In either 1971 or 1972, students at the Stanford Artificial Intelligence Laboratory sold a few grams of marijuana to their colleagues at MIT: marking the first recorded instance of commerce being conducted over the internet. E-commerce has grown by leaps and bounds ever since then and accounts for 13.6% of all retail spending in the United States as of 2021.
E-commerce as we understand it today emerged during the dot com boom of the mid to late ‘90s. Computers had made their way into every other home and entrepreneurs founded companies to take advantage of that. The dot com crash of 2000 put many of these companies out of business but those that emerged from it (Amazon and eBay) have grown to become industry leaders.
Almost every brand currently has an online store. As we march into the future, certain trends hold the key to success in the e-commerce space:
- Overall growth
- Mobile devices
- Big data, artificial intelligence, and personalization
- Conscious consumerism
- Augmented Reality (AR)
- Voice search
- ROPO effect (Research Online Purchase Offline)
E-commerce revenue has been growing steadily year-on-year over the past decade and a half. Between the first and third quarters of 2020, growth was supercharged when Covid-19 lockdowns and stay-at-home orders led to an explosion in online purchases.
E-commerce’s share of retail spending in the United states surged from 11.3% to 15.7%. That share stabilized at 13.6% after lockdowns were eased. In absolute terms, US e-commerce sales went from $598 billion in 2019 to 799 billion in 2020 (a jump of 33%). This trend is expected to hold. According to a study by Salesforce, 60% of customers plan to spend even more money online than they did during the pandemic. 2021 sales are projected to hit $908 billion.
Growth hasn’t been limited to North America. China remains the largest e-commerce market on the planet thanks to its huge population. 2020 e-commerce sales in China hit $2.3 trillion: up 27% from 2019’s figure of $1.8 trillion.
India, another emerging economy with a massive population, saw its e-commerce sales grow 36% year-on-year in the last quarter of 2020. Growth also remains strong in Europe, jumping 30% in 2020 compared to 2019 numbers.
Speed is the greatest advantage traditional retail has on e-commerce. You walk into a store, buy whatever you want and take it home right away. Shopping online is a little different. You often have to wait a few days for a product to be delivered. While this will remain the case for the foreseeable future, major e-commerce players (Amazon, Walmart, and Target) are leading the march to free near-instantaneous shipping.
Free two-day delivery is becoming standard for many products on Amazon. The company is also rolling out same day delivery on select necessities for Prime customers. This push towards faster shipping will kill trends like dropshipping for good. No one is going to wait three weeks for delivery when same or next day shipping is an option.
Faster and free shipping is also transforming the competitive landscape. The major e-commerce players have been attracting more customers as they eliminated shipping costs while improving delivery speed. In fact, Amazon and Walmart have been consistently growing their market share and sales volume every single year.
The Competitive landscape
The major e-commerce players don’t have much of a speed advantage compared to you. Amazon may be shipping two thirds of its own packages in America but it still relies on UPS, FedX, and the USPS to ship the other third. Amazon’s in-house shipping service currently only operates in the US and Germany. It is also slower than UPS, FedX, and DHL because the latter two have a significantly larger footprint in terms of logistics hubs, planes, and delivery vehicles.
But you don’t need to build your own logistics network. Amazon has only taken that route because the number of packages they ship provides enough scale to make that decision sensible businesswise. UPS, FedX, and DHL still have a larger delivery footprint and slightly faster speeds.
The competitive edge of major e-commerce players comes from their network of stores/fulfillment centers and the consequent ability to ship products over much shorter distances. Amazon has 110 fulfillment centers in the US, Target has nearly 1900 stores, and Walmart has over 4700 stores. To compete with Amazon, Walmart and Target have essentially turned everyone of their stores into a fulfillment center.
When you place an online order with either Target or Walmart, they send employees to the shelves. These employees pick and pack the selected products for shipping. Given that 90% of Americans live within 10-miles of a Walmart store, their delivery distances are significantly shorter which results in lower overall costs.
What can you do about this?
With free shipping becoming standard across the industry, you will be expected to offer it. Since the costs have to be ultimately borne by your customers, the best course of action is to avoid any price-based competition. This means growing your brand and focusing on segments where customers are less price-sensitive: premium, luxury, artisanal, and custom made goods.
Take a pack of standard toilet paper as an example. If you only operate from one or two locations, there’s is no point in stocking it if you have to ship to the other side of the country. There isn’t much of a markup to cover the cross-country delivery fees and still leave you with a few cents for your trouble.
Walmart can do it since they only have to ship it 10 miles and can fill a truck with enough packs of toilet paper and other consumer goods to make a delivery run economically feasible. The only profitable way to sell a low-margin product like toilet paper online is by customizing it. If people want their toilet paper adorned with their names or the faces of their exes, then you can charge more for than you would for a plain roll.
The name of the game is brand differentiation. Compete with the likes of Amazon and Walmart by being what they’re not. Focus on categories where customers place more significance on the brand name, design, customization, and exclusivity rather than price.
The major players will bury you if you were to compete with them on price alone. If someone is buying a product for $50 or less, a 10-dollar price difference is a big deal. As prices rise however, small price differences become mostly inconsequential as brand perception takes over. Drum up enough brand loyalty and your customers won’t care how much your products cost (within reason obviously).
A second approach
Shipping providers (FedEx, UPS, DHL, and company) happen to be extremely quick and efficient when it comes to making deliveries. To compete favorably with the likes of Amazon at the moment, focus on cutting down your order processing time (the time between when you receive an order and when you dispatch it).
Don’t wait any longer dispatching an order than you need to. Dropping off a package at 10 am on a Thursday rather than waiting until 5 pm can make the difference between that package being delivered by Friday afternoon or getting delayed until Monday.
In an ideal world, packages would be dispatched as soon as an order is placed but there are staffing, timing, and economic considerations. If you run a small operation, you may not be able to get around packing and shipping off products ordered in the night until the following morning. The same might apply to orders placed over the weekend. There are also volume considerations. If you receive only a few orders a day, you want to wait until the end of the day and dispatch them all at once instead of making 10 trips to the post office or your shipping provider’s collection point. Even if you have lots of orders and the people to handle them, packing will take some time.
Nonetheless, striving to have as little processing time as possible is a goal you should strive for. Always aim to dispatch your orders as soon as humanly possible.
The rise of mobile
A full 85% of all Americans own a smartphone. That’s practically everybody above the age of 12. Global smartphone ownership figures show a similar trend with nearly all advanced economies having a smartphone penetration of 70% or higher. Couple that with the average person spending upwards of three hours a day on their smartphone and you start seeing why the share of e-commerce revenue directly attributable to shoppers on smartphones has been rising as the desktop share falls.
Mobile is expected to account for 54% of all e-commerce sales in 2021.
How to take advantage of this
- Optimize your site for mobile.
- Create a mobile app.
- Integrate mobile wallets into your payment methods.
- Implement one-step checkout on mobile.
Big data, Artificial Intelligence, & Personalization
Brick and mortar stores like Costco constantly move their product locations around the store and tend to put the most in demand items far from the entrance so you spend more time walking around, seeing more stuff, and hopefully spending more than you planned to. These tricks work very well for them but that approach can never work with online shoppers. The competition is literally one click away.
Driving impulse purchases in e-commerce is highly reliant on your ability to put the most enticing products right before the customers eyes. Since we’re working with a screen, the number of items you can recommend is very limited which enormously complicates the task.
Making the most relevant recommendations will ultimately require a high degree of personalization. For example, you’re probably not going to have any success selling tampons to a man in his early twenties. He doesn’t need them personally and he certainly doesn’t have any daughters old enough to need them. He could buy them for a relative or a romantic partner but how often do you think that happens in the real world?
You are bound to have more luck recommending personal grooming products like shampoo, razors, aftershave, and beard oil. While this is a much better approach, it still presents another set of problems though. Does he shave his entire beard, just trim it a little, or does he let it grow wild? If he shaves, what kind of razor and shaving cream does he prefer? How often does he shave? How often does he replace his razor? Does he use aftershave? If so, which brand and how much of it does he use at a go?
The answers to these questions will vary from person to person yet customers won’t volunteer such information. Such personal habits are considered extremely private. For a new customer, your only option is a little guesswork which can then be refined as you gather and analyze more data.
Recommend several brands of aftershave and see which one he prefers but you can’t do that every day. If the customer in question just bought some yesterday, he probably won’t be interested. You need to be reasonably certain that the customer has or is close to running out of aftershave. When he sees the recommendation he’ll be like, “Hmm…My aftershave is running low. I should replenish it.”
You’ll need to discern how much aftershave each person uses and how often they need to replenish it based entirely on their browsing and purchasing habits.
If a customer, say Jonah, buys an aftershave with particularly strong soothing power, then you can conclude that he has sensitive skin and use that information when recommending other products like shower gel and lotion.
If he buys a 2.5 Fl Oz tube of aftershave twice a month but only between March and September, you can conclude that it takes him two weeks to use up that much aftershave and he also grows out his beard in the winter. You can then use this information to recommend beard oil with anti-itching properties from October to February and offer him better deals on his preferred brand of aftershave (larger quantities or discounted bundles).
Performing this level of analysis on every customer who buys every single product you sell is obviously beyond the realm of human capability. Simple tools like inventory management software can’t perform this level of analysis on large data sets either. This is because a pattern like someone’s shaving habits is rarely handed to you on a silver platter. It’s buried beneath a mountain of other purchases and you’ll need to sift through them to find it. This is where big data analytics coupled with AI comes in.
Specialized algorithms sift through mountains of data to find such patterns. Big data coupled with predictive analytics can be a powerful prediction tool for customer behavior. If Jonah spends a lot of money on the 15th of the month and then spends smaller amounts on other dates, you can reliably assume that’s when he gets paid and recommend pricier products on that date.
Artificial intelligence generally gets better with time and gets to fine tune itself with more and more data. In the shaving patterns example outlined above, you’ll need purchasing data from at least two months to develop a tentative pattern. It will take a year of purchasing data to form a reasonably reliable pattern, and a second year of purchasing data to confirm those shaving habits as consistently predictable.
In addition to personalization, big data and AI can be used to:
- Suggest upsells and cross-sells
- Predict trends
- Identify conversion bottlenecks
- Optimize search to deliver relevant results
- Determine future demand
- Optimize pricing
- Improve customer service (chatbots)
- Parse reviews and flag concerning ones
One of the biggest downsides of online shopping is the inability of customers to interact with a product. Product photos and videos are great but they only go so far. Clothes may look good on a model who is fit and tall but end up looking disastrous on a customer who is a little short and chubby. This is where augmented reality (AR) comes in.
What is the difference between AR and VR?
Virtual reality immerses a user into a simulated environment and usually uses a headset and sensors to intensify the experience. If you are watching a movie where characters are running, for example, virtual reality makes it feel like you’re running with them.
Augmented reality overlays computer generated images on real world objects and can be experienced on a smartphone or laptop without the need for specialized gadgets. Snapchat filters are the most prominent example of AR in daily life. You can overlay all manner of objects on regular images: rainbows in doorways, rabbit ears on humans, humans belching rainbows, and the like.
How is AR used in e-commerce
AR provides an immersive experience that shows customers a 360⁰ view of the product and how it would look on them and in the natural environment.
IKEA is a good example. In the IKEA app, you can just point the phone camera at a space in your house. It scans the dimensions and shows a scaled image of how the product you’re looking at would fit and look in the space.
If you want to see if a rocking chair would fit under your window for instance, you just point your camera at the space. The app then displays an up to scale image of the rocking chair sitting in that area, how it interacts with other objects, and whether the headrest is higher than the window sill. You can rotate this image and view it from any angle.
Augmented reality can be used on other immersive applications in addition to furniture placement. You can use it to see how clothes would fit, how different shades of makeup would look on you, how a kitchen appliance would look on your countertop, how paint would look on your walls, how a rug would look on your floor and interact with the rest of your decor, and the like.
Augmented reality will be the next battleground of consumer engagement and it’s time you got on board.
Benefits of AR
- 42% of mobile users say AR would increase their likelihood of purchasing a product.
- AR results in fewer returns.
- AR increases conversion rates.
- AR increases customer engagement.
- AR intensifies customers’ connection to your brand.
Smart speakers came out of nowhere and took the market by storm. Amazon’s Echo and Google Home are in about a quarter of British and American households. In addition to that, there are voice assistants. Siri is in every iPhone and Google Assistant is in every Android phone. Here is one more voice search statistic: 20% of searches on the Google phone app are done by voice.
As voice search grows in popularity you’ll need to optimize your site for it. Voice search technology works in a four-step process:
- Record speech and convert it into text.
- Identify the commands or questions in the text, for example in, “Alexa, order more almond milk please,” the phrase , “order almond milk” is the direct command.
- Enter the direct command or question into a search engine and return results.
- Read back the most relevant result
In real life, the process is never that simple. The greatest hurdle is at the recording and conversion stage. Variations in pronunciation, accents, speaking volume, slang, foreign language words, tone, and background noise often make a speaker’s intent hard to determine. While humans can filter out such disturbances, computers are not yet there. Natural Language Processing has come a long way but there is still room for improvement.
The shortfalls of voice recognition technology haven’t stopped people from issuing voice commands to their phones and smart speakers. Giving your phone a verbal command is a lot easier than typing. And you don’t need to walk across a room and pick it up either. You can just stay on the couch and order Siri to order dinner. Since voice technology is only going to get better, integrating it into your mobile app will be the best move to ensure continued success in the near future.
Customer service has always been part and parcel of the selling process. Customers will often need help completing a purchase, have questions regarding your policies, or require you to assist them whenever they run into a problem.
The proliferation of messaging apps has made live chat the most preferred method for contacting customer support. Since 31% of shoppers who contact support expect an immediate response, chatbots are extremely crucial to your customer communication infrastructure as they are capable of replying in seconds.
Chatbots aren’t just limited to customer support roles. They can be used to complete orders and make product recommendations. In addition to your sites, you should integrate chatbots into your text messaging and social media channels. Facebook’s Messenger comes with its own free chatbot that you can customize to give automated responses and deal with other queries.
There are two primary types of chatbots:
- Menu/button-based chatbots
- Conversational chatbots
These are the simplest chatbots out there. They present a user with a series of options that often follow a tree hierarchy. The user then selects the relevant option from which either instructions are given, or a further selection of sub-categories is presented.
If Jonah wants to change his credit card number for example, he would first have to select the “Account” menu. Underneath that would be the payments sub-menu and then the cards option. Once he selects it, he would receive instructions on exactly where to go and how to change his card number. If Jonah selects the wrong menu or sub-menu, he would be forced to restart the whole process all over again from the top
Interactive chatbots use a combination of keyword recognition and artificial intelligence to determine a user’s intent and provide relevant information.
Instead of just presenting a user with a list of options to choose from, interactive chatbots are structured in the form of a text messaging interface and generally involve some back and forth. Chatbots that use AI generally get better with time as they train themselves with more and more data. They also mimic human engagement much better than menu-based chatbots.
Benefits of chatbots
- Chatbots reduce the cost of customer support while simultaneously increasing speed.
- Chatbots improve customer engagement.
- Chatbot responses are immediate and consistent.
- Chatbot can be deployed in a variety of media: text messages, live chat, and social media.
- Chatbots help in the collection of customer data.
- Chatbots improve personalization, especially when integrated with AI.
- Chatbots keep getting better and more human-like.
As great as chatbots are, they can’t handle everything. While they’ll easily handle the more routine inquiries fine on their own, there will be some novel issues that will need to be addressed by a human. Chatbots will reduce your need for customer service agents, but you shouldn’t cut humans entirely out of that role just yet.
Increasingly, people are no longer just interested in a product that satisfies their needs when making a purchase. There has been a growing movement urging people to focus on the environmental, political, and social impacts of their purchases.
People are being increasingly pressured to buy products produced with sustainable labor practices and positive environmental impact. Companies are also being pressured to adopt production methods that are more sustainable and less destructive to both the environment and their workers.
There is still a massive intention gap though. The Harvard Business Review has found that while 63% of people want to buy from sustainable brands, only 26% actually do. The problem lies in the fact that being an ethical consumer currently involves a lot of work in terms of untangling and analyzing the enormously complex production and distribution supply chains of modern manufacturing. There is also the issue of the most sustainably produced products being more expensive than less sustainable variants without being functionally superior in any way.
This notwithstanding, the social push towards conscious consumerism is only going to get stronger as more people join the bandwagon. The intent is already there so it’s just a matter of time. More and more businesses are citing their sustainability credentials as we march into the future and you will be forced to comply or fall by the wayside. It’s better to get ahead of the curve as soon as you can instead of waiting around until the last possible second.
If you already engage in sustainable business practices, good for you. Make that one of your selling points.
The ROPO effect
Brick and mortar still takes in the lion’s share of retail spending across the globe. But having a physical store shouldn’t stop from having an online presence. If anything, it’s an advantage. According to Retail Dive, only a third of consumers never research products online. The other two thirds do it at least on occasion. They either begin their product searches online or check product information online while browsing the isles.
There is a simple explanation for this. Brick and mortar stores still account for 86% of retail spending. Physical stores still have a few advantages over online stores:
- Non-existent shipping fees – You could spend money travelling to the store and back home but people don’t generally factor this into calculations for whatever the products they buy cost.
- Speed – You get to take your purchases home immediately.
- Certainty – You get to interact with a product in person so the seller can’t misrepresent it. For example, you can check if a shirt fits before taking it home or check for yourself if a chair is sturdy instead of just taking the seller’s word for it.
- Tradition – It’s just how we’ve always bought things so there is zero spending hesitancy. If you come across a new store in a new town that sells something you want, you just buy it. If you come across an online store you’ve never heard of before, you’ll likely do some digging into them before spending any money there. You’re also not likely to spend a lot of money on your first purchase: choosing to wait and see if it’s trustworthy first.
Due to the mix of tradition, speed, and certainty, many shoppers often look up product information online before heading out and making a purchase at a physical store. They check product specifications and reviews to determine whether the product is worth buying. This gives you a massive advantage over your purely online-based competitors if you have a physical store.
How to take advantage of this
- Put all your inventory online.
- Allow customers to reserve or buy products online and pick them at the store.
- Provide information about your store(s): address, opening hours, and the link to a map.