E-Commerce Quickly Disrupting Advertising, Not Just Retail
Chris Peterson, Managing Partner
According to the U.S. Commerce Department, e-commerce continues on a tear, growing at a blistering pace of more than 15 percent in 2016. Globally, e-commerce is the only trillion-dollar industry with double-digit growth. It’s easy to see how e-commerce is upending many sectors in traditional retail. What’s not so apparent is the quiet revolution taking place in advertising as e-commerce companies redefine how they market products.
At the heart of any e-commerce company is a core discipline of website analytics, which everything revolves around. This creates a unique culture that is laser-focused on data that touches every aspect of customer acquisition and retention. When data is at the center decision making, advertising traditions are pushed aside. Instead, there are hypotheses that are tested, measured, and verified. Anything else is a waste of time.
Just about all e-commerce companies start with digital media. It’s the primary comfort zone, with all the requisite tracking between media, shopping, purchase, and customer relationship management (CRM). If the company can achieve strong product-market fit, it sees digital results scale and fuels a thirst for more. The next step is television, a potentially huge, revenue-driving lever. While TV presents e-commerce companies with uncomfortable challenges regarding targeting and attribution, they soon discover that this new-to-them medium can more fully unlock scalability and brand value in ways they hadn’t imagined.
As e-commerce companies plow through the advertising landscape from digital to TV media, they leave many traditions behind them. The result is a set of values and beliefs that run contrary to the norm, and have the potential to change the face of all advertising. Here are five:
- Advertising is Data Activation. E-commerce companies think fundamentally differently about how advertising gets executed, especially with regard to media. Advertising is made up of a data management platform that enables the combination of different data sets, data sources that combine third-party and CRM data to deliver targeting definitions, data activation that puts data into action in the marketplace (otherwise known as advertising), and data analytics that seek to understand results. The language and thought process is fundamentally different.For example, when one home electronics marketer wanted to test TV following success with scale, they looked to their data management platform (DMP) for targeting assistance. Their CRM data was already hosted so they combined it with connected TV data to determine what their customers were watching the most. This data was then activated in a TV plan, targeting new customers based on what current customers were most likely to watch.
- The Face of the Customer is Disappearing. For decades, marketers have rallied around detailed profiles of customers with pictures that seek to bring the target audience to life. Then, the brands search stock photo sites for that perfect picture of the customer. E-commerce companies often ignore this exercise since it is often derived from speculation, interviews or layering index upon index. If an audience indexes higher as male, having income of over $100K, and eating bib lettuce, then that becomes the audience. So, let’s go find more wealthy men eating bib lettuce. Multiple audience segments may also be derived in the same way.E-commerce companies take hundreds of individual attributes and build look-alike models and then seek to find more customers. Since there is not one age, gender, or preference for bib lettuce over kale, customers are considered to be far more complex and the addressable market to be much bigger. These look-alike models are proven successful in most digital media and are now being applied to TV and other channels.
For instance, a fashion merchandise company had found its best digital success – beyond Google and Facebook – with applying CRM data to digital inventory with a look-alike model. Now that the company is on TV driving measurable sales, it is developing the same type of look-alike model to addressable TV without having to put a face on the customers and choose their styles for them.
- Audience Measurement is Revenue Measurement. Traditional advertisers go to great pains to define their target market and then “measure” the media, or find out how much of their carefully defined target audience is seeing the actual advertising. For e-commerce companies, audience measurement is an interesting starting point that quickly gives way to correlations between advertising and revenue. You see, media investment follows behaviors (sales and revenue), not an audience.
E-commerce companies know that the guaranteed presence of a defined audience doesn’t always equal the best business results because it’s more complex than that. Context, as well as other factors, have a heavy hand in success. Therefore, “measurement” for e-commerce companies is really business results measurement. In traditional advertising, different targeting methods are referred to as different “currencies.” For e-commerce companies, the targeting “currency” is in the form of revenue and EBITDA.
- The Real Work Begins (When the Campaign Goes Live). With traditional advertising, the job is done when a campaign goes live because it ends with audience targeting and audience measurement. Ecommerce companies know that it’s just not that simple to get the most out of every ad dollar. The day a campaign goes live is the day the team kicks into action with daily reviews of results and related optimizations. Immediate signals are combined with multi-stage regression models to determine not only where customers are – but where they are buying and how to get more of them. It’s hard work, but it pays off in more rapid revenue scale and stronger efficiency.
- Scale Matters. Business Pressure Fuels Scale. Very few e-commerce companies have mild ambitions. Most are out to redefine or disrupt a category. As a result, business objectives are big and scale matters. Founders and investors need to see it, fast, or they move on. These same business pressures force marketers to think longer and harder about everything they do. They must uncover every corner of potential scale they can because they know if they don’t, someone else will.
Advertising in the e-commerce category is more challenging because it moves faster and requires a level of analytic skill that goes far beyond traditional advertising services.
Expectations are higher and data points the way. As e-commerce continues its meteoric growth, the learnings and beliefs will change how all advertising gets done. Fortunately, as a result of achieving successful scale, the rewards are big. It also feels good knowing you are part of the future, not left in the past.