Global digital commerce is expected to double by 2026, making up to 25% of the total global retail sales. But what happens to profitability when features like express delivery, long-tail product assortments, and returns are churning the margins? All this combined with digital native customers who are constantly seeking for the next offer – and know how to do it.
This is what keeps me up at night.
The rise of online sales makes questionable all traditional about market share, growth, and customer loyalty. However, this shift also presents an opportunity for companies to win over new customers and increase sales with existing ones.
The challenge is finding ways to scale their business while meeting changing customer demands, generating new revenue, balancing costs, and maintaining profitability. In order to do this, companies must optimize their digital commerce by aligning operations, people, and technology across the entire customer journey and value chain.
By doing this, they can unlock new opportunities and provide value for both customers and the business.
Next, we’ll explain the four key factors to optimize and drive profitability through new sustainable revenue streams while optimizing existing ones for efficiency.
Personalization in digital commerce in practice means offering customers with better recommendations based on behavioral patterns.
And here’s the math:
Personalization means better customer experiences, and better customer experiences build loyalty.
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According to Accenture, 91% of consumers report that they’re more likely to shop with brands that recognize, remember, and provide relevant offers and recommendations.
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More happy customers buying more – and buying again.
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Yep. Sounds simple, but it’s not always that easy.
Loyalty as a concept is universal, but the motivators for each customer are individual – and this is why retention strategies for existing and potential customers should be considered differently. Also, customer acquisition and retention differ from channel to channel, and so do costs and efforts.
By analyzing sales against all marketing efforts, it is possible to understand what customers are most responsive to.
(This also opens an opportunity for optimization, and the best news here is this: the most expensive ways are not always the most effective ones. For example, by optimizing the media mix, or adjusting efforts on days and times that are most effective, companies can save their marketing costs while still generating engagement.)
Digital commerce has more flexibility to offer a wider range of products when they have efficient warehousing and logistics in place.
This can, however, become a problem when digital commerce is considered as an add-on to something else – which can often be the case if there has first been the “traditional business” that has later been combined with the “oh, the internet came and changed things” phenomenon.
This is why there has to be a change in the mindset: companies, especially retailers, should consider their digital commerce as a marketplace where customers can find everything they need.
Easy to say, a tad trickier to execute. But keep reading!
When thinking about profitability, the first thing to consider is often the profitability of each product.
For example, drinks or other liquids are often considered as “can’t realize a profit” products. These items are heavy to ship, which leads to higher delivery costs, and when the product itself is a low-margin product, it (quite naturally) leads to bad profitability.
But only looking at this one thing, this could easily lead to rash conclusions. Taking one step back and having a look at the bigger picture, there are always ways to lower the cost of selling these particular products, and this can be a true game changer.
These actions can be for example….
If none of these works, killing unprofitable products from the store is always an option, too.
(AND as stated in the previous chapter, having efficient warehousing and logistics in place makes everything much easier.)
Offers and promotions are the most common way to attract customers, but it’s not necessary to always offer discount incentives – sometimes it’s more important to just find an attractive price point for the customer.
This is where dynamic pricing plays a role.
When done right, dynamic pricing can have a massive impact on profitability. Pricing algorithms can be used not only to analyze competitors’ pricing, but maybe even more importantly, to identify the right prices for the customers – and the right timing to do changes.
An efficient fulfillment process is the cornerstone of every organization. But what happens when shopping shifts to online? The fulfillment costs start rising.
Shipping costs and convenient delivery are important factors when making purchasing decisions. Many consumers expect those to be free, and unexpected shipping costs can lead easily to cart abandonment.
This is why “fast and free shipping & returns” is the most used driver for sales. But at the same time, it is also one of the most common ways to eat profit margins right at the source.
What to do about it? Read on.
Any company and brand can generate significant efficiency gains in the area of both fulfillment and returns by refining its supply chain in a proper way. Even small changes can lead to significant results.
Easy ways to nudge customers to make more effective choices:
Every retailer must focus on having effective stores that cater to digital-first customers, and this is why every retailer should consider…
to better accommodate customers' expectations.
With the current business environment being fast-paced and somewhat uncertain and unpredictable, supply chain optimization has become crucial for companies to stay competitive.
To become nimble, predictive, and responsive companies need to:
Optimize inventory costs
One way to optimize costs could be by implementing a demand-driven approach to inventory management. This could involve using real-time data and analytics to predict customer demand and adjust inventory levels accordingly, which could help to reduce the amount of money tied up in inventory and minimize the risk of stockouts.
Enhance fulfillment
One way to optimize fulfillment could be using technology such as automated warehouse systems and process automation, which could help to improve the speed and accuracy of order fulfillment, and reduce labor costs.
Optimize returns process
The returns process could be optimized by implementing a more efficient returns management system. This could include implementing a more streamlined and automated process for handling returns, which could help to reduce the time and costs associated with processing returns.
(Additionally, implementing a customer-centric returns policy and offering easy and convenient options for returns can help to improve customer satisfaction (better customer experience = loyalty, as stated in the first section of this post), and reduce the number of returns.)
Buzzword alert! Digital commerce needs digital transformation, as everything in it is closely tied to technology – profitability included.
All changes and improvements need to be accommodated to the technology in use, and with the right technology in place, companies can soar to new heights by optimizing their inventory, identifying buying patterns, and balancing pricing and promotions to maximize revenue.
And most importantly, technology can and should always act as a driver for better customer experience.
What is needed for success, is… ↓
Despite technology being crucial, any profitable eCommerce always requires human capabilities, too. The new way of doing business usually requires restructuring, and companies should take this into account preferably sooner than later.
The biggest concern is to ensure the necessary skills and experience. There may be a need to adjust the organizational structure to make the best use of the skills, capabilities, and assets of the organization.
Now I’m quoting myself a bit here – this is what I wrote in my previous article:
“Digital commerce has been around for a good while, but not for that long yet. From the beginning, its place has been in between different disciplines: between IT and business development, between sales and marketing.
Being this kind of a no man’s land has set digital commerce up for friction that also involves internal politics: who sets the goals and metrics? Whose team and which functions are responsible for digital growth? And so on.”
I think this proves the point: in order to get sh*t done, internal discussions are necessary – and if companies are too afraid to do needed changes, both growth and profitability remain as dreams that never come true.
The path to profitability in digital commerce is not straightforward. There will be twists and turns throughout the customer journey and supply chain. In most cases, the change needs an outside boost, usually from some kind of consultant – and that could be us.
If any of these questions feels familiar, we recommend starting with assessing the full value chain and customer journey – it helps you identify the biggest bottlenecks and leverage points that need attention the most.
And PS. if you want to discuss this theme further, book a chat with me – no strings attached!