Hello,
Happy Sunday 😎
I thought I had a brilliant idea when I announced my plans for Cool Beans, a specialist store for iced coffee. But then I bought an iced coffee yesterday and it came with this sticker on it:
I guess not every one of my ideas will be a billion-dollar business.
If you like this week’s free content, go ahead and give it a share:
I’ve been talking a lot about the seismic changes in the online data landscape, as you know. They will affect everyone and no-one knows what’s going to happen, leading to quite a bit of concern.
I won’t harp on about the same old topics today, save to note that Google has pushed its ballyhooed deprecation of third-party cookies back to 2024. Yes, it is getting silly now and no, these people are not as clever as we thought.
I continue to question why this is all in the hands of Google, the company that has most to gain or lose from the changes to a status quo that so openly disregards consumer privacy rights. You might say that if I want an answer, I should take a look at Google’s lobbying budget in the EU and US.
But today, I want to use this uncertainty as the backdrop to our main topic: How businesses are preparing for what comes next, whatever “next” turns out to be.
There is a widespread assumption - a lazy one, if you ask me - that businesses need to focus on capturing “first-party data” and they’ll be fine.
I see a number of challenges there, starting with:
1. The severe lack of data skills and knowledge
Companies don’t have the skills to capture, synthesise, and analyse the right data.
That’s why they fall into traps like the latest industry banality: “It’s all about first-party data”. This is only the case for the most sophisticated companies.
The truth is, if you are careless about how you gather and use first-party data, you’ll be in breach of the very same data privacy regulations as you were when using third-party data.
In fact, when the regulators write about the first/third-party distinction, they can barely conceal their disdain. It was invented by marketers, for marketers. Small wonder it has limited legal meaning.
To get this part right, we need what I’m calling first-party data science.
That is to say, a field that specialises in extracting value from a company’s data. These specialists should look at the brand’s complete customer journey and decide why, where, and how they can engage with customers, and what they will then do with the resulting data. Their work should influence everything from web design to content creation and customer service.
This is not a new idea, but its significance will only increase over time.
Unfortunately, there is a dearth of data science talent.
95% of employers say that the right data science and analytics skills are “very difficult” to find.
Just 32% of organisations say they have access to adequate in-house data science talent1.
Companies should have an improved baseline knowledge in the following areas, in all departments:
The data infrastructure
Data privacy regulations
Basic statistics (probability, regression, inference, etc.)
(Incidentally, there has to be a business in training companies for this new reality…)
Otherwise, they will continue to outsource responsibility to whichever tech firm or consultancy promises peace of mind, at a princely cost. And when the next big data challenge arises, as it surely will, they will be even less equipped to deal with it than they are now.
2. How can every company create a direct relationship with customers?
Let’s assume that companies do have the above in place. They know they need consumer consent to store and use data. They have a process for analyzing said data and using the knowledge to fuel customer segmentation, creative messaging, and performance measurement. Excellent.
But are we falling into another classic trap by assuming customers will want to share their data?
Over the last decade, we have witnessed what some call the “Great Aggregation”.
In a world of endless digital choice, these aggregators simplify the world for us. You can think of the likes of Amazon or Etsy, but there are similar aggregators within every industry, B2C and B2B.
Businesses give up some control over their brand identity on these platforms in exchange for access to customers. The aggregators gain access to huge amounts of customer data, which they can then use to sell ad space back to the businesses.
The accepted wisdom right now is that businesses should “take back control” of their customer relationships and strategically, that has a sensible ring to it.
We can therefore ask whether the focus on first-party data will lead us to a great disaggregation, as each individual company aims to own their customer relationships.
Companies like Nike have been working on this for years, after decades of leaving the customer relationship to intermediary retailers.
Yet it remains unclear whether customers have much appetite for dozens of separate relationships with companies, instead of just going to Walmart or Amazon and buying everything they need. It introduces more friction into a mobile-first world of ecommerce.
If it’s challenging for Nike to achieve this goal, what hope is there for other businesses?
With this in mind, I was intrigued to read about Spalding’s approach to this quandary. You know Spalding - they make basketballs and hoops and such. You’d think they just need to get their wares into as many big retailers as possible, because who wants to spend time on a basketball equipment website?
Apparently, the answer is: Some people.
Spalding launched an MVP memberships program that offers discounts, loyalty rewards, and access to exclusive content.
“There’s certain third-party data that’s very valuable. It helps you reach people that are looking for your product. There’s also a lot of strong reasons to build a community, create for that community, serve that community, and use that first-party data to better your brand experience – but it takes a lot of commitment.”
Matt Day, Head of Ecommerce, Spalding
It has worked - the company has reported “three consecutive years of triple-digit direct-to-consumer growth”.
And here’s something I didn’t know: Albert Spalding (the founder of the Spalding company) first marketed his baseball products by rounding up a superstar roster of players and taking them on a world tour in 1888. They even played a game at the pyramids in Egypt.
That’s relevant to our next section, too.
One way to create that sense of community (and the attendant data) is through livestreaming with social media influencers. It’s not as fun as pyramids baseball, but it sure sells stuff.
Facebook trials standalone livestreaming platform called Super
You know when someone starts with a clever name and then works out what the business will be later? Like how I thought of the hi, tech. pun and then slapped it on a newsletter?
Well Facebook’s new platform is called Super. It’s the kind of name people only come up with at 4.30pm on a summer Friday, desperate to get this over so they can go outside and play.
I asked GPT-3 to come up with some alternative names and they are superior to Super, if a little religious:
Facebook started testing Super in late 2020 as a rival to Cameo. Since then, it has turned it into a livestreaming app, similar to Twitch.
Insider received a leaked document that Facebook shared with influencers in late 2021. Super looks pretty similar to other livestream shopping platforms, so it’s a handy reference point for our discussion.
Basically, here’s what happens with livestream ecommerce:
A brand decides what to promote, where, and when
There are two main options for hosting: Host the livestream on your website (using software like Bambuser) or host the show on the likes of YouTube or Facebook.
The brand works with a host (often an influencer or celebrity, but some brands host the show themselves). The host typically receives a flat fee and commission
The brand updates their product catalogue (if using a social network or ecommerce platform) to ensure they have stock ready to go
The host helps to promote the livestream to their audience
The brand provides logos and sponsorship content to the host
The audience sees a countdown ticker and they get a notification when the show starts
The host usually shares a discount code during the show, where they will try on products, say how great they are, and answer audience questions
Super’s shows look a bit like this once they get going:
And then they see the metrics afterwards:
On the face of it, this looks like a very obvious opportunity. Livestream shopping brings interactivity to ecommerce and gives consumers a chance to learn more about a product before buying, with the added bonus of chatting to a celebrity.
Moreover, brands are applying a lot more pressure on influencers to prove the business value their campaigns generate, beyond social media metrics. In a livestream, they can see exactly how many products they sold.
The initial phase of this trend will focus aggressively, even depressingly, on the power of livestream ecommerce to shift products at high volume and high speed.
I say ‘depressingly’, not because selling lots of products is negative, but because this level of frenzied purchasing is unsustainable - in every sense.
Livestream shopping started in China in 2016, where it will attract $480bn in sales in 2022 alone. That’s 15% of all ecommerce sales in China. The main platforms are Taobao Live, Weibo Live, Kuaishou, and Pinduoduo.
The most popular categories are fashion, beauty, and electronics, but fresh food is also big business in Chinese livestreams. As we have discussed before, Chinese farmers use Kuaishou and Pinduoduo to educate customers and sell their produce online.
Coresight projects that the trend will bring in just $15bn in the US this year, or 2% of the ecommerce total.
As a result, most of the academic research in this field comes from China. We should bear in mind important cultural factors before we airlift those findings to the rest of the world, of course. But there are still important lessons to learn.
First,
“Sellers who rely more heavily on the within-channel direct selling effect (vs. the cross-channel spillover effect) are less likely to succeed”2.
In other words, livestream shopping has to be part of a broader strategy if it is to survive. Sellers that just try to flog products during the stream lose out in the long term if they do not use the content on other platforms too.
This paper finds that a core benefit of livestream shopping is that it reduces “product uncertainty”, allowing consumers to inform themselves before later making the purchase elsewhere.
Brands must realise that they have an opportunity to create a much more entertaining consideration journey for the customer through this medium. Instead of the customer Googling their questions and reading dry FAQ pages or reviews for answers, they can join a livestream and speak directly to the company.
Second,
“Live social interactions generate a persuasion effect that eventually leads to higher product returns.”3
This goes against the grain - most of the blog posts on this topic breezily assert that livestreaming leads to a “reduced rate of returns”.4
But the research finds that while livestream shopping creates an urgency that attracts sales, consumers later consider their impulse purchases and return them. Furthermore, “the magnitude of the effect increases with live social interaction intensity” - akin to digital peer pressure. They also find that both sales and return rates increase when the host is more experienced, the audience is smaller, and the discounts are bigger.
The return rate is over 20% higher for products bought during live sessions than it is for products purchased during an on-demand recording of the same session.
Third,
“Sellers that use livestream shopping primarily for mature product inventory liquidation are more likely to succeed than those who use it for new products.”
This seems counterintuitive, at first. Livestream shopping seems the perfect way to launch a new product, but the research finds that mature products sell more. Again, trust is a key factor and the role of a considered, multi-step customer journey is more significant than many assume.
In the study, 50.8% of sellers failed to maintain at least 30% of their initial transaction volume. That’s a pretty steep drop-off rate.
Fourth,
“Another crucial feature worth mentioning is the smooth transition from watching a live video to making an online purchase.”5
Livestream shopping in China is embedded in ecommerce apps, where customers are already primed to purchase. They are also more accustomed to the practice of tipping influencers, which breaks down the psychological barrier to instant payments.
These are still challenges in Western markets, where we still separate entertainment from ecommerce. Are we sure that people actually want to buy on YouTube yet?
Finally (I have more, but I’ll end on this one),
“In November 2019, well-known streamer Li Jiaqi claimed in the live broadcast that he was selling "Yangcheng Lake hairy crabs." But in fact, consumers found that the hairy crabs were just ordinary hairy crabs, not high-quality hairy crabs from Yangcheng Lake.”
The censorship question has another dimension in China, where the authorities are keeping a close eye on the streams to make sure they stay “positive” and “family-friendly”. (Wait, is ‘hairy crabs’ a euphemism?)
But over here, how can we regulate or monitor live selling by influencers? There are already enough scandals with influencers selling scams and fradulent products - and that’s while we can analyse their static photo posts.
Just imagine when the virtual influencers get involved in livestream shopping, because you can be sure that brands will get the avatars on this very soon.
But will these trends translate to the West?
The surveys say that 70% of consumers in Europe are “interested” in livestream shopping, compared with 50% in the US. But you try taking that currency to the bank.
TikTok launched its livestream shopping feature in the UK but has since announced that it is shelving plans to expand any further.
Facebook announced this week that it is closing down its Facebook Live shopping platform, although it is testing Super as a standalone replacement.
Amazon Live was popular around Prime Day, when Amazon hired a load of celebrities I don’t know to push products.
YouTube has announced a partnership with the struggling Swedish fintech Klarna, which offers Buy-Now-Pay-Later services. It has big plans to improve YouTube Live, but it has not had much traction so far.
So is it just a matter of time before this trend takes off outside China?
Well, there are early lessons to take from the successes in China and the less-than-successes elsewhere.
Businesses that see this as a quick way of creating a buzz and selling a load of products will end up disappointed. There are still sizeable barriers to mainstream adoption, starting with consumers’ resistance to making purchases in this medium in the US and Europe. Retailers need to get creative to invite customers into the experience, and some are already doing so.
The German supermarket Lidl is an example of how to approach livestreaming thoughtfully, as part of a wider strategy.
It offers online wine tasting sessions where a popular influencer chats to a sommelier about different Lidl wines. The influencer promotes the wines before the live show and people who buy the products from the influencer receive an invitation to join. Lidl has made the sale before the livestream even starts, meaning it can focus more on the community during the session.
The Fresh Market uses livestreams6 to make their fresh produce more vivid online. The videos are built into the web experience and they encourage shoppers to visit real-world stores, too. The company credits this strategy with driving a significant increase in both online and offline traffic.
And yet, it is not certain that livestream will go mainstream in the immediate future, unless companies can assimilate it within an existing ecommerce experience or encourage shoppers to adopt new behaviours.
According to the research in China and what we have seen in the US so far, the key components of a successful livestream shopping strategy are:
A great host: Someone who can entertain and inform the audience about the products. Preferably, they also have a large audience they can invite along.
Discounts: Offer a reason to join the livestream instead of perusing the website.
Community: Interactions between audience members are as important as host-audience interactions.
Cross-channel marketing: Consider how you can use the content to sell before and after the event, not just during the livestream.
Uncertainty reduction: Use the opportunity to answer any questions or concerns that might be preventing the audience from purchasing.
Intelligent use of customer data: And this brings us back to where we started. The most sophisticated brands see livestreaming as part of their first-party data strategy, which is why so many are avoiding Facebook and adding this feature to their owned digital properties.
Tech Bites
There is an art, so to speak, to getting the most out of DALL-E 2. This guidebook explains how to write the perfect prompt: Dallery Gallery
https://financesonline.com/relevant-analytics-statistics/
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4028092
Feng, Xiaojing and Rong, Ying and Tian, Xin and Wang, Mengmeng and Yao, Yuliang, When Persuasion Is Too Persuasive: An Empirical Analysis of Product Returns in Livestream E-Commerce (April 8, 2022). Available at SSRN: https://ssrn.com/abstract=4079214 or http://dx.doi.org/10.2139/ssrn.4079214
https://www.publicissapient.com/insights/4-ways-livestream-shopping-is-taking-e-commerce-to-the-next-level
Cheng, Chen and Hu, Yuheng and Lu, Yingda and Hong, Yili, Everyone Can Be a Star: Understanding the Role of Live Video Streaming in Online Retail (July 19, 2019). Available at SSRN: https://ssrn.com/abstract=3422615 or http://dx.doi.org/10.2139/ssrn.3422615
https://www.marketingdive.com/news/the-fresh-market-shoppable-video-livestreaming/628714/