Sales jumped 18 percent on Cyber Monday, according to a USA Today headline this past holiday season. Clearly, online shopping has arrived and it’s here to stay. Purchasing books and electronics online is now the norm and recent trends suggest that packaged-goods categories, with compound annual growth rates at 20 percent, are the next to explode online.
E-commerce is dramatically changing the face of retailing for consumer goods. Pure-play e-tailers like Amazon have pushed beyond books and electronics and placed a strategic priority on developing their packaged-goods offerings. In doing so, they are moving beyond pushing for the occasional purchase of bigger-ticket items and gift-buying to capture stock-up and fill-in trips for household items.
Amazon has capitalized on its first-mover advantage, featuring strong consumer value-propositions to gain market share and lock-in loyalty. In many packaged-goods categories, Amazon has more than 50 percent market share of US online sales. This poses a significant threat to traditional brick-and-mortar retailers, especially for “center store” items (see chart).
Brick-and-mortar giants like Walmart, Walgreens and even Dollar General have been boosting their e-commerce offerings for consumer goods — from increased product assortment online, to new fulfillment options like “click and collect,” to more attractive free shipping hurdles, to enhanced shopping apps and exclusive online product bundles. This is an e-commerce revolution at retail that is creating new opportunities for manufacturers and retailers to use insights-driven strategies and programs to win in a new battleground for consumer packaged-goods.
Consumer Demand Drives Growth
In the past, online sales were a small portion of the massive multi-trillion dollar US consumer packaged-goods market. However, as most major manufacturers now realize, it is the critical source of growth and a major game-changer for those who perfect the art-and-science of e-tailing first.
We believe that the tipping point is here. The US e-commerce market is already the largest global market for packaged-goods sales and has great upside potential. Increasing consumer demand for convenience and time-savings, rising gas prices, advances in technologies (e.g., higher broadband adoption and smartphones), and an ever-more accessible online shopping experience are making e-tailing the fastest growing retail channel for packaged goods.
The real question is, how do you win in this increasingly hyper-competitive space?
It is easy to say that brand and retail marketers should focus on awareness-building programs to reach more people online. However, the online environment is fragmented and complex. The key to long-term performance lies in capitalizing on insights about current and future online shoppers to create customized, targeted, and efficient online marketing plans.
What are shoppers buying today? How much? How often? Where? What are their underlying needs? What are the motivators and barriers to online shopping? What does the future hold? These were among the key areas of learning we explored in our recent online packaged-goods study.
The Drivers of Demand
In the third quarter of 2011, we conducted an in-depth survey through eLab, our 3,500-member in–house panel. We explored consumer purchase behavior across some of the top consumer packaged-goods categories to better understand what is driving this evolution from retail to e-tail. Our panels of shoppers were very forthcoming; following are some of our key findings.
Convenience drives online packaged-goods sales. With the expansion of broadband to more than 60 percent of US households, it’s never been faster or easier to shop online, and consumers are noticing the change. Five out of the top 10 reasons consumers are shopping online revolve around convenience:
• Takes less time
• Saves a trip to the store
• Helps avoid checkout lines
• Helps avoid carrying heavy items
• More convenient to have items home-delivered
This is opening up new consumer segments and opportunities for e-tailers — from budget conscious, cramming, college students who are stocking up on staples like microwavable mac & cheese, to time starved new moms stocking up on everything from diapers to laundry detergent, paper products and health-and-beauty items for the family.
Recently, Petflow, a pure-play pet supply e-tailer, sent out an email with the subject line “Cold Yet? Check this out.” The email was a reminder that winter had finally arrived in the Northeast, that on average it costs $4 in gas to drive to the store, and that customers would qualify for free shipping if they spent $49. Why wouldn’t pet owners want to order a big bag of dog food, dog treats and a dog toy from the warmth and comfort of their couch? Given the strength of convenience as a driver of demand, it’s not surprising to see significant levels of purchase incidence in many of these categories.
Customization delivers on consumer desire. Online shopping enables consumers to shop the way they want. When they know what they want, they can use the search bar. When they want to browse, they can do so by virtual aisle or category.
Some of the most experienced online shoppers shop directly from their saved list of previously purchased products and auto-replenishment items.Consumers also reported that they often add items to shopping carts to save for future purchase. Understanding online shopping behaviors by category is critical.
E-tailing is not just another retail channel. While there is strong opportunity for volume, e-tailing provides a unique marketing opportunity to interact one-to-one with consumers while they are shopping and deliver customized offerings to best meet their needs.
Social media drives consumer purchases. Thirty percent of shoppers in our survey reported purchases influenced by Facebook, blogs or other forms of social media, and this trend will continue to grow. This is especially true among Millennial shoppers, whose virtual path-to-purchase in certain categories begins on social-media sites.
Future purchase intent points to continued growth. Among those who don’t currently purchase packaged-goods items online, there is huge interest in getting into the game. On average, our study indicates that more than 50 percent of shoppers in any given category are very interested in buying packaged-goods products online.
Retailers and brands that are early movers stand to gain more than their fair share by optimizing their assortment of packaged-goods products, driving category awareness and growth and improving “shopability.” The time to act is now, as the penetration of online purchasing of consumer packaged-goods accelerates and a significant group of consumers are forming new brand and retailer affinities.
Online shopping behavior also points to strong growth. Online purchase occasions center on fill-ins (26%) and stock-ups (25%), which means that the online shopping basket is usually quite full. In many categories, the online expenditure is two or three times that of in-store. Directionally, this is consistent with what we expected, however the magnitude of difference in certain categories is dramatic.
The main reason is that when shopping online, consumers are much more open to supplementing planned purchases, often to meet minimum shipping thresholds. Despite this, conversion rates remain relatively low and shopping-cart abandonment is still relatively high. Consumer value-propositions and solution-focused bundles need to be developed that get shoppers past hurdles to purchase.
E-tailers and manufacturers must quickly address online shopping needs. With the exception of the Millennial and Gen X consumers, who skew higher for impulse buying, the earlier in the decision cycle you can intercept consumers, the more successful you will be.
Manufacturers and e-tailers have many digital shopper-marketing tools at their disposal to intercept the consumer early in their planning. Auto-replenishment is a terrific way to keep the purchase cycle moving along and to lock in loyalty for your brand. Other proven touch-points for early shopper engagement include online shopping lists, product recommendations, reviews, virtual merchandising and relevant email offers.
The consequences of failure are great. When shoppers can’t find what they want, they will go elsewhere — and the online shopper is too valuable to lose. When online shoppers don’t find what they want, 40 percent will purchase a different item from that e-tailer (bad news for manufacturers) but 56 percent will leave the site and look for the item elsewhere (worse news for e-tailers).
Success requires developing sales best-practices with an e-tailing filter — including optimized product assortment, proper and up-to-date branding, and increased product visibility along the new, “virtual path-to-purchase.” Go beyond viewing e-tailing as more than just another channel, but as a viable marketing medium in its own right.
Win with insights — understand how shoppers are shopping your categories and brands online and what the key motivators and hurdles are. Partner with retailers to improve “shopability” and fulfill key shopper functional and emotional needs. The consumer packaged-goods manufacturers who optimize these keys to success will enjoy much more than a “virtual” advantage.