3-2-1nsight: Retail's Repeat Focus
Why smart retailers are looking for repeat buyers rather than just sales for Q4
Welcome to 3-2-1nsight from Marketing Sciences.
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Looking beyond Q4 business operations, today I look at how businesses will be competing against retail market leaders for Q4 and moving forward. As CPMs and marketing costs come back to reality as restrictions continue to ease, businesses are no longer operating under the pandemic honeymoon that enriched so many businesses in 2020. It’s back to reality for many businesses, and those that did not scale accordingly or intelligently are now scrambling to hit their goals. Many businesses are operating as they did in 2020, hoping that a hail mary will carry them through 2021, while others are diversifying their business model. Today we analyze some of those new tactics.
And as well, I feature a couple of great things I’ve read or started reading this week. And as always, download my 130 slide consumer research deck looking at the future consumer in 2021, It’s a ton of primary research, and you can download it for free.
3 Stories
Taco Bell tests 30-day taco subscription to drive more frequent visits - CNBC
Taco Bell is unveiling a 30-day taco pass called the Taco Lover’s Pass. Using the pass, a customer can order one crunchy taco, soft taco, spicy potato soft taco, or Doritos Locos taco per day for 30 days straight using the app (omnichannel QSR is the next battleground). The subscription is currently in testing over 17 different locations in Tucson, Arizona. The rollout makes sense, seeing the success that Panera Bread had with their coffee pass program, which for $8.99 a month gave customers unlimited coffee or tea, and now less than a year later, has 500K paying subscribers. Given that most people aren’t just eating one taco, there’s a good chance Taco Bell will see a substantial uptick in UPT (units per transaction) with the unveiling of this program.
Uber: Beauty's next retail channel - Vogue Business
To all my fellow Angelenos, starting this month, if you’re a Postmates Unlimited member, you’ll also now be able to access “Beauty on Demand.” The “Beauty on Demand” bundle contains 18 beauty products for $375. This bundle valued at retail to be worth over $1,000 product features products from cult indie brands such as Furtuna Skin, Summer Fridays, and Corpus Naturals. A big difference is that it comes right to their door for consumers, and those cult indie brands have a far cheaper way of potentially acquiring a new customer than any other traditional method. For Uber, it is a win as it now provides another convenience for its most prized user, a high discretionary income user seeking higher-end cult beauty products. It’s a vibe.
Stitch Fix wants to revolutionize e-commerce—by treating it like an old-school department store - Fast Company
Everyone remembers the subscription box craze that TechCrunch and every other tech publication fawned over in 2011. Now, a decade later, those companies are still around but get much less attention. Once hailed as an indicator that the new consumer (or the savvy internet consumer) simply wanted to buy things a different way has proved primarily wrong. Consumers still love going in-store to touch and feel most things before buying them, and they love buying things online. Conversely, that means most consumers love omnichannel experiences rather than messy return everything you don’t want in a box experience. The logistics of that are harmful to the planet and expensive for the retailer. It’s also not a good buying experience. Stitch Fix saw this and has instead positioned itself as an AI-powered style product rather than a subscription box company. It’s not taking that step to the next level by using its data science to become a traditional eCommerce retailer, albeit with a slight modification. Rather than behave like a conventional eCommerce apparel site that uses a search bar to help consumers find what they want, they’re hoping to use their quiz mechanism to create super personalized shops. The hope is that the shops get better over time as it tracks more user behavior. The jury is still out on if this approach works. Still, either way, it’s an excellent way for Stitch Fix to increase the number of emails it acquires and dramatically improves its operational costs by reducing the number of return boxes it’ll receive from each potential new user.
Takeaways
As costs continue to rise for eCommerce, brands are seeking to uncover more cost and operationally-efficient tactics and channels.
In 2020, many brands, especially boutique brands, saw two extraordinary things happen during the pandemic. They became profitable, or EBITDA positive, and they saw extremely efficient growth. The lockdowns drove this growth for many brands as consumers were looking for things to purchase. Free traffic from organic or extremely high ROAs became a reality for so many businesses. While the efficient growth made it hard for many brands to fulfill orders, many became drunk with the order, and easy customer growth confused market dynamics with business acumen. So many boutique brands focused on fulfilling orders rather than creating a lasting relationship with their customers because the trend indicated their brand was so relevant that another sale would come.
As 2020 winded down, many of these brands raised money fueling expansion and operating under the guise that this new acquisition efficiency was the new normal rather than consider that the rising tide of the pandemic lifted all retailer’s boats. Rather than improving operational efficiency or take advantage of the influx of new customers to create lasting relationships that drive repeat sales, they just used the money to expand their ability to fulfill orders or introduce new products. Many of these companies assumed that new low-cost customers would always be there. They were wrong. Now, many of these same boutique businesses were feeling the squeeze during 2021, as their acquisition costs came back to earth, and their bloated inventory numbers kept their business leaders up at night. Forced to move their inventory because 2021 is looking a lot more like 2019, these brands have more business complexity with fewer ways to sell their goods. This reality is forcing these brands to partner with new platforms and partners to sell items. As the year comes to a close, they’re hoping they’ll uncover some operationally efficient way to sell their items before they have to rely on massive liquidation for the end of the year.
With supply constraints and increasing CPMs, businesses need to get more subscribers rather than just pure sales to bypass prominent spending brands.
During the pandemic, online platforms and marketplaces became a lifeline for American consumers as they facilitated sales, discovery, and browsing entertainment. It also allowed so many new retailers to open as everyone was trying to navigate the pandemic in their ways. We now have more online businesses than ever, and overall retail sales continue growing to new heights.
These two realities have caused a few market dynamics to occur, platforms are competing to find more users and retain their users, and brands are now competing with platforms to get the attention of those same users for their products or services. Platforms are now offering more ad services than ever before, and the CPMs on all the major platforms continue to rise. That reality puts these new retailers and brands in a precarious position competing against their competitors and partners for customer attention at higher and higher costs.
Brands and platforms that are not flush with cash see this and shift their focus from driving transactions and sales to prioritizing repeat purchases or usage. Rather than compete on a dollar basis with a company like Shein for a transaction, brands are creating loyalty and membership programs to find a customer they won’t have to compete to win for every sale. Rather than compete against DoorDash, Taco Bell is looking for a customer that wants to eat their food more frequently to improve their sale. After seeing Panera Bread’s success with their coffee program at rising UPT (units per transaction) and ATV (average transaction value), Taco Bell would be foolish not to try something similar to fuel their omnichannel QSR. Platforms like Uber compete with one another by increasing their utility, showcasing how much-increased convenience their services provide. As brands try to find loyal customers by using their products and product roadmap as a strength, platforms try to retain their customers by showcasing their increased convenience by carrying more products and services. Ultimately for customers, be on the lookout. You’re about to see more deals than ever before.
1nsight
As CACs continue to rise, brands are increasing their repeat purchases by using new channels and methods.
As 2021 heads towards an end, for many, present life is the new normal. Local outbreaks from different variants will always be a factor as the pandemic morphs into an endemic. Housing, employment, and childcare instability will always affect much of the country, although not all three simultaneously. Retailers will increasingly become omnichannel, and the gap between market leaders and new entrants, boutique brands, and tier 2 retailers will continue to widen. As many businesses continue to grasp and come to terms with this new reality, the external factors are forcing business leaders to accept this reality sooner than later.
In the previous weeks, I’ve been highlighting how precarious Q4 will be for many retailers. From supply chain issues, finding enough labor, low consumer confidence to prices due to inflation, I’ve outlined many lookouts that business owners should stay aware of as they plan for 2021’s last hurrah. Large businesses with deep pocketbooks not only have been aware of this for a while, but they’re also ready to open their wallets and spend whatever they need to maintain or grow their market position. Home Depot has bought its ships, and Amazon has built its own logistics fleet to overcome the hurdles causing so many other businesses headaches. Do not think any business that purchased a fleet and continues to grow more vertical is not ready to spend through the nose on marketing in Q4 to win any and every sale. Many of these businesses can do that, though because they used the pandemic to not only grow their revenue, they reinvested in modernizing their business operations to become more efficient and take advantage of the omnichannel trends. Whether on purpose or through spillover impact, a robust retailer will naturally see UPT and ATV grow during their Q4 due to all the changes they’ve made to their business and business operations.
Other brands, though, will not be as lucky. Instead, every part of the customer journey from the ad to the fulfillment will see a price increase. These brands will have to decide either eat the cost and lose margin or raise the price and risk losing the customer. Many businesses can’t afford to lose any more margin, like restaurants and digital retail margins are already razor-thin unless you can get more vertically integrated. Smart, agile businesses won’t be raising prices but will seek a different customer. Rather than overpay for one-time customers, these businesses only want to acquire repeat customers. The only way to compete against the market leaders and behemoths in retail isn’t to get their scraps (they’re no longer interested in giving those up) or win at niche transactions (platforms are seeking to encompass that in their offerings). Still, it’s winning and keep customers that will buy from you repeatedly.
You can find those customers in various ways, but you’ll have a much harder time using traditional methods and platforms. As many self-service platforms prioritize scaling acquisition rather than precise targeting (also a byproduct of more oversight and regulation on big tech), businesses would be foolish to use present best in class acquisition strategies to find these types of consumers. Tactics are no longer enough for companies seeking to grow who are competing against deep-pocket competitors. Instead, businesses need to rethink their entire value chain and operation to entice their users. A simply better product is no longer enough. And a simply better product with a lower price is a race to the bottom if you don’t have a proper business model that can sustain that demand while offering a moat elsewhere. While it’s true that good things come to those who bait, for many businesses from now on, you need to stop thinking about bait but start thinking about how you fish.
My Readlist: Things I’m Consuming Across the Web
Misyrlena Egkolfopoulou highlights how TikTok finance influencers are now making more than actual Wall Street bankers on Bloomberg.
Chris Mannix profiles Paul Pierce in this fantastic piece from Sports Illustrated. Paul Pierce had potentially the most talked about ESPN departure during the pandemic because of this video.
Finally, Simon Hattenstone from The Guardian has a splendid piece on Angelina Jolie (who I can’t wait to see in the Eternals), discussing Brad Pitt, Weinstein, and activism.