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GUEST BLOG: Data-driven insights, DNVBs and the death of the agency model – what does 2019 have in store for retailers and their digital partners?

Jonathan McNamara, co-founder and CEO of digital consultancy RetroFuzz discusses the trends most likely to impact the industry in 2019…

2018 was an exciting, and challenging, year for digital marketing. Conversations around Artificial Intelligence (AI) and influencer marketing became fused, as the rise of virtual influencers like Lil Miquela and Sophia the Robot marked new opportunities for engagement.

Concerns over security and data privacy, heightened by GDPR compliance, remained at the top of everyone’s Twitter feeds. Chatbots, conversational UX and video marketing are all trends from this year that will spill, and expand, into the next. As the year comes to an end, we spent some time thinking about what the digital sector can expect from the next one.

Here are our predictions for what the retail sector should expect and see being implemented by the digital industry in 2019.

The agency model is dead

Or at least, it’s evolving. The gig economy, the 24-hour work day, and new perspectives on work-life balance means that more people than ever are working remotely – either as part of a flexi-time scheme or as freelancers. There has become less demand for a generalist mindset; many retail brands now employ in-house creative team members, making the full-service style of agency feel not only outdated, but redundant.

In 2019, we predict that the most progressive agencies will begin to reinvent themselves as a flexible, agile team of specialists that are built around their client’s exact needs. The agency model will give way to the rise of digital consultancies, who tailor their skillset to fit around a particular project or client – not the other way around.

As an embedded extension of their in-house team, this new form of agency – the digital consultancy – is more than just a workforce. They are advocates for their clients, as well as their creative partners. This model will value transparency and collaboration; empowering clients with expertise and working closely with them through every stage of the process: from strategy, to delivery and finally, implementation.

How DNVBs are doing it better

Digitally Native Vertical Brands (DNVBs) are created on the internet, for the internet. Beauty brand Glossier built it’s cult-like following almost entirely through Instagram (it now has 1.6m followers). Historically, there have been two channels: wholesalers and direct to consumer. DNVBs don’t engage in wholesale; everything they produce is from a direct-to-consumer perspective. They’re changing customer service as much as they’re transforming User Experience (UX) – and that’s important.

In 2019, established retail brands will make a point of learning from the DNVB model. According to We Are Social, more than 3 billion people are on social media worldwide. DNVBs like Glossier have capitalised on social media platforms to tell their brand story; and have built their audiences through customer engagement. Listening to the customer, and learning from them, are not just built into the design process; for DNVBs they’re a point of origin. Structuring a business around the consumer experience, and prioritising their perspective, is the future of accelerated growth in the digital sector.

This will be the year that DNVBs make their biggest challenge to the high street yet: by expanding into physical retail. Following the likes of established DNVBs like Warby Parker, Casper and Bonobos who have already reimagined their customer centric, digital concept as bricks-and-mortar shops. As the customer becomes more discerning, UX and brand narrative becomes all the more important. We believe big retail brands can benefit from focusing on their direct-to-consumer channels and creating engaging, purpose-driven content that tells a story worth sharing.

Data driven insights

According to an article in Forbes, 2.5 quintillion bytes of data were created every day; 90% of data in the world was generated in the last two years – a trend that shows no signs of slowing down. The same research has shown that Google now processes more than 40,000 searches every day, while smart device ownership is predicted to grow to a projected fifty billion by 2020*.

Investigation of data is not just integral to the UX design process, it’s the start of it all. In 2019, retail brands will use data insight to listen more closely to their customers, and apply their findings to inform design decisions. Through software like Google Analytics and Hotjar, screen recordings, scroll maps, polls on websites and face-to-face conversations with consumers, digital experts can gain a 360 degree understanding of a user’s experience. It’s all about getting a clear feedback loop on what the customer wants; telling a story by following the funnel of data, from where it begins through to conversion. We predict that data and insight will become a pivotal element in conversations with clients around UX, and empower their decisions to take onboard new directions of design.

Marketing automation, AI and personalisation

During 2019, marketing automation tools powered by AI will continue to increase, and hone, personalisation. Mapping the customer’s experience – from the messages they receive, to their eCommerce journey – will fuel the UX design process in new ways. According to research by Forrester, global spending on marketing automation tools will grow from $11.4 billion U.S. dollars in 2017 to $25.1 billion in 2023.

The use of marketing automation will only increase as digital marketers discover new, smarter ways to learn about their customers. New trends, like Machine Learning-as-a-Service (MLaaS) products, Machine Learning Data Catalogs (MLDCs), semantic SEO and advancements in chatbots will have a bigger part to play during 2019.

Ultimately, marketing automation and AI will feed into the new model of consultancy that we’ll see more of next year by empowering agencies and their retail clients with rich data and a customer-centric approach to the design process.

But don’t forget the basics

The next big thing in the digital marketing space is all well and good but at the heart of everyone’s strategy for 2019 should be a clear focus on getting the greatest commercial return for their investments in eCommerce. Sometimes, that means accepting the latest tech innovation or update is not in a brand’s best interest; forgoing a few quick wins, challenging all that is trendy, and achieving, together, long-term, lasting results that add real value to their business. Going back to basics is top of our wish list for clients for 2019 – putting digital marketing spend where it is needed and gaining the greatest ROI possible.

UK eCommerce is booming, but customers still ‘frustrated’ with processes

Personal data usage, unavailable stock and hidden charges are among the top gripes UK consumers have about shopping online, according new research.

AI and blockchain enabled find engine Zwoop polled 1000 UK adults and 1000 US adults via insights platform CitizenMe in an attempt to uncover the biggest grievances with eCommerce, with the following moans topping the tables:

Top five problems shopping online UK and US
Rank UK % US %
1 The item you are looking for is out of stock 64 Unexpected charges on top of your purchase 53
2 Unexpected charges on top of your purchase 46 The item you are looking for is out of stock 48
3 What you buy is not delivered on time / when expected 39 It takes a long time to find what you want 47
4 What you want is only available abroad 34 The check out process is too time consuming 44
5 It takes a long time to find what you want 32 You can never find the exact product you are looking for

“E-commerce has evolved to service the needs of retailers rather than consumers, who are forced to experience pain throughout the buying process,” said Alessandro Gadotti, CEO of Zwoop. “Our research has identified a high level of frustration in the UK and the US. People struggle to find products that are in stock, unexpected charges are imposed at the end of the buying process, purchases aren’t being delivered when promised and time is wasted trying to find the exact products they want.”

In addition to buying grievances, the survey also uncovered a trend of a more fundamental concern – how retailers are using customer data.

On both sides of the Atlantic, customers reported increased sensitivity about how their data is being used by retailers and third parties (84 percent in the UK, 78 percent in the US claim that they are more conscious of how their data is being used compared to a year ago).

The scale of the challenge facing retailers is underlined by the fact that 78 percent of UK adults, and 69 percent of US adults said they were uncomfortable with how their data was used.

“While it’s encouraging that consumers are more aware of how their data is being used – probably thanks to the Cambridge Analytica revelations earlier this year – their dissatisfaction is not being met with real change,” said Gadotti. “This research shows that the vast majority of people do not like how their data is being used, yet they are stuck using the same sites regardless. Companies are taking advantage of customers, and there needs to be another option. This is an area in which the use of blockchain – which can transfer control of personal data from the retailer to the individual – holds much promise”.

The survey revealed that the typical consumer’s e-commerce experience is dominated by a few large companies. Amazon is the starting point for online shopping for 46 percent of people in the UK, and 37 percent people in the US.

In fact, 94 percent of Brits and 90 percent of Americans start their online shop on Amazon, eBay or a search engine, leaving little market space for online retailers or competing marketplaces.

This reliance on a few sites means that shoppers are not necessarily getting a true view of the options available to them, which many customers recognise. In the US, over a third (36 percent) admitted that they don’t bother to compare prices between different sites and almost half (46 percent) think they could have found a cheaper price if they looked for longer. Even more people in the UK (55 percent) think they could have found a better price if they’d kept looking.

“The world of e-commerce is dominated by a few large companies who control the market,” continued Gadotti. “The majority of consumers start their shopping experience with these giants by default, because searching the whole of the internet has been next to impossible, at least until now, and don’t even consider looking at other websites.”

“Most worryingly, 79 percent of UK adults said that they believe the websites they use are designed to find them the best deals. In reality, that is not the case – search engines, for example, do not show results on the best deal, it’s done on SEO and ultimately marketing spend.”

When asked, 40 percent UK adults and a staggering 68 percent of US adults said that the ability to use cryptocurrency on their favourite shops online would make them more likely to buy cryptocurrency.

Two thirds of UK consumers think fraud is ‘inevitable’ when shopping online

The majority of UK consumers accept the risk of fraud when shopping online, according to research from Paysafe.

70 percent now prefer shopping online rather than going to physical stores, and a similar number (68 percent) shop online much more than they did a year ago.

This is despite almost two thirds (65 percent) of consumers accepting that a certain level of ecommerce fraud is ‘inevitable’ during the ecommerce process, up from 52 percent last year, underlining the increasing value consumers put on convenience.

33 percent of UK shoppers said they have experienced payment fraud in the past year, up 6 percent on 2017, which Paysafe says is perhaps symptomatic of merchants continuing to prioritise digital sales.

Research from Ovum shows 58 percent of merchants place great value in reducing lost sales online compared to tackling fraud. Nearly half (48 percent) admitted they would accept a higher level of fraud in return for greater sales.

The report from payments provider Paysafe also showed that when shopping online, 61 percent have used digital wallets in the past month, 34 percent have used a credit card, and 57 percent a debit card.

Meanwhile, 51 percent are using in-app purchases more than a year ago, as the popularity of services such as Uber and Deliveroo change the traditional eCommerce payment process by retaining customers’ information for a seamless app experience. In fact, 79 percent now say they prefer to shop on a website that already has their payment information stored, highlighting that UK consumers place a premium on convenience.

Yet, data shows these attitudes do not translate to the realm of ‘frictionless’ payments – i.e. invisible transactions that take place ‘behind the scenes’ in apps – which are being held back by UK consumer concerns over security and data privacy, according to the findings. 52 percent of UK consumers cite fraud as the biggest barrier to using them; 43 percent express concerns around the use of their data, while two thirds (67 percent) think voice-activated systems are not secure.

And in spite of the popularity of eCommerce, cash continues to thrive as the most common form of payment: 88 percent of consumers used it in the past month to make a purchase.

Although 62 percent of UK consumers carry less cash than they did a year ago, falling from an average of £33 last year to £21 in 2018, their relationship with cash is changing and there are other ways to keep it at the forefront of the payment mix.

For example, in Austria and Germany, online cash replacement systems which negate the need to share financial data are used by 12 percent and 9 percent of respondents respectively. Indeed, 67% of UK consumers said they feel more comfortable purchasing online via a payment option where their financial details are not shared.

In North America, prepaid cards are the most popular cash alternative, used by 18 percent of Canadians and 16 percent of Americans respectively.

Oscar Nieboer, Chief Marketing Officer at Paysafe Group, said: “UK consumers’ attitudes towards fraud in payments are largely defined by the medium of the transaction. In the UK, we have now reached a level of maturity in online retail – most websites are optimised, the checkout process is increasingly simple and delivery is getting quicker. In turn, more consumers are telling us they are accepting a level of fraud for this convenience. What is notable, though, is the same rules do not yet apply to biometrics, such as voice-activated payments. The idea of a consumer’s unique biometric data being defrauded is uncomfortable, and this manifests as emerging technology like voice not yet attracting mainstream usage for payments.”

These findings emerge as other regions are taking active steps to navigate the fraud landscape typically associated with online retail. Only 28 percent and 26 percent of German and Austrian consumers accept a level of fraud is inevitable, which is why pay by invoice is popular in these regions. 29 percent of Germans and 38 percent of Austrians have used this method, which circumnavigates the entry of payment details online, with offline verification and authentication replacing it.

“What the diversity of payment types in other regions shows is we shouldn’t simply accept fraud. We shouldn’t have to choose between risk and convenience, and in a time of hyper-awareness around data security and privacy, merchants must place a premium on securing customers’ data now more than ever,” said Nieboer.

Mobile Optimisation

Europeans searching & shopping online for UK brands on the up

The British Retail Consortium’s (BRC) Google Online Retail Monitor shows that overseas mobile searches for UK brands grew by 17% YoY in Q2 2018, up from 13% in Q1.

The North & Yorkshire represented the highest portion of Google searches in Q2, at 26%, higher than Greater London’s 23%.

In terms of retail categories, beauty saw YoY growth of 10% for UK mobile users in Q2 2018, though, this is lower than the 10% seen in Q1.

Home & Garden saw the highest YoY growth for Overseas mobile searches with growth 29% YoY in Q2 2018.

Italy demonstrated the strongest year on year growth in searches for UK brands from the EU, reporting 31% growth in Q2 2018.

Helen Dickinson OBE, Chief Executive at the British Retail Consortium, said: The scorching summer sun has inevitably meant that online searches for home and garden products – like barbeques and garden furniture – were among the top search terms across Europe and beyond. At the same time, end of school term has created a surge in searches for prom dresses and computer games to entertain kids during the long holidays.

“Online retail search activity is maintaining its growth trajectory, being driven by consumers moving online to shop. Given this growth, some retailers will be looking at the opportunities for exporting offers to other countries.

“These trends will continue as retailers continue to invest in the evolution of their online offering for shoppers.”

UK online retail on the rise, boosted by the World Cup and beating the weather

Online retail has enjoyed a 16.8% (YoY) growth during the first half of 2018, defying extreme weather events like the Beast of the East and various heatwaves to record strong sales results every month so far, according to the Capgemini IMRG eRetail Sales Index.

This sits in stark contrast to the sustained downturn recorded on the high-street so far this year (Feb-Jun). H1 2018 e-retail has in fact seen the highest average H1 year-on-year growth since 2011, above the 5-year-average of 14.1%. The H1 average basket value was also at its highest for the decade at £94, and again outshines the 5-year-average of £85.

Despite the UK being hit by freak cold weather moving into Spring, online retail grew by 15.3% (YoY) between January and March, with the reduced high street footfall driving shoppers to home spending. However as the weather picked up and the UK experienced some unseasonably hot weather in April, online retail sales went from strength-to-strength, with a 18.2% (YoY) growth between April and June.

Some sectors appeared to particularly benefit from the unpredictable weather. Garden enjoyed a YoY growth of 24.9% overall, its strongest first half since 2014, with a 33.7% growth in the warm months of April – June. Clothing has enjoyed consistent growth during the year so far, recording 16.3% growth (YoY) in Q1 and 17.8% (YoY) in Q2 for an average of 17.1%. Health & Beauty experienced its best growth during the wintry months of Q1, with 18.6% growth (YoY). It was also strong during Q2 (16.8% YoY) to give it an overall growth of 17.7% (YoY) for 2018 so far (Jan-Jun).

Despite the impressive growth of online retail, conversion rates for online retailers actually decreased overall every month other than May. This could be accredited to the continued trend of online shopping via smartphone devices, which are accounting for a larger share of total online sales but feature lower (albeit increasing) conversion rates. Indeed, spending via smartphone devices was up 39% against last year during Q2, although growth rates are inevitably starting to slow as this channel reaches maturity.

Andy Mulcahy, Strategy and Insight Director at IMRG, said: “The performance for online sales in the first half of the year has been a lot stronger than anticipated. There are a number of factors that may be influencing that – the extreme weather events (both hot and cold), the Royal Wedding, World Cup etc – and it might be possible that the feelgood elements associated with some of those events has encouraged people to spend a bit beyond their means.

“This could mean that we see a pinch on shopper spend as we move through Q3 – though the weather in July has been incredibly hot – which may lead to an imbalance in online retail growth between the first and second halves of the year.”

Bhavesh Unadkat, Principal Consultant in Retail Customer Engagement at Capgemini, said: “The year started with a lot of doom and gloom and uncertainty around retail. What has been encouraging is how well online retail has performed in H1, particularly in seasonal categories like Clothing and Garden. These two sectors have delivered higher basket values (38.0% and 19.6% YoY respectively), with consumers becoming impulsive in their purchases as they refreshed summer wardrobes and prepared for more time spent outside.

“Despite that online-only retailers outperformed multichannel retailers during most of H1, with average growth at 18.6% and 14.7% respectively, multichannel actually closed the gap on last year’s YOY growth. Basket value growth was also stronger for multichannel retailers, with a 4% (YoY) increase in average basket value to £100.77, compared to only 2% (YoY) for online only retailers at £87.77. It demonstrates the continued importance of an omnichannel presence for retailers – a focus on connected retail will help ensure that the ecommerce sales performance outlasts the good weather.”

UK retail sales up sharply in Q2, despite June’s fall

The latest figures from accountancy giant EY show that June’s retail sales decline was not enough to prevent a robust outturn for Q2 as a whole, which remained on track to see quarterly GDP growth of around 0.4%.

EY says a broader look at the retail landscape suggests that sales have held up reasonably well given the pressures on spending power. However, it says there is little reason to expect much of a pickup in the short-term.

The firm says the strong retail performance in Q2 supports the case for a Bank of England interest rate hike at the August Monetary Policy Committee (MPC) meeting, after it was diluted by lower than expected consumer price inflation of 2.4% in June and weak earnings growth in May.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “Retail sales volumes fell by 0.5% month-on-month on an including fuel basis in June. But given this followed two very large increases in April and May, sales over Q2 as a whole were still up by 2.1%. This was the strongest quarterly growth since Q1 2004, although the growth rate was heavily flattered by the comparison with the snow-disrupted first quarter. Tthe three-month rate is likely to drop back from July as the soft comparators drop out of the calculation.

“With today’s data suggesting only a modest drop in distribution output in June, we remain on track to see solid growth in services output of around 0.6% in Q2, with GDP set to grow by 0.4%.

“Given the extreme volatility of the monthly data, which can distort even the three-month averages, we often prefer to use a longer rolling average to better gauge the health of the sector. The six-months-on-six-months rate suggests that sales have held up reasonably well given the force of the headwinds from high inflation and weak wage growth, although sales growth remains well down on the 2014-16 period. We find it difficult to envisage much of a pickup in the short-term. Although the squeeze on spending power has eased, it is still not improving, and consumers’ desire to borrow appears to be reaching its limits.”

BRC Smartphones

Retail search growth driven by smartphones

The latest data from the British Retail Consortium (BRC) and Google points to a significant spike in retail-related online searches in 2Q17, driven by smartphone users.

In the UK, retail search volumes on smartphones increased 26% in the second quarter of 2017 compared with the same quarter a year ago.

For all devices across the UK, search volumes maintained year-on-year growth of 7% in the second quarter of 2017.

Interestingly, beauty was the most searched for sector by overseas consumers on mobile devices, reporting growth of 42% in the second quarter of 2017 compared with the same quarter a year ago.

Apparel remained a popular sector for overseas consumers on mobile devices, increasing 38% in the second quarter of 2017 compared with the same quarter a year ago.

Estonia continued to demonstrate the strongest appetite for UK retailers, reporting a 77% growth on mobile devices in Q2 2017 compared with the same quarter a year ago.

Helen Dickinson OBE, Chief Executive at the British Retail Consortium, said: “The growth of UK retail searches online in the second quarter of 2017 remains unchanged on the previous year, although smartphones are increasingly becoming the dominant device for online browsing and therefore the main contributor to this growth. The increase in mobile search volumes over this period is consistent with the upward trend in online non-food sales growth.

“Beauty brands in particular continue to attract interest from overseas as well as UK consumers, which put the category firmly at the top of the growth rankings. It would appear that this could have translated to some extent into product sales, as health and beauty products ranked second highest in online sector performance over the three-month period.”

i.LEVEL launches new Customer Returns Section

UK fashion wholesale and concessions software specialist i.LEVEL has launched its new Customer Returns Section, designed specifically to help fashion brands deal with ever increasing volumes of customer returns.

The new service covers wholesale retailers as well as ecommerce and offers a full returns capability.

A key advantage is that it lets fashion brands identify individual customers alongside the reason for each item’s return. This is important in order to detect whether the problem rests with the consumer (in terms of garment size and personal preferences) rather than a fault with the item itself at the source of production.

If found faulty, i.LEVEL’s Customer Returns Section allocates it directly back to the factory concerned.

Another feature is a reporting structure which lets a fashion brand analyse hundreds of returns in one data sweep. This helps identify key patterns in returns and empowers a fashion brand to quickly implement solutions especially if one single supplier is at fault.

Leif Roenn, CEO of i.LEVEL, says: “High levels of customer returns have been near the top of fashion brands’ list of concerns for a number of years now and the problem has got a lot worse with the huge growth in fashion ecommerce.

“Fashion experiences the highest rate of returns across any industry, with 57% of online shoppers returning clothing in the last 12 months. Our solution will help fashion brands address this issue, not least because it records the reasons behind a return and allows brands to rectify production errors sooner rather than later.”

www.ilevelsoftware.co.uk

Shopping

BRC: Shopper visits through March 2017 a “reassuring sign for retailers”

The British Retail Consortium (BRC) and retail intelligence specialists Springboard have released figures covering the five weeks 26th February – 1st April, showing retail footfall in March grew 1.3% on the previous year, the fastest growth since 2014.

The figure was above the three-month average of -0.2%, although March 2016 included Easter Sunday when many retailers were closed, while the 2017 figure does not and effectively adds one more day’s footfall to the period.

The high street saw the greatest percentage of footfall growth: 1.7%, followed by retail parks at 1.4% and shopping centres at 0.2%. The steepest decline in footfall occurred in Northern Ireland, which fell by 3.7%, followed by the South West at 2.3%.

“Shopper visits increased to all retail destinations in March, resulting in the fastest annual growth in footfall for three years,” commented Helen Dickinson, OBE, chief executive BRC. “This is partly owed to the exclusion of Easter Sunday from the period, which therefore benefits from an additional shopping day. But even looking beyond the distortion, the positive growth across most of the country is a reassuring sign for retailers.

“The high street continues to outperform shopping centres and retail parks, for the second consecutive month. Disappointingly though, this didn’t translate into retail sales, which were down in March on the previous year. Now that the Easter holidays have arrived, the challenge for retailers will be to attract this greater number of high street visitors into their stores.”

Diane Wehrle, Marketing and insights director, Springboard, added: “March definitely provided a break in the clouds, with the +1.3% rise in footfall breaking a six-month consecutive decline and the +0.2% increase in footfall in shopping centres being the first since January 2016. Whilst some of the +1.3% may have been a consequence of the loss of a trading day last year due to an early Easter, the impact of this shift should not be overstated as it will have been mitigated by increased trade on the other days over the Easter trading period.

“Indeed, if anything it is more evidence of the continuing structural shift in the use of retail destinations for leisure and hospitality trips. Virtually all of the increase in footfall in March was derived from the post 5pm period while footfall during the trading hours of 9am to 5pm dropped –by just -0.5% in high streets, but much more significantly, by -7.1%, in shopping centres. Indeed, the worsening of consumer confidence and inflation from last year is likely to be constraining shoppers’ willingness to spend on retail goods. This all lends further evidence to the fact that retail is no longer the sole driver of footfall, with a strong leisure/hospitality offer being a critical element to secure retail success.”

www.brc.org.uk

eCommerce Christmas sales expected to hit over £16bn in the UK…

The data and market research company, eMarketer, has predicted that UK retail eCommerce sales will reach an estimated £16.9 billion during the ‘core’ season shopping period of November and December; an increase from the £14.65 billion recorded in 2015 and the rising use of consumers making purchases via their smartphones considered a major contributor to eMarketer’s predictions.

According to analysis, the smartphone medium will account for 36.4 per cent of total retail mCommerce (mobile commerce) sales for the whole of 2016, and by the year 2020, total mCommerce sales is estimated to reach 52 per cent.

Senior analyst at eMarketer, Bill Fisher said: “Retail ecommerce sales during the festive season look set to shine this year, despite the wider economic conditions in the UK. This is in no small part due to a digitally advanced consumer, who has been quick to embrace digital buying and particularly smartphone buying. And during the Christmas shopping period, these digital habits become even more accentuated.”

 

Read more from eMarketer here

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