May 07, 2018

The Interplay Between Retail And E-Commerce

Back in the stone ages at Eddie Bauer (1997), we'd measure how e-commerce customers behaved. When a customer purchased via e-commerce, the next purchase was most likely going to be via catalog marketing, with a retail store purchase much less likely and the e-commerce purchase the least likely to happen. In other words, the e-commerce channel was a "support" channel. It wasn't where the customer wanted to purchase.

The relationship wasn't much different when I worked at Nordstrom, circa 2005. We'd acquire a customer online, and the online customer had a 70%+ chance of placing the next order in a store. We knew we could spend a lot of money on paid search because the online channel was a "support" channel, one that would fuel retail growth.

When I started my consulting work in 2007, the relationship between e-commerce and catalogs had changed ... rather dramatically. E-commerce used to "support" catalogs ... but by 2007 catalogs were supporting e-commerce. The "next" purchase, regardless whether prior purchases came from print or e-commerce was most likely to happen via e-commerce.

A transition happens between channels. It's a transition from old to new. Catalogs used to be a major channel, and e-commerce used to be a support channel. From 2001 - 2006, the relationship flipped. Catalogs became a support channel and e-commerce became a major channel, when you actually measured the dynamic between the channels at a customer level. The period where the channels change roles is "confusing" ... for it seems like the customer is "doing everything" and therefore everything is important. You are led down the wrong path ... at the very time you should be focusing heavily on the emerging channel you instead embrace all channels and you work hard to integrate everything. Integration hurts your ability to capitalize on the emerging channel, while protecting the channel that is moving into a support role. Today we can see the impact of integration ... catalogers who treat marketing like it is 1993, and consequently earn customers who were 40 years old in 1993.

Back to retail and e-commerce.

In 2005 e-commerce was a support channel to retail.

In 2011, the relationship began to change. I would measure retail / e-commerce interactions, and I'd observe a new dynamic. Retail customers became increasingly likely to buy online and became less likely to re-order via stores. And e-commerce customers became increasingly likely to buy online and became less likely to re-order via stores. Our industry read this dynamic incorrectly - viewing this as a good thing. The phrase "omnichannel" dominated thought leadership pieces, pieces that encouraged marketers to integrate "everything". The added complexity helped nobody, and then thought leaders told everybody to create a seamless customer experience (using data of course). Complexity * Complexity = A Lot of Complexity!!

We should have learned from what happened between the interplay between catalogs and e-commerce, and we should have applied those learnings to retail. When the support channel becomes the primary channel, the world changes.

It's 2018 now, and Complexity * Complexity didn't work. Folks call it the "Retail Apocalypse". That's not accurate, of course. It's simply a failure to realize that e-commerce (some would call this "digital") was (is) becoming an equal to physical retail. It's nowhere close to being an equal yet, but if current analytics tell us anything they tell us that we're trending in that direction.

If e-commerce is slowly becoming an "equal" to physical retail, then the way you manage marketing in the offline/physical world changes. You might use your retail presence to find new customers, and then move those customers into your online/digital environment. This is where innovation happens, and it is where a re-definition of retail happens.

Always remember to get out in front of shifts between channels. You don't work to integrate the channels (that adds complexity) ... you work to find new ways to leverage what used to be the primary channel to help support the emerging channel.

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