Advancing digital commerce capabilities to drive financial value: Perspective and benchmarking framework

With changing consumer behavior, digital commerce gains more and more economic relevance for companies, be it to improve revenues, cost-to-serve efficiency or customer experience. We provide a structured approach to assess digital commerce capabilities, and benchmark them within and across industries. Structured around a customer-back view of the purchase funnel (including exploration, shopping experience, interaction and customer support), the toolkit is designed to help companies prioritize the technology, organization, process and people-related capabilities they need to build (or improve) to drive economic value through digital commerce.

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Advancing digital commerce capabilities to drive financial value Perspective and benchmarking framework

Contacts
Vienna
Klaus Hölbling Partner +43-1-518-22-907 [email protected]

New York
Florian Gröne Principal +1-212-551-6458 [email protected]

San Francisco
Fabian Seelbach Principal +1-617-959-2480 [email protected]

Berlin
Birger Maekelburger Senior Associate +49-30-88705-856 [email protected]

This report was originally published by Booz & Company in 2012.
Strategy& 2

Digital commerce is the single most dynamic retail channel with new game-changing trends unfolding in fast intervals
Digital commerce trends
Social media
Digital commerce trends
•  Social media (Twitter, YouTube, Facebook) for bidirectional communication with customers

Mobile commerce
•  Second spring of mcommerce through rise of smartphones •  Both via mobile sites and apps

Social commerce
•  Individual offers based on social profile •  Integration of shop frontend into Facebook

Multichannel
•  Integration of all channels (online, phone, bricks-andmortar) •  Inclusion of steps: explore, shop, service

Cloud commerce
•  Individual offers based on personal cloud (e.g., music) •  Both from home and in shops (e.g., record store) $$$

$
2006
Process and platform implications
•  Dedicated social media team •  Introduction of special Facebook offers •  Functionality for scanning social media content

$

2008
•  Templates to cater to small screen needs •  Applications development and integration with platform

2010
•  Linking product and service offerings with likes and interests •  Development of “light” shops for website integration

2012
•  Full integration of online platform and backend across all channels •  Need to shift from make to buy

2014
•  Integration with own cloud platform or collaboration with third party cloud providers

Source: Strategy& analysis Strategy& 3

Recent developments include customer interaction through social media, mobile commerce, and social commerce
Did you know: Digital commerce?
Trust recommendations from people they know Spend more online after recommendations

90%

US$30 billion
The expected social commerce revenue in the United States by 2015 GAP achieved US$11 million revenue in 1 day with Groupon

56% of Facebook users are female

67%
1 in 4 U.S. online shoppers has posted product reviews online

PAMPERS FACEBOOK

P&G sold 1,000 diapers in 1 hour on Facebook

GAP GROUPON

U.S. e-commerce Sales (in US$billion)
218 240 259 279

24%

U.K. smartphone owners use it to compare prices

4 billion: the number of people owning a mobile phone worldwide 3.5 billion: the number of people owning a toothbrush worldwide

197

88%
Prefer smartphone apps

12%
Prefer mobile websites

2011

2012

2013

2014

2015

Source: Strategy& analysis Strategy& 4

A company’s online presence remains at the heart of these developments and requires continuous improvement and overhaul
Digital commerce trends of digital commerce leaders
STAPLES

Customer ratings and reviews to provide trusted shopping guidance

AMAZON

Smartphone apps to browse and shop the full range from the mobile
Focus on most important information in mobile app

1-800 S FLOWER

Functional online shop in Facebook to send real flowers to virtual friends

Assessing products by several dimensions, pros/ cons, and best uses

Offers coupons to customers who become “fans” of the service, thereby promoting it to friends

Power users and “verified buyers” create credibility

Transparency through price comparison with barcode scanner

Marketplace within Facebook: fully functional e-commerce platform

…by improving the big-screen experience
Source: Strategy& analysis Strategy&

…by following customers wherever they go

…by venturing into the “social parallel universe”

5

We tested digital commerce functionalities in extensive market research to identify those with the highest relevance to customers
Website features and digital commerce functionalities
Top digital commerce functionalities1 Ratings & Reviews Search & Filter Check-out My Account Shopping Cart Recognition Product Comparison Offers & Promotions Shopping Experience Advisor Cross & Up-selling Support Consistency Payment Options Order Mgmt & Delivery 36% 36% 46% 45% 45% 40% 58% 58% 57% 57% 54% 54% 54% 50% 65%

•  Website features are the visible dimension of digital commerce capabilities •  These features represent the tools and systems dimensions of a capability and are relevant for the attractiveness of websites to consumers •  To be able to offer these features, companies also need to build up the necessary skills, create the required organizational structure, and introduce the underlying processes

1) Proprietary Strategy& Market Research (survey question: Please rank the following based on how important they are to you in an e-commerce website.) Source: Strategy& analysis Strategy& 6

A set of established digital commerce KPIs helps to quantitatively assess performance and improvement economics
KPIs and functionalities
KPI Unique visitors Description Number of different users visiting the website Average time a visitor spends on the website Average amount spent per order Number of sales per number of site visits KPI-improving functionalities (examples)
Ratings & reviews, product comparison, offers & promotions

•  All depicted KPIs have high economic relevance for online retailers… •  …while conversion rate is by far the most sought after •  However, conversion rate does not tell the full story and thus needs to be combined with other KPIs. Example: –  Relevant content may reduce conversion, as visitors gather information rather than buy. –  Relevant content may however increase visits and average cart size, counteracting the reduction in conversion rate

Average dwell time Average cart size Conversion rate Monthly return visitors

Ratings & reviews, product comparison, advisor

Ratings & reviews, cross & upselling, offers & promotions

Cross & up-selling, payment options, check-out

Ratio between total visits and unique visits

Shopping experience, offers & promotions, order mgmt & delivery

Source: Strategy& analysis Strategy& 7

KPIs vary significantly from category to category — this implies significant potential to transfer best practices across industries EXAMPLES
Distribution of conversion rate1 In percent
Conversion rate
% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
STAPLES 1-800 FLOWERS DELL AMAZON VISTAPRINT

•  Conversion ranks from merely 0.3% to almost 20%, some reach up to 30% •  Conversion can improve by involving customers, having an engaging showroom, and providing an optimized order process •  Small increases can have huge impacts on the bottom line

Distribution of average dwell time2 In minutes
Average dwell time

2
LEVIS

4
APPLE

6

8
STAPLES

10

12

14
QVC

16

18

AMAZON

JTV

•  Average dwell time differs from some seconds to up to 20 minutes •  Rich multimedia content, customer participation, a broad portfolio, and configurable products keep (potential) customers on the website min •  Users staying longer are more likely to convert and spend more on 20 average

1) Values for Conversion Rate: Dell: 1%, Amazon: 4%, Vistaprint: 6,5%, Staples: 10%, 1-800 flowers: 17% 2) Values for Average Dwell Time: Levi’s: 1 min, Apple: 5 min, Staples: 7,5 min, Amazon: 10 min, QVC: 14 min, jewelry television: 20,5 min Source: Top 500 Guide, Econsultancy, Strategy& analysis Strategy& 8

Digital commerce functionalities significantly improve individual KPIs and thereby are important drivers of financial value
Functionalities, KPIs, and financial value
Express check-out Recognition & personalization User-friendly product display

STUDY EXTRACT

Unique visitors Average dwell time Average cart size Conversion rate Monthly return visitors
No Effect

+31% -8%

+55%

+29% +7%

§  We have in-depth research on the relationship between digital commerce functionalities (e.g., user-friendly product display, recognition and personalization, express checkout) and typical KPIs (e.g., unique visitors, conversion rate) §  The results indicate substantial financial upside potential through implementing digital commerce functionalities, as indicated by the increased unique visitor and return visitor numbers, higher average cart size, and improved conversion rates
•  Due to inspiration seekers, platforms with userfriendly product displays (e.g., 360° spin, zoom) have lower conversion rates (-7%) than the overall average. •  However, this is compensated by higher unique (+29%) and return visitors (+6%) who spend more time on the online platform (+7%).

+9% +14% +19% +7% -7% +6%

Positive Effect

Negative Effect

Data: The study is based on data gathered from the Top 500 Guide, entailing records for the Top 500 and Second 500 leading North American online retailers Source: Top 500 Guide, Strategy& analysis Strategy& 9

We bring a tried and tested toolkit to baseline digital commerce capabilities
Digital commerce capability assessment modules
1 Explore 2 Shop, buy, receive & use
Offers & promos 2b Order 2c Post-order management 3b Support

3

Interact & get support
User engagement

•  Modules are structured into three clusters –  Purchase Funnel: These are modules that drive a particular element of the frontend experience for the customer during the purchase process –  Design: These are key decisions that need to be designed into the platform upfront, as they have significant requirements on foundational elements and impact most if not all elements in the purchase funnel –  Foundation: These are critical enablers that need to be available to support the purchase funnel and design elements •  Capability assessment modules were designed with a view toward their ability to be managed as stand-alone projects in a sequential platform upgrade

Purchase funnel

1a Showroom 1b Account management Marketing channels & shop link

2a

3a

1c

4 Design
4a User interface & navigation 4b Segmentation & targeting 4c Multi-channel 4d SEO

Foundation

5
5a Data management 5b Analytics & testing 5c Cms 5d User tools & apis 5e Workflow & processes

Source: Strategy& analysis Strategy& 10

The framework breaks down 5 top-level groups into 17 modules with 191 specifications for a rich and wellgrounded assessment
Digital commerce capability assessment—details
Groups
1
Explore

2

Shop, buy, receive & use

3

Interact & get support

4
Design

5
Foundation

Modules

1a
Showroom

1b
Account management

1c
Marketing channels & shop link

2a
Offers & promos

2b
Order

2c
Post-order management

3a
User engagement

3b

4a
User interface & navi-gation

4b
Segmen-tation & targeting

4c
Multichannel

4e
SEO

5a
Data management

5b
Analytics & testing

5c
CMS

5d
User tools & apis

5e

Support

Workflow & processes

Dimensions Specifications

Search & Filter

Comparison

Advisor

Ratings & reviews

Content & multimedia

Product test

Authentica-tion

Myaccount

Marketing channels

Shop link

Offers & promos

Cross & Up-selling

Check-out

Payment

Shopping Cart

Product configura-tion

Click to call/ chat

Order & delivery management

Life cycle management

Warranty & returns

Forums/ Blogs/UGC

Social Sharing

Gamification

Loyalty program

Support

User interface & navigation

Targeting

Segmenta-tion

Multi-channel

Mobile apps

Seo

Data management

Analytics

Testing

Content manage-ment

User tools

Apis

Workflow & processes

Integration

Display & Interaction

Advisor Functionality

Quality Content

Dynamic Offers & Promos Product Choice

Single vs. Multiple

Services

Channel Presence

Linking

Special / Limited Offers

Driver

Complexity

Methods

Visibility

Configuration Paths

Proactive/ Reactive

Notification

Configuration

Warranties

Blogs & Forums

Facebook eStore

Usefulness

Financial Advantages

General /Per Product

Browser Optimization

Personal-ization Engine

Segment Definition and Granularity

Channel Presence

App Features

Off-Site SEO

Customer Data Management

Multi-Channel & Method

Optimization Testing

Dynamic Page Generation

Simplicity & Poka-Yoke

Commonality

Organization Structure

Filter

Competitors Comparison

User Questions

Ratable Products

Multimedia / Interactive Tutorials

Test Setup

Persistence

Navigation & Structure

Integrated Experience

Landing Page

Personalized Offers

Collaborative Filtering

Navigation

Split Options

Persistence

Degree of Custom-ization

Agent Qualification

Order Options Management

Maintenance & Repair

Returns

User Generated Content

Social Network Pages

Product Integration

Partnership Program

Integrated Search

Consistency

Pre-defined Points

Structure Drivers

Integrated Endto-end Experience

App Installation / Configuration

On-Site SEO

Product Information Management

User Access

User Testing

System Integration

Commonality & Customization

Modularity

Decision Authority

Algorithm

Comparable Products

Recommendations

Rating Logic

User C&M Contribution

Usage Limitation

Registration Process

Integrated Search & Filter

Customer information

Notification

Suggestion Relevance

Standard-ization

Online Subscription Billing

Multiple Products

Support

Feedback

Shipping Options Management

Cross & UpSelling

Share Blogs/ Forum Posts

Community Integration

Referral & Sharing

Self Learning

Navigation

Dynamic realtime page generation

Home Page

Enabled Channel Switching

Device Compatibility

Keyword Optimization

Interfaces to backend information systems (Dell)

Coverage

Automation

Customiza-tion

Standardized APIs

Documenta-tion

Process Simplicity & Reaction Speed

Error Correction

Comparable Features

Presentation

Promotional Videos

User ID & Password

Visibility

Bundle Discounts

Suggestion Location

Order View

Link to MyAccount

Cross & UpSelling

Product Preview

Entry Points

Share Reviews

Cross & UpSelling

Premium Services

Support Phone

Targeted Offers

Channel Synchronization

Pricing Model

Search Engine Optimization

Automation

Systemic Optimization

Global

Sales & Technology Workflows

Results Displayed

Data Quality

Reviews Submission

YouTube Integration

Registration Confirmation

Ease of Navigation

Cross & Upselling

Discounts & Coupons

Integrated Comparison

Saving & Sharing

Track Past Orders

Share Product Configuration

Loyalty

Members’ Area

Ticket

Micro Portals/ Section

Sharing Information

CrossFunctional Analytics

Feedback Loop

Multi-Channel

Recommendation

Saving & Sharing

Experience Coverage

Web Mapping Integration

"Top Rated" Suggestions

Check Out Display

Final Price Display

Saving Options

Improvement Suggestions

Campaign Tools

Subscription

Live Chat

Messages

Synchronization / Interaction

Dedicated Team

Real-Time

Workflow & Interface

Product Finder

Reviewer Types

Other Content & Multimedia

Discounts

Multiple Addresses

Currency Converter

Config-topromise

Ask the Community

Languages

Self-Optimizing

Expert Social Reviews Sharing

Shipping Options

On-site Support

Ratings Summary

Check-out Upselling

Gift Options

Link to MyAccount

Source: Strategy& analysis Strategy& 11

For an initial evaluation of a player’s digital commerce capabilities, we assess the 12 modules that are accessible outside-in…
Results of outside-in evaluation—summary view
1
Explore Purchase funnel
1a Showroom 1b 1c Account management Marketing channels & shop link 2b Order 2c Post-order management 2a Offers & promos

2

Shop, buy, receive & use

3

Interact & get support

Evaluation dimensions and specifications “account management”
Dimension Authentication Specification
Single vs. Multiple Persistence Registration Process User ID & Password Registration Confirmation

3a User engagement 3b Support

Evaluation

4
Design
4a User interface & navigation 4b Segmentation & targeting 4c Multi-channel 4d SEO

MyAccount

Services Navigation & Structure Integrated Search & Filter

Best-in-Class Marginal Performer

Qualified Participant Minimal Capability

Visibility

Note: “Foundation” cannot be assessed outside-in Source: Strategy& analysis Strategy& 12

…and provide a sense of a player’s competitive position through comparison with our benchmarking database for these 12 modules
Competitor benchmarking—top-level summary
DIMENSION DRILLDOWNS AVAILABLE

CLIENT EXAMPLE

75

50

•  Client (Score: 38.9) 1 Client offers good multi-channel experience but lags behind regarding showroom and navigation. •  Competitor 1 (Score: 40.0) 2 Competitor 1 presents good offers and promotions but lags behind in some other dimensions. •  Competitor 2 (Score: 39.4) 3 With intuitive user interface and navigation, website still provides potential in other dimensions. •  Competitor 3 (Score: 48.0) 4 Competitor 3 provides a well-rounded shopping experience to customers.

Note: “Foundation” cannot be assessed outside-in Source: Strategy& analysis Strategy& 13

In addition to benchmark scores, rich qualitative assessments versus best-in-class examples help derive actionable conclusions
Digital commerce capability assessment—qualitative benchmarking

AMAZON TELEKOM T-MOBILE NEWEGG

TELEKOM

Source: Strategy& analysis Strategy& 14

Ultimately, e-commerce initiatives should deliver a fact-driven target-state design, covering technology and operating model
Core elements of digital commerce projects
I
Strategy •  Baseline existing digital commerce strategy (e.g., channel mix and integration) •  Benchmark against digital commerce leaders •  Develop digital commerce target strategy

Initial audit
Capabilities •  Conduct in-depth evaluation of purchase funnel modules •  Conduct workshops with key experts for design and foundation modules •  Compare against digital commerce leaders and evaluate fit with digital commerce target strategy

II

Gap analysis
Requirements

III

Target-state development

• 

Define functional and non-functional future requirements •  Conduct high-level baseline of digital commerce processes and organizational structure •  Conduct high-level baseline of technology platform •  Derive gaps and define activities to close gaps

Commercial proposition •  Scope and redesign commercial proposition, including digital product and service portfolio, pricing strategy, and digital channel experience •  Align digital versus other channel roadmaps Skills, processes, and organization •  Develop functional capabilities to support digital commerce strategy and required target state •  Develop digital commerce target processes and organizational structure to close identified gaps Technology platform Develop business and technical specifications for a future-proof target technology platform •  Define roadmap to achieve target platform (e.g., make or buy decisions, vendor assessment) •  Business case and KPI steering model •  Validate lever logic and develop business case •  Define performance management framework, governance

Activities

KPI/performance baseline •  Baseline key KPIs (financial, quality, experience) •  Formulate hypotheses on improvement levers

Ambition setting •  Define priority KPIs •  Set ambition level

Source: Strategy& analysis Strategy& 15

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