The Third Wave of EComm

In a world where 77% of people in the United States wield a smartphone, it’s always mind-boggling to me how small e-commerce’s share of the overall retail market is (8.5%). Even more compellingly, upwards of 80% of consumers research a product online before going out to purchase in the real world, exposing huge inefficiencies in digital conversion. Brands today have an unprecedented opportunity to convert browsers into buyers online, as the turf war for consumer share-of-wallet has continued to heat up. Here, I’ll explore some of the weapons that brands have used to date to win consumer affinity and highlight some emerging tactics that we could see used going forward.

The average US consumer will spend ~$2–2.5K online in 2017 (implied 15% ecomm growth rate in 2016 and 2017, resp.). This spend is generally driven by two competing forces — price sensitivity and brand affinity. The price sensitive convenience seekers among us will skew Amazon, for its monster suite of value buys that can be dropped on our doors instantly. Of note, Amazon is used here as a proxy for other Amazon-like businesses across sectors, such as Revolve in the clothing space or FreshDirect in groceries (interestingly, after writing this post Amazon announced its $13.7B acquisition of WFM; I think this confirms a trend that we’ve been seeing in development for a while which is that WFM is no longer the brand-centric retailer that it started off as; despite its relative price insensitivity, WFM’s growth came at the expense of brand selectivity). The true brand evangelists among us will tolerate some level of added cost and patience to get highly differentiated, branded products (often which can be peddled at a premium simply because of their absence on Amazon).

While the Amazon playbook is relatively defined, standalone off-Amazon brands have creative flexibility to drum up consumer interest and drive conversion, which they have to execute flawlessly on to help their customers continually justify the premium. Their strategies have matured from the earliest days of ecomm with plenty of innovation still to come.

I group buzzy brands such as Birchbox, Blue Apron, Bonobos, and Warby Parker into “ecomm 1.0.” While these brands span categories and business models, they were all breakout successes in lifting traditional brick and mortar products into a digital sphere. They broke down our walls around needing to touch and feel a product before we could buy it. They oriented us around a recurring subscription consumption model rather than ad hoc or opportunistic purchases. They became the benchmark for followers around which efficiency, scalability, and business model were judged. This cohort laid the foundations for future innovators to build off of, so though they may seem old school today, we have them to thank for much of the shape of our current digital environment.

With 1.0 having laid the groundwork, subsequent iterations of ecomm models grew increasingly sophisticated. As the off-Amazon ecomm space burgeoned, competition for consumer headspace began to heat up and new methods of innovation tried to break through the noise. Cotopaxi, Everlane, Glossier and Goop, to name a few, emerged as leaders in forging the new 2.0 world. Cotopaxi brought digital back to the real world through their Questival series, giving consumers an innovative entry point to the brand and crafting a lifestyle message that directly reinforced their product suite. Glossier had a lifestyle brand already pre-built on Into the Gloss and was able to convert an entire online community into evangelist consumers overnight. Everlane led the growing charge behind transparent sourcing and pricing models, and drew buzz through sales gimmicks like the “name your own price” option, which allowed the consumer to feel like an agent rather than a sucker. 2.0 companies were emphatic about lifestyle and mission, reinforced by their utilization of influential, targeted social media communities. Evolving alongside Amazon forced these brands to be dynamic in their consumer acquisition and retention strategies, reflected in their pursuit of increasingly experiential branding.

Today we are on the cusp of ecomm 3.0, where much of what the 1.0 cohort established has become table stakes, and where 2.0 brands will have to transcend the experiential to stay viable. Though it’s early days, brands are innovating, failing quickly, and innovating again to keep pace with their consumers evolving preferences. Some brands are returning to brick-and-mortar, but doing so flexibly (and more cost-effectively) by sharing retail space with similarly aligned brand partners. Some brands are copying the Jet model and baking in dynamic pricing, allowing consumers to save through optimized mix-and-match product arrangements or delayed shipping options. Some brands are offering a digital service component to complement their product suite, vertically integrating in reverse. Some brands are even taking larger risks exploring technologies like VR, getting ahead of anticipated mass consumer adoption. At the end of the day, brands can’t out-streamline the Amazon buying process, so the best that they can do is build the biggest branded moat around their business as is feasible, winning their consumers hearts over minds.

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