E-commerce has been on a steady rise since the birth of Amazon and Ebay in the mid-1990s. Today, this trend has further accelerated due to an increase in industry innovation and a digital-first push from the COVID-19 pandemic. To succeed in this new world, leading consumer brands are embracing a new approach called E-commerce Channel Optimization (ECO). ECO combines data analytics, machine learning, and automation to tune e-commerce operations in real-time and win at the moment of purchase.
The world of e-commerce is interconnected, constantly changing, and driven by algorithms. Winning the digital shelf at the moment of purchase requires optimizing across thousands of connected retail, advertising and competitor variables, and then using that data to make decisions nearly instantaneously. This Ultimate Guide to E-commerce Channel Optimization will equip you with the knowledge necessary to outsmart your competition and successfully navigate the algorithmic world of e-commerce.
Top-performing consumer brands use ECO to drive 20% increase in share of voice (SOV), 40% more incremental sales and 20% higher profitability. We’ll cover the best practices of these brands and demonstrate how they leverage an ECO approach to manage data and retail-aware advertising by connecting all retail media to track, optimize and win the digital shelf.
What Is E-commerce Channel Optimization
E-commerce Channel Optimization (ECO) is the practice of using machine learning, analytics, and automation to optimize the e-commerce channel to win at the moment of purchase and drive profitable market share growth. It is a concept that helps consumer brands master the algorithmic world of e-commerce.
An ECO approach is used to manage real-time search and sales data and retail-aware advertising to drive incremental demand, accelerate growth, eliminate lost revenue from out-of-stock products and recover promotion and advertising spend previously drained from low-inventory or low-profit items.
Constantly changing algorithms for e-commerce now manage what products are available to buy. When you can make these algorithms work to your advantage, you can beat out the competition for digital shelf space and exposure to drive your e-commerce business to the forefront.
A strong ECO journey consists of three iterative phases:
- Insight to deliver visibility into performance and guide decision making. Top-performing brands understand that speed matters. They anticipate and remediate issues at a faster pace.
- Action where brands prioritize recommendations and automate manual tasks to move at the speed of e-commerce.
- Collaboration where sales, marketing and operations teams unite around a single source of truth to focus on shared goals around growth and profitability.
Now let’s take a deeper look into the evolution of e-commerce channel optimization, and why it is a powerful strategy for winning more digital shelf space.
The Genesis of E-commerce
Before Amazon, the world of retail was dominated by physical brick-and-mortar stores where consumer brands and retailers collaborated on selling products. In the brick-and-mortar world of retail, winning at the moment of purchase is controlled by relationships between consumer brands and retailers. These relationships are carefully managed as they allow brands to control the limited amount of physical shelf space available, making it difficult for upstart competitors to enter a category.
With e-commerce platforms, consumer behavior controls the shelf instead of the relationship between brands and retailers. In 1995, when Amazon launched an online e-commerce platform for selling products, it introduced a new era of commerce designed to directly serve consumers. Amazon and other large e-commerce platforms focus on helping consumers buy products – not on helping consumer brands sell products. What’s on a shelf reflects what consumers want to buy, not which brand has the best relationship with a retailer.
Between 2010 and 2019, e-commerce sales rose from $170 million to $598 million. In 2020, that number jumped to $861 billion. Top-performing brands see the opportunity and know that surviving in today’s digital e-commerce arena requires a seamless customer experience across all touchpoints. Yet, only 9% of marketers feel they can engage customers across channels consistently.
The challenges facing consumer brands in e-commerce are compounded by the information silos that typically exist between different teams. In a traditional consumer goods company, each team has its own dashboard with metrics pertaining to their side of the business. The sales team might look at total sales and profit margins; the marketing team at advertising spend, ad-attributed sales clickthrough rates and conversion rates; and the supply chain team at metrics like inventory levels, open and filled purchase orders and fill rates on products. Even within a supply chain team, there can be competing interests between the person responsible for Amazon versus the person responsible for Walmart or the person responsible for brick-and-mortar versus e-commerce, and so on.
ECO connects all retail media to track and optimize the digital shelf, activate machine learning-based automations and generate integrated cross-channel reporting from a single portal. When all data is stored in one place, brands have the visibility to overcome silos with greater transparency and increase engagement and conversion rates by making data-driven decisions.
The E-commerce Channel Optimization Disconnect
The pandemic has brought in record numbers of new e-commerce users while existing e-commerce users have expanded their online purchases. These users are likely to stick around long after the pandemic is consigned to the history books.
The sudden and dramatic shift from brick and mortar retail to e-commerce has put tremendous pressure on consumer brands, creating issues across sales, operations and marketing teams, all while the algorithms for e-commerce continue to change with current consumer behavior. When teams are not working in harmony, the whole process becomes disconnected.
For brands with hundreds or even thousands of products – each with dozens of variables such as inventory, promotions and advertising that change on a daily basis – this type of situation is impossible to manage using existing processes, especially when there are multiple channels to manage simultaneously. Say you have 400 products on Amazon, each with 30 variables changing daily. If you have a team of 10 people, they each need to make 1.092 million decisions each quarter. Even if staff were to work 60-hour weeks, each team member would need to make eight decisions every minute just to keep pace.
Without a platform that unites communication and information across sales, operations, and marketing teams, many brands face these common challenges.
Erroneous out of stock messages
Incorrectly delisting products or displaying an erroneous out-of-stock message has an immediate impact on sales. It usually takes a steep decline before anyone notices, leaving your inventory collecting dust instead of creating revenue.
When Amazon incorrectly called a SKU out of stock despite there being 4,221 units on hand, CommerceIQ detected the problem and filed an automated workflow. Two days later, the SKU was available for purchase again, recovering approximately $17,000 in daily revenue.
Wasted ad spend
Products can go out of stock due to poor forecasting and a lack of coordination between supply chain and marketing teams. This can lead to ad spend being wasted on products with rising organic demand but low inventory or by driving traffic to products with an already strong brand presence.
Prior to implementing CommerceIQ, a client was appearing in only 10-12% of the top 850 keywords in its category. After using CommerceIQ, it optimized its campaigns without having to increase advertising spend, increasing SOV to 28-35% of the top keywords and driving millions of incremental sales.
Increasing third-party variant activity and duplicate listings
When third-party variants are added to product detail pages, brands may unintentionally drive traffic to a page where the user can click a third-party option. Third-party sellers have also been known to create unauthorized duplicate listings, causing confusion for consumers and fewer sales for brands. These external challenges lead to revenue leakage and potential damage to a brand’s reputation.
When another client first implemented CommerceIQ, the system detected and removed tens of thousands of third-party variants on 1,200 products, recapturing more than $1.3 million in revenue. CommerceIQ works continuously to monitor and remove them from product pages.
Algorithms for e-commerce determine what is popular, and winning at e-commerce means mastering them to win more shelf space, gain exposure and beat your competition to the search returns or Buy Box.
Winning at the Moment of Purchase with ECO
Winning in e-commerce means leveraging an ECO approach that combines analytics, automation and machine learning to work e-commerce algorithms to your advantage.
ECO begins with a single source of truth that leverages data from all departments, not just marketing. By having a 360-degree view of sales forecasts, inventory, ad spend and effectiveness, it then becomes possible to drive winning strategies and focus on leading indicators that drive business results.
Important e-commerce optimization metrics to track across your retail media include:
- Share of Voice (SOV) shows brands ownership on digital shelves measured in terms of the percentage of top keywords where a brand appears on the first page of the search results. The reason SOV is important is that different shoppers searching different keywords are served different digital shelves.
- Outcome-Based Strategy allows brands to set business objectives such as increasing awareness, SOV, profitability, RoAS, in-stock rate, conversion, competitor conquesting and more by product category and activate machine learning-driven automations for thousands of actions to achieve desired outcomes.
- Unified Reporting provides a unified view of performance, insights and opportunities used to compare SOV, ad spend, normalized ad attributed sales and competitors across retailers to improve decision making.
- Optimized Hourly Budgets and Bids makes advertising more efficient for brands by seamlessly increasing or decreasing bids and budgets based on real-time data like when customers are most likely to purchase.
Having a single source of truth allows a brand to extract insights, make recommendations and implement automations across the entire e-commerce flywheel, tying together sales, marketing and supply chain operations.
Growing your E-commerce Brand with ECO
The e-commerce flywheel was born from the understanding that everything in e-commerce is interrelated. Having the ability to monitor what is happening on your digital shelf is also critical to avoiding out-of-stock issues and reducing instances of third-party variants.
When all components on the flywheel are aligned, inefficiencies are erased and e-commerce business thrives. Here’s what that looks like:
- Optimize assortment: Understand the types of products shoppers are searching for and offer a range of products that fulfills that demand and fills any gaps in variations where there is large demand.
- Identify the digital shelf: Know which keywords are important within each category of your digital shelves to determine which shelves are performing or underperforming and act on this insight quickly.
- Organize the digital shelf: Highlight the specific features customers are looking for so that products are easily found, meet consumer needs and accurately fulfill the search query.
- Fill the digital shelf: Forecast demand and fill more orders by maintaining the right level of inventory.
- Set the right price and promotions: Measure the elasticity of demand for all products and seasonality of demand for certain ones to maximize conversions and returns from promotions with less effort.
- Run retail-aware advertising: Maximize e-commerce sales by using a single source of truth to direct search traffic to items in stock and connect search advertising online with display advertising offline.
An additional benefit to leveraging ECO and maintaining a single source of truth is that it gives you the ability to automate all repetitive tasks and manage by exception. Tasks that can be easily automated in e-commerce include forecasting, paid search keyword selection, bidding, budgeting, order fulfillment and trade spend allocation. Tasks that require more critical thinking should be devoted to skilled people like creating new products, testing new content, reducing packaging costs and building a direct-fulfillment product. With automation, brands can reach the scale required to keep up with the algorithmic world of e-commerce and win.
Having a single source of truth allows a brand to extract insights, make recommendations and implement automation across the entire e-commerce flywheel, tying together sales, marketing, and supply chain operations.
See the power of growth with e-commerce channel optimization. Request a demo today.