New Retail 2.0
Brands must assert control and gain access to customer data
New insights will improve experience, raise margins, and lower costs
by Sheilen Rathod
President, Consumer Engagement, Commerce and Marketing Technology, China
Since the dawn of commercial trade, there have only been three sustainable ways to increase sales: (1) sell to more customers; (2) sell more to the same customers; and (3) sell more expensive items to the same customers.
More than ever, digital and data are empowering brands to pull all three levers to drive their businesses. Digital transformation is accelerating in every facet of life and none more so than in the retail environment. Some researchers predict that spending on technology in the retail sector will exceed $200 billion this year. eMarketer predicts that e-commerce this year will contribute 30 percent of China’s total retail sales, which are expected grow to grow 7.5 percent.
Despite—or because of—this enormous growth, brands have a serious problem. Lured by the appeal of reaching more customers from upper to lower tier markets, brands have given up their customer data to the behemoths of e-commerce platforms. The last mile in every transaction has been owned by Alibaba and Tencent, who built their Data Management Platforms and Consumer Data Platforms from the data they collect from the customers that brands attract to their sites.
Unless brands take action, this trend is likely to continue as spending on retail technology increases. Much of this spending will go into offline retail, with more digital widgets leveraging data to produce better customer experiences. Many brands will be trying (albeit in vain) to keep up with the trail blazed by Alibaba’s Hema and JD’s Fresh, as they continue to leverage their deep customer understanding and fuel the ever-increasing demands of the Chinese consumer for fresh food and rapid delivery.
The adoption of augmented reality, virtual reality, robotics and the Internet of Things will rapidly expand in a mall near you, where brand experiences—at least those in owned retail spaces—are easily managed, and direct contact with the consumer is more readily available. Ironically, it’s in the online world (where many companies expect growth to come from) where we see a greater data challenge.
Data vital in competitive market
The rapid growth in e-commerce has made selling to more customers more viable than ever. China’s huge e-commerce platforms (and the myriad of smaller ones) have enabled brands to penetrate provinces that were previously geographically and logistically impossible to operate in (at least profitably). Brands that were once the privilege of the Tier 1 populace are now available, usually delivered in 24 hours, anywhere in China. Whether movement of Chinese consumers from “needs” to “wants” or the massively increased availability of products are the driving forces, the net result has brought more customers to brands large and small.
This development produced unanticipated consequences. Due to the lower barriers to entry, e-commerce channels have enabled numerous smaller brands to get access to the market, driving up competition and forcing all brands to spend heavily to maintain market share. Alibaba generated RMB 218 billion ($31.6 billion) in advertising revenue in 2018 (larger than all the ad revenue spent on TV combined), a clear reflection of the opportunity and the challenge brands are facing.
Cleverly, Alibaba and Tencent then turn around and charge brands for data on their own customers—which can only be used within the platform’s ecosystem. The costs for using platform data (essentially being able to place the right content in front of the right type of customer) have increased in the last three years.
So, although the precision of the marketing within these platforms has increased, and the functionality of Alibaba’s UniMarketing and Tencent’s Blackdragon, are providing brands with more customer data more than ever, it’s the commerce platforms that have become the intermediator in the brand-to-customer relationship. It’s as if all brands, including the luxury ones, have receded into a classic FMCG-type consumer engagement, where the retailer owns the customer and the experience, the brand just supplies the products.
This is all fine when sales keep increasing. But as sales start to stall, competition increases, and margins are squeezed, brands start to ask questions: Who is my most valuable customer? Which of them can I get to buy more? Who should I target to upsell? Who might be the right one to target to cross sell?
Brands must reclaim customer relationship
Brands need to know their consumers better themselves in order to establish their own relationship with the consumers that they own.
Data, of course, is the key building block of this relationship, enabling an understanding of product purchase, consumption, usage and ultimately re-purchase. Consumer data, when used correctly, enables the upsell and cross-sell of products, personalization and, importantly these days, the enhanced experiences that seem to be all the rage.
Perhaps driven by a slowdown in growth, or an awakening to ever-reducing margins on e-commerce, the change is coming.
Once a brand has a direct relationship with its customer—which means it has direct access to its own consumers—promoting a product or a service is a much lower cost or (if through owned channels) free. In addition, the effort spent to learn more about the customer tastes, household make-up, family demographics will improve the “right time, right place right” message and have a direct correlation to sales or customer satisfaction scores.
Evidenced by the development of more than five million We-Chat mini programs in 2018, brands today not only want to improve their customer experience, but they also want to take control of their own data. These apps, living within the WeChat ecosystem, enable brands—with a little bit of tech—to capture every single customer data point.
This enables brands to really know their customers and allows them to build meaningful relationships with customers, pulling data into their Customer Relationship Marketing systems and pushing exclusive, personalized experiences back to customers. Brands then can know who will buy more, and who will buy at a premium.
Not only that, knowing who your customer is means a brand can deliver a better experience, increasing the likelihood of repeat purchases and driving down the cost of acquisition, therefore improving margins. Alibaba and Tencent may still own a majority of the inventory to reach these customers, but brands are pushing hard to take back control of their own customers.