Why Digital Has Not Worked
The Moment to improve your digital strategy is NOW! And How to make it work.
There are three components of a brand’s digital presence. The first is its website/e-store, the second is its presence on the marketplaces such as Amazon, Flipkart and the third, is its social media presence. Each plays a critical role and is immensely important. This article focuses on the first component which is the brand’s website/e-store. The other two components will be covered in our subsequent articles.
For a majority of brands in India, the digital presence is insignificant and their sales from e-commerce are in the range of 1% or 3% of the total sales. As a result, it has never got the necessary attention and investments from the top management. That way it has been a vicious cycle. Leave aside the brands even the top-notch retailers in the country haven't been able to secure a better performance.
With a growing active internet population and the digital-first phenomenon, it is a no brainer to embrace digital and put in the requisite efforts to reap the benefits and stay relevant. Leading brands like Puma and Adidas spend 70 to 85% of their marketing budgets on digital. LG spends 30% of its budget on digital. During these COVID times with social distancing becoming the new normal, customers may not go to the stores that frequently. This presents a huge opportunity for brands to reach customers directly. Despite this, the digital presence remains neglected by many brands.
We feel that time has come for brands to relook their digital strategies and reboot their operations. Before rebooting, it is also important to address pertinent questions: Why brands have not succeeded so far, what kind of mistakes have they committed and what could have been done better?
1. Flawed Channel Strategy
Success begins with a clear vision, a compelling customer proposition and a focused strategy. Unfortunately for many none was present. Many jumped into the bandwagon because of the hype, while many did half-heartedly as they were not convinced of its potential.
As a result, neither there was any coherent strategy nor a flawless execution. In a survey by a leading consulting firm, only one out of four brands showed that they had clarity on the digital strategy front.
In our view it’s important to define the expectation from website/e-store, articulate its role and see how it can be dovetailed with other channels such as the market places, modern trade, the traditional trade and exclusive stores.
Figure 1 Clarity of e-store/website Role and Objective has been a Challenge for Many Brands
Lack of clear vision and strategy led to execution challenges including resourcing. In several cases, the e-commerce business was led by junior resources who despite being talented did not have the right maturity to conceive, develop and manage a new and a tricky business like e-commerce.
We believe a digital presence is a must for all brands, although to expect significant sales from own e-commerce /website may not be the right strategy for all the brands. We believe that the brands and products with a certain ticket value to justify the cost to serve, brands which are not easily available in the market, amenable to periodic subscriptions are in a better position to leverage this opportunity. These organizations can put in higher efforts on their e-commerce businesses.
Zara, for example, derives 20% of its sales from its website. This is a large revenue and it is growing faster than offline channels. Nike is also doing a great job through its website- last year it pulled itself out of Amazon as it wanted to control its channel experience and pricing.
There is another important aspect which many brands did not handle properly and that is of real or perceived channel conflict. Many brands either overestimated or underestimated the conflict which their e-stores may have caused in the minds of channel partners. In our view, the conflict could have been managed in a better way – by proactively and transparently communicating to the partners.
2. Poor Content, Value Proposition And Customer Experience
Figure 2 Maturity Framework for assessing customer experience
In our survey of more than 50 websites across the categories of appliances & electronics, apparel, footwear, FMCG & personal care, tableware, and food, we realised that less than 10% of the websites could qualify in either good or excellent quadrants.
Poor customer experience meant poor retention, poor word of mouth leading to higher customer acquisition costs. Whereas an excellent customer experience is a virtuous cycle. Leading companies spent as much as 30 to 50% of their digital budgets in creating the right content which their customers can relate to and share in their networks.
Some brands are doing a great job of providing excellent customer experience, rich content and are successfully engaging their customers: Examples are www.asos.com, www.ellementry.com and www.iflauntme.com. ASOS publishes high-quality content in the ASOS brand magazine, which isn’t just filled with glossy images, but it also has strong editorial content.
3. Chasm Between Vision And On Ground Execution
For several of our clients, we observed that there was a significant gap between vision and reality. This was probably because of the lack of coordination among different agencies and teams or because of unavailability of the right talent. Unfortunately, the quality of the work dropped at each stage resulting in poor customer experience. In a highly competitive and transparent world, brands cannot afford this kind of slippage.
Figure 3 Gap between the Cup and the Lip costing success
Here the traditional processes have to lend their ways to agile ways of working. When followed in letter and spirit, the agile system of working can ensure quicker, and better quality outputs. For this, the leadership has to empower a cross-functional team which can function cohesively with single team goal rather than optimizing functional goals
4. Lack Of Integrated Omni-Channel Support From The Offline Stores
In many cases, the e-store/website turned out to be a siloed channel and never appeared as a seamless part of the customer journey. So the store staff which could have leveraged the endless aisle of its e-commerce presence landed up promoting only store sales even at the cost of lost sales if the stock was not available in the store. This disjointed approach did not help either of the channels.
Many organisations started e-commerce as a separate wing as it would have required an altogether different approach and entailed some kind of disruption thinking. We believe that was the right step during the conceptualisation and incubation period. Having established the e-commerce business it is important to integrate back with the parent business to get one single version of the brand in front of the customers. Many brands continue to function in a disparate way. As a result, the omnichannel experience was either not there or suffered heavily.
5. High Cost to Serve
India with an extensive topography of 20,000 plus pin codes and a return rate of 15 to 20% of forward shipment can pose a challenge for brands.
Many brands have a great infrastructure (both stores and warehouses) with presence across the country to deliver goods directly to consumers. The last mile fulfilment (which can be 50% of the logistics cost) is an area which brands have to master in terms of making it affordable, convenient and a delightful experience for customers. Now with the advent of so many delivery companies, the brands have the option of choosing partners which can match with their expectations.
In our view, the brands can take in the moderate path and not get ambitious to compete against the likes of Amazons and Flipkart's on delivery commitments and at the same time they cannot also afford to relax and deliver in timeframes which are not in line with customer convenience.
6. Higher Cost of Customer Acquisitions
With growing action on the digital front, the cost of customer acquisition has risen considerably. Poor customer experience has neither helped the acquisition costs nor in increasing the brand value in the eyes of customers.
Personalization, on the other hand, can reduce the acquisition cost by 30-50% and increase the revenue by 10 to 15% (Source HBR Study). Personalization starts by developing an understanding of various customer segments, appreciating what they value, and deep-diving into demographic and behavioural data of shopping journeys. These insights could be immensely important for brands as they can be used for content distribution specific to each of the segments y and thus personalised ads, promotions, messages, images, landing pages can be rendered to each of the customer segments. Often companies lose sight of their main target segments and their needs in their rush to meet the KPIs.
For a lower cost of acquisition, it's important to consider a diversified source - SEO, SEM, e-mails, social media, and offline channels in advertisements- of traffic and create a coherent strategy which can help different channels to work in complete harmony with each other.
We strongly believe that a well-designed website and digital presence is a must for all brands in the era of digital-first. The direct to consumer business from a revenue perspective, however, may not be for all the brands. Products and brands which are more amenable to subscription, have a decent ticket size, have limited retail presence are more likely to find higher traction from the direct to consumer channels.
The starting point is to define the e-commerce channel strategy which is aligned to the overall business strategy and can complement the other channels, the role and expectations also need to be designed clearly so that the right resources can be allocated. brands may like to embrace an agile way of working to get better outputs in shorter times. Finally, it is important to step up as one organisation for presenting a coherent view to the customers across the channels.
