Part I (of a two part article on the accelerating importance of eCommerce and what actions to take)
It started in 1997 as the ‘Dot Com Bubble’, when in March 2000, the NASDAQ peaked at 5132.52 as ‘dotcoms’ were seeing their stock prices shoot up if all they did was add an ‘e prefix’ to their name and a ‘.com’ at the end. The combination of rapidly increasing stock prices and general market confidence led investors to believe that these new internet based companies would turn vast profits and those with the money were willing to overlook traditional measures such as P/E ratios in favour of companies possessing technological advances.
The bubble, however, burst in 2001 with some companies such as ‘Pets.com’ failing completely. Others initially lost a large part of their market capitalization but eventually remained relatively stable and profitable. Cisco’s stock sky rocketed at first but then plummeted 86%. Some like Amazon.com actually flourished with the stock going from $107 during the boom period of 2001 down to $7 per share but a decade later recovered to over $200 per share.
Consumers and shoppers were slow to adopt and adapt to the new technology but that has all changed. Companies are now following the shoppers rather than the reverse, and if your e-commerce site is not on your company’s board’s ‘favourites list’, then it may be already too late to catch the massive wave of on-line shopping across all consumer goods categories.
| B2C Business* | Grocery Products | % delivered B2C | All Consumer Products | %delivered B2C |
| 2011 | € 27 bn | 4% | € 690 Bn | 5% |
| 2013 | € 42 bn | 6% | € 1 trillion | 7.3% |
| 2015 | € 70 bn | 10% | € 1.7 trillion | 12.5% |
| 2017 | € 98 bn | 14.5% | € 2.5 trillion | 18% |
| 2018 | € 110 bn | 16% | € 3 trillion | 22% |
* Global estimates
Sources: IMRG & Kantar plus The Quantic Group estimates and interpolations.
Growth estimates vary. As the above shows, research companies have been quoted as predicting the consumer products on-line business to reach €3 trillion, or 22% of all consumers’ spending by the end of 2017. Within this, grocery products could reach €110 billion or 16 % by the same point in time. Given empirical evidence on the effect of global increased broadband penetration and speeds on other commercial businesses such as the physical and digital delivery of music and DVDs, once a critical mass is reached, this 16% may explode even faster.
It is not just in the developed Western markets that this is the case; in fact, B2C delivery has been important and growing in many major Eastern markets for a long time. Delivery by a moped makes a very economical and consumer friendly way to obtain and retain new customers. Aramex, delivering to consumers’ doors for cash on delivery in the Middle East, report that their business has grown > 100% in 2012.
Whilst B2C digital delivery, such as that for music, movies and video games can be up to 40% more profitable than selling to the retail trade, because no physical product and ‘price protection’ are required anymore, B2C physical delivery is also estimated to increase net margins by close to 20% if the e-commerce site, the payment systems, logistics, fulfilment and customer service are all in place.
Why now? What is driving this rapid movement to buying on-line? Everybody has their own reason and personal anecdotes of course but the underlying drivers are:
- Increased connectivity: internet access and broadband penetration is estimated to reach 50% of the world’s population by 2015.
- Anywhere, anytime access: consumers now access on-line sites from smartphones and tablets as well as laptops and desktops. B2C sites have adapted to this with HTML5.
- Ease of price comparison: many on-line sites offer price comparisons for a typical shopping basket on a daily updated basis. Barcode scanners that can pinpoint the cheapest place to buy an item on-line in the consumer’s country are now available.
- Time saving: click and your item arrives on your doorstep the same day. (Of course IT glitches and frozen PCs sometimes turn this into ‘perceived’ time saving.)
- Guaranteed availability: how many high street shops has one person visited to buy that special brand of shampoo? The ‘in stock’ flash on the on-line site is comforting and pays rich dividends.
- Focuses the mind on what you really need: how many times have you dropped that tin of chopped tomatoes into the trolley only to discover it one year later still in the pantry? Budgets are tight, buying only what you really need is essential.
- The ‘favourites’ list: more time saving – the site has your shopping list ready and waiting.
- Petrol prices: an ‘out of town’ supermarket means ‘out of town’, getting in the car, not walking across the road to the off license. With B2C this cost disappears for the consumer.
And, of course, the emergence of the Social Networks. A mention on Facebook of a product and it is often 2-3 clicks and two hours away from being yours.
Naturally shopping on-line is not for all and there are eventual barriers. Will you be at home? Does the world have enough delivery drivers? (Of course, those at the cutting edge of e-commerce are at the cutting edge of reducing this possibility, viz the Amazon tie up in Japan with 7 Eleven for pick up, Co-op the same in the UK and Staples in the USA. Personal locker collection in central locations activated via Pin Codes have mushroomed in the last six months.
Or, maybe you simply like ‘browsing’ in a shop to get a personal shop assistant recommendation or the internet connection is down.
It can only get bigger.
However, it is here to stay and is not going to get smaller.
The big question therefore is: as a Company, are you prepared for the growth and, at the extreme, like HMV and Blockbuster in the UK or Circuit City in the USA, are you even going to survive with no integrated on-line/digital strategy and roll-out plans for the management of e-commerce?
Consider these questions:
- In your Company, do you regularly discuss e-commerce as a key component of your multichannel strategy? (Or, as it is now referred to, your ‘Omni channel’ strategy.)
- Do you know intimately the on-line shoppers’ expectations, triggers and barriers to your own category? (Did you know that frozen food sells for times as fast on-line as offline? Do you know that branded goods, on average, sell three times as fast as ‘in house/own’ brands)?
- Are all your products correctly represented, placed and priced on ‘e-commerce sites’? (A recent client study by the The Quantic Group showed that on one typical major retailer site most major brand items across blue chip vendors scored less than 4/10 when assessed for correct pricing, correct description and packaging, had a key benefit mentioned and were less than three clicks away from purchase.). Two clicks would represent the ‘holy grail’.
- Do you design specific on-line action plans for your brand ranges or leave the most junior product manager to handle?
- Do all your key functional directors speak credibly and confidently about the company’s on-line offering?
If the majority of your answers are ‘no’ to the above then it is either too late or the company needs a call to action to identify the opportunity, map out an on-going three year plan and start to execute the plan without delay.
The danger of having your head in the sand.
It is no exaggeration that some companies will wither and die, some will lose share to their more agile on-line competitors, some will ‘tick the box’ of on-line and do no more. Getting aligned internally and having a common company attitude towards on-line purchasing is the key. Digital marketing through social network systems (SNS) aimed at influencing consumers directly and on-line delivery, both physical and digital, will transform organisations, whether this is through their own e-commerce site or through a third party retailer’s site.
Departments within companies will have to become multifunctional and multi skilled rather than work in silos and be mono skilled in finance, operations or marketing for example. Marketing takes on a whole new meaning. Which SNS is best to get my consumers to my site and which one gets them to buy and buy my brand regularly?
The traditional sales forces will have to ‘re-train’ and include on-line technology within their skill set. ‘Nano learning’ will become no longer a buzz word but a necessity. Where these challenges exist, however, means an equal number of opportunities. First movers within FMCG giants are already reorganising to address these opportunities, the question is: ‘is your Company doing the same today?’
The e-commerce opportunity is massive from a market share and profit point of view for ALL companies. It will represent a disproportionate share of your growth over the next few years. The profit opportunity is there. However, some companies still are not getting it right as many are investing in the wrong things at the wrong levels and so have a worse profitability. It takes careful, well thought out plans in conjunction with e-commerce professionals to get the investment balance in perspective.
What immediate steps, therefore, should a company take to exploit the obvious growth opportunity? It will depend on the company of course and the extent that e-commerce is recognised and developed already.
Part II of this article to follow. Please follow our blog to receive the concluding part.
Written by D Turnbull and D Reeves of The Quantic Group
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