impressive packaging? If you don’t offer discounts, how can we promote our products without discounting? Should we offer loyalty programmes or find another way to capture data? Should we offer special services to differentiate from other brands? There’s no right answer, although it’s worth mentioning that many brands who choose not to discount can stay relevant and offer value to customers through other promotions like BOGO, free shipping, money-back guarantees, bundling and more. Let’s look at two examples of long-lasting, established brands that have managed to hold onto their reputations in the market – even with different discount strategies. Dyson A household appliances company founded in the UK in 1991, Dyson started by making vacuum cleaners and has grown its product assortment to include hair dryers, air purifiers, bladeless fans and more. The company and its founder, Sir James Dyson, are known for their technological innovation of everyday household products. Dyson heavily leverages brand loyalty and the company’s reputation for high-quality products, which enables them to charge higher prices. While the company does offer D2C discounts on its website, the customer base is willing to pay the premium price point upfront because they know the product will last. Dyson vacuum cleaners, for example, can cost over $700, making it the most expensive vacuum on the market. Talk to one of our consultants about dynamic pricing. Contact us Ortlieb On the other side, German bike wear brand Ortlieb is well-known in the market for never giving discounts. Because this is an intentional strategy, the company has used it to maintain a strong brand image, along with other benefits like a five-year guarantee, waterproof products and German manufacturing. 2) Remember the product life cycle Successful brands have a deep understanding of their own product assortment and where each offering is in its product life cycle, or PLC. When brands strategically align pricing with each stage of the PLC, they avoid endangering revenue from retail partners and instead price alongside the market. A brand’s pricing strategy over the course of the PLC may look like this: Different groups of products can then be priced according to their stage in the cycle. For example, the maximum discounts set by the brand will likely rise over time and be highest during the decline stage, as the brand sells off product to make room for new assortments. The PLC can also guide distribution strategy. Many brands may want to sell older products through retailers and keep the newest collections on their own D2C channels, enabling the brand to focus on those new product lines. 3) Be careful about competition with your retailer network Many successful brands use a combination of D2C sales and retail partnerships, whether they started with traditional retail strategies and added D2C or vice versa. This is an effective strategy to diversify sales and reach new customers, but it’s important to mitigate the risk of competing with your retail network. There are a number of factors to consider here. One way to avoid competition is by differentiating product assortments between D2C channels and retail. Research from McKinsey shows that brands who get their product assortment right achieve higher sales, better margins, more loyal customers and leaner operations. One example of this is speaker company Sonos, which launched a retail partnership with IKEA in 2019. Sonos developed a line of connected speakers just for IKEA that blended into the home environment: One as a lamp and one as a small bookshelf. The product line is only offered at IKEA, and while it maintains some core benefits of Sonos – high-quality sound and the ability to control through an app – it is differentiated from core D2C offerings, lessening the risk of competition. Sonos VP of brand and marketing Pete Pedersen said this about the partnership: “The best partnerships are always those rooted in respect, admiration and complementary skill sets. IKEA has been a terrific partner and we couldn’t be happier with the collaboration. Together we’ve pushed boundaries on form factors, materials, packaging and go to market strategies. IKEA’s massive global presence has also helped bring Sonos into many new territories where we might not have otherwise been.” It’s also crucial to be cautious and avoid competing on price. Successful brands don’t undercut their own distributors and resellers. For example, if a brand drops a price on any of its products in D2C channels, its retailers will probably follow. Instead, brands that stay relevant aim to keep a good balance; staying up to date and matching prices in the market, but also avoiding sending prices “to the moon”. Dynamic pricing software is key to automatically adjust pricing across channels based on predefined pricing strategies and rules. 4) Build a brand image that reaches different generations To stay relevant as a brand, companies have to build a brand image that resonates and lasts. This means not only building up a culture and community around the brand through marketing, but also ensuring that the younger generations, who will become top spenders soon, continue to find the brand interesting. If a brand relies on the first generation of buyers it has, even if it was highly successful with those buyers, then eventually its customer base will age out and there will be no one left to replace those sales. What kinds of marketing tactics can build up a relevant brand identity that reaches younger generations? Let’s look at Gen Z specifically as an example. This set of buyers expects brands first and foremost to act and market based on their values. Nearly half of Gen Zers say that a brand “appearing trustworthy and transparent” motivates whether they engage or not. Language, acronyms and jokes that are relatable in the present moment are also important, although pushing too hard on this can feel inauthentic or even cringe-worthy. Other marketing tactics that work for Gen Z: Influencer marketing, funny or entertaining campaigns and TikTok videos. Fenty Beauty, Rihanna’s beauty brand, is a great example of building a consistent brand image that grows with its customers and reaches younger generations. Fenty ran a campaign to find a model for a 2023 campaign and asked customers to submit their own content using the hashtag #TheNextFentyFace. This turned every customer who posted into a micro-influencer, while also building up Fenty’s own image as a brand for everybody. 5) Use the right technology Of course, to remain relevant, brands must keep up with current technology and evolve the customer experience over time. Some older brands have a hard time adapting to changing times and technologies, but those are typically the ones that don’t last. Established, relevant brands use technology to build best-in-class online and omnichannel experiences: Personalisation: Utilise technology to gather customer data and preferences, enabling personalised shopping experiences. Implement recommendation engines that suggest relevant products based on customer behaviour, purchase history and demographic information. Mobile optimisation: With the increasing use of mobile devices for online shopping, it's crucial for e-commerce brands to have a mobile-friendly website and dedicated mobile apps. Optimise the user experience for mobile devices to ensure seamless navigation, quick loading times, and easy checkout. Artificial Intelligence (AI): This is especially top of mind in 2023 with the rise of ChatGTP and other large language models. Brands can leverage AI to automate and enhance various aspects of the e-commerce business. Use chatbots or virtual assistants to provide instant customer support, automate customer service inquiries and offer personalised recommendations. AI can also be used for inventory management, demand forecasting and dynamic pricing. Social Commerce: Leverage social media platforms to drive sales and engage with customers. Use technology to enable social shopping features, such as "buy" buttons or in-app checkout options, allowing customers to make purchases directly from social media platforms. Data Analytics: Brands that stay relevant capitalise on all customer data available to them, gaining insights into shopping patterns, preferences and trends. Use advanced analytics tools to optimise marketing campaigns, personalise offers and identify new opportunities for growth. It’s crucial to stay updated on the latest technological advancements, industry trends and available tools. Any brand not paying attention to these may find itself quickly irrelevant. Maintaining customer trust = maintaining relevance as a brand At its core, brand relevance is about winning and maintaining the trust and loyalty of customers over time. To do this, a company must build up its brand reputation and network of retail partners, intentionally choose its pricing and assortment strategies, utilise the right technology and continue to offer clear value to the customer. Do all of this while staying true to your mission, values and who you are as a brand, and you might just be the established brand we’re all using as a success story 10 years from now.

Marketing, Omnichannel Retail, Direct to Consumer

14.06.2023

Amazon European Expansion Accelerator: What does it mean for sellers?

Amazon Europe is experiencing a shake-up designed to increase the e-commerce giant’s profits and market share, opening its European sellers to nine new markets across the region. On April 18th, Amazon announced a new offering called the European Expansion Accelerator (EEA) which is meant to enable sellers to expand to a list of additional EU and UK stores in just “two clicks and in less than three business days”, the announcement said. Amazon European Expansion Accelerator will affect a range of stakeholders Impact on Amazon sellers According to Amazon, businesses must be registered as a professional Selling Partner with at least one active Amazon Europe account in order to use the EEA. They can then choose which market(s) they want to expand into. According to the company, benefits of the program are: Time and resource savings Expanding business reach Automated scalability Diversified revenue streams It’s clear from the announcement that this new solution is aimed especially at small-to-medium businesses (SMBs), as it discusses being able to expand business with little money or effort. However, some key points were left unmentioned and there are definite concerns sellers should be aware of before using the EEA. First, if sellers are going to be able to cover additional costs like storage, shipping, or potential customs charges, they will have to sell sufficient product volume via the marketplace. Although Amazon makes it sound like internationalisation will be simple and sellers will make quick money, it’s important not to underestimate the advertising budget that may be required. Running ads on Amazon can get expensive, especially in the more crowded verticals, with an average cost-per-click (CPC) of €0,75 ($0.81) while the average for advertising elsewhere falls between $0.05 and $10 (€0,04 and €9,24). Additionally, Amazon only mentioned legal provisions like sales tax very briefly in the announcement, while other major areas like customs were not mentioned at all. For sellers who are considering UK expansion, however, customs will be a significant factor. With the changes brought on by Brexit, the “red-tape curtain" has become very expensive, costing businesses an average of 8 - 9% for both exports and imports of goods and services. Other factors like language translation should be considered as well, as the EEA doesn’t include search engine optimisation for translated texts. There are both benefits and challenges presented by the EEA offering, and sellers should consider both sides before making a decision about whether to participate. Impact on consumers There are currently hundreds of millions of monthly visitors across Amazon Europe stores, and the EEA has the potential to show them more shops, vendors and products than ever before. According to Amazon, there were more than 86,000 third-party sellers with Amazon EU marketplace sales of at least $100K in 2020. This number has likely risen and will continue to significantly grow going forward. How this will affect shopping choices and pricing remains to be seen as the program ramps up. We can assume the range of products available will increase, and pricing may become more competitive for sellers, and attractive for shoppers, as vendors from different regions enter EU stores. Impact on other marketplaces Amazon is likely to see an increase in EU sales with the EEA as new sellers gain access to these markets and consumers have access to more product and vendor choices. However, other existing marketplaces with a European presence, such as Zalando or Bol.com, may see a small decline in investment as sellers expand to the Amazon platform. Leon Curling-Hope, Omnia Retail’s Head of Marketing and Insights, says this of the EEA’s impact on other marketplaces: “I believe that this will be short-lived due to the long-term nature of the Amazon business. We need to take a step back and see Amazon as a marketing platform like Google Shopping, where it forms part of the ‘marketing mix’, but not a silver bullet.” As for how those other sites may react to the changes at Amazon, Curling-Hope observed the challenge for local marketplaces to compete with the retail giant. “Local marketplaces face the challenge of competing with Amazon's vast product selection, efficient logistics, and aggressive pricing strategies. We could see them become or attempt to become more efficient here in one or more of these verticals.” Talk to one of our consultants about dynamic pricing. Contact us What does this mean for pricing on Amazon? From the seller’s point of view, the EEA has some intriguing potential for better pricing strategies across EU markets. Sellers who use dynamic pricing software will be able to remain competitive in local markets and automatically adjust pricing based on local competition and market signals. We can expect to see more offers on the local market due to the opening of the EEA and the opportunity for more sellers to sell across borders. On Amazon’s side, the EEA is likely to increase the company’s power in the EU and the UK. By analysing their vast amount of data on local demand and competitor pricing, Amazon can adjust its prices to offer the best possible value to customers while maximising profits on their own product offerings. With dynamic pricing software, sellers will remain competitive and quickly spot when new entrants join the market, automatically adjusting pricing strategies accordingly. For example, if a new market entrant from another country has a better product offer in terms of price, this doesn't mean that you need to compete with him on price; you will first want to check on a variety of factors: whether this is a relevant competitor or not, vendor reviews, shipping costs, delivery time, stock levels and more. The pricing rules set by the seller in their dynamic pricing software ensures that every relevant factor will be executed automatically. See how Dynamic Pricing from Omnia can help you automate your pricing strategy across Amazon, across countries and all other e-commerce channels.

Omnichannel Retail, Amazon, E-Commerce

01.06.2023

The Buyer Journey: Where Do Consumers Start Their Product Search?

In 2023, there are approximately 2.64 billion digital buyers, accounting for one-third of the global population; a huge pool of shoppers for e-commerce brands and retailers to sell to. But competition is fierce, and with the average conversion rate sitting at just 1.64%, it’s crucial for businesses to do whatever is necessary to get more shoppers to the checkout button. Having a better understanding of the buyer’s journey, and how each online shopper starts their product search, is a key step in boosting conversion and sales. In this article, Omnia breaks down the latest statistics on product searches in the buyer’s journey and offers three ways brands and retailers can capitalise on this information. Breaking down the E-commerce buyer’s journey and product search The buyer’s journey framework can be described with a number of stages, but the simplest version has three: Awareness, Consideration, and Decision. Since we’re discussing specifically how consumers carry out their product searches, we’ll be focusing on the Consideration stage, where someone is aware of their pain point and is looking for the right solution. Where do consumers start their product search? According to research from Jungle Scout, a majority of consumers (56%) in the US start product searches on Amazon in 2023. 42% use search engines and over one-third (37%) use Walmart.com, with the other top sites being social media platforms. The percentage of US consumers starting product searches on Amazon, search engines and Facebook has decreased since Q1 of 2022; while Walmart.com, YouTube, Instagram and TikTok have grown their share. TikTok is the fastest-growing source for product searches, with about 36% more consumers using the app for this purpose compared to last year. TikTok’s user base skews younger, and among Gen Z, 43% are using TikTok to search for products. Another study of the EU5 (Germany, the UK, France, Italy and Spain) and the US found that 66% of consumers start their product searches for all categories on Amazon rather than on Google or other search engines. Out of this group of countries, the numbers were highest among Italians, with 74% using Amazon as their main prodct search engine; and lowest with the French, where 61% search most on Amazon. Talk to one of our consultants about your pricing and how it influences product search. Contact us How brands and retailers can capitalise on the E-commerce buyer journey Looking at the e-commerce buyer’s journey statistics above, there are a number of ways brands and retailers can utilise this information to increase sales and use resources more efficiently. Here are a few areas to consider: 1) Traffic and Conversions The statistics above on where product searches originate is a helpful baseline to see which channels are being used most often by consumers in the “Consideration” stage. Companies should certainly use this information to guide their strategy, but it’s also true that the most successful channels may vary by retailer or brand. Each seller should review which channels are bringing the most traffic and which have the highest conversion rate. These should be prioritised when allocating effort and resources for ads and product listings. However, the strategies utilised on the most successful channels can also be imitated on other sites to reach even more potential buyers. 2) Price Elasticity The channels used by your buyers is a deciding factor in the price elasticity of demand for your products. For example, if you highly depend on Comparison Shopping Engines (CSEs) like Google Shopping, the price elasticity is higher for a number of reasons: product availability, the at-a-glance comparability of offers and the intention of users coming to CSEs to find the best price. If your customers buy directly through your online shop, price elasticity is less elastic, because the user may already be a fan of the brand and is making decisions between product lines rather than focusing heavily on price. However, both may be included in your consumer’s journey, if they first research on the direct brand channel, then watch for the price just before the buying decision. 3) Assortment and Pricing Strategy Knowing the importance of the different channels for your business and products, and their price elasticity, should guide your pricing and assortment strategies and how you price versus competitors. Any brand that has D2C sales needs to differentiate their assortment to avoid competition with their own retailer partners. When assortments are differentiated, such as when certain SKUs are only offered through D2C channels, the lower price elasticity can work in the brand’s favour. Our recent blog on differentiating product assortments goes into this topic in more detail. Meeting customers where they are with an omnichannel experience EuroCommerce, an organisation representing the retail and wholesale sector in Europe, put out their 2022 European E-commerce Report and included the following quote from Director-General Christel Delberghe: “The Covid-19 pandemic acted as an accelerator for online sales, as e-commerce quickly responded to the challenges of the Covid pandemic by ensuring continued access to producers and services to consumers. 2021 saw e-commerce sales continuing to grow, albeit at a slower pace as Covid restrictions loosened up. But consumers, many of whom had not gone online before, have seen the utility and convenience of e-commerce, and preliminary results from a study currently being conducted for us expect online sales to make up an average of 30% of retail turnover by 2030. The consumer journey has completely changed: our customers expect to be able to use various combinations of online and offline interaction. Retailers will have no choice but to invest in making their offering a seamless experience.” Omnia has seen this changing consumer journey in action among the e-commerce retailers and brands we work with. As customers grow to expect a more seamless omnichannel experience, it will become increasingly important to win sales on the platforms where the initial product search begins, whether that be Google, Amazon, TikTok or another site.

Consumer Behaviour, E-Commerce, Online Marketing

25.05.2023

How vendor ratings influence consumer behaviour in e-commerce

Picture this: It’s the 1980s. The Iron Curtain hasn’t fallen yet. Hairstyles are big, and punk culture is bigger. There’s no internet yet available to the public. You want to buy something new – maybe a bigger television to watch all those new cable channels like MTV that everyone is talking about. How do you choose which TV to buy? At the time, you would likely have asked around, collected opinions from family and friends; maybe gone down to the local electronics store to ask the staff for help. There wouldn’t yet be a way for you to instantly compare every television brand on Earth and see what other buyers had to say about them. To younger consumers in the 2020s, this is hard to imagine. Seemingly every website that offers something for sale these days has some type of rating or review system to help you gauge the quality, credibility and price-to-value ratio of any vendor. These ratings influence our behaviour in countless ways, big and small. Today, Omnia is exploring the background of vendor ratings, how much weight they carry among consumers, the impact for D2C brands and more. An overview of vendor ratings, then and now If all consumers knew exactly what they wanted and bought directly from each brand’s D2C shop; if there were no middlemen or comparison tools, then vendor ratings might never have been necessary. But because the e-commerce landscape contains so many brands and retailers, between 12 - 24 million globally, it makes sense that consumers would want ways to compare the different offerings and sellers available to them online. The first online reviews started to pop up around 1999, mostly on sites like eBay. Eventually, there were three main sources where consumers could go specifically for reviews: RateItAll, Epinions, and Deja. Over time, there were further iterations, from Yelp and Facebook to marketplaces like Google and Amazon. The platforms using vendor ratings Marketplaces and comparison shopping engines (CSEs) are both used by consumers around the world to find and compare products and shop online. One survey found that more than 8 in 10 shoppers in the US make purchases on marketplaces at least monthly, while 35% buy on marketplaces at least once per week. Both marketplaces and CSEs connect buyers with sellers, with CSEs having the added role of helping shoppers compare vendors, products and their prices side by side. Along with marketplaces and CSEs, other pure review sites like Trusted Shops and Trustpilot are also popular platforms among consumers. Vendors with high ratings on these sites will often display the badges proudly on their website to demonstrate their credibility. One of the most influential similarities between marketplaces and CSEs are the ratings and reviews, which play a huge role in how consumers choose which vendor to buy from or which product to choose. Along with looking at the price, consumers will consider questions such as: How many ratings/reviews does each competitor have? How high is the vendor’s average rating? Which of the vendors I’m considering has the highest rating or most reviews? How much weight does a review have on consumer decisions? For vendors, the modern day rating or review is a form of word-of-mouth advertising, a name that comes from those friends and family recommendations you might have relied more heavily on before the Internet. Vendors who have earned a positive rating from past buyers are more likely to attract new consumers compared to those with a low rating or very few reviews. From the consumer side, the importance of vendor ratings and reviews, and how they impact purchase decisions, is well-documented: More than 99.9% of consumers read reviews when shopping online On a five-star rating scale, 3.3 stars is the lowest rating customers are likely to consider 96% of customers specifically look for negative reviews 49% of consumers worldwide say positive reviews are one of their top three influences for purchasing a product 91% of younger shoppers age 18 to 34 trust online reviews as much as personal recommendations Importance of reviews by generation The difference in impact of reviews on consumers of different generations is especially interesting. For example, let’s look at review recency: Nearly all consumers (97%) think the recency of reviews is at least somewhat important. Across all ages, many consumers also value the quantity of reviews, but 64% would choose recency if they had to pick between the two. Here’s how that choice differed across generations: The impact of reviews when shopping for costlier products showcases an even wider divide between older and younger consumers. When asked in the same survey if they read more reviews for expensive products, respondents said the following: How relevant are vendor ratings for D2C? Although they sell their products directly to buyers via their online storefronts, D2C brands are not exempt from the importance of ratings. Many also sell on marketplaces and most will have a presence on CSEs, so their ratings will be important and consumers will still want to compare similar products across different brands. Product reviews of comparable products from competitor brands may also have increased importance for D2C. The importance of reviews for different product categories There are also differences in rating impact depending on the product category. According to PowerReviews, electronics is the top product category for review consumption, while consumers purchasing categories like toys, groceries, and babycare rely less on reviews. Source: Power Reviews 2023 Prioritise fixing your ratings first Beyond all of the data points listed above that show the importance of vendor ratings, they also play a role in pricing strategy. However, it’s worth noting that a vendor with bad ratings should first work on fixing those ratings and increasing their quality before focusing on price optimisation. For vendors who have achieved positive ratings and are working on pricing strategies, you can use other vendors’ ratings to optimise pricing across channels. For example, you may not want your pricing software to automatically adjust your price to the cheapest offer on the market; instead, you want it to take into account the offers that are competitive on price and also come from a vendor with sufficient ratings. That way, you avoid a race to the bottom with competitors who aren’t actually at your level. Many vendors wonder how many reviews are needed to make a real impact on sales. There is no magic number; however, the data shows that even one review makes a difference. PowerReviews analysed more than 1.5 million e-commerce product pages on 1,200 vendor sites (brands and retailers) and discovered that when page visitors were shown anywhere from one to 100 reviews, there was a 76.7% lift in conversion compared to those who were shown zero reviews. Vendors with even more reviews saw even bigger increases in conversion: Source: Power Reviews 2023 As for how the average rating itself affects conversion rate, it’s no surprise that as the rating of a product increases, the conversion rate increases as well. Products in the band of 4.75 – 4.99 stars have the highest conversion rates on average. Interestingly, conversion rates drop significantly for 5-star rated products, down to about the same level as products which receive ratings of 3.00 - 3.49. This is because 46% of consumers generally don’t trust 5-star ratings, including 53% of Gen Z shoppers. Source: E-Commerce Fastlane To experience Omnia Dynamic Pricing, which allows you to automate any pricing strategy efficiently and at scale, set up a demo here.

Dynamic Pricing, E-Commerce

05.05.2023

Comparison shopping engines: How to optimise your presence

We live in a world of endless choice, and while the number of options can be exciting for shoppers, it can also be overwhelming. Comparison shopping engines (CSEs) have emerged as a valuable tool for shoppers to make informed purchase decisions and for e-commerce brands and retailers to increase online visibility and sales. But CSEs are not all the same; some, like Google Shopping, are huge generalist sites covering any product you can think of, while others are vertical shopping sites focused on specific categories. The most popular sites also vary by country, and each population uses them differently. In this post, Omnia discusses what consumers use comparison shopping engines for, the top sites by country, some benefits and challenges of selling on CSEs, and what we expect to see in the future. Consumers use comparison shopping engines to reduce choice overwhelm and find the best price As our global economy continues to accelerate, consumers are faced with an increasing number of choices and opportunities. This means that many consumers are overwhelmed by too many offers that they have difficulty evaluating. This is how CSEs first appeared in the 1990s: influential digital institutions wanted to create a solution that would keep internet users in contact with available products, assisting the shopper in making a purchase while reducing confusion and overwhelm. Comparison shopping engines have now become a significant piece of the tool belt for e-commerce businesses looking to increase their online visibility and boost sales by going head-to-head against the competition. CSEs allow customers to quickly view different products from multiple vendors, compare features and prices, and make informed decisions about what to buy. CSEs are often some of the highest ranking websites in their respective regions, and for brands and retailers selling on CSEs, the sites can increase visibility among shoppers who may not have otherwise found the business or products through other marketing methods. With Google, for example, Google Shopping results and ads appear either above the search results or on the right side of the page, guaranteeing users will see the products first. What consumers want out of a CSE One study cited in the International Journal of Advanced Computer Science and Applications asked respondents to define which characteristics of a CSE would determine its quality: 81% wanted the CSE to find a lower price offer 80.2% wanted the CSE to be easy to use 76.8% wanted the CSE to be accurate in finding the right offer 70.2% wanted to have access to additional information about the offer and/or supplier 58.7% wanted the CSE to also have ratings, comments, and evaluations from other buyers That first statistic is consistent with other studies and the conventional wisdom that CSEs are used first and foremost to find the best price, which makes sense considering that they are also referred to as “price comparison websites” CSEs are used across the world, but the most popular sites and categories vary No matter the country, there are shoppers looking for the best deal, so CSEs have a worldwide presence. Some of the most popular CSEs in European markets include: How CSEs are used varies by location, age group, income level, and other factors. In a study in the UK, for example, shoppers in the 35-44 age range were the most likely group to have used a price comparison website, with 75% saying they had shopped on a CSE before. Source: Statista CSE comparison: Google Shopping and Amazon Google’s CSE arm is Google Shopping, and it’s one of the biggest comparison sites worldwide. Users shop across the platform more than 1 billion times per day, with 36% of all product searches originating on the site. Meanwhile, 49% of all product searches originate on Amazon, which has more than 1.7 million sellers for shoppers to compare. There is a key difference between the two, however, since Amazon is a marketplace. While marketplaces may include some comparison features, such as filters and sorting options, they are not primarily designed to be comparison engines. Amazon has a vested interest in getting customers to the checkout button or, even better, buying their own branded products on the site. Google sees its role differently: In 2021, Google Commerce President Bill Ready said the following on a podcast: “We’re not a retailer, we’re not a marketplace… What we do want to do is make sure that on a Google surface, the user can discover the best products, the best values, the best sellers, and then seamlessly connect to those sellers. Most of the time, that actually means clicking out to that seller’s own website; it is not our goal to necessarily keep the user on our platform.” This is interesting to note for brands and retailers selling on either site, and other CSEs in general, as it indicates the key differences between the goals of the platforms themselves. While any CSE will still monetise the process through ads, transaction fees, or other channels, some such as Google may not take on as much of the responsibility of getting the shopper all the way to the purchase point. Because of this, Google Shopping may be a unique case that does not fit perfectly into either the marketplace or CSE bucket. Benefits and challenges of selling on CSEs While each comparison shopping engine comes with its own pros and cons for brands and retailers, some of the key benefits and challenges to consider are consistent across platforms: Benefits: Expanded visibility: Listing products on CSEs enables retailers and brands to increase their visibility to potential customers who are actively searching for products. Improved conversion rates: CSEs often attract customers who are further along in the purchase process, meaning that they are more likely to convert into buyers. Increased sales: As a result of the increased visibility and improved conversion rates, retailers and brands may see an increase in sales. Cost-effective advertising: Unlike other forms of advertising, CSEs often operate on a cost-per-click (CPC) model, which means that retailers and brands only pay when someone clicks on their listing. Challenges: Increased competition: CSEs are highly competitive marketplaces, with many retailers and brands vying for the attention of shoppers. If some competitors with the same product offer are out of stock, have fewer or worse reviews, or have different delivery options, then the ones leading in these areas can win the best position on the CSE. Those products will be more likely to be chosen by consumers who care about the quality and trustworthiness of the offer. Cost: While CSEs can be cost-effective, the CPC model can quickly add up, especially for smaller retailers and brands with limited marketing budgets. Product data management: Retailers and brands must provide accurate and up-to-date product data to CSEs, including pricing, availability, delivery options and product descriptions. This can be time-consuming and requires ongoing maintenance. Limited control: CSEs can have their own guidelines around product data, and retailers and brands may have limited control over how their products are presented on the platform. One interesting factor that can be both a benefit and a challenge is consumer trust, as it is dependent on the reputation of the specific CSE in general or in a particular market. In the UK, for example, a government study found that while most consumers trusted CSEs at least a fair amount across most measures, trust levels were much lower in two key areas: Half of consumers did not trust CSEs to ensure data is not shared with third parties without permission Four in ten did not trust CSEs to treat all suppliers equally On the other hand, some comparison sites have built up a high level of trust in their markets. Check24, for example, has been operating since 1999 and is highly trusted in Germany. Price is not the only competition factor on CSEs While price is the determining factor of a product’s visibility on a comparison search engine, vendors will not only compete on who has the cheapest price. As we explored earlier, there are other factors that influence the quality and trustworthiness of an offer for consumers. When developing pricing for CSEs, sellers should consider the following factors in their strategies: 1) Filters Sellers should filter who they would like to compare product offers with and who they will adjust prices in relation to. Not every competitor will be as important to each seller; for example, even if a seller has a very competitive price, if they are a small retailer or a newcomer with an unknown name and no reviews, they won’t appear to be as trustworthy to a consumer compared to a well-known retailer the consumer trusts for fast and secure delivery. The seller may want to skip adjusting prices to these companies. 2) Market knowledge It’s important for sellers to know their market and differentiate pricing strategies between assortments and categories. For example, if you sell sporting t-shirts and sporting shoes, each market and product may have a different set of competitors, so a market analysis will be a crucial starting point. 3) Timing of price adjustments If you adjust your prices in the morning at 8am and your competitor(s) adjust theirs at 9am, then your offer will already be outdated after an hour. You can learn this through market observation, which is made simpler with Omnia’s data. 4) Price elasticity Price elasticity tends to be quite high on CSEs, so be aware and, if possible, analyse data for the platform to build the right pricing strategy for your products. Omnia has a feature in place to calculate price elasticity, as well as a process for elasticity accuracy in our software. 5) Seasonality Any seasonal factors that impact your product assortment should be taken into account when setting a pricing strategy. Special sales events like Black Friday will start with a pricing strategy weeks before, while also seeing increased competition. The same goes for Christmas shopping, when sellers need to keep delivery dates in mind for shoppers who want their products by Christmas eve, and how prices might change along with this. Seasonality shapes consumer behaviour and shopping needs throughout the year, so it is a good idea to have important dates and periods prepared for the whole assortment. 6) Channel alignment Aligning the offers you provide on the CSE with all other sales channels will be important for consistency. Considering the specific conditions of each marketplace and CSE in price calculations will lead to different prices. However, having automation and an overall pricing strategy, with rules such as rounding to a particular digit, will help properly represent the vendor in the market and easily master all different channels. The future of comparison shopping: Where do CSEs go next? With the world of e-commerce changing so rapidly, what can we expect of comparison shopping in the future? Increased use of AI and Machine Learning: Comparison shopping engines will increasingly leverage artificial intelligence (AI) and Machine Learning to provide more personalised and targeted search results to shoppers. This will result in more accurate product recommendations and better user experiences. Deeper integration with social media: Comparison shopping engines may integrate more deeply with social media platforms such as Instagram and TikTok to allow shoppers to make purchases directly from these platforms. This could result in an increase in impulse purchases and a greater focus on social media marketing for retailers. More focus on the changing customer experience: CSEs will need to continually adapt to provide a seamless, up-to-date customer experience. This could include developing mobile-specific features and interfaces, such as voice-activated search and augmented reality shopping, as well as loyalty programs or new payment models. Shifting competition: CSEs will face new types of competition as brands and retailers rethink their own selling models. Will more brands choose to sell D2C? Will retailers use their own experience selling branded products on marketplaces to produce their own labels? As costs rise amid inflation and other world events, retailers and brands will look for alternatives to increase profits, which may create competition for marketplaces from new angles. Greater emphasis on sustainability: As consumers become more environmentally conscious, comparison shopping engines may need to emphasise sustainability in their search results. This could include highlighting products with eco-friendly certifications or partnering with brands that prioritise sustainability. Growing regulatory attention: Comparison shopping engines may face increased scrutiny from governments, particularly in the areas of data privacy and antitrust. This could result in greater transparency requirements for the engines and stricter rules around data collection and use.

Dynamic Pricing, Pricing, E-Commerce

20.04.2023

Product Life Cycle: Pricing strategies for brands in the PLC

Living beings are not the only ones impacted by the circle of life; products have their own version, from birth (introduction) to death (decline) in the market. The Product Life Cycle (PLC) does not just happen to companies, however; it can be used to their benefit when pricing is strategically aligned with the different stages of a product’s life cycle. In this article, Omnia explores the typical brand pricing mentality and how those brands, especially ones using the D2C channel, can strategically price products based on their life cycle. D2C pricing strategies of brands and retailers Many brands with an omnichannel strategy start selling D2C without having clear goals defined for the channel. If an objective is defined, it is often something to do with getting closer to the end customer; but revenue growth is typically not the main objective of the D2C channel. Why is this? Largely because of retailer relationships and trying to avoid competition with one’s own retail partners. Brands with D2C sales still depend on their retail network, so they need to ensure they are not endangering revenue from those retail partners. Brands take their retail network’s prices into account and will mostly choose to be a late follower, meaning the brand does not follow the cheapest price in the market. Instead, it keeps its price at a certain level for a period of time to give retailers more flexibility and the chance to sell their products first. This strategy also helps brands to earn good visibility in the market for new products. The resulting pricing strategy is not to offer the cheapest price, which could also erode brand identity, but instead to price alongside the market. The role of PLC in brand pricing strategies For brands, the pricing strategy throughout the PLC may look like this graphic: Following the pricing of the market requires brands to be aware of where each product in their assortment is in its PLC and how the pricing should adjust to match. Defining the length of a product’s lifespan can be challenging, and conventional wisdom is often that PLCs are shrinking over time; however, there is no strong empirical evidence of shortening PLCs at the product category, industry, technology, or model level. To weave Product Life Cycle into the “follow the market” pricing strategy described earlier, brands should start by building groups of products according to their stage in the cycle: Pricing tactics can then be assigned to each product group. Brands should define the maximum discount, or price boundary, for each group and define how the market price will be followed; for example, D2C will have the cheapest price, or 5% over the cheapest price, and so on. Depending on the PLC stage a product is in, brands should define allowable ranges for discounts. Usually, the scale of discounts would increase over time, as a product moves toward the end of its life cycle. For example, let’s consider a hypothetical furniture brand called ABC Couches. The brand’s “Super-blue ultra-comfy couch” launches in 2023 and has the following price boundaries. Introduction stage: Maximum discount given in the market is 10% Growth and maturity stages: Maximum discount given in the market is 15% Decline stage: Maximum discount given in the market is 30% Of course, brands cannot base their pricing strategies for D2C products solely on the Product Life Cycle. Other factors, like seasonal promotions, will also play a role. Talk to one of our consultants about dynamic pricing. Contact us The intersection of seasonal promotions and PLC Seasonal promotions are not completely separate from pricing based on Product Life Cycles; in fact, they can work together for a successful brand pricing strategy. The strategic goals of a seasonal promotion can differ by PLC stage: Introduction stage: When a new product launch is timed to coincide with a seasonal sale, promotions could be used to accelerate the launch. Growth stage: Seasonal promotions are used to continue growth of the product. At this stage, brands are more focused on demand-based pricing, so that will be a factor. Maturity stage: Brands trend toward competitor-based pricing in this stage, so seasonal promotions may be used to match or win versus competitor products. Decline stage: A promotional program or seasonal discount can be used to sell off a current item if a new or updated product is launching soon. This may also temporarily improve the sales outlook during the decline stage, but any improvement stemming from a non-product tactic is likely to be short-lived. As mentioned previously, brands will typically take into account the prices offered by their retailers when using seasonal promotions. If their aim is to price alongside the market, then they will want to ensure any seasonal discounts do not drastically undercut their retailer partners. Brands will also need to consider other potential effects of reducing a price: From how consumers and competitors will respond to how it could impact brand identity. Other factors that impact Product Life Cycle and pricing One size does not fit all when aligning a brand’s pricing strategies with the Product Life Cycle. A number of other factors may be at play when setting a pricing strategy. How PLC differs between verticals Finding statistics on the “average Product Life Cycle” is almost impossible, because it is so dependent on the specific product, vertical, category, and other factors. But while we cannot define an exact length of time for the average PLC, it is interesting to look at the difference in PLC length relative to other verticals. For example, fashion is known for having relatively short Product Life Cycles compared to other verticals. Most fashion brands operate based on seasons, releasing new items in preparation for each new season. While seasonality, both holiday-driven and climate-driven, and Product Life Cycles are not the same, some products, particularly those that are part of a “fad” or fast fashion trend, may see their Decline stage (end of life) as soon as the end of the season arrives. Other products, like basics, may have a much longer PLC. And then there are the products that have multiple life cycles; for example, fashion trends from the 90s that went through their Decline stage and have since come back into style, with updated versions increasing sales in the 2020s. Shorter Product Life Cycles mean that fashion brands will have different pricing strategies and may change pricing more quickly and often compared to other verticals. PLC-based pricing strategies across different channels Depending on the channel, pricing strategies based on the Product Life Cycle may need to be altered. Brands could decide that products in the Decline stage, also called End-of-Life or EOL products, might be sold only online rather than in physical stores. While retailers can benefit from the traffic of seasonal sales to sell of EOL products, D2C brands have few or no physical stores, and the ones they do have work differently than traditional retail. Another example would be differences in location. Seasonality is flipped depending on the hemisphere, so the Product Life Cycle and seasonal pricing strategies would be different in Europe versus South America. The PLC of campaign-specific products Consumers are also looking at user-generated content such as reviews, ratings, and recommendations, which can serve as powerful motivators to buy. While influencer marketing is certainly widely used, consumers say they are most likely to take product recommendations from everyday users like friends and family (37%) versus subject matter experts (25%), celebrities (7%), social media influencers (6%) or even the brand’s social media account (8%). Some products are designed and created only for special marketing campaigns, such as promotions run by or through celebrities. These products may only be sold for a limited time, giving them a predefined Product Life Cycle and different pricing strategy. One example of this would be Kyle Jenner’s Birthday Collection that sold out in 30 minutes and was restocked, but only available until her birthday on August 10th. To effectively price based on PLC, brands need Dynamic Pricing Pricing products according to their stage in the Product Life Cycle can be an effective strategy, but this requires the right data and automation to maximise the impact of promotions. Businesses can use dynamic pricing technology, also called real-time pricing, to automatically adjust prices to account for changing demand, competitor prices, market fluctuations, and other factors. This allows companies to capture more revenue by deploying the right price, on the right channels, at the right moment. Source: Hubspot Using a solution like Omnia Retail’s Dynamic Pricing makes it simple to run both planned and dynamic promotions, so brands can maximise sales of the full range of their product assortment from introduction to end-of-life. Try it for free.

Retail Trends & Research, Consumer Behaviour, Online Marketing

14.04.2023

The Impact of Social Media on Consumer Behaviour in e-Commerce

In recent years, social media has grown from a simple communication tool to stay in touch with friends and family to a powerful channel influencing consumer behaviour in e-commerce. With the rise of shopping online coinciding with the popularisation of “social commerce” on platforms like TikTok, Instagram, and Facebook, consumers can now discover, research, and buy products on the social media apps where they are already spending an average of 2.5 hours per day. To compete in the modern e-commerce space, it is essential for businesses to understand this dynamic and adapt their strategies accordingly. In this guide, Omnia will discuss the current landscape at the intersection of social media and e-commerce, discuss its impact on consumer experience and behaviour, and offer some ideas for how brands and retailers can capitalise on the opportunity of social commerce. The growing importance of social media in e-commerce In the early 2000s, the first mainstream social media platforms like Myspace and Facebook focused heavily on text content, with users sharing content with friends or followers in the form of written updates and statuses. With the launch of Instagram and Snapchat, the industry started to trend more toward mobile, images, and video content, and this has only continued with the explosive growth of TikTok. Source: https://www.smartinsights.com/ecommerce/ecommerce-strategy/social-commerce-trends/ In recent years, social media platforms like TikTok, Instagram, and Facebook have increasingly become popular avenues for online shopping and product research, a phenomenon referred to as “social commerce”. According to Accenture, social commerce is set to grow three times faster than traditional commerce in the next few years, reaching $1.2 trillion by 2025. This growth will be driven primarily by Gen Z and Millennials, who will make up 62% of global social commerce spending by the same year. However, purchasing products through social media is not the only way the platforms impact online shopping; in fact, this is a newer development. Platforms are also used to research or gain inspiration: 75% of all internet users use social media to research products 28% use social media to find inspiration for things they can do or purchase 23% use social media to check what content is being posted by their favourite brands Unlike traditional e-commerce giants like Amazon, which excel when consumers know what they want to buy, social media offers a unique browsing experience that allows users to "window shop” online and discover new products through engaging content. Talk to one of our consultants about social commerce and pricing. Contact us What are consumers buying through social commerce? An Accenture report predicted by 2025, the highest number of global purchases through social media would be in the categories of clothing (18%), consumer electronics (13%), and home decor (7%). Beauty and personal care is also predicted to grow quickly in key markets, and fresh food and snack items will be a sizable category (13%), although those sales are almost exclusive to China. E-commerce customer experience on social media The shopping experience on social media can differ from traditional e-commerce. While mobile makes up for approximately 43% of e-commerce activity, social media platforms are used on mobile devices about 80% of the time. This has led to an increased focus on delivering seamless and enjoyable shopping experiences tailored for smaller screens, as well as features allowing consumers to buy products without app switching or leaving the platform. Instagram and TikTok: The leading platforms in social commerce While most social media platforms include some sort of shopping capability, two of the most popular for social commerce are Instagram and TikTok. Instagram’s shopping section, which allows users to purchase directly from the app, took off starting in 2019. By now, users are able to access a shop on the company’s profile and buy via stickers in Instagram Stories, links in photo and video posts, and through ads shown in their feed. Instagram Shop and Instagram Checkout now have more than 130 million monthly users and there are more than 25 million businesses on the app. TikTok is one of the newest large-scale social media platforms, having only launched in 2018, but its rapid growth should make all businesses pay attention to the e-commerce opportunity it presents. Within its first year, TikTok reached 500 million monthly active users, and was the most downloaded app globally in 2022 with 850 million downloads, followed by Instagram and WhatsApp. While TikTok’s user base heavily skews toward Gen Z, adoption is growing with millennials, and these are the two generations that make up the majority of social commerce spending. Two out of three users say they are likely to buy something while on the platform, and 55% use TikTok to research new brands or products. How social media has changed consumer behaviour for e-commerce Even outside of true social commerce, where a customer buys something directly through the social media platform, the advent of social media has dramatically impacted consumer behaviour and decision-making in e-commerce overall: Research and inspiration: As mentioned previously, many consumers use social media to research products and find inspiration for what to buy. 87% of shoppers say they search or consult with social media before purchasing any item and 22% of consumers prefer social media as their channel to discover new products. Research online, purchase offline: This phenomenon, abbreviated as ROPO, is important for any business with an omnichannel strategy to watch. It refers to a consumer behaviour where shoppers research the product online, such as through social media, but make the final purchase at a physical store. Reviews and recommendations: Consumers are also looking at user-generated content such as reviews, ratings, and recommendations, which can serve as powerful motivators to buy. While influencer marketing is certainly widely used, consumers say they are most likely to take product recommendations from everyday users like friends and family (37%) versus subject matter experts (25%), celebrities (7%), social media influencers (6%) or even the brand’s social media account (8%). Discounts and promotions: Just like a funny video or engaging news story, discount codes and flash sales can go viral on social media, spreading rapidly and creating a sense of urgency around purchases. E-commerce social media stars: Brands who get it right Some brands just get it when it comes to social media and social commerce. Below are a few glowing examples of those who have successfully leveraged social media to drive consumer behaviour and sales: Glossier, CLUSE and Snug Glossier is what’s known as a digital native vertical brand, or DNVB, meaning it was born online and is a fully D2C business. Social media helped the company grow to more than $100 million in revenue within four years of launching back in 2010. A self-described content-first company, Glossier has a heavy social media presence with content created by influencers and followers alike, and has the mantra “Glossier is listening”, encouraging customers to help shape products and packaging. Founded in the Netherlands in 2009, CLUSE is a fashion brand that started e-commerce operations in 2014. The brand’s extensive use of Instagram, its social commerce features, and user-generated content has been key to the brand’s growth. Snug is a sofa-in-a-box company based in London. Much of its £31.6 million (about €35.9 million) revenue in 2021 was driven through social media, especially Instagram and Pinterest. Snug’s founder and CEO Rob Bridgman told Econsultancy that “people spend more time researching which sofa to buy than which house,” which is why the company focuses on making the purchase simple and accessible via social media. Social media will continue to play a key role in the customer’s e-commerce journey Using social media to market and directly sell e-commerce products comes back to a basic business principle: Meet your customers where they are. With the average user already spending nearly 2.5 hours per day on social media, giving them the convenience of seeing a recommendation or making a purchase right where they are is powerful. As customers grow more and more accustomed to this convenience, the area of social commerce is only expected to grow.

Retail Trends & Research, Consumer Behaviour, Online Marketing

12.04.2023

How to Find Success on Marketplaces: A Guide for Brands

In the competitive world of e-commerce, marketplaces like Amazon, Google Shopping, eBay, and Idealo have become key players, connecting buyers with sellers and offering a simple way to comparison shop. Amazon, for example, captures 37.8% of all e-commerce sales in the United States. However, while selling on marketplaces can enable brands to reach new customers and increase sales, it also has its disadvantages, including increased competition and decreased profit margins. To be successful in marketplace sales, businesses need to understand the role they play in retail and how to differentiate themselves among a sea of sellers. In this blog, Omnia will explore the realities of selling on marketplaces, best practices, while adding our predictions on the future of marketplace sales. The role of marketplaces in the e-commerce landscape Marketplaces exist to connect buyers with sellers. With so many e-commerce brands and retailers competing for sales – somewhere between 12 and 24 million worldwide – marketplaces have become key players in online sales, enabling customers to simplify comparison shopping. The coronavirus pandemic boosted the relevance of marketplaces as well, as customers looked for places they could buy many different products in one location. So how do the marketplaces actually make money? There are a variety of business models. Some charge commissions, where they receive a percentage of each transaction. There are general listing fees, featured listings, and ads where sellers can boost their products to the top of search results. Some marketplaces also offer to take part of the process over for the seller; for example, the Fulfilment by Amazon (FBA) model, when a manufacturer chooses to outsource shipping and warehousing to Amazon. In a survey from Digital Commerce 360 and Bizrate Insights, 84% of respondents in the US said they make purchases on marketplaces at least once per month. 35% buy from marketplaces at least weekly. Common categories for purchases differ by country and website, but below are some of the most successful shopping categories for top marketplaces: Talk to one of our consultants about dynamic pricing. Contact us The realities of selling on marketplaces As with any retail channel, there are benefits and challenges that accompany selling products on a marketplace. Some of the advantages and disadvantages include: Advantages Expansion: Marketplaces enable existing brands to expand their reach, whether from selling in new regions or reaching new customer demographics. Trust and traffic: Marketplaces provide a major advantage to new e-commerce stores: web traffic and trustworthiness. Buyers may be hesitant to purchase from an unfamiliar website, but they feel more secure making a purchase on a well-known platform such as Amazon. New revenue streams: Marketplaces provide new revenue opportunities to e-commerce businesses, allowing them to access new customers and increase sales. For example, Amazon claims that companies selling on their marketplace can increase sales up to 50%. Disadvantages Decreased profit margins: Transaction fees are a marketplace norm, so total profits from selling the same product at the same price will be lower than selling D2C from your website. With transaction, advertising, and fulfilment fees, Amazon can take up to 50% of a seller’s revenue. Increased competition: Raising prices to cover marketplace fees might not be such a simple option, as competitors may be selling similar products at a better price. Unless you're selling something unique, you'll likely need to compete on both price and visibility, which are highly connected and dependent on each other. Giving up control: The marketplace processes transactions and is the primary source for customer service. This means businesses will give up some control over their customer experience, data, and product perception compared to when they are hosted on their own websites. Selling through any third party where the business has less control will have implications for the customer experience. When building a marketplace strategy and choosing which marketplaces to work with, brands should keep in mind the concerns that customers may have: The graphic above shows that 45% of customers found that prices were higher on marketplaces in May 2022 compared to the past, indicating how little control a brand can have over its prices on a marketplace. Other challenges marketplace customers encountered also have to do with limited control over customer experience; longer lead times for delivery (36%) and products out of stock (35%) would be the fault of the marketplace if they run fulfilment, such as the FBA model at Amazon. Shipping fees (24%), limited assortment (21%), and customer service wait times (16%) are also dictated by the marketplace. 10 important factors for successful marketplace selling To successfully sell a brand’s products on marketplaces, businesses will need to make their product listings stand out, promote and advertise, differentiate from competitors and other channels, and more. High-quality product listings: Creating well-written, accurate, and detailed product listings that include high-quality images and videos can help attract potential customers and increase sales. When selling in a new market with a different language, consider working with a native speaker for translation or editing to ensure product descriptions do not sound like they came from an online translation service. Positive customer reviews: Positive customer reviews are a powerful tool for building trust and credibility. According to one US survey, nearly all (99.9%) consumers say they read reviews at least sometimes when shopping online. Encourage your customers to leave feedback on your products and services. Product assortment: Offering a diverse range of products can help attract more customers and increase your chances of making a sale. Ensure that your product selection is relevant to your target audience and differentiated as needed between marketplaces or retailers and your D2C channels. Strategic advertising: Marketplace ads and paid listings can boost the visibility of your items or store and improve search result rankings. However, be mindful of budget when engaging in any type of advertising. Optimization for search: Optimise your product listings for search engine visibility by including relevant keywords and phrases in your titles and descriptions. Promotions and discounts: Offering discounts can increase brand loyalty if a customer has bought from you before, but even more importantly in the competitive marketplace environment, it helps attract new buyers. According to RetailMeNot, 80% of consumers feel more encouraged to buy from a brand that is new to them if there is a discount or offer. Competitive differentiation: Differentiate yourself from the competition by offering unique product features or bundles. For example, if you are wanting to create a sportswear line, Nike and Adidas own the majority of customer sales in this category, however, is there something they are missing? Creating what is called a “challenger brand” is about finding a gap in the market and using it as the key to your success. Compliance with marketplace policies: Ensure that you comply with the marketplace's policies regarding product quality, returns, and refunds to avoid penalties and maintain your store's reputation. Stock levels: If a product is not in stock, customers cannot buy it; but the seller can also get penalised by the marketplace if its products are not consistently in stock and available for purchase. Pricing: Marketplace sellers need to constantly adjust their pricing to stay near the top of the results and avoid being undercut by competitors while still maintaining reasonable profit margins. Dynamic pricing software like Omnia enables sellers to automate the price and price perception management based on large quantities of data, ensuring products are always priced in a way that fits the company’s pricing strategy. All of the above factors, especially reviews, stock levels, and the quality of a competitor’s listing, can be used as additional data when formulating a pricing strategy. A vendor may choose only to compare and adjust its price with offers of the same quality, or might not adjust a price to match an offer if there is no stock available. All these factors are taken into account when automated pricing is applied. How the relationship between brands and marketplaces is changing The relationship between brands and the marketplaces they sell on has been evolving over time. Let’s consider Amazon as an example. Brands who want to sell through the retail giant can either offer their products as a vendor or a seller: Vendor model: Amazon's vendor model involves buying products directly from the brand-name manufacturer, then selling the products under their own label on their platform. Otto and Zalando operate with this model as well. Seller model: Under the seller model, brand manufacturers use Amazon purely as a platform to market and sell their goods, but ownership remains with the manufacturer until the goods are sold to the end consumer. One of the main differentiators between these models is price: Under the vendor model, Amazon sets the price; with the seller model, the brand sets its own price. This level of control is appealing to brands, and there is a trend in the current landscape of more brands moving from the vendor model to the seller model on Amazon, giving them complete control over their pricing. Some of this shift away from the vendor model is happening by force: Amazon contacted vendors telling them the company would be actively pursuing direct partnerships with brands beginning on January 15th, 2024. The future of marketplaces No one can predict the future, but while marketplaces surely are not going anywhere, the way brands and customers interact through this third party is likely to continue evolving in the coming years.

Pricing Strategies, Featured

30.03.2023

AI, ads, and pricing: How is e-commerce marketing itself?

One of the questions we see asked most often in the e-commerce and pricing space is this: As an e-commerce company, what percentage of sales should be invested in marketing? When it comes to the size of your marketing budget, and how the funds are allocated, there are many possibilities, some more impactful than others, and every business is different. Spending will differ between brands, retailers, and marketplaces as well. It requires careful planning, exploration, and analytics to uncover the best distribution of funds across channels and to ensure your promotional activities are effective. To help e-commerce businesses understand top areas of marketing investment in the current retail climate, Omnia is diving into the latest trends for the size of e-commerce marketing budgets and how those funds will be spent in the years to come. But before we discuss the future, let’s cover how we got here and the current landscape. Mass hiring and then firing: Factors laying the foundation for the change in marketing priorities The e-commerce industry as a whole experienced significant swings in sales during the COVID-19 pandemic and as it started to ease. Lockdowns encouraged consumers to buy online, and more than 100 million people worldwide shopped online for the first time, expanding the existing pool of two billion digital shoppers. While brands saw a more gradual increase in sales, retailers and marketplaces experienced a more drastic spike as customers looked for places where they could buy many products in one place. For example, Amazon experienced a 57% increase in sales during the second quarter of 2020. This significant growth trend, and the consumer demand that drove it, meant many e-commerce companies were increasing budgets and headcount to meet the moment. Hiring skyrocketed: The UK, for example, saw a 345% increase year-over-year in posted e-commerce management jobs in June 2021. Amazon added 427,300 employees in just 10 months, averaging 1,400 per day in 2020. Facebook added approximately 10,000 jobs in the same year. In keeping with the rapid growth they were experiencing, retailers made up 30% of all e-commerce job offers in 2021. Marketing budgets increased: One CMO survey found that while companies planned to spend 11.3% of their budgets on marketing in February 2020, by June 2020 that number had increased to 12.6%. On Facebook and Instagram, marketing spend increased by 50% between 2020 and 2021. As the pandemic has eased, however, the e-commerce spike has readjusted. 2022 brought about a number of challenges: high inflation, the war in Ukraine, and economic uncertainty, all of which have impacted the global economy and e-commerce companies of all sizes. Online sellers have seemed to align with the general downturn trend we have seen from software and tech businesses in North America and Europe, with marketplace giants like Amazon and eBay cutting thousands of jobs in late 2022 and early 2023, even amidst the seasonal holiday shopping period. Another group hit hard were home goods retailers, with Wayfair laying off nearly 10% of its workforce and Made.com filing for insolvency just 16 months after its IPO. Tightening purse strings across the economy mean companies are being more intentional with spending, and many marketers are being asked to defend their budgets. While Marketing Week found that Q4 2022 was the seventh consecutive quarter with a net increase in marketing spending, the falling axe still remains, as 86% of CEOs expect a recession in 2023 with marketing budgets usually the first to get slashed. Talk to one of our consultants about your next pricing strategy. Contact us How much do e-commerce companies spend on marketing? Calculating marketing budgets can be a tricky task even in a thriving economy: If you invest too heavily, you could be left in a bad financial situation, and if you don't spend enough, your products may go unnoticed and unpurchased. Alternatively, if you’re spending the bulk of your budget in the wrong channel or platform, your strategy needs to be reorganised. That's why staying flexible with your budget can ensure you're able to adapt to changes, stay on top of your marketing efforts, and be ready to scale as your business expands. That being said, it is helpful to have some benchmarks to work from. Data compiled by the US Small Business Association recommends B2C businesses like e-commerce companies should spend 7-8% of their revenue on marketing. However, other sources estimate average e-commerce marketing spending to be between 15-20% of revenue, with some spending up to 30% to acquire customers. A 2020 CMO Survey from Deloitte found that product-focused B2C companies are spending 15.9% of revenue on marketing initiatives. The wide range of 7-30% might seem unhelpful, but it gives a good general understanding of the marketing investment e-commerce companies make. Most would likely fall somewhere in the middle, with newer or ambitious companies spending more as a proportion of revenue to fuel growth and more established companies spending a lower percentage for steady, incremental growth. Within the context of our current environment, most marketers aren’t expecting to decrease budgets in 2023. A HubSpot survey of 1,000 marketers found that 47% said their budget would increase and 45% expected their budgets to stay about the same. Source: Hubspot E-commerce marketing budgets As we move further into 2023, we’re continuing to see new trends in usage of certain marketing strategies and the allocation of marketing spend among e-commerce companies. Any marketing strategy will be held up by some basic pillars: historically, many talked about the 4 Ps of marketing, but these days that framework is often extended to the Seven Ps of marketing: All seven pillars of the marketing mix are important, but some are experiencing more significant shifts in the current e-commerce landscape. For example, Promotion is constantly in flux due to the changing advertising environment. Although it is still only the third largest advertising platform, Amazon’s ad business is growing fast, while digital ad giants like Google and Meta are facing slowdowns in ad revenue. Elsewhere in the industry, Apple is exploring bringing more ads to iPhone apps but also rolled out a major privacy feature in 2021 that requires iOS users to “give explicit permission for apps to track their behaviour and sell their personal data, such as age, location, spending habits and health information, to advertisers.” This has significant ramifications for any company advertising to iPhone users. Digital ads and paid search aren’t the only avenue for promotion, of course. Other common channels that continue to expand in influence include: Content marketing SEO Email Social media Affiliate marketing Referrals One area that many companies are cutting budgets in is software, and e-commerce marketing teams are likely to be asked to cut their SaaS spending as well. Since there is a SaaS tool for just about any marketing need, cutting spending in this area could impact any of the Ps in the marketing mix, but will likely impact Process and People the most. At the same time, we are witnessing major advancements in AI, such as ChatGPT, which is already impacting tools across the marketing stack. More marketing budget may be allocated for AI-enabled software going forward to increase efficiencies in the marketing organisation. Finally, one P in the marketing mix is getting more attention in e-commerce than ever before – Price. And it’s with good reason: McKinsey found that improving pricing by just 1% can raise profits by 6%. That’s a far bigger impact than a 1% reduction in variable costs or fixed costs, which can boost profits by 3.8% and 1.1% respectively. During a time of inflation and economic irrationality, e-commerce companies are placing more focus on dynamic pricing and pricing software such as Omnia. According to Forrester, companies who use dynamic pricing can increase profits by as much as 25% . Enterprise companies in particular will often have a dedicated team to work with the pricing software, meaning their investment also extends to human capital. The e-commerce marketing budget can and should evolve over time For most e-commerce businesses, whether retailers, brands, or marketplaces, marketing budgets and their allocation will always vary. This could be due to the seasonal nature of your product, the evolving strategies of competitors, or how your quarter is going. Keeping your marketing budget stable as a portion of your company's revenue keeps you in a solid financial position, but it also means you'll need to re-evaluate marketing budgets when you analyse financial reports. The total budget amount and allocation will also need to be consistently revisited to ensure the team is keeping with current trends and using resources on the highest-performing channels. Make sure to check in with your marketing strategy monthly and quarterly, while ensuring your e-commerce team is maintaining their skills and knowledge in paid media, social commerce, and emerging marketing trends.

Retail Trends & Research, E-Commerce

28.03.2023

2023 trends and how stores can capitalise on an e-commerce slump

We all experienced the sudden, dramatic shifts in retail during the first year of the COVID-19 pandemic. Stores shut down, sales shifted online, and the number of ecommerce companies globally (excluding China) grew to 12 million. Large retailers and marketplaces saw significant increases in sales as customers searched for places that offered a wide variety of products in one place. Amazon, for example, saw sales increase by 57% during the second quarter of 2020. That was then – what about now? Today, we’re witnessing a new shopping era: a landscape that built upon many of those pandemic trends, but is still ushering in a comeback for brick-and-mortar. As we forge ahead in 2023, Omnia is exploring key retail trends in this new landscape and ideas for how brick-and-mortar retailers can make the most of the current e-commerce slump. Trends in the post-Covid retail landscape What does this new post-pandemic shopping era look like in practice? We compiled four retail trends in 2023 that are impacting brands, retailers, and consumers alike. 1) The slowing of e-commerce and uplift for brick-and-mortar The sudden spike in e-commerce sales in 2020, shown in the chart below, has readjusted over time. The e-commerce share of total retail fell in 2021 and 2022 after the initial pandemic jump. Prior to the pandemic, the growth rate of e-commerce had always outpaced overall retail sales. But since restrictions started to ease and physical stores started reopening again in mid-2021, the e-commerce growth rate has remained lower than the growth of retail sales. Meanwhile, brick-and-mortar is on the rebound. In the US and the UK, store openings are higher than store closures, with more openings than even pre-pandemic levels in 2019. Coresight Research tracked a year-on-year decrease of 55% in US store closures from September 2021 to 2022. In the UK, PwC reported a significant slowdown of closures from both before and during the pandemic, with 34 closures per day in H1 2022 compared to 61 per day in H1 2020. Source: Coresight Research The rebound for physical stores may be partially driven by some consumers making a conscious change. Globally, 47 percent of consumers said they were significantly more likely to purchase from brands who had a local presence. The strength of brick-and-mortar is expected to continue: Forrester research predicts that in 2024, 72 percent of US retail sales will still happen in-store. 2) Inflation may put a dent in sales volume, but it’s increasing the nominal value of sales With inflation hitting 40-year highs in 2022, many customers faced the challenge of wage increases not keeping pace with rising prices. People prioritised essentials over non-discretionary items, while also feeling the hit to their overall purchasing power. According to a Deloitte consumer survey, the share of respondents intending to delay large purchases has been steadily increasing since mid-2021. But even if this puts a dent in retail volumes, high inflation has also increased the nominal value of sales. Source: Deloitte This chart shows nominal retail sales vs. real retail sales since February 2020, with the two breaking apart starting in March 2021 due to the impact of inflation. Even though retail sales are down by 0.1% since that month, nominal sales have gone up 9.4%. 3) Brands are reclaiming control in e-commerce and DTC is growing Back on the e-commerce topic, another trend in this new shopping era is about big consumer brands reclaiming control. We’re seeing brands more frequently choosing to cut out retailers and intermediaries, instead selling direct to consumer (DTC) online. Why are these brands choosing to get more involved in their e-commerce efforts? A variety of reasons: it gives them more control, allows them to cut out non-value-added-retailers, and enables them to handle the volume of work and competencies they must fulfil. According to Dirk Hoerig, co-founder and CEO of commercetools, “The major downside of reliance on wholesale—or marketplaces, for that matter—is the watering down of the brand experience… Until a few years ago, most brands simply accepted this situation as a cost of doing business. Then, when the pandemic drastically weakened foot traffic to brick-and-mortar retail stores, many brands were pushed to invest heavily in their websites and other channels like social media that allowed them to sell directly to consumers. Now that they’ve seen the benefits of DTC sales—including stronger customer relationships and wider profit margins—they don’t want to go back.” One example of this is Nike. In February 2022, news broke that Nike would be sending less inventory to Foot Locker stores – its closest retailer relationship – in favour of expanding DTC sales. During their fiscal year ending May 31, 2022, NIKE Direct (the DTC brand) generated $18.7 billion USD of revenue, more than double that of FY2017. And they’re not alone. Growth in traffic to DTC sites is higher now than pre-pandemic – not the case for e-commerce, which has adjusted itself after the pandemic spike. 4) Owned sales channels creating competition with a brand’s retailers Brands today have sales and distribution channels ranging from their own webshops to retailers to marketplaces and platforms like Amazon However, having an omnichannel strategy including these owned sales channels does create an extra challenge. Brands stand in competition with their own third-party retailers when both are selling the same product. We’re seeing brands grapple with finding this balance. Not only are they needing to watch their retailers, but also their own retail strategy and prices to find the optimal mix. It’s because of this trend that Omnia Retail is placing more and more focus on dynamic pricing solutions for brands and DTC. Learn more about our pricing solutions for brands here. Talk to one of our consultants about dynamic pricing. Contact us How can brick-and-mortar retailers make the most of the e-commerce slump? Amidst all these changes, there lies a significant opportunity for brick-and-mortar retailers to use their current momentum and capitalise on the slowing of e-commerce. We saw above some of the evidence of this e-commerce “slump”. Another indicator is the rise in layoffs. Amazon, the biggest name in e-commerce, announced 18,000 planned job cuts in January 2023. Meta, the parent company of Facebook and Instagram and the biggest name in social e-commerce, laid off 13% of its workforce in November 2022 – the first time they’ve had to contend with layoffs in 18 years. What does all of this mean for brick-and-mortar stores? It means now is their time to shine, if they can effectively capitalise on the situation. Here are some ways physical retailers can stand out and compete for customers’ spending: Provide unique in-person experiences – After the pandemic, the value of in-person experiences cannot be overstated. Consumers want to get back to physical stores again. Remember: 47 percent of consumers said they were significantly more likely to purchase from brands who had a local presence. Brick-and-mortar stores can host events, personalise the shopping experience for each visitor, or even partner with other businesses to create something brand new. Remove friction in the buying process – It’s commonly said that online stores are where shoppers go for convenience. Brick-and-mortar stores that can remove friction in the buying process – i.e. make it simpler for people to buy from them – can capture business from customers who still want convenience but want to shop in person. For example: Offering a variety of payment options, an intuitive store layout, additional SKUs available for delivery or pickup, etc. And don’t forget to remind shoppers that when they buy in-store, they can have their products now instead of later. Embrace omnichannel strategies – Brick-and-mortar doesn’t have to mean only in-person shopping. For instance, brick-and-mortar stores can also offer online ordering with in-store pickup, deals on social media for in-person shopping, and more. Talk about sustainability – Shopping at brick-and-mortar retailers can reduce waste from shipping and packaging, something that is especially important for Millennial and Gen Z shoppers who see environmental issues as extremely important. What comes next? Retail is always changing, and the post-pandemic trends we’re seeing now will continue to evolve in the coming year. But if current trajectories continue, brick-and-mortar stores have a unique opportunity to stage their comeback. E-commerce growth rates are slower than the growth of overall retail sales. Layoffs among tech and e-commerce companies are not letting up. And nearly half of all consumers want to buy from brands with a physical presence in their area. With more and more brick-and-mortar stores opening every day compared to recent years, customers have plenty of options for in-person shopping. The question that remains is where they will choose to spend their money. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments.

Retail Trends & Research, E-Commerce

23.03.2023

E-commerce discounts: Types, benefits, and how to use them

In today's world, where online shopping is becoming more and more prevalent, e-commerce businesses need to be creative and strategic when it comes to attracting and retaining customers. One of the most popular and effective ways to do this is through the use of discounts and promotions. Uncertain economic conditions make this even more relevant: 60% of shoppers are actively seeking more coupons, offers, and discounts to help offset the higher prices they are paying across retail categories. In this blog post, Omnia explores the different types of discounts and promotions commonly used in e-commerce, the benefits they provide to businesses, and some best practices for using them effectively. An overview of discounts and promotions No matter what you call it – discount, offer, promotion, coupon, Rabat (Dutch) or Rabatt (German) – what we are discussing here is giving customers a chance to get an offered product cheaper or with an additional benefit. Let’s run through some of the typical promotional models seen in e-commerce as well as examples of the events or reasons why businesses would run a promotional campaign. Typical discount models Discounts and promotions come in many different forms, from monetary savings to freebies to rewards, and it's important for businesses to understand the various options available to them. Here are some of the most common types used in e-commerce: Percentage off: This is a straightforward discount that offers customers a percentage off the price of an item or order. For example, a business might offer 10% off all orders over $50, or a 15% discount for customers who subscribe to their newsletter. Coupons or fixed-amount discounts: Some brands and retailers offer coupons for a fixed discount, for example €10 off. Coupons are increasing in popularity, with the global mobile coupons market projected to reach $14.8 trillion by 2027. Free shipping: Many customers are deterred by shipping costs, so offering free shipping can be a powerful incentive to buy. Businesses might offer free shipping for orders over a certain amount, or for a limited time. Buy one get one free (BOGO): This promotion encourages customers to buy more than they originally intended. Businesses might offer a free item with the purchase of another item, also known as “two for the price of one”. Bundle or bulk discounts: Some products will be packaged in bundles, allowing customers to get a discount on what they would have paid for each item separately. Other times, discounts will be offered for bulk orders (e.g. buying a case of wine vs. one bottle). Loyalty rewards: Some businesses offer loyalty rewards programs to incentivize customers to purchase more frequently. They may offer special discounts or promotions that are only available to loyalty members, for example, free shipping with Amazon Prime or Zalando Plus. Some discounts and promotions are applied automatically to a customer’s cart at checkout, while others require a discount code to qualify the order for the deal. Curious about how discounts can be used in your pricing strategy? Talk to us now. Schedule a demo Examples of typical promotional events or campaigns Usually, e-commerce businesses have a reason behind their promotional campaigns, whether it be timing-related such as holidays, product-related like a new product launch, or something else: Timely discounts Time-based or seasonal promotions like Black Friday, Cyber Monday, winter holidays, and back-to-school season are common reasons for discounts to run. These tend to be high-volume time periods and brands and retailers offer promotions to win sales over competitors. Seasonal items may also be discounted during their low periods, such as swimsuits and summer sporting gear during the off-season. One example is this time-based discount for Black Friday from fashion brand Steve Madden: New products or clearance Brands may use offers to promote a new product launch, or use discounts to sell off a current item if a new or updated product will be launched soon. Promotions can help retailers to make space in their product assortment for new or higher-performing items. Nordstrom Rack has their “Clear the Rack” sales to make way for new products from brands: Data collection Retailers may run a campaign where they send a discount code to loyal customers such as subscribers or those with memberships so they can track the consumer’s behaviour and implement a data-driven marketing approach. Beauty retailer Sephora has a loyalty program called Beauty Insider that uses a points system and exclusive benefits to reward customers: Benefits and challenges of using discounts and offers in e-commerce Benefits of e-commerce promotions E-commerce companies choose to run promotional campaigns and offer discounts for a variety of reasons. Some of the benefits that can be achieved when properly executing a promotional campaign include: Attracting new customers: Offering enticing deals can reach new potential buyers and encourage them to try out a product or service. A survey from coupon website RetailMeNot found that 80% of consumers feel encouraged to buy from a brand that is new to them if they found an offer or discount. Driving sales: Promotional campaigns can stimulate sales, particularly during periods when demand might be low. According to the American Marketing Association, online shoppers who used coupons spent an average of 24% more than customers who did not make use of those offers. Increasing online conversions: Boosting conversions can be one of the biggest benefits of online offers. After using a coupon code, 57% of online shoppers said that without the discount, they would not have made the purchase. Encouraging repeat purchases: Offers can give a boost to customer loyalty, as customers may be more likely to return to a business that offers ongoing deals and rewards. A report from Vericast showed that 40% of online shoppers felt more favourable toward brands that offer a coupon or a discount, with 39% more likely to make a repeat purchase in the future and 30% saying they would be more loyal to the brand going forward. Common challenges when using discounts and promotions While discounts and promotions can be beneficial for e-commerce businesses, they can also present some challenges: Eroding profit margins: Businesses may find that discounts erode their profit margins, particularly if they offer too many promotions too frequently. Changing expectations: If they are not careful, businesses may have issues with what consumers expect. They may firstly train customers to only buy when there is a discount, which can be problematic if customers start to expect discounts all the time; or secondly, desensitise consumers to the offers so they are no longer effective. Hurting brand image: Discounts and promotions can sometimes lead customers to associate a brand with being “cheap”, which can damage its reputation and brand image. Best practices for optimising pricing strategies To mitigate these challenges, particularly profit margin concerns, and capitalise on all the possible benefits, businesses need to use strategic promotion management and follow best practices for optimising their pricing strategies. What does good promotion management look like? No matter if you are a retailer, brand, D2C, or marketplace, it starts with making targeted pricing decisions depending on the market you are operating in: Are your categories and articles seasonal? Are your customers price-sensitive? Do you have overstock? Using questions such as these to set high-level goals will help ensure your promotions have the impact you’re hoping for. What can a brand or retailer do to create promotional programs without sacrificing profit margins? Motivate a repeat purchase: Offer a coupon after the transaction, or give a discount if they become a newsletter subscriber so you can keep in touch. Use a loyalty program: Encourage customers to join your loyalty program rather than just offering one-time coupons. Offer tiered coupons: Instead of a flat percentage discount, encourage customers to spend more to save more by tiering coupons. For example, €10 off €50 or more, €20 off €100 or more, €50 off €250 or more. Incentivise customers to make referrals: Ask shoppers to refer new potential buyers in order to receive their discount. Offer subscriptions: Subscription or membership-based programs capitalise on customer loyalty and can give you recurring revenue. Have a reason – Giving consumers a reason for the sale or discount – whether that be a holiday, product launch, or new loyalty program – can keep expectations in check and avoid customers demanding those prices year-round. This happened to US retailer JCPenney, who decided to move away from a constant “sale” setup and lost customers who were angry about the change. The role of psychology in promotional pricing Consumer behaviour is, of course, impacted by psychology, and it plays a significant role in the world of e-commerce discounts and promotions. Understanding the psychological aspects of pricing can help businesses to ensure they choose the right promotional strategies for their target audience. One well-known example of this is price elasticity: as price increases, demand falls. This is the foundation of why businesses offer discounts in the first place – because according to price elasticity, decreasing the price increases demand. However, this is not always the case, and it is good to know the price sensitivity of each product.Another psychological factor at play is around behavioural economics and how consumers view different types of savings. A majority of consumers would rather “get money off” (e.g. €10 off) versus “save money” (e.g. save €10). The reason comes down to linguistics: “saving” money implies the avoidance of loss, while “money off” implies consumers gain something from the offer. They may be saying the same thing, but “money off” is a more positive (and impactful) message. How to use dynamic pricing tools for promotional pricing With dynamic pricing tools and systems like Omnia Retail, users can integrate multiple internal data sources such as season, stock level, contribution margin, distribution channel, and compare data to competitors to calculate the optimal prices. Easily apply unique discounts to different assortments and product groups. Discounts in the form of a coupon or “rabat” code can be used for different products where a retailer runs a specific pricing strategy. Read about more interesting blogposts here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What our the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Pricing Strategies, Retail Trends & Research, Shopping Holidays, Pricing, E-Commerce

21.03.2023

Why Brands Should Curate Their Product Assortment

The direct-to-consumer (D2C) wave continues to sweep across the world of e-commerce, but unlike early examples of D2C brands who started out that way, we are seeing more companies add DTC sales to existing retail strategies. This can be an exciting way to diversify sales channels, reach new potential customers, and boost revenue. It also creates the challenge of brands “competing” with their own retailers, which may be detrimental to the brand-retailer relationship, as well as their product’s overall pricing and competitiveness in the market. To mitigate this risk, brands can differentiate product assortments between their DTC and retail sales channels. According to McKinsey, those who get the product assortment right “enjoy more sales, higher gross margins, leaner operations, and most importantly, more loyal customers.” To help brands understand the importance of assortment differentiation, Omnia explores the various types, their benefits, and how price fits into the strategy. Benefits of product assortment differentiation When brands move toward D2C, they need to differentiate the product assortment to avoid competing with the retailers that sell their products. Why would a D2C brand differentiate their assortments? Manage brand experience – There is more potential to improve the brand experience and build stronger relationships with customers when differentiating product offerings across channels. Increased sales – Brands can see a bump in sales because they are increasing the amount of options available. Decreased cannibalisation – Differentiating products between D2C and retailers can help mitigate the risk of direct competition or cannibalising sales. Data access – Brands often don’t get access to any sales data from retailers, but selling D2C provides more data on what customers are and aren’t buying. Thereafter, assortments can be adjusted as needed. Meet customer needs – Strategically differentiating assortments for different selling environments gives brands the chance to better address customer desires. As reported by McKinsey, a more customer-centric product portfolio could create an additional 2-4% increase in sales. Additional benefits for retailer partners – Access to more data enables brands to improve products, not only for their DTC efforts but also for the products being sold through the retailers. It’s a win-win. Talk to one of our consultants about dynamic pricing. Contact us Types of product assortment differentiation Mass personalisation 66% of customers expect companies, including brands and retailers, to understand their needs and expectations, and one type of product assortment goes all the way down to the consumer level with mass personalisation. Nike By You is a shining example of this strategy, where consumers can even make and design their own Nike products on a user-friendly website. They also have the manufacturing process in place for those personalised items to be created quickly, so customers could, for example, get shoes in their chosen colours and style in two weeks. The prices are higher than a typical mass-produced product, but for the customers who want to customise items, there’s a lot of margin to capture. Unique SKUs Another type of differentiation is when brands make unique SKUs for specific retailers, where one feature is added or the colour is a bit different. This gives the retailer a unique EAN code and non-matching products, helping to increase their sales and boost the brand’s relationship with the retailer. The assortment is not personalised at a consumer level, as with Nike, but is differentiated for key retailers. German manufacturer Miele is one example of this. Service offerings A third type of assortment differentiation is around the services offered. Some brands sell monthly subscriptions, offer monthly payments instead of one big expense, or provide unique customer service or brand experiences. US Razor brand Gillette launched its own “Shave Club” in 2015 to compete with D2C brands like Dollar Shave Club and Harry’s, and differentiates from its retailers by enrolling members in product giveaways, providing chances to win entertainment and sporting event tickets, and offering a money-back guarantee for unsatisfied customers. Availability of assortment Beyond differences in the products themselves, the chosen assortments and amount of products can also be differentiated across retailers and DTC. For example, ABC Shoe Company sends 60% of its running equipment assortment to e-commerce Retailer X, while Retailer Y receives 70% of the assortment since they also offer a wider assortment of hiking gear. A portion of ABC’s assortment is offered exclusively in its own online shop. In other words, the brand experiments with the breadth of their assortment; the products they make available to different retail partners. An example of this would be Adidas: the company’s product assortment can be purchased to varying degrees across a wide range of retailers and marketplaces, but some product lines – such as the partnership with Stella McCartney – can only be bought directly from Adidas. Categories where assortment differentiation is not the right strategy Some product categories are not built for assortment differentiation; for example, products that can be easily substituted. Think about a FMCG item like razor blades: They are fast-selling and there aren’t as many features where brands can differentiate: people might not care as much about the colour, for instance. Brands just need to create the best razor blade possible for their target audience, because other brands will step in and take those sales if they don’t. Even with products like these, however, differentiation can still be done outside of the assortment with your branding or the services offered in D2C versus retailer sales. Can price be a product differentiator for brands? Price is an important piece of the differentiation topic, partially because it is always relative. Products are highly comparable these days thanks to marketplaces and comparison shopping engines, with the exception of some unique items, and highly transparent in the retail market, enabling consumers to shop around for the best price or compare products with substitutes. There are two main strategies brands use to manage this balance: Comparing to retailers: Samsung compares or sets a D2C price in relation to MediaMarkt Comparing to other brands: Samsung compares or sets a D2C price in relation to LG What’s important to keep in mind is that for brands who sell through both retail partners and D2C, retailers are clients and a competitor at the same time, so it needs to be managed correctly. Price shouldn’t be a differentiator with retailers, but something that should be thought about cautiously and strategically. A fair price relative to your retailers is key to avoid triggering widespread pricing changes across all sellers of your products. Price can be a differentiator with other brands. The price-to-value ratio of the product should be in line with the products of other brands on the market, meaning that if your product is the same quality and a higher price, you haven’t differentiated and the pricing strategy doesn’t make sense. Managing the product portfolio with dynamic pricing Dynamic pricing is a tool that enables brands to automate the management of prices and price perception based on large quantities of data. The system can take in data from both retailers and brands, using the strategy you set to automatically make decisions and manage price. Brands can use this to avoid market collisions; for example, they can quickly pick up on whether an action of theirs caused a price to decrease across the market, and can remedy the situation right away. In a world where brands are frequently selling through a number of channels, especially with the combination of D2C and retail, dynamic pricing can play a key role in boosting sales without ruining relationships with retailers or customers. Interested in seeing how dynamic pricing could impact your product assortment? Schedule a demo of Omnia here.

Direct to Consumer, E-Commerce

09.03.2023

Developing Average Order Value over time in e-commerce

When you start getting pressure from the top to increase revenue, maybe your first thought as a marketer is to go out and try to win new customers. But there are other ways to boost sales. Instead of investing heavily in trying to acquire new customers, you can maximise the value of the customers you already have by increasing Average Order Value (AOV), sometimes called Average Basket Value (ABV). This approach can help you grow your business without proportional increases in marketing, advertising, and other costs. In this article, Omnia takes a look at strategies to increase AOV, external factors that can impact the metric, and how to handle fluctuations over time. Strategies to increase Average Order Value for e-commerce Boosting AOV over time should be a focus point for all types of e-commerce retailers. Why is this metric so important? A higher AOV means increased revenue from the same number of customers, enabling revenue growth without proportionate increases in marketing and sales costs. So, optimising AOV can be a high-impact lever for marketers to drive business growth. There are a variety of strategies that can be employed to increase the AOV for an e-commerce business, including: 1. Upselling and cross-selling One of the most common and effective ways to increase AOV is to upsell or cross-sell the customer, either at the time of purchase or after the purchase has been completed. One McKinsey study found that cross-selling and other techniques for category penetration can boost sales by 20% and profits by 30%. Upselling is the act of inviting customers to buy a comparable, higher-end (i.e. more expensive) item than the one they initially were considering. Cross-selling is the practice of encouraging customers to purchase related or complementary products or accessories. For example, if a customer is buying a camera in your e-commerce store: You could upsell them to a higher-end model or the newest edition. You could cross-sell an additional lens or tripod to accompany the camera. 2. Bundling products or offering discounts on packages Consider creating product bundles or packages that offer multiple items at a discounted price. When a bundle includes items that are i) of interest to the customer and ii) represent a great value, it can increase AOV while also encouraging customers to purchase additional items they may not have otherwise considered. For example, UK beauty retailer LOOKFANTASTIC has a number of versions of “The Box”, bundles for different types of beauty products and special editions like Mother’s Day. A great time to utilise bundles and increase AOV is to create an “all-in-one” package – something that includes everything they would need or want for their desired experience. For example, a food and beverage retailer could sell bundles themed around holidays or events: the Super Bowl bundle, New Years Eve bundle, etc. 3. Implementing minimum order thresholds As customers, we’ve all been there: the online store says you need to spend €8,79 more to get free shipping, so you add something to your cart. Or, maybe you have to spend a certain amount to qualify for a discount on offer. Minimum-order thresholds are a proven way to boost AOV for e-commerce. Offering free shipping or discounts on orders that exceed a certain amount will incentivise customers to add more items to their cart to meet that threshold, and often the amount they end up spending will exceed the minimum you set. Not sure where to start? Digital ads expert Aaron Zakowski suggests setting the minimum threshold at 30% higher than your AOV. That way it feels attainable to the greatest number of customers possible. If you set the threshold too high, there may be an increase in abandoned carts. Extra costs like shipping contribute to nearly half (48%) of abandoned carts, so a properly set threshold is a win-win for both seller and consumer. Talk to one of our consultants about dynamic pricing. Contact us 4) Creating loyalty programs One strategy to increase AOV while also improving customer retention is to offer rewards or discounts for customers who spend a certain amount or make repeat purchases. This encourages continued business and incentivises customers to increase their order size. All the key metrics – from AOV to retention to profit – are connected, too: One study by Bain & Company found that a 5% increase in customer retention can increase profitability by 75%. Source: Shopify | Data: COLLOQUY 5) Announcing time-limited offers Creating a sense of urgency with time-limited promotions or flash sales can encourage customers to buy more items at once. This can be especially impactful during a low season if such a time exists. For example, if you sell seasonal items like swimsuits, you could offer a winter sale. While swimsuit sales are typically lower during the colder months, a time-limited promotion encouraging customers to stock up before the spring and summer rush might boost AOV during a historically slower period. 6) Personalising the customer experience Personalisation can produce higher AOV as well. 40% of US consumers say that a personalised customer experience led to them making a more expensive purchase than originally planned. The most effective way to personalise e-commerce experiences is through data. Leverage customer data and analytics to personalise product recommendations and marketing campaigns based on a customer's purchase history, browsing behaviour, and preferences. First-party data – the data you collect directly from your customers, like Nike with its membership program – is especially impactful. It enables you to make informed decisions and personalise the customer experience based on things they told you directly. Personalising with first-party data pays off, too. Brands utilising first-party data in key marketing functions achieved a 2.9-times increase in revenue lift and a 1.5-times increase in cost savings. External factors that affect Average Order Value Shifts in AOV are driven by more than the tactics marketers employ to encourage customer spending. The most obvious external factor that impacts AOV is seasonality. This applies both to products with a seasonal element (e.g. swimwear or ski equipment) but also any business impacted by buying seasons (e.g. Black Friday and pre-winter holidays, back-to-school season, etc). Economic disruptions can impact AOV as well. For example, the first COVID-19 lockdowns created drastic shifts in AOV in the EU over the course of just a few weeks. Prior to the spreading of the pandemic, AOV hovered between €90.37 and €82.84. By February 17th, that number had increased by over 25% from the week before to €103.81 per order. AOV then dropped off dramatically following the first European lockdown announcements on March 9th. Source: barilliance.com Another economic factor impacting AOV is inflation. With rising prices, AOV actually increases assuming sellers pass added costs on to consumers – even if total sales take a hit. The chart below illustrates changes in AOV and inflation in Europe from Q4 2021 until Q3 2022. Seasonality can be seen in the drop-off in December 2021, after the peak of Black Friday and the holiday shopping high season. March 2022 shows another drop after a strong February, likely due to the start of the war in Ukraine, consumer uncertainty, and inflation. By April, brands and retailers were already adjusting prices, after which we see AOV increase in following months. Source: Awin Your AOV increased or decreased – what now? For many e-commerce companies, AOV is a fairly steady and predictable metric. However, because of AOV’s potential impact on revenue without proportional increases to marketing and sales spend, it’s a KPI e-commerce companies should continue focusing on. If your AOV has decreased – suddenly or over a period of time – it’s crucial to figure out why, and quickly. Analyse the current tactics being used and why they may not be working. Are your customers no longer responding to tactical nudges that worked in the past? Do you need to update target customer profiles to improve personalisation efforts? Perhaps your loyalty programmes and discount offers are no longer appealing to your target demographic? Trying out new or updated tactics, such as the ones discussed in this article, is a helpful way to shake things up. If the issue is not down to marketing tactics but a product assortment problem, or another major factor like a new competitor entering the market, that will require a deeper analysis and discussion across the company. If your AOV is increasing, great! That means something is working. Analyse which tactics are having the biggest impact, and double down on those. If some techniques are not contributing to the increase, switch them out for others to see if you can boost AOV even more. Increase sales to people with existing purchase intent By concentrating on Average Order Value, you are able to capitalise on customers that have already expressed purchase intent. These visitors have already shown that they want to buy, and may even have products in their shopping cart. It is then easier for you to help them discover additional or higher priced items that are relevant to their needs. The loyal customers will continue to boost AOV over time, as 57% of consumers say they spend more with brands they’re loyal to. Optimising for Average Order Value is about increasing the value for those who already spend with you, a helpful complement to any new customer acquisition strategy. This way, customers who spend more money on your site will get more in return.

E-Commerce, Retail Know-How

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