In a fiercely competitive consumer ecommerce market, Thomas Makey argues that personalisation could be the key to driving growth.
Barriers to entry for consumer-facing digital businesses are low, but in an increasingly crowded marketplace, the drive for scale is much tougher.
For many of these enterprises, a generic digital business model isn’t going to deliver sustainable growth. But a more nuanced strategy could make all the difference – and a focus on personalisation might just be the answer.
The list of challenges faced by digital consumer businesses is a long one.
The practical problems associated with growth – more demanding working capital requirements, increasingly challenging supply chain relationships and operational complexity – were pressing even before the Covid-19 crisis, but now feel even more daunting.
Strategically, it becomes ever more difficult to maintain the uniqueness of the product range as the business expands.
Another threat now looms large.
Digital businesses have become very good at leveraging customer data for growth, but that data is increasingly difficult to secure.
Where digital businesses were once able to track consumer activity on a fairly granular basis, as well as using social media giants to specifically target or re-target specific customer segments, they are now losing key tools. Google is phasing out third-party cookies (and time limiting first-party cookies), while Apple has introduced tougher rules for its identifiers for advertisers.
Meanwhile, privacy regulations and enforcement are also tightening. Consumers must explicitly opt in to share their data and be given a means to opt out of their data being sold.
Against this backdrop, the traditional paths to growth for digital consumer businesses are hampered for many enterprises.
They need an alternative route.
For a growing number of businesses, personalisation helps to provide that alternative.
In markets ranging from clothing to homewares, these businesses offer compelling products that customers can tailor so that they are buying something uniquely personal to them.
One example is Yappy, an ecommerce business we invested into in 2019. They sell a range of personalised pet products, exploiting technology developed in-house so that each customer gets a unique experience.
You are effectively shopping in an outlet uniquely designed for you and your pet.
Elsewhere, Gresham House Ventures has also invested in the print-on-demand platform business Moteefe. Moteefe enables customers to upload their own designs on a broad range of clothing and merchandise on their proprietary platform, connecting in to a range of print-on-demand suppliers around the globe. The platform appeals both to individuals and to small enterprises keen to create their own ranges of custom-designed merchandise.
Both these businesses benefit from some of the key advantages that personalisation offers.
On those practical problems, for example, one benefit of this model is that it minimises the need for substantial working capital as the business grows; with reliable suppliers, it is possible to operate with print-on-demand manufacturing, rather than having to purchase ever larger inventories of stock.
Nor is uniqueness an issue – customers are creating that for themselves.
As for competition, the scale players in ecommerce are interested in selling large volumes of standard products; they’re not set up to compete with personalised offers. And where personalisation-focused businesses have developed their own proprietary technology, this provides further protection from competition.
Data is also an important consideration here.
Customers shopping for personalised products are naturally happy to share the data they need to get the unique result they’re looking for.
This access to zero- and first-party data – as opposed to the third-party data that the ecommerce sector has depended upon for so long – provides real competitive advantage.
The combination of these key advantages is powerful.
Digital businesses specialising in personalisation can scale rapidly with far smaller pools of working capital and much less complex supply chains. They secure better conversion rates from their data and typically have to handle fewer returns.
Online retailers should think about how they can embed personalisation across their proposition; it doesn’t just have to be a product-only feature – many elements of the customer journey can be personalised.
One example is RevLifter, in which we invested in 2020.
RevLifter is a marketing technology business that uses elements of artificial intelligence and machine learning to help retailers to personalise discount codes based on a wide range of consumer behaviour attributes.
A recent report by BCG highlighted a $70 billion revenue opportunity by shifting from one-size-fits-all discounting to a personalised approach.
Personalisation is not a silver bullet.
Above all, businesses must offer a high-quality proposition that encourage first-time customers to return.
But get the proposition right and not only is the cost of customer acquisition lower, but also, there is potential for more rewarding rates of customer lifetime value.
Ecommerce was the star of the Covid-19 crisis, with physical retailers forced to shut up shop for extended periods. But while online sales look set to continue growing even after the pandemic eases, not everyone will get a fair share of the pie.
Smaller players and new entrants will need to offer something different to break through – and personalised product ranges certainly hit that target.
