Published on: October 7, 2015
"The Innovation Conversation" is sponsored by ProLogic Retail Services: Leading the Industry in Loyalty Marketing Services for Independent Grocers.
Content Guy's Note: "The Innovation Conversation" is designed to be a new regular MNB feature, prompted by the positive reactions that Tom Furphy and I have gotten after having done live and customized versions at a number of industry and corporate events. Our goal in each edition is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and I'm thrilled to have Tom Furphy engaged in the effort.
As I've told you about Tom, he brings unique credentials to everything he does. He is CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers, who make CEP a regular stop during their Seattle visits. Prior to CEP, Tom was at Amazon.com as Vice President, Consumables and AmazonFresh, where he was responsible for building and running the company’s Grocery and Health & Beauty businesses on the Amazon.com platform, and was also responsible for launching and rolling out the AmazonFresh business. And before that, he held a variety of senior roles at Wegmans.
And so, the conversation continues...
KC: So, I was reading a new study from a company called Monetate, which describes itself as a provider of "multichannel personalization to various brands. Now, keeping in mind that any company that invests in and releases such a report has a vested interest in making sure the results support its business model, I did think it made a couple of interesting points about the e-commerce business. Point one was that while e-commerce traffic and overall sales obviously are up, "conversion and add-to-cart rates have been dropping steadily year over year," and bounce rates are up as well, except during the holiday season, when things change. Is this a matter of just more options for the consumer, or is there something else going on here?
Tom Furphy: Great questions. Despite the potential bias in the report, I am not too surprised by the points made. In the conversion formula, the numerator (sales) is rising, but the denominator (visitors) is rising faster as customers connect more often to e-commerce sites throughout their shopping journey. As retail verticals shift toward ecommerce and as online shopping options proliferate, customers are increasingly using the tools available on these sites for research, price checking and curation. They visit to learn about products, viewing hi-res images from multiple angles, read the product technical and/or nutrition information, read reviews and so forth. They check prices across retailers, many of which make the comparison for them. They put items on lists or save them in carts as a way to curate the products they are interested in. Sometimes these activities result in purchases in-session at an e-commerce site. Other times they result in a brick & mortar store purchase. But as these activities move online, as more customer traffic visits sites, it stands to reason that the resulting conversion rate would drop a bit.
I would think that, as digital shopping tools get better, conversion rates should stabilize and even improve. We really are still at Day 1 in the evolution of e-commerce. The basic tools that were created to enable the shopping experience – detail pages, pricing algorithms, lists and even shopping carts – are still quite rudimentary overall and ripe for innovation. Especially innovation that appeals to the individuality of the shopper as they move across “channels” from site, to mobile to store. The next wave of technology will work seamlessly across all of these, with the website, mobile apps and store staff all recognizing the shopper as a unique individual with the capability to serve them as they uniquely require.
KC: Now, because Monetate is in the business it is in, not surprisingly it also says that one of the ways to address these issues is for e-commerce sites to do a better job of personalization. I imagine you'd agree with that, especially considering your Amazon experience.
TF: I cannot overstate the importance of personalization and what it means for Amazon and others. In its most raw form, Amazon is a platform that is designed to translate customer traffic into sales in as few clicks as possible. Amazon brings customers to the site via ads, search and email with precision. Once there, the site recognizes visitors and quickly presents them with products they likely want based upon search terms and clickstream, and it gets customers through the cart as quickly as possible, often in just a few clicks overall. With millions of items available, Amazon would be unwieldy without personalization. The company employs literally hundreds of mathematicians and developers dedicated to improving personalization. Personalization increases conversion by at least 2x, so it’s worth Amazon’s while to invest heavily in it. It is absolutely worth it for every retailer and manufacturer to invest in it.
KC: That said, what prevents other retailers getting into the e-commerce space from achieving this level of personalization? Is it cost? Accessibility of technology? Or is it something bigger ... by which I mean that most retailers are used to building a store designed to appeal to the largest possible swath of customers, and the kind of personalization that is possible just works against their DNA?
TF: While emerging technologies are fairly complex below the surface, they can be delivered quite inexpensively and without a steep a learning curve. Every retailer and manufacturer should be aggressively experimenting with new capabilities. What’s most important, however, is feeding these technologies with relevant data – past purchases, clickstream, and customer actions – that enables the technology to generate relevant recommendations. If the technology is good, it will iteratively teach itself to make better recommendations. This all happens below the surface. It just works.
The bias to continue business as usual is a huge risk to the industry. It’s safe to keep running the same store formats that appeal widely, to keep investing in the weekly ad despite its declining circulation, to keep buying the same ad placements because the retailer or publisher are pushing it and the audience metrics look safe. It’s easy to keep doing what you’re doing. But I think retailers that are truly focused on serving their customers won’t rest and will be the first to adopt personalization on a large scale. Few retailers have better data than grocers. They know what shoppers have purchased, they know what shoppers did not purchase but should have, they know where they live and when and how they shop. The data is there to enable deep, powerful personalization. And it can be done without compromising customer privacy. We’re seeing some early movement here and I think it will really start to ramp in the next few years. We see forward-thinking retailers trying to figure it out. But even for them it is a big, uncomfortable leap.
KC: It would seem to me that the broad argument here is one that a lot of people have been making for a long time - mass marketing is, for all intents and purposes, dead. And for me, it always comes down to the example that I like to cite - that I don't much like cats, but do love dogs ... and that the marketer that sends me a cat food coupon immediately demonstrates that it knowns nothing about me, cares nothing about my preferences, and may in fact be irrelevant to my life. That's a broad brush with which to paint, but I believe it. Do you?
TF: I absolutely believe it. While there will be some room for mass marketing to create general awareness, I think that technology has enabled marketing to irreversibly become personalized.
Our industry has undergone a systemic “depersonalization” over the last 75 years to enable it to scale. Mass marketing is enabled via broadcast media, untargeted print advertising and manufacturer coupons. Efficiency is gained through massive stores, super efficient distribution and rationalized assortment. Sameness is inexpensive. It is great for developing massive brands and offering low prices, but it has come at the cost of the connection with the individual shopper.
But the best marketing has always been personal. A hundred years ago the local shopkeeper knew the store’s customers by name, knew all the customers’ family members and their likes and dislikes. He could solve customer needs with products in the store. That was the ultimate personalization.
Technology is enabling that again. In Seattle we’ve done a lot of work around personalization and its potential impact on shopping. BevyUp, a team out of Microsoft and Amazon, is coalescing the shopping experience across online and instore by providing curation and customer service tools that shoppers, online experts and instore staff can access collaboratively. This introduces control and human interaction to a traditional structured and solitary online experience. Also, when shoppers enter a physical store they are recognized by the store staff, who are equipped with tablet and mobile tools to serve the customer on a very personalized basis. They can see what the customer has purchased in the past as well as products they have curated and can make recommendations based upon that. At IdeoClick, DemandDriver is a platform that uses customer clickstream data from brand sites and shares it with retailers to enable better personalization and significantly higher sales on their side. These are just two examples of step changes in experience and results that occur due to personalization. It’s pretty remarkable.
KC: Can we talk for a minute about an unrelated subject? Amazon made some news last week when it announced that it would no longer sell Apple TV or Google Chromecast hardware ... it said that the availability of these items on its website was confusing to customers. A lot of people, me included, thought that it had less to do with customer confusion and more to do with the fact that Amazon Prime Video competes with those services ... and that by not selling them, the so-called "Everything Store" was showing a little bit of competitive insecurity and going against a core value. Now, I've had a chance to think more about this, and I'd probably walk that back a bit - not that these points are not true, but that if you are going to create a so-called "ecosystem," it works against that strategy if you allow other ecosystems to intrude. In other words, I think I see both sides of the argument. You are a veteran of the Amazon wars ... when you see this story, what do you make of it?
TF: Boy, this is an interesting one. I can honestly say from being inside Amazon that the company truly does “Focus on the customer and work backward.” The customer obsession persisted throughout everything we did. One of the key areas that we focused on was customer feedback around item or service “defects”. If an item drove a high rate of customer service contacts or returns, the root cause of these defects was analyzed in detail to either fix the problem, improve communication to eliminate confusion or to discontinue carrying the product. These were reviewed each week in our leadership meetings, with the business leader on the hook to rectify the problem.
So, there is a chance that Amazon is truly responding to customer confusion about the interoperability of these two platforms with Prime Video (which works well with Roku, Xbox and PlayStation). In that case, Amazon would likely try to work with Apple and Google to enable compatibility. If that failed, Amazon would view the stance and lack of cooperation as an anti-competitive practice that is bad for the customer, and would kick these products off the platform. But the reduction of choice, in my opinion, can make for an even worse customer experience. They might be better served to make the lack of compatibility clear on the product detail page, show products that are compatible with Prime Video, and let the customer make the choice.
To me it seems that this move is about locking up their ecosystem, which could be a dangerous move and not congruent with their customer-first mantra. In their shoes, I would make sure to put the customer first, allowing them to make the choice based on transparency. But I would also focus incessantly and building a better ecosystem that attracts customers naturally. Don’t give them a reason to consider a competitor’s platform.
"The Innovation Conversation" will return in a couple of weeks. If there are subjects you'd like us to chat about in the future, let us know.
- KC's View: