Making the case for digital commerce transformation

While traditional retail continues to suffer in North America, the outlook for digital is strong, revenue is expected to keep climbing, and many organizations are investing in digital around the path to purchase.

Budgets for digital commerce continue to rise and seven-figure projects are not entirely uncommon. As a result, organizations that are contemplating change are more likely than ever to require a formal business case to secure approval to proceed with a digital commerce transformation roadmap.

At a high-level, a business case is a pretty simple deliverable to generate. Subtract the known costs from the expected benefits associated with an investment over time, calculate for the net present value of money, and if the result is at least one dollar more than zero, the investment is sound. That said, the due diligence around how one arrives at the expected benefits is likely to be carefully scrutinized.

Thus, when preparing a cost/benefit analysis, it is necessary to ask repeatedly: How will this undertaking impact profitability, by increasing revenue, or decreasing cost? After years of helping clients traverse these daunting questions, I’ve got a few suggestions to share.

Decrease the cost of operations by cleaning up technical debt

Technical debt is a blanket term for the frustrating net result of years of maintaining an existing, on-premise digital infrastructure. Over time many short-term fixes are applied for reasons that made perfect sense at the moment but have baffled the team ever since. As the years go by problems continue to grow; more quick-fixes are applied, entangling systems and making it more difficult and costly to keep things running at even a minimally viable level of acceptability.

While all this technical debt causes plenty of individual headaches and lost productivity, it also has a very tangible impact on the organization’s ability to support a modern, connected, and cohesive customer experience. It also introduces friction to the process of maintaining the platform, reducing efficiency and increasing the cost of otherwise simple operations. Frankly, you can forget about trying anything new, when it’s necessary to call in the I.T. department to move one comma in a product description.

Replacing an outdated platform not only eliminates all the technical debt that’s dragging the team down, but it also frees them up to try new things more quickly and efficiently than ever before. Suddenly, experimenting with A/B tested promotions, personalized search, and automated lead nurturing will soar to the top of the priority list, providing lift across the metrics that create value for your customers and your organization.

Increase revenue by improving the online customer experience

An eCommerce replatform project is an ideal time to reconsider the digital customer experience. First, because you will be ‘under the hood,’ as we say in the US, it will be quite efficient to design and implement new templates. Besides, this gives the business team something to do while the engineers spin up the underlying infrastructure.

Second, and perhaps more importantly, it is necessary to make changes to the experience if

you’re planning to take advantage of many of the best new features and functionality available in the latest platforms.

By now, most digital pros know the most popular statistics about customer experience:

  • “Customer Experience will overtake price and product as the key brand differentiator by the year 2020.” – Walker
  • “70% of buying experiences are based on how the customer feels they are being treated.” – McKinsey
  • “72% of businesses say that improving the customer experience is their top priority.” – Forrester

While inspiring on their own, these factoids don’t say much regarding the hard benefits your organization can expect from making changes to the experience. More specifically, they don’t address the ways an organization can and will increase revenue.

For use in a business case, focus on the impact to revenue in a few, key areas. For instance, improvements to the digital customer experience can include leveraging the latest in practical applications of artificial intelligence to make personalized product recommendations to millions of customers shopping in real time. Automated personalization drove very lucrative, tangible results during the 2017 holiday shopping season and can be rolled-out far more efficiently than earlier, segment and persona-driven scenarios.

The other areas to focus on include increased average order value, conversion rate, and customer lifetime value. Simply put, if your current digital commerce experience is challenging to navigate, throws errors, and misses the opportunity to upsell and cross-sell, then improvements in these areas will naturally provide lift with revenue and conversion. If the current experience is bad enough, existing customers may try out your competitors. Nobody wants that (except your competitors).

Losing a customer is so much more damaging than the short-term loss of an individual sale. Naturally, when considered over the long term, the cost of switching must include friction on the average lifetime value of all customers in addition to all the lost opportunities to sell to that customer in the future. On the flip side, a customer who finds purchasing with you smooth or delightful will buy more, more frequently, and be more likely to recommend you to a friend.

For bonus points, try analyzing the impact an improving net promoter score has had on revenue for your organization in the past.

Wrapping it up

While traditional retail suffers and the outlook for online sales continues to rise, budgets for digital are increasing. As a result, it’s not uncommon for a digital commerce overhaul to cost millions and include milestones on a roadmap that takes months or years to complete, depending on how deep it goes.

The good news is there is a growing body of data that shows beyond a shadow of a doubt that a dollar invested in digital will show a positive return on investment that far exceeds the performance of the same invested in traditional, brick and mortar operations. With that knowledge in mind, the only question left is: How soon can we get started?

Unpacking the 2017 US Holiday Shopping Weekend

During my keynote presentation at the J. Boye 17 Aarhus conference, I shared my thoughts about how slow adoption of digital has catalyzed what analysts and the press refer to as the Retail Apocalypse in the US.

Since 2006, thousands of physical stores have been affected by this slow-motion train wreck, including 6800 closures in the first three quarters of 2017. The eight publicly traded department stores carry $28 billion in debt Incredibly, 50% of the 1,200 shopping malls in the US are expected to close by 2023.
Analysts are still debating the exact nature of the problem, but few disagree that changing consumer behavior around digital commerce and the onerous debt associated with maintaining brick and mortar retail locations are primary factors.

After my week at the J. Boye conference in Denmark, my research on this topic lead me to wonder, what impact will the 2017 Holiday shopping season have? And what can we learn from those results? To find some answers I took a deep dive on shopping data from Thanksgiving (November 23rd, 2017) to Cyber Monday (November 27th, 2017) when 20% of all holiday shopping typically occurs in the US.

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Exploring the data

Interestingly, this year the biggest story was not brick and mortar vs. digital commerce, but rather the impressive growth of sales via smartphone. Another unexpected learning was the exceptional amount of revenue driven by AI-powered product recommendation engines.

According to RetailNext Inc., the number of people visiting stores on Black Friday fell 4% year over year. RetailDive.com reports total in-store sales for the entire weekend was also down. In total, 137 million people went to stores over the four-day Black Friday weekend.

The National Retail Federation (NRF) reported that more than 174 million Americans shopped from Thanksgiving through Cyber Monday, beating their prediction of 164 million consumers. The NRF also says that 33% of Thanksgiving weekend shoppers participated online only while just under 40% shopped both in-store and online. Roughly just 25% of weekend shoppers went to a physical store exclusively.

However, online sales were nothing less than impressive. According to Adobe Digital Insights, Cyber Monday set the record for the most significant online shopping day in history, with $6.59 billion in sales in the US. That’s a $1 billion year-over-year increase for same day sales.

Mobile also had a record-breaking Cyber Monday. Smartphones and tablets drove $2 billion of the total online retail sales. 47% of visits to retail sites on Cyber Monday happened on mobile devices and accounted for 33% of revenue.

According to that same research, online sales from Thanksgiving through Cyber Monday (Nov. 23 through 27) clocked in at just under $20 billion, up 15.2% YoY. Mobile was a key driver in that growth, representing 33.1% of online revenue.
Shopify reports that 500,000 merchants sold over $1 billion during the Black Friday to Cyber Monday weekend. Incredibly, mobile sales for the merchants they tracked represented 64 percent of overall digital commerce revenue.
“At the peak, Shopify merchants also generated more than $1 million of transactions in just one minute,” says Shopify in its release covering the Black Friday-Cyber Monday shopping period.

In other news, Salesforce tracked the impact of Artificial Intelligence enabled shopping on Cyber Monday. They report that 5% of shoppers who engaged with personalized product recommendations driven by AI-powered technology accounted for a whopping 24% of Cyber Monday’s total online revenue.

Who were the winners and losers?

No surprise, Amazon was a winner after they dominated with nearly 33% of online sales on Cyber Monday. Target, captured 6.4% of sales, making them the not-so-close first runner-up. Amazon also got a jump on things this year with their 50 days of Black Friday promotion. Amazon’s stock is up more than 60% this year to above $1,200.

Walmart was also a winner, a clear leader in brick and mortar sales and a healthy online operation with Jet.com. Over Black Friday weekend Amazon and Walmart increased their combined market share by 1.5%. Walmart’s shares have soared 40% to a near record high of $100 thanks to robust growth in its online commerce operations.

The most prominent losers were, no surprise, the traditional department stores. Already in distress, organizations including Macy’s just could not afford a weak showing with in-store sales. Macy’s stuck to their strategy of deep discounts to attract customers to their stores. While this may be appealing to their dwindling base, it is apparently doing nothing to attract new customers to the store.

Retailers with poorly performing digital commerce infrastructure were also big losers this year. Macy’s and Lowe’s experienced significant slowdowns in transaction handling which required hours to resolve. Lowe’s entire e-commerce website crashed for 20 minutes on Black Friday. The Gap and H&M also dealt with performance issues throughout the weekend.

At this point, it’s unforgivable for an organization like Macy’s to deliver a weak digital commerce experience, given how desperate they are. Macy’s stock has fallen over 40% in 2017 and they have recently announced hundreds of new store closures

Unpack what this means for brands

Based on what I’ve learned this year, I think it’s fair to say working e-commerce infrastructure is, as we say in the US, table-stakes. In other words, it is the minimum expected level of effort necessary to be taken seriously by customers today. And, to be effective, minimally viable infrastructure must be capable of supporting traffic spikes. Particularly predictable traffic spikes during events such as Black Friday weekend. It is no longer acceptable to claim overwhelming inbound traffic is a valid excuse for performance issues.

Beyond infrastructure, this year’s data also indicates that customer expectations have moved well beyond simple e-commerce websites. Digital commerce is more than just the latest buzzword; it references the need to meet customers with the right products on whatever device they may be using when they are ready to make purchases.

Digital Commerce is websites, mobile, and conversational interfaces like Alexa. But it’s also personalized product recommendations driven by AI-powered technology.

Based on all this data I feel very comfortable proclaiming that the days of relying upon home-rolled solutions for digital commerce are quickly receding. If your organization does not have professionally built and maintained platforms which offer scale, integration, and personalization as core features, it’s time to start thinking about making changes to your technology ecosystem.

At the J. Boye conference, I talked about the criticality of accelerating digital transformation initiatives in-motion. We discussed embracing digital and all of its challenges and opportunities. This year, I believe it’s time to make a New Year’s resolution for the organizations we all serve. To finally get out ahead of the curve and be the very best digitally enabled businesses we can be.