This midweek Fix goes deeper on everything retail - DTC / DNVB/ O2O/ Omnichannel etc and we aim to give everyone involved in this vibrant new economy insight and tips that help make your business more efficient. Tell me how we can make this better - hit reply.
Iconic Merchants - Argos is a little low key compared to some of the stores we have featured but they pioneered local delivery and this store was the sweet spot in their Accenture digital transformation
Lifetime Value
All the metrics that drive the Merchant economy need more scrutiny than they often get. The idea of one ‘average’ customer acquisition cost doesn't make any sense - as this VC analysis demonstrates.
But the one we always question is Lifetime Value. This is a lagging metric, but everyone has to estimate it, not least to justify the customer acquisition cost.
So sometimes this can be wishful thinking. The key issues we have seen are around measuring and forecasting churn and understanding the real cost of returns.
Action? Are you confident all your key metrics are robust?
Returns
Returns are a structural fault in ecommerce. Free returns are now table stakes but if you don’t handle the process well it can really damage you; annoying customers and costing you real money. Especially now that so many people treat returns as part of the buying process - buy a selection knowing you will return those that don't fit, you don't like or decide you can't afford. Managing the process is a hassle too - get the parcel back, check for damage, handle the refund and decide whether the goods can go back on sale and what preparation is needed.
Action? What is the gold standard for returns in your sector? How do you compare?
Churn
Netflix is a great example of pioneering a DTC model - and we usually cover it within our thinking about newTV, but there is good learning here for Merchants.
The new Netflix numbers (for Q4 2020) are impressive - subscribers now number over 200m and ARPU is up to just over $11. At the start of 2018 they had 118m subscribers and ARPU was just under $10.
But much of the growth was outside the US - just 17% of the years’ growth was in the US. So is the competitive heat driving some churn in the US? As ever the shareholder letter is a must read.
This good Bloomberg argues that some churn is inevitable - and talks of Hoppers; people taking out a subscription for a month and bingeing content, then cancelling and moving to a competitor to do the same.
This will be exacerbated by a new law in New York from next month that requires any service which auto renews to notify its clients that the renewal is due - and make the signing up clearer. Given the efforts of Amazon etc with dark patterns - now getting the attention of regulators - we can see this type of consumer protection spreading.
To be fair this is not an issue for Netflix - as they announced in their Q2 shareholder letter last year they automatically stop billing people who have stopped watching;
The lesson for any DTC business; look after your customers and they will look after you
Action? How do you identify customers at risk of churn? Could you test ways to reactivate them?
Social
Back in November we covered the launch of the Snap Spotlight service and highlighted their focus on Creation;
Snap have a new feature called Spotlight where they encourage people to publicly post videos - with a $1 million a day handed to the creators of the best ones. Clearly an attempt to get more TikTok like content, but with the safety net of incentives to keep the quality of the content high. One issue we hear about TikTok is that there is a lot of dodgy content - to be fair this tends to be from light / new users where the algorithm possibly hasn’t quite sussed them yet. Snap have also acquired Voisey - a UK app that lets people add their own vocals to music. Yes that does sound quite like Musically, the app TikTok was born from.
As the app features blend, what differentiates them? This piece argues that it is about the network, but also making the point that Snap is still all about creation;
And in case you missed any of our coverage of Merchant issues
Reprise - Merchant - December 11
In our deep dive on Wednesday we covered CPG & DTC / Luxury / High Street / Live Streaming (with UK examples) and Grocery Food & Delivery. Catch up here.
The distance between ads on Instagram and buying is shrinking. The latest example is the UK small business shoppable catalogue. Curated by creators, the catalogue is full of products from small brands that these creators rate. The form factor is intriguing - a PDF with clickable links.
L’Oreal are one of the most forward thinking CPG firms and walk the walk better than most. Their investment in AR firm ModiFace has been really effective - their app sits on a number of retailer sites - including Amazon - enabling people to try L’Oreal products. Now they have invested in Replika - a social commerce platform. This quote from their CDO shows their ambition;
The rise of social commerce is a great opportunity for our brands to reinvent the consumer beauty experience worldwide. We are very excited to partner with Replika Software, a pioneer in the field, to create social commerce at scale. Our ambition is to crack this new channel and create a healthy and dynamic ecosystem of social sellers for the beauty category”
I think this is part of a bigger issue around the last mile. It is crucial for ecommerce and for food delivery and success or failure largely depends on utilisation; do you have enough deliveries to amortise across your labour costs? I think we will see consolidation, but a sector that depends on minimum wage employees on zero hours contracts may worry some customers.
So does that leave the door open for someone to vertically integrate the store (or restaurant) with the delivery - accepting the loss on delivery as a (sort of) customer acquisition cost?
The discovery model used to be fulfilled by catalogues - older readers may remember flicking through hundred of pages of choices, then buying through a postal form. The smarter firms involved in this business have evolved to be leaders in home shopping - and innovations like Klarna are inspired by their business models.
Reprise - Merchant - January 15
There are two big pieces on Trends in commerce that merit attention. The annual Shopify Future of Commerce is full of insight and lots of intra country comparisons. I think it’s very telling that one of their 5 themes is around Modern Finance. We hear that the traditional banks can be hard work for Merchants and we know that new ways of paying can have a real impact on sales. Making Klarna, Cash App etc work for you can be really effective/
Surprisingly neither make a big thing of Live Streaming but the headlines continue. This Fortune opinion piece saying Live Stream is the next big thing has weight, as the author is the CEO of the company behind both QVC and Home Shopping Network.
A Fix friend @BionicBusiness shared this great story of one of their customers embracing livestreaming - a Buxton homeware store that books appointments on Facebook for a guided tour of the store - and purchases are mailed out the same day.
Pointing to the success of the Doordash IPO, they make a comparison with the Dotcom bubble driving huge investment in the fibre optic cabling that makes broadband so accessible these days. Now building a logistics chain based on railway arches and minimum wage cyclists isn't quite as sexy, but it is equally forward thinking. They say;
Amazon recently struck a deal with the City of London to turn 39 underground car parking spaces close to the FT’s offices into a “last mile logistics hub”. Parcels will be dropped off at the hub, then ferried to their final destination by electric cargo bikes or on foot.
One key element of Last Mile are the food delivery businesses and JustEat have declared war on Deliveroo and Uber in London. They now have their own delivery service called Scoober and have been boosted by McDonalds and Greggs using their service.
Action? There is so much opportunity for smart Merchants right now - I have expertise, experience and an extensive network. Let's talk about how I might help you - hit reply