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Ecommerce is complex, but too often brands embrace a simplistic view of what it means to their business. The conversation often centers around market penetration or ecommerce’s share of growth and profitability relative to physical retail.
But Russ Dieringer, founder and CEO of the research and analyst firm Stratably, argues this is just one piece of the puzzle. There are several other reasons brands must make ecommerce the centerpiece of their growth strategy.
Dieringer shared these insights during his recent session at the 2024 Digital Shelf Summit: “Retail Growth Outlook and What To Do About It.”
Hosted by the Digital Shelf Institute, the Digital Shelf Summit convened ecommerce and IT leaders nationwide to share actionable execution strategies and critical systems that can drive profitable, digital-first omnichannel success.
Here are some highlights from Dieringer’s talk.
Dieringer kicked off his session with an overview of retail’s growth trajectory over the last year. In 2023, recession fears and economic uncertainty cast a shadow over the retail industry. However, it looks like the U.S. economy has successfully navigated a “soft landing” and avoided a recession, according to CNBC.
This has led to great market returns that have benefited many everyday investors and low unemployment that has driven significant wage growth. However, higher mortgage rates and lower personal savings rates are persistent issues. Additionally, consumer sentiment hasn’t been as optimistic, even though it’s steadily climbing.
Dieringer says these stats paint a complex economic picture that will continue to affect consumer expectations and brand strategies over the next year.
Though inflation has declined, consumers continue to feel it at grocery stores and in other everyday spending categories. Dieringer says consumers are more focused on value than ever before.
“The value-focused consumer that you sold to last year, they're here with us in April 2024. They're going to be with us for at least the next year,” he says.
A Stratably analysis of 48 retailers found they experienced an average of nearly 5% growth in 2023, down from 8% in 2022. This means brands will need to adopt a different playbook in 2024 to unlock new growth.
Dieringer says brands can pull three essential levers to drive growth.
“The consumer is responding to deals and discounts. It doesn't have to be a super deep discount. But it's got to be on discount to attract the attention of the value-focused consumer,” Dieringer says, providing Amazon’s launch of another Prime Day this past spring as an example.
Stratably research indicates many of the largest consumer brands are focused on product innovation to accelerate growth. “Innovation is very aligned with the value-focused consumer. If you can bring something new, different, and interesting, the consumers are willing to pay full price for that and you get the full margin as a result,” Dieringer says.
In its analysis of 48 retailers, Stratably projects that online sales will outpace brick-and-mortar sales and will account for the majority of dollar growth within retail. Dieringer says this data can reshape future investments within organizations and foster a more growth-oriented view of ecommerce, rather than one exclusively focused on market penetration. “When you show this type of analysis to the C-suite, it changes their mental model,” he says.
During his session, Dieringer also discussed retail media and effective measurement.
Dieringer says he’s often asked what level of retail media investment is right for a brand. The answer depends on the organization, but Stratably’s research indicates most large to mid-sized consumer brands are allocating 15-20% of their total media spend to retail media.
Dieringer adds that it’s important for brands to evaluate their retail media spend regularly. All brands do this at least annually, but the largest share do it bi-annually (74%) or quarterly (60%). Only 17% do it monthly, Stratably’s research indicates.
Dieringer calls measurement “a big competitive edge opportunity” for brands. Though 70% of brands plan to increase their retail media budgets in 2024, only 13% say they have a handle on measurement. This isn’t surprising considering how new retail media platforms are, the fragmented landscape, and the lack of standardization.
Dieringer says brands can address this challenge by optimizing their marketing mix models (MMMs) to make them more adept at measuring retail media.
“We can't rely on MMMs entirely. We have to use multiple measurement methodologies to arrive at the truth and to model what's happening in the real world with retail media,” he says.
Brands can use econometrics, lift analysis, advanced direct attribution using customer data platforms (CDPs), and clean rooms like Amazon Marketing Cloud (AMC) to share aggregated data from and with retailers. The latter, in particular, can unlock new growth.
“Only one in 10 brands are actually taking advantage of the full capability of AMC,” Dieringer says. “The single biggest competitive edge opportunity that exists on Amazon is around the analytics, because it's not just insights, they also allow you to take action on that data.”
As Dieringer underscored during his Digital Shelf Summit session, ecommerce will drive future growth for brands. However, the execution tactics that worked pre-2024 won’t accelerate growth in the same way this year.
To attain new levels of growth, brands will have to offer deals and discounts, prioritize product innovation, and shift how they measure ecommerce performance. By employing all these strategies, they can win on the digital shelf.
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