GET READY FOR THE FOURTH WAVE OF E-COMMERCE

Bill Fotsch

Brand manufacturers are developing their own DTC channels with the potential to capture large amounts of end consumer data.

If the idea of your business is to stay in business, there's a long list of daily how-to items. It might seem hard to distil your energy to focus on one thing. But keeping your company alive depends, pretty simply, on just that – one thing.

It's serving your customers profitably.

You know you won't survive without profit. And in short, your customers determine the value of your company because they decide whether you're meeting their needs.

Economic Engagement, or partnering with employees to serve customers profitably, enables companies to see double the profit growth of their peers. It stands to reason that the start of Economic Engagement is customer engagement.

The key to customer engagement is information. For business-to-business companies, the customer relationships to be managed are few. Speaking with customers to understand exactly what they value is relatively manageable, as outlined in our prior article.

For companies whose customers are consumers, the challenge is great. And ecommerce has had a major impact, particularly for brand manufacturers. It's influenced business in three waves, at roughly 10-year intervals:

The first wave of ecommerce began in the 1990s with the creation of websites of brand manufacturers and retailers like Amazon. At this stage, ecommerce was a novelty.

The second wave of ecommerce began in the 2000s when most consumers routinely used ecommerce.

The third wave of ecommerce began in the 2010s, when retailers, particularly ecommerce retailers, began to substitute their in-house products for brand manufacturers products, using the consumer information advantage they had over the brand manufacturers.

With each wave, the most profitable organizations were the result of the strongest consumer relationships. We have every reason to think this will continue. It seems brand manufacturers and their retailer partners have always had a co-dependent and cooperative, yet competitive relationship:

Co-dependent/Cooperative: The brand manufacturers need retailers to get their products to end consumers. Retailers need products to distribute.

Competitive: There is a constant tension as brand manufacturers and retailers negotiate over pricing, margins, shelf space, and more.

Since the third wave, two changes to the landscape have shifted the balance of power. The first? A consolidation among retailers that bolstered the remaining retailers, like Walmart, Amazon, Costco, Kroger, etc. Second, an amassed wealth of consumer information (from the point of purchase data).

Both trends are tipping things in favour of the retailer. Walmart is now the largest grocery retailer in the US, with over 25% market share and one of the largest consumer data warehouses in the world.

Amazon, with nearly 40% of ecommerce volume, holds metadata on each customers' purchase behaviour. This kind of customer knowledge doesn't just promise loyalty from the end consumer. It ensures commanding portion of the available profit from any particular product channel. And they've enjoyed just that.

It makes sense for retailers like Walmart, Kroger, and Amazon focus on the end consumer. They capitalize on all the point-of-purchase data, but it's often at the expense of their suppliers.

Most major retailers continue to grow their own store brands, often replacing them entirely.

Most brand manufacturers still depend on large retailers who provide access to large volumes of consumers, and therefore product sales. Adds up. But change is coming – some brand manufacturers are proactively developing their own direct-to-consumer channels, generating the potential for large amounts of invaluable end consumer data. Meet the fourth wave of ecommerce.

Here's where brand manufacturers can really understand their end consumers. They see how preferences change and develop dynamic relationships – what we call customer engagement. This market intelligence bolsters the development of new features, products or pricing.

It also creates some balance with large retailers. Just as the big retailers are evolving their in-house products, forward-thinking brand manufacturers can harness their own direct-to-consumer distribution capabilities.

In an ideal world the direct-to-consumer operation works alongside other ecommerce and omnichannel goals, instead of competing with them.

This could grow internally or between ecommerce partners. It would require technology, delivery matching, round-the-clock customer service, supply chain and inventory management, compliance with state sales tax, security and privacy protection, and most important, real-time consumer information. No small undertaking, to be sure.

But it's already being done. One good example is World Pantry, an ecommerce company with fulfilment centres across the country, years of strong Economic Engagement – particularly customer engagement--and a world-class NPS score consistently over 80.

Keeping ahead of the fourth wave might just depend on matching retailers' customer engagement. It certainly cultivates long-term revenue and profits through all channels. And done well, a strong D-T-C experience strengthens a brand like this:

Builds a defensible stream of consumer interactions and orders, particularly with their most loyal customers.

Creates a powerful consumer experience that strengthens the emotional connection between the brand and the consumer.

Provides relevant marketing engagement directly with end consumers.

Captures and disseminate real-time consumer data driven insights.

It's easy to see the benefits of this higher-level customer engagement. All the information leads to closer consumer relationships, which enhances new product launches and enables them to be refined with fast feedback. Ongoing product refinement and optimization becomes more agile and better targeted. Plus, new opportunities can be identified to serve customer needs or solve customer problems.

It is not surprising that companies who ride this fourth wave have superior profit growth, and the advantages of customer engagement are consistent with our research.

If you think you can afford to let the wave pass you by, think again: it's likely you'll face ever-expanding store brands, and declining profit margins from retailers who do have ever stronger customer relationships. Because if you don't talk to your customers, someone else will.