Brand eCommerce from a risk hedging perspective

Brand eCommerce from a risk hedging perspective

Brand eCommerce from a risk hedging perspective

By Harichandan Puli | April 17, 2020

Brand eCommerce, by definition generating revenue from a brand’s online store, has been a growing trend and a successful one. We have seen the rise of many fast-moving challenger brands that have swooped the market shares of already established leaders by providing a personalized shopping experience in their online stores. The Indian eCommerce market is expected to reach 200 billion dollars by 2026. Not just on the B2C front but also in the form of online stores that are proving instrumental for B2B businesses. In a survey conducted by a reputed global eCommerce company with a sample size of 500 successful B2B organizations, 80% of the companies accepted orders and payments via their websites.

Although brand eCommerce is transforming into a dominant revenue-generating channel, I plan to look at it from a risk hedging perspective and bring into limelight how some brands have made themselves immune to certain business risks through brand eCommerce.  

 

RISK OF MISSING OUT ON MARKET TRENDS

Market trends have a shorter lifespan. With increased social connectivity, market trends start and die before companies can react to it and the companies with larger response times to these trends are losing out on considerable business opportunities. The expectation of an online buyer is rising each day. It has transitioned from one-day delivery to same-day delivery. These trends can very well be opportunities for challenger brands for capturing market share of established brands and pose a greater threat in the long run. 

Brand eCommerce stores can mitigate this risk by significantly reducing the time to market. Personalization and artificial intelligence are playing a significant role in catering to the dynamically changing consumer behavior. Brands are able to initiate marketing campaigns and get their new product launched in virtually no time when compared with any other business channel. This gives brands an edge in capturing impulsive buyers online. 

 

RISK OF OVERSTOCKING AND UNDERSTOCKING

Research says each year 21.5 million items of unsold garments are left with manufacturers misjudging trends. This unsold inventory is a significant hit to the bottom line of brands. While over-stocking is a problem, understocking can also be a risk in terms of the lost opportunity cost.

Brand eCommerce stores tend to mitigate the risk of unsold inventory to a significant extent. Brand eCommerce powered by artificial intelligence is helping brands create dynamic combos where long-tail products or slow-moving products are intelligently piggybacked over the fast-moving products. Deep data insights help eCommerce managers identify which set of combos to be created and should be targeted to which audience group. At Shoptimize, we have witnessed an increase of 125% in long-tail product sales in four months post implementing AI for a popular food brand.

Understocking and the opportunity loss due to it is being countered with brand eCommerce websites by implementing features like ‘notify me’ for stock out products, intelligent mails and SMS when a product becomes available, remarketing campaigns triggered by user exit point tracking. Advanced event-based user journey tracking is providing a way to understand a user’s search intent and provide closely related suggestions to reduce the chances of a lost sale.     

 

REGULATORY RISK

Any risk arising from government regulatory changes would fall under this basket of risks. Businesses have seen time and again the impact of policy changes by the government which led to a significant increase in manufacturing costs or in some cases a total recall and revamp of certain product lines from the market. The new GST regime has imposed increased tax rates for certain industries and the brands faced the burn for the products for the interval when this regulation is completely imposed by the brand down its entire retail chain. 

With a brand eCommerce store, such risks can be mitigated significantly. Brand eCommerce stores give a window to launch or disable product lines into the market almost instantly. Entire marketing communication of the digital front can be tweaked to the changed regulation at the shortest notice. Even pricing is a factor that brands have complete control on and any change in pricing due to regulations can reflect instantly. Even industries dependent on constantly fluctuating raw material prices like Jewelry are mitigating the risk by integrating online store price with the bullion price index to automatically factor in the current day cost in the product pricing.  

 

COUNTERFEIT RISK

Counterfeit is a problem that has been crippling down brands. It impacts both on the revenue and the brand image and safety. Counterfeit products can make brands lose their buyers permanently.  A recent study shows that 1 in 3 products sold on marketplaces are counterfeits. With advancements in technology, it is becoming increasingly difficult to block counterfeits. 

The best way for countering counterfeits is to provide users with a genuine point of sale for the users. These can either be dedicated brand outlets or a brand eCommerce website. The most cost-efficient and quicker way to mitigate the risk of counterfeits is to have a brand eCommerce website. With advancements in technology, a mechanism to track product purchases and extend programs like warranty digitally via the brand store. Brand online stores now use automated chatbots to improve service levels and also provide pre-sales and post-sales support.      

 

ENVIRONMENTAL RISKS

Risks arising due to natural phenomena like disasters, medical emergencies etc. that are not in human control are classified under environmental risks. The current downtrend in markets due to the spread of COVID-19, disasters like Hudhud cyclone, Tsunami etc. that have completely devastated businesses and economies are considered as environmental risks for businesses. 

Although there is very limited that can be done to mitigate such risks to businesses, having a brand web store has helped brands cushion the hit to revenues. During Hudhud and Tsunami, brands with online stores are the first to hit markets post the disaster and brands with complete dependency on physical sales channels have taken significant time to restart their businesses, resulting in a huge lost opportunity. 

With the current COVID-19 pandemic and lockdown, brands that are into food and essentials have seen a significant spike in orders from their online stores when the revenue from physical stores and marketplaces has taken a huge dip. Data insights from Shoptimize’s data analytics engine has witnessed a 30% increase in sales from brand eCommerce stores in essentials categories.

 

CONCLUSION

While a significant number of brands are moving towards digital, the major evaluating factor that is driving this decision is revenue and business growth. This perspective makes them evaluate the cheapest and basic technologies available for building a brand eCommerce store. Brands should also evaluate websites as a means to counter business risks and invest in the right technology to set up their brand eCommerce stores. This article is an attempt to shed light on brand eCommerce websites as a safety net perspective.