Perspectives

The retail trends driving a new age in customer experience

2 May 2022

The way consumers interact with retail brands has evolved considerably since online shopping emerged in the late 1990s. In this article, we look at the ways in which brands are adopting new methods to attract, retain and retarget consumers in a new and highly converged global society.

In 2021, ecommerce spending across merchants in the United States reached approximately $US871 billion1  - up 14 per cent on the year prior. One of the few industry beneficiaries from the COVID-19 pandemic has been the world of ecommerce, with annual spending globally growing by double-digit percentages both in 2020 (16-19 per cent) and 2021 (14 per cent).2 In the near term, ecommerce retail sales are expected to continue to increase by an average of 15 per cent annually3 - presenting a huge online opportunity for brands of all sizes.

Success is not guaranteed, however, in a space that’s hyper-competitive given the number of retailers and where new technology trends are constantly emerging and rapidly adopted. These interrelated trends, which are fuelled by big data and advancements in customer experience methods, are likely to dictate the impact of an ecommerce strategy in the near term. 


We’ve reached a new age in customer experience

Ecommerce advertising spending is set to more than treble from $US17 billion in the US and $US58 billion globally over the next three years as retailers look to ramp up advertising efforts to attract and retain customers. Alongside investing in advertising, however, retail and product brands are using customer experience (CX) innovations and other data-driven services are using ad tech companies to better understand current and potential customers, and target them with privacy-compliant marketing.

The driving force behind this revolution is direct-to-consumer (DTC) strategies – marketing targeted directly towards a consumer in industries that otherwise require a middleman seller. This method allows retailers to advertise directly via new channels such as social media – using data and analytics to do so in a way that understands and shows they ‘know’ their customers to be able to interact with them on a personal level.

DTC is the latest evolution of the data-driven methods that first appeared around ten years ago when Amazon started to use its selling platform to track and monitor users’ experiences and re-target ads accordingly, something that allowed it to compete with the advertising businesses of Google and Facebook. Amazon is now the third-largest walled garden for advertising in the US, with $US16 billion in ad sales in 2020 (including Fire TV ads, not just retail media).

This has contributed to the customer experience playing an increasingly important role in a consumer's search for products; the dynamic between them and a brand has flipped. Whereas before they would actively search for an item online, they now increasingly expect a brand to natively recommend one, with a common example being Instagram serving product-based adverts based on a user’s browser history and prior product searches. 

The use of first party data and privacy-compliant IDs effectively become the determinant of an ad’s success: this data informs whether a consumer clicked/tapped on an ad or went further to visit the website, install an app, or ultimately buy a product.”


Tim Nollen
Director and Senior Media Tech Analyst
Macquarie Capital

1. The hyper-personalisation of shopping

The rise in DTC strategies enables brands to convert consumers from passive browsers to active purchasers through data tracking their shopping journey. This conversion occurs natively on a brand’s digital platforms with DTC methods effectively therefore allowing ‘one-to-one commerce’ or the ability to create custom, personalised products at scale – which is increasingly becoming the goal of consumer product brands.

Direct engagement with consumers provides brands with real-time, segmented data on their audiences, which assists with customer acquisition and retention in the highly competitive space of retail. As more brands adopt DTC and thus advertise in a self-servicing way (which relies less on retailers) advertisers will reassess their advertising budgets, moving their spending into growing other parts of their business such as product development, branding, physical stores etc. 

Source: eMarketer, Macquarie Research, April 2021

 

Platforms like Instagram, LikeToKnowIt and TikTok can be critical success factors in this new, highly personalised way of connecting with consumers. A recent survey by Facebook4 of 21,000 of its users, revealed that 87 per cent said they took action after seeing product information on Instagram, such as following a brand, visiting the brand's website or making a purchase online – a staggering statistic that demonstrates the power of DTC methods. 

Commerce-driven platforms like these now act as portals in ecommerce transactions and general shopping experiences – subsequently shortening standard customer acquisition journeys and delivering a true DTC experience.


2. Retailers have emerging advertising businesses

Large ecommerce retailers like Amazon and Walmart have been establishing themselves as ‘retail media’ businesses for some time now and the trend is trickling down to smaller, locally owned retailers.

In short, retail media methods turn retailers into multifunctional media platforms – a brand’s marketing efforts are no longer linear when their website(s) and app(s) can double as third-party advertising real estate that generates profit. Further, their media properties (websites and apps) can become consumer engagement platforms, hosting content such as ‘how to’ videos or immersive experiences tying in virtual and augmented reality technologies.

Retail media has become a new digital advertising category in its own right and is the result of convergence between a brand, its technology and the ability to track and advertise to a consumer close to their point of purchase.

A retailer's own websites and apps can provide prime ad space for their and other retailers brands.”

Tim Nollen

This means retail media is a key monetisation opportunity for retailers, especially those looking to grow their digital revenues. This new revenue stream could help offset costs such as delivery, which make it a challenge to break even in some categories – such as grocery, alcohol and food delivery. 

3. Media and commerce converge

The combination of media and commerce truly began with live shopping in the 1980s, when live TV networks like QVC revolutionised the combination of entertainment and shopping by airing channels that specialised in selling home goods among other products. These shows were often hosted by entertaining and well-known TV personalities or celebrities – the ‘influencers’ of their time.

Fast forward to 2022 and this well-known way of shopping has been digitised and migrated across to social media platforms. This trend is known as ‘streaming ecommerce’ or ‘live selling’ and brings celebrities/influencers, social media and live streaming together for a shopping experience.

Continued advancements in 5G technology mean customers can stream live selling on their phone through platforms like Instagram Live in the US and Taobao and Douyin in China. While streaming ecommerce is still relatively nascent in the United States, it has become a key part of ecommerce in China and is expected to grow to 22 per cent of total ecommerce by 2024, up from 9 per cent in 2020, according to iResearch.5 Gartner estimates that streaming ecommerce was a $US60 billion market globally in 2019, with just $US1 billion from the US.

 

4. Ad tech and advertising agencies change pace

Ecommerce provides a positive and important area of growth for ad agencies and ad tech firms – so much so that we believe it can help agencies return to annual GDP-level growth, or better.

With the industry growing in revenue, opportunities for a change of pace arise in new realms of activity – these include business transformation consulting, software implementation, dynamic content creation, behavioural economic strategies and much more. Due to this, advertising agencies have more scope to be creative and rethink their offering, in turn evolving the industry and helping drive further innovation in the way advertising. And ad tech firms that help retailers and brands use data to deliver targeted ads can continue to grow at +25 per cent rates.

These themes will dictate the future experience of ecommerce and shopping experiences. Not only are we in an empowering time for consumers, who have more choice and agency than before, there’s never been a more opportune or promising time in retail and customer experience. As long as brands market in an authentic, engaging way, public trust will continue to rise across retail, resulting in strong performance for years to come. 

 

  1. https://www.digitalcommerce360.com/article/us-ecommerce-sales/
  2. https://news.un.org/en/story/2021/05/1091182
  3. Macquarie Research, E-commerce marketing - A new age in customer experience, May 2021.
  4. https://en-gb.facebook.com/business/news/insights/how-instagram-boosts-brands-and-drives-sales
  5. Macquarie Research, E-commerce marketing - A new age in customer experience, May 2021.

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