How adding services to your products can propel your company growth?
Convenience has been a key driver of the success for many brands that have survived during the COVID-19 pandemic. And though it may feel like we are slowly coming to the end of these unprecedented times, consumer buying behavior is forever changed, and will in turn, affect the success of many businesses for years to come.
As Gartner aims to prepare application leaders for the accelerated shift towards digital, they predict that, “By 2024, leading commerce organizations will generate 10% of online revenue from services attached to physical products.”
By providing the convenience and added customer experience, of coupling analog products with services, brands will become more appealing to the largest generation with the highest spending power: the millennials
The millennials are at the top of the food chain when it comes to commerce, and they are craving personalized, cost efficient, and time saving ways to increasingly consume products and services online. While it is widely believed that price is the dominating factor behind most purchases, it has been found that:
- Approximately, 97% of consumers say they have backed out of making a purchase because of inconvenience.
- 56% of millennials rate convenience highly when shopping online.
- 52% of consumers say more than half of their purchases are influenced by convenience.
With so many choices online, and more time available to shop around and evaluate, merchants need to find ways to remain competitive where convenience is considered. To cater to better customer experience, convenience, and value-add capabilities, Gartner has suggested the addition of services to physical products such as:
- Auto replenishment
- Predictive maintenance
- Marketplace operations
- Payment services
We believe that with the addition of such services, we can expect to see a greater retention rate of customers along with higher potential of continuous recurring revenue.
Subscription based models are at the center of recurring revenue in eCommerce. With the emphasis on customer retention, rather than customer acquisition, merchants have a higher chance of maintaining the loyalty of existing customers. It has been stated that while the probability of selling to a new customer is between 5% and 10%, the probability of selling to an existing customer is between 60% and 70% (Marketing Metrics).
And what keeps the customers loyal you might ask? The benefits of convenience and budgeting. The subscription model provides a low effort scenario where consumers can “set it, and forget it” while also being able to monitor their expenditure.
At the same time, merchants also benefit from the ability to make more data driven decisions and create more cross selling and marketing opportunities. While many organizations have begun to deploy subscription models, the market continues to grow exponentially and can still be infiltrated.
- The eCommerce subscription market has grown by 100% each year from 2013 to 2018 (McKinsey)
- The largest companies in the subscription eCommerce market have grown from $57 million in sales in 2011 to 7.5 billion in sales. (McKinsey)
If carefully thought out, this can be a viable option for many businesses as the barriers to entry remain fairly low for now.
Auto Replenishment and Predictive Maintenance
Auto replenishment and predictive maintenance have been a tremendous time saver during COVID-19. What once started as an intrusive concept, when Amazon launched their “Dash Buttons” that would auto replenish specific items when they were running low, has now become a convenience that consumers crave for essentials, such as groceries.
According to Oracle’s Consumer Behavior report in 2017, 48% of people would like to be able to auto replenish frequently bought items. Companies such as Peet's Coffee and Ziploc have seen 50% of their sales from integrated Dash buttons, while Cotonelle reported they even doubled their share of wallet in 2018 due to auto-replenishment. The addition of such services eliminates the inconvenience of consumers encountering out-of-stock scenarios, while merchants are able to increase their efficiency by matching customer demands.
When we think about marketplaces, the first ones that come to mind are market giants like Amazon, Walmart and Alibaba. However, as barriers to entry have begun to diminish, it has made it that much easier and affordable for merchants to take a piece of the revenue pie - and this is one slice you don’t want to miss out on. According to the 2019 UPS Pulse of the Online Shopper study:
- 96% of online shoppers have used a marketplace
- 38% of shoppers visit a marketplace from once a week to multiple times daily
- 38% of shoppers start their online search on a marketplace more than any other channel
- 48% of impulsive shoppers shop on marketplaces
You may question if developing a marketplace that displays other brands is beneficial for your business. However, in reality, you may actually be losing out on potential revenue by not considering the option. The truth of the matter is, consumers want to get the best bang for their buck, and they do that through research and comparisons. On average, consumers spend 79 days gathering information before making a purchase and what better place for them to do this research than on a marketplace.
As a merchant, you want to be where consumers are spending their time, and why not be the leader that consumers flock to for information. Even if your product is not chosen at checkout, you would have still created a platform that is generating revenue with each transaction, without the overwhelming burden of cost and development time to create a product.
Lastly, as the market shifts away from cash and strip cards, towards contactless payments and digital wallets, convenience increases while checkout times decrease for consumers. However, though these options bring ease of use and speed to the table, there is still some skepticism about security from older generations. As for millennials and Gen Z’s, their comfort in technology have made these services imperative when making a purchase. According to report, “Emerging Trends At the Point of Sale,” by FreedomPay and Ingenico Group:
- Approximately 75% of millennials were satisfied with contactless payments
- Nearly 75% of GenZ were satisfied with contactless payments and declared it a “must have”
- 85% of millennials and 84% of Gen Z consider contactless payment secure.
Having an array of payment services can be a key strategy for reducing abandoned carts and maximizing revenue. Providing a preferred method of payment to consumers will be just as important as providing products. This reduces the friction at the end of a customer buying circle, which in turn will help with leaving a positive impression and boosting customer retention. There has also been positive correlation between higher transactions and additional digital payment services. According to the 2019 UPS Pulse of the Online Shopper, on average, shoppers who use digital wallets even spend $62 more per transaction. In addition to higher earning potentials, it is of my belief that the businesses that will be successful in the future are ones that reduce the frustration of the checkout process and cater to the shopper with all the choices of payment services.
- Millennials and Gen Z have the highest spending power and appealing to their needs is imperative for the success of your business.
- Convenience and customer experience will be the key deciding factors when making a purchase.
- The subscription market is suspected to grow at a rate of 68% from 2019-2025 reaching $478.2 billion. With barriers to entry being an all-time low right now, brands should seize the opportunity to develop this service.
- Auto replenishment and predictive maintenance services will be key for frequently bought items, to be able to “set it, and forget it”
- Marketplaces will provide a new avenue for revenue that doesn’t require developmental cost and time for creating products and satisfying demand
- Payment services is the last step of the buying process that can determine whether or not a consumer completes a purchase.
As you evaluate adding services like these, it is imperative that you also consider the eCommerce software you choose to support it. As we move into our post COVID-19 world, you will want to move and adapt quickly to keep up with your customers. With a Composable Commerce approach, it is much easier for your team to move quickly and integrate all the features you need to design and optimize your differentiated commerce experiences.