Gautum Gupta is an associate at General Catalyst Partners, where he focuses on financial services, enterprise IT, consumer services, and new media. You follow him @gRamblings.
For all the excitement around commerce these days, there have been only a few really big changes in the last 100 years. Sears pioneered the mail-order catalog, chains like Walmart consolidated big box retail, and Amazon brought inventory online. After more than 10 years of growth, e-commerce only accounts for about 8% of total commerce in the US. Clearly, we have a long way to go in moving more commerce online. I believe the next evolution in e-commerce—what some refer to as “social commerce”—will use customer identity and data to better personalize and serve customers well beyond what Amazon has done to date.
Commerce, both offline and online, has historically been largely anonymous and impersonal. Offline, customers walk into stores, see the exact same merchandise, are greeted by employees who don’t recognize them, and are all bound to the same terms and conditions on the back of every purchase receipt. Online, the pen and paper of the old mail-order catalog were replaced with drop-down menus and search boxes. Amazon and other sites emerged to provide customers with anything they were looking for at low prices. As disruptive as the online catalog has been, the success of these online stores is measured by three and four letter acronyms: LTV “lifetime value” and COCA “cost of customer acquisition.”
However, a shopping experience cannot be summarized entirely by metrics. When a customer enters a department store to try on new shoes, she may feel the hesitation of not knowing whether it will match with her wardrobe. Or, she might serendipitously spot a pair of heels out of the corner of her eye, but feels frustrated to learn that the pair is not what she expected, not in her exact size, or the deal is just not good enough. These types of shopping roadblocks—psychic swings from purchasing intent to hesitation or frustration—matter more than metrics can describe. The next evolution in e-commerce will evade these roadblocks by knowing this particular customer’s identity and leveraging the data she has made public (explicit & implicit preferences) to create a more personal shopping experience for her.
Knowing her identity isn’t restricted to the customer’s name or basic demographic information, but could also include his or her family and friends’ purchasing history, the customer’s likes, style, brand preferences, and influences. In the retail context, her identity allows the retailer to build a relationship with the consumer. When Sears first sold watches through the mail, to build trust with consumers they promised customers that every watch sold would be accurate for at least six years after purchase or else they would fix it free of charge. Just as Sears did in the late 19th Century, the best online retailers today make promises to us: they promise to show and help us discover merchandise we’ll love (personalization), they promise to help us decide what to buy (tools), and they promise that we’ll be delighted by the entire experience, even after we buy (service).
Physical retailers operate under the constraint of finite shelf space and must hope to catch the busy consumer’s eye. In the digital world, with endless choices, truly successful companies will excel at helping consumers find and discover great products. Some companies will even enable consumers to create or customize what they want. Gemvara, a custom jewelry seller, starts by funneling consumers into a specific boutique and then immerses the consumer in customizing a design that catches her eye.
One interesting trend is companies blatantly asking customers to fill out quizzes and surveys that eventually inform their merchandise selection. ShoeDazzle has built a large business around style quizzes that engage women in a fun experience to define their personal style. They use the results of these quizzes and their team of curators like Kim Kardashian to build a showroom specific to each customer. Going forward, by using the customer’s past purchase history, likes, and friend’s purchases, retailers will be able to create a completely personalized experience from the very first visit to their homepage.
Beyond personalization, J. Hilburn, an e-commerce company providing men’s custom clothing, employs a network of Style Advisors who can take their customer’s measurements to help deliver on the company’s promise of a perfect fit. Given that J. Hilburn’s shirts are fully customizable, knowing your measurements is critical in producing a superior product experience. Not every category requires a stylist to help consumers decide what to buy. BirchBox, built to help consumers discover new beauty products, creates content around products and categories they sell to educate consumers on what products to use for various skin / hair types.
In addition to offering the tools to help customers pick the right products, social commerce leaders will excel at providing a better service experience. Proving that customer service extends beyond the checkout process, Modcloth has enabled quick exchanges for its customers whereby customers don’t need to wait for their return to be processed before receiving an exchanged item; instead Modcloth instantly sends a replacement. While it may seem minor, this builds an amazing amount of trust with the consumer.
The future of e-commerce will not solely be defined by how to drive down your cost of acquisition or push up the customer’s lifetime value; it will be defined by the personal relationships retailers have built with customers. Efforts to try to optimize lifetime value without understanding the customer will only generate short term success. The next phase of retailing will not succeed by selling the same goods in the same way to different people. Consumers are willing to share data with retailers in exchange for a radically better shopping experience. The internet has enabled us to move beyond the constraints of the mail-order catalog and physical store while making it easier to acquire data on customers. By understanding these two factors, online retailers will greatly increase the portion of online spend from 8% of total commerce.