Content Intel—episode 15: adapting to today's commerce landscape
Laura Dolan (00:01):
Hello everyone, and welcome to another episode of Content Intel, brought to you by Optimizely. I am your host, Laura Dolan, and today we are joined by our very own, Josh Schoonmaker. He's the Senior Director of Strategy for Commerce, and Mary Rebecca Harakas, Product Marketing Manager for Commerce as well, to talk some digital commerce and strategies today. How's it going, my friends?
Mary Rebecca Harakas (00:23):
It's going well.
Josh Schoonmaker (00:23):
Hi Laura, it's going pretty well. Oh, we just said the same thing, Mary Rebecca.
Laura Dolan (00:28):
Josh Schoonmaker (00:28):
That means that's a great reflection of how aligned Optimizely is, right? We've even got our answers down.
Mary Rebecca Harakas (00:37):
Aren't we just too good?
Laura Dolan (00:39):
Well, thank you guys so much for joining me today. Probably one of the most favorite days of anyone in the U.S., It is the day after Tax Day. How relieved are we feeling right now?
Josh Schoonmaker (00:51):
Right? It's the day that everybody recovers from standing in line at the post office to get that postmark.
Laura Dolan (00:56):
Josh Schoonmaker (00:56):
It's got to be short [inaudible 00:00:59]. Does anybody send in their taxes physically anymore. I don't think anybody does. I think it's all digital nowadays.
Laura Dolan (01:05):
I did mine electronically. In fact, we didn't even talk to our CPA this time. He did everything online, via email. It was very odd.
Josh Schoonmaker (01:16):
Laura Dolan (01:16):
Josh Schoonmaker (01:16):
... right? Not talking to a real person at any point along the way and still getting it done. Love it.
Laura Dolan (01:21):
Mary Rebecca Harakas (01:22):
I've been doing mine online for years, but I am a very proactive person and I don't like to wait till the last minute. I don't know what took you guys so long, but mine was done two months ago, so, you're slow.
Laura Dolan (01:37):
Oh, I did mine back in the beginning of March.
Josh Schoonmaker (01:42):
I always leave myself plenty of time, right. I always leave myself plenty of time before the deadline and there's usually at least 60 minutes before the deadline that I leave there as a buffer. So, yeah.
Laura Dolan (01:51):
Everyone's different as long as we get it done. But just so glad to have that behind us. With that said, let's talk about some adaptive commerce today. I'm sure a lot of our listeners aren't sure what that is, but you guys are going to know what it's by the end of this episode. Let's start out by talking about B2C and what the current environment looks like for brands and retailers right now.
Mary Rebecca Harakas (02:11):
Yeah. Brands and retailers they have it pretty competitive these days. There are a couple factors at play, that are fueling this competitive nature across a landscape, I would say. One of those factors is changes with consumers in general. Their behaviors, their expectations and preferences are all evolving. I'm sure that you've seen a lot of things around social commerce, live commerce, in-store shopping and so on. All these things are different ways that people shop now, which we didn't have several years ago.
Mary Rebecca Harakas (02:42):
And then also technologies are changing as well and preferences, too. Like I mentioned, a lot of shoppers are referring to purchase from brands or manufacturers that resonate with them, like their core values, sustainability preferences and so on. And another factor at play is the rise of customer acquisition costs, digital advertising tactics, and the upfront investment to purchase technologies is continuing to increase. And so that leads to greater acquisition costs and it forces more brands to heavily focus on retention. Overall, I'd say they have a lot right now.
Josh Schoonmaker (03:18):
I have to really agree. I think there is a lot happening in the retail and brand space at this moment. Post pandemic, we saw a huge shift during the actual pandemic time, but we continue to see rapid changes, even now that things are starting to come back to whatever normal is.
Josh Schoonmaker (03:39):
What I'd like to jump in with, Mary Rebecca was talking about preferences changing and I would even frame that as the expectations of what someone can accomplish online or digitally, are rising faster than most companies are able to keep up with. So these rising expectations of, "Of course I would have that available." Or "Where is a that button? I would expect it to be there. How quickly can I get through this checkout?" Or "How fast is it delivered?" These things are becoming table stakes instead of differentiators and it's happening really quickly.
Josh Schoonmaker (04:11):
And that leads us into a place where I think of it as this era of personalization. We're really in this phase where if you aren't adapting and changing and personalizing your business, your experience to the customer, you're missing the mark. Because the expectation now is that you are treating your customer as an individual or as a known entity, not as, "Oh, you just get into this funnel and then go through it."
Josh Schoonmaker (04:39):
And so we really see a lot of change happening as brands are responding to that and trying to make those relationships with their customers. This is further pushed by a lot of pressure from marketplaces. If you look at what's happened, not just with Amazon, but including Amazon, as we see things that come up like Houzz and Overstock, along with Amazon or eBay, that have been there for a while. We see an increasing drive for the brands to need to find a personal connection to their customers, a way to engage with their customers that makes those customers loyal or really brand aware. That isn't about just their online experience, because these marketplaces are becoming one of the major channels that's pushing them.
Josh Schoonmaker (05:25):
And that brings up a lot of different problems for them. And like Mary Rebecca said, that's driving a lot of our retailers, our brands to focus on loyalty and retention right now. Instead of the more traditional focus on customer acquisition. There's a lot more are about, "Hey, can we hold on to the customers that we have? Can we build that lasting relationship so that will continue into the future?"
Laura Dolan (05:50):
And what is personalization? I feel like everybody's talking about this. Why is it so suddenly important for brands and retailers?
Josh Schoonmaker (05:58):
I'll take a first stab at that one. I think personalization as I would frame it, I would say, this is really how are we changing an experience to meet a customer's expectation or desires. Very simple answer to personalization is how are you changing the experience to meet that customer where they're at? And from my point of view, I always like calling out this isn't the same as individualization. It's very important that individualization is a method of personalizing, but it is not the method.
Josh Schoonmaker (06:31):
We'll probably talk more about this, but there's actually levels of personalization and augmentation that leads to micro segmentation, that leads to individualization. All of those are underneath the umbrella of personalization, because it's a way of changing what you do to match your customers. It's not just that one-to-one relationship that counts. And I think also in personalization, we often hear people talking about personalization but only within the domain that they happen to be an expert in.
Josh Schoonmaker (07:01):
You'll hear people who are like AI recommendation experts, talking about personalization as how do you do a personalized recommendation or somebody from the content space will talk about personalized content. But if you really think about it, personalization can hit so many places. You're talking about how do you change click flows or where the [inaudible 00:07:22] that are available to people, personalization hits, search, merchandising on the PDP. How do you sort things on the PLP in a more personal way? Changing out imagery, personal promotions, how you change loyalty? All of these things have the capability of being personalized. And so I think we sometimes fall into a very narrow definition, depending on who the speaker is, of what this is when really it's this very expansive kind of spaced to play.
Mary Rebecca Harakas (07:48):
And also, as Josh mentioned, there are a lot of different ways to implement personalization, but given all of this, there's actually a lot challenges as well when it comes to what these commerce players are facing. A lot of them may wrestle with effectively segmenting those customers into segments to ensure that every customer feels unique. And then also, there's a challenge that many face when it comes to developing the right personalization strategy for those customers and adapting that experience depending on where they are in the shopper journey.
Mary Rebecca Harakas (08:17):
For example, you could have customers that are a first-time buyer, or you can have a repeat purchaser and brands are going to want to customize the personalization strategy depending on where those buyers are. And so ultimately having the time, bandwidth and capabilities to implement and adapt the personalization strategy, is a big challenge that these brands are facing today.
Laura Dolan (08:37):
When it comes to personalization, what is realistic and what is aspirational for brands?
Mary Rebecca Harakas (08:43):
I'd say if you look across Google, in particular, you'll find multiple consulting firms, companies, industry experts. They're going to give you a wealth of different ways that you can go about personalization. So much that it's really information overload. But before going down the journey of determining what's realistic versus aspirational, I'd first analyze your level of digital maturity. And so that includes your internal resources and your technology stack. And good news about digital maturities that you can actually improve it and adapt with the right tools.
Mary Rebecca Harakas (09:13):
And then from there, I would also analyze your quantifiable goals. For example, is your brand goal wanting to increase average order value? Do you want to increase your conversion rate? And so understanding your current state and your goals sets the stage for what's realistic.
Josh Schoonmaker (09:29):
Yeah. I really appreciate Mary Rebecca's perspective on this and ending with that focus on how are you putting goals around this or measuring it? I think we should definitely talk about that more. But as I answer the question about what's realistic versus aspirational? I really appreciate this question because I think this is a space where there's so much aspiration, that we often get lost in the promise of what personalization can be, instead of really getting down into the weeds, where the rubber meets the road and doing what personalization we can today.
Josh Schoonmaker (10:03):
As I think about personalization as a way to adapt to your customers, I first like to remind customers, you don't have to hit this AI driven, one-to-one relationship, every person has a completely unique experience, end state, right now. That is actually probably too far of a reach for the vast majority of our brands and retailers.
Josh Schoonmaker (10:27):
Instead, we really need to think about where is personalization right for you? Or how much can you take on? For instance, there are many brands where individualization is not even feasible within their budget. Or as Mary Rebecca said their digital maturity. It's just not there yet because it hasn't become efficient. It hasn't become completely brought down in costs. And so it's not something they can jump into, that fully individual experience.
Josh Schoonmaker (10:53):
There are other brands who may never actually find value in individualization because some of their groups of customers are so homogenous that most of the value they can get from personalization can be captured by micro segmentation. By this idea of grouping customers by behaviors and then personalizing to that group. And so the difference between individualization and micro segmentation isn't a lot, if you have groups that are highly similar to each other, so it may not produce the ROI.
Josh Schoonmaker (11:26):
And there are some types of personalization that aren't even really covered by AI models yet. They still are things that you really want to put in hands of your merchandisers and your marketers, who know the customer. I really like to ground things when we're talking aspiration versus reality, there is a limit to what we can do right now. I think start with segmentation, collecting your data. Right now, everybody should be able to do macro segmentation.
Josh Schoonmaker (11:53):
Macro segmentation is looking at your customers and by basic demographics, some kind of basic grouping, separate them into very large groups. And most of us do this with our businesses naturally. That is very doable for everybody, right now. And then, think about what you can personalize there. A homepage is a great example, just change the homepage. And only for these really big groups of customers that gets you on this journey.
Josh Schoonmaker (12:16):
I think micro segmentation really steps up the game, but you've got to put in place some kind of collection of data like here at Optimizely, we have ODP, which pulls a bunch of customer behaviors, aggregates them and puts them together. You can then segment based on behavior rules or based on predictive algorithms that say things like, "Hey, which of my customers are most likely to place their orders within the next three days or within the next seven days?" It's these places of really getting those micro segmentation behavior-based segments out, and then figuring out how to do personalization.
Josh Schoonmaker (12:54):
I think this push and drive towards individualization across the comprehensive experience is aspirational. Currently we don't have AIs that can actually look across the experience. They're really domain focused AIs. Someday, somebody in the future, what we aspire to is an AI could coordinate the AIs or orchestrate, or maybe a master AI that could see across this. But today, you're way better off thinking of that as aspirational and saying, "I'm going to use AI in the specific lane that it's best for, and then really lean on the knowledge of our customer and experimentation to manage how to do the full experience."
Laura Dolan (13:37):
How can brands and retailers take action to create more personal commerce experiences? How do they ensure that their customer is getting that individual attention that Josh was just speaking about?
Mary Rebecca Harakas (13:51):
I'd say critical would be invest in the shopping experience, both on the line and offline. And this really starts with deeply understanding your customers. There are a wealth of tools out there that can help you capture customer data, harmonize the data and make sense of it all. But it's so overwhelming. And so brands and retailers can actually take action by investing in the right suite of capabilities that enables them to easily understand their customers and then adapt their shopping experience.
Josh Schoonmaker (14:17):
And I think that captures such an important point. We start by understanding. And in today's world, we have to start understanding with data. We're no longer at a point where we can actually have casual conversations with our customers as they stop into our store and then believe that we fully know our customers. Those conversations should happen, but we have to have data underlying it. So, if you're not using a CDP yet, you should be. If you're not analyzing the journeys that your customers go through, you should be. Let's take this to a more actionable level. If there's a quick couple of takeaways of what could you do right now to take action on this? Here's what I would call out. First. I already mentioned, if you have macro segmentation, you can do personalization of homepages. Pretty much everybody here can take that action right away. Figure out how to do homepages that are most relevant to those macro segments.
Josh Schoonmaker (15:15):
The next thing is, figure out how to do modals or onscreen injections that are really targeted. Especially if you have any kind of tool that is helpful. Find the customers who are most likely to need sizing help and pop up your sizing tool. Find customers who are probably those deep researchers who are really considering hard on something and pop up the calculator that helps them. Or for the customers who are really loyal, pop up a reminder of how many loyalty points they have or how many points are left to get them to the next level. These are things that shouldn't be an interrupt for all of your customers, but if you know your customers well enough, they're perfect interrupts for the customers who need them.
Josh Schoonmaker (15:54):
Another one, personal promotions. Most of us at a macro, and ideally at a micro segmentation level, but even at a macro, can figure out how to do promotions that are better targeted. And instead of doing a mass discount, figure out how to actually do highly reactive, highly responsive promotions towards targeted groups.
Josh Schoonmaker (16:15):
And finally, recommendations is very doable, very actionable right now. Particularly get product recommendations on your PDP, on your zero search results page. When somebody types in a search and gets no results, there should be product recommendations that come in underneath that. Not just a big empty page. And finally, at the beginning of the checkout process, there's a moment to recommend things that would complete the look or people who bought all of these things also bought, that's really natural at that point, so pulling recommendations in at that moment.
Laura Dolan (16:51):
For brands that are trying to accomplish personalization, how do you measure something like that? What constitutes success?
Mary Rebecca Harakas (16:58):
Well, if you look at all the trends and technologies related to marketing commerce and shopping in general, it all comes back to customer lifetime value. And customer lifetime value or CLV, it's based on three components. First: customer's average spend and then this is multiplied by the second component: number of years as a customer, minus the third component: customer's acquisition costs.
Mary Rebecca Harakas (17:22):
For example, technologies and trends like social commerce, live commerce, I know I've mentioned those a couple of times, but they're some of my favorite examples or digital advertising. They're all related to customer acquisition costs. Now loyalty programs or subscriptions are related to retention. And then promotions, discounts or recommendations, those are related to driving up customer spend. And so again, every effort in marketing is aimed at manipulating components of the CLV equation to extend CLV. And when brands extend their customer lifetime value, that's success because CLV is margin.
Josh Schoonmaker (17:55):
Yeah, that is so spot on. I cannot agree more with you on that assessment. I love the perspective of this CLV look, because when you think about CLV, those three factors, how much do you spend in a year? How long are you staying with us, minus how much did it cost to get you? That really is where personalization has an effect. Because if you look at any of those in isolation, you might measure the conversion rate and say, "Oh, we're getting some conversion off of personalization, but not enough to justify the spend or the work that we're putting into it."
Josh Schoonmaker (18:32):
But if you also measure that retention, if you factor in that suddenly your customers are going to stay loyal for an extra six months or an extra year. Boom, that tells a completely different story. It's the same thing with customer acquisition cost. If you go and measure your customer acquisition cost for doing personalization, "Okay, we sent out personalized activation emails for people." Or "We did personalized first purchase kind of things." You're going to see an impact. You're going to be able to measure that. But it really has limitations.
Josh Schoonmaker (19:05):
Personalization can't do as much for customers that we don't know as much about. So, it's inherently limited for customer acquisition. You will see that impact, but not enough to really prove out an ROI. But if you follow up and watch how long the customers, who are acquired through a personalized effort, stay with the company. Often you will find that they now deliver the ROI through that retention.
Josh Schoonmaker (19:30):
It's the same with conversion rate. You add that in, and suddenly you have this huge amplification effect where personalization is part of acquisition, may not prove out only by looking at acquisition, but when you add in conversion rate and length of time they're there, it suddenly makes complete sense to do this. So, I really think that complete customer lifetime value approach to seeing personalization is the right way to be thinking about it. Hard to measure, true. But that is actually where you're going to understand why personalization is affecting your customers or how it is.
Laura Dolan (20:05):
Well, I can talk to you two about this all day long, but being conscious of time, because I know we're all very busy, is there anything else we didn't cover before we wrap up?
Josh Schoonmaker (20:14):
As I was thinking about this and we were talking today, I come back to this idea, our title about adapting to the customer. And I think one of the things that we haven't touched on today is that inherent to adapting, is this ability to move quickly and flexibly. We're at a point where, as a brand, as a retailer, you have to not get entrenched in what you're doing. And you've got to be willing to shift your perspective. Along with that comes this idea that it is tempting from a cost perspective, to take a bunch of things in house, to say, "Oh, we could build our own tool for this." Or "Oh, we really don't need an AI on that. We'll have our own team just manually do the merchandising or the recommendation relationships on that."
Josh Schoonmaker (21:04):
But I've got to say, as we look at the speed of the market and how quickly things are changing, there's a lot of value in continuing to rely on tech providers to keep up with the technology. It allows you to actually focus on the right things. Your differentiation isn't in how many technologies you have, or whether you have a technology that is different. It's in how you are using technologies to really match your customer's unique need. And so if you want to be differentiated, you shouldn't be focused on building the tools. You should be focused on how you tie those tools together, how you configure them and how you apply them to make your customer's experience the most unique and related to your brand it can be.
Laura Dolan (21:51):
Awesome. Well, I will definitely be having you two on again. Be on the lookout for Josh and Mary Rebecca throughout the year as we continue our series on B2C commerce. I want to thank you two so much for taking the time to be here today.
Josh Schoonmaker (22:06):
Thank you, Laura. Happy shopping everybody.
Laura Dolan (22:07):
And thank you all so much for tuning into this episode of Content Intel. I'm Laura Dolan and we will see you next time.
Laura Dolan (22:12):
Thank you for listening to this episode of Content Intel. If you'd like to check out more episodes or learn more about how we can take your business to the next level by using our content, commerce, or optimization tools, please visit our website at optimizely.com, or you can contact us directly using the link at the bottom of this podcast blog to hear more about how our products will help you unlock your digital potential.