Digital Path to Purchase Dominates Early Stages of Retail

Stephen DeAngelis

September 15, 2014

“Consumer packaged goods companies are at a tipping point,” writes Karlene Lukovitz. “Those that implement effective digital game plans now are likely to establish a significant competitive edge for the years ahead, while those that don’t will risk stagnation, loss of share and shrinking sales over the next several years.” [“Experts Urge CPGs To Implement Digital Game Plan,” Marketing Daily, 26 August 2014] At least that is the conclusion analysts from the Boston Consulting Group (bcg), Google, and Information Resources, Inc. (IRI) arrived in a new study entitled “The Digital Future: A Game Plan for Consumer Packaged Goods.” The study was conducted for the Grocery Manufacturers Association (GMA). Lukovitz continues:

“[The study] points out that digital’s current 1% penetration of the overall U.S. CPG market will likely expand to 5% by 2018 (some categories could see penetration of 30% or more by 2018) and could grow to as much as 10% soon after — what the researchers call a ‘1-5-10’ scenario. Digital penetration of 5% will account for nearly half of total CPG growth over the next five years, and early movers will have the opportunity to establish positions that will be hard to dislodge, the researchers emphasize.”

The trend towards an increasingly important role for the digital path to purchase is undeniable. McKinsey & Company analysts, Tunde Olanrewaju, Kate Smaje, and Paul Willmott, declare, “The age of experimentation with digital is over. In an often bleak landscape of slow economic recovery, digital continues to show healthy growth.” [“The seven traits of effective digital enterprises,” Telecom, Media, & High Tech Extranet, 30 July 2014 (registration required)] Specifically, they note, “E-commerce is growing at double-digit rates in the United States and most European countries, and it is booming across Asia.” The effect that e-commerce is having on retailers is undeniable. Shelly Banjo (@sbanjo) and Paul Ziobro (@pziobro) report, “[The] shift to online sales is prompting retailers to scale back more store openings.” [“Shoppers Are Fleeing Physical Stores,” The Wall Street Journal, 5 August 2014] They explain:

“U.S. retailers are facing a steep and persistent drop in store traffic, which is weighing on sales and prompting chains to slow store openings as shoppers make more of their purchases online. Aside from a small uptick in April, shopper visits have fallen by 5% or more from a year earlier in every month for the past two years, according to ShopperTrak, a Chicago-based data firm that records store visits for retailers using tracking devices installed at 40,000 U.S. outlets. Even as warmer temperatures replace the harsh winter weather this year, store visits fell by nearly 7% in June and nearly 5% in July, according to ShopperTrak. New data from Moody’s Investors Service shows that the shift to online sales has prompted retailers to scale back store openings and will likely lead them to pare back their fleets even more in coming years, as more than $70 billion in lease debt expires by 2018. Growth in store counts at the 100 largest retailers by revenue has slowed to less than 3% from more than 12% three years ago, according to Moody’s.”

Although the trend is undeniable, writing the eulogy for brick-and-mortar stores remains premature. Al Urbanski (@AlUrbanski), a Senior Writer for Direct Marketing News, reports, “A path to purchase study conducted by Forrester Research on behalf of cross-screen technology provider Tapad paints this ubiquitous picture of the influence of connected devices: 5% of Americans rock six of them, 14% use five; 22% do four; and 30% have three. In other words, shopping forays for 70% of consumers ply a route of desktop to tablet to smartphone. When it comes to transactions, however, brick-and-mortar stores are still involved in the majority of them.” [“Digital Dominates the Purchase Path, Which Still Tends to End in Stores,” Digital Marketing News, 10 July 2014] He continues:

“Forrester’s surveys of 1,500 connected consumers found that two thirds of them discovered products via digital channels. To learn more about prospective purchases, 44% of them turned to search engines and 28% to retail websites. But then it was off to the mall (or the phone) for 50% of shoppers. Another 15% said they ordered online but picked their items up in-store. Digital is clearly the route for marketers to take in their first miles on the path, Forrester says, and here’s the easy part: It doesn’t much matter which vehicle you use. In the product discovery phase, 46% of consumers said they used laptops and 33% hooked into a desktop/smartphone combination. During product research, it was 51% laptop and 41% phone-and-desktop combo. Fourteen percent used tablets for investigating details. The hard part for marketers in negotiating the digital path, Forrester points out, is keeping messaging relevant and consistent for each consumer across all digital touchpoints.”

Harrison Weber (@HarrisonWeber) agrees that brick-and-mortar commerce remains healthy. “A new study suggests that the explosive adoption of mobile devices will help, not hurt brick and mortar shops,” he writes, “challenging the fear that ecommerce firms like Amazon are a death knell to local commerce.” [“Smartphones changed the way people shop, but they won’t kill local commerce (study),” Venture Beat, 9 July 2014] Nevertheless, Weber notes that brick-and-mortar stores still have to be smart about how they market to consumers. He notes that the study, which was commissioned by G/O Digital, offered three claims that retailers should find interesting. They are:

1. iBeacons & push-notifications drive brick-and-mortar sales
The opportunity for on-ground retailers, the study claims, rests ‘heavily on how brands and retailers leverage iBeacons and push-notification technology to deliver more contextually relevant and proximity- aware advertising to shoppers in real-time. The end goal should be to create a seamless, customer-focused shopping experience — from the second screen to physical stores — that is as easy-to-use, intuitive, and engaging as possible.’

2. Shoppers care more about coupons than shopping online
On mobile devices, coupon hunting beats online shopping as the most common commerce activity, the G/O Digital study claims. In addition, 47.4 percent of study respondents say ‘they are most likely to purchase an item in-store that they have been researching or planning from their mobile device “when the item goes on sale” or “when I find a coupon.”,’ G/O Digital shares.

3. Every sector differs
Deals don’t always drive sales as depicted above, cautions G/O Digital: ‘Purchase influencers are not identical across retail categories. The convenience of everyday low prices (20.7 percent) trumps discounts for grocery shoppers. Apparel and shoe shoppers, on the other hand, set their sights on sales and clearance items (60.7 percent). Meanwhile, ratings and reviews (54.4 percent) top the list of influencing factors for electronics and technology purchases.'”

Banjo and Ziobro agree with those findings. “The pressure comes as consumer tastes are changing,” they write. “Instead of wandering through stores and making impulse purchases, shoppers use their mobile phones and computers to research prices and cherry-pick promotions, sticking to shopping lists rather than splurging on unneeded items. Even discount retailers are finding it harder to boost sales by lowering prices as many low-income consumers struggle to afford the basics regardless of the price.” Patrick Hadlock, Shankar Raja, Bob Black, Jeff Gell, Paul Gormley, Ben Sprecher, Krishnakumar (KK) S. Davey, and Jamil Satchu, authors of the Boston Consulting Group study mentioned at the beginning of this article, assert, “No company is immune to the changes under way. The experience of other sectors, from media to travel to retailing, repeatedly demonstrates that early movers often establish tough-to-trump positions and advantages. Experience also shows that many companies that are slow to adapt do not get a second chance.” When it comes to digital transformation, Lukovitz concludes, “CPG companies need to experiment with various approaches, quickly measure results, drop approaches that aren’t working, and focus resources on those that are working.” To learn more about why digital transformation is important for your company’s future, read my article entitled “Digitalization and the Digital Path to Purchase.”