A successful transition to the next horizon of digital commerce requires companies to get real about being customer first and make some hard choices.
Companies are in danger of missing the next e-commerce wave.
With e-commerce sales doubling in the past five years¹ and markets expected to almost double again by 2026,² companies are making sizable investments in their e-commerce capabilities. The problem is that many of these companies are locked into an increasingly outdated view of e-commerce as a “bolt-on” to the main business.
This approach to e-commerce needs a big upgrade grounded in a commitment to become indispensable to the customer through an exponentially deeper level of engagement online and offline. Delivering on this vision requires companies to put digitally driven commerce at the center of their organizations so they can orchestrate experiences that meet customers’ ever-rising expectations. We call this next horizon of value NeXT commerce.
This is not some far-flung fantasy. Some large incumbent companies are generating tens of millions of dollars in new value through a deeper commitment to digitally driven commerce, and they’re doing it quickly. Many more, however, are struggling to make the leap or are scared off by cost or channel-conflict concerns.
To understand what shifts are needed and how incumbents are making them, we surveyed nearly 50 senior commercial executives, discussed the future of e-commerce with more than 75 business leaders, and analyzed the more than 1,000 digital-commerce programs we’ve helped clients implement over the past three years.
Three core findings emerged from this research:
—
Six global forces, from rapidly shifting customer behaviors to a proliferation of new technologies, are exerting massive pressures on legacy business models.
—Successful companies are becoming indispensable to their customers by using digital to move past basic transactions and provide experiences that solve a much broader set of their customers’ problems.
—Many companies are avoiding the hard choices they need to make, often because of internal politics, fear of channel conflict, and large gaps in capabilities and tech, thereby missing out on the full potential value available to them.
Why now for NeXT
Making the leap to NeXT commerce is based on a recognition that digitally driven commerce is the future of business. Six
important trends are forcing the issue:
1.
Accelerating e-commerce. All signs point to strong growth ahead in B2C and B2B, with e-commerce set to grow more than 12 percent each year through 2026.1 The executives we surveyed expect total digital revenues to grow, on average, from 20 percent to 31 percent of total sales from 2022–24.2 There are at least 25 million “high-potential” digital customers in the United States and Europe who tried e-commerce for the first time during COVID but have not fully adopted it.3
2.
Fast-changing customer behaviors. Digital adoption rates over the course of COVID doubled around the globe, and a sample of leading executives expects that trend to continue.⁴ Social commerce, for example, is expected to more than double from 2021–25.⁵
3.
Sky-high customer expectations. Each successful digital innovation raises the customer-expectation bar for everyone else—Tik Tok for video, Amazon for convenience, Alibaba for relevance, to name just a few. If companies can’t meet rising expectations, customers will leave. Some 74 percent of B2B customers want product availability shown online, while 72 percent want to be able to buy through any channel they want.⁶
4.
Less-forgiving capital market expectations. The current approach to e-commerce is unsustainable for many companies, particularly in consumer businesses. Some three-quarters of retailers, for example, had negative EBIT margin growth, even as e-commerce became a larger share of revenue.⁷ The market is now punishing that strategy. A sample of North American e-commerce companies, for example, saw an average decline of more than 10 percent in EV/EBITDA from 2018–22, versus a decline of 2 percent for companies in general.⁸
5.
Massive advances in tech and data. New technologies have evolved to massively accelerate scale and speed. 5G has made data consumption cheaper and better for consumers, while the cloud has provided companies with enormous computational power for lower costs. Advances in AI and machine learning have enabled mind-blowing analytic capabilities and intelligence, while tech is enabling automation in almost every aspect of operations.
6.
Competitive pressures. B2B and B2C companies are facing crushing competitive forces from two sides. From one side, large, digital-first companies are harnessing their advantages to move into new markets, potentially threatening every established sector. From the other side, a proliferation of start-ups are launching innovative business models that can quickly scale. Funding for e-commerce start-ups reached a record $54 billion in 2021, up from $19 billion in 2020.⁹
What to do: Focus on the three Cs—customer, customer, customer
Most leaders’ thinking about e-commerce is too small. Time and again, we see companies trying to optimize existing products, services, or processes, thinking along the lines of “How can we improve our widget?” instead of “How can we better serve our customers?” To become indispensable to customers, companies need to develop a radically deeper and broader understanding of what their customers really want and how to provide it.
Making that shift starts with answering three questions.
- Are you serving your customers or your stakeholders across channels?
Few will have missed the explosion in the number of channels (and variation across those channels), from live commerce to the nascent metaverse. As of the end of 2021, B2B customers were typically using ten channels to complete their buying journeys, up from just five in 2016 (Exhibit 1).³
Channel strategy can look a bit like a game of whack-a-mole, with businesses rolling out new channels in an effort to “catch up” to their customers and, as a result, trying to manage a dizzying array of channels, each with its own tech stack or data models. This creates major limitations on creating seamless and scalable customer journeys.
NeXT commerce brands have instead pursued a “headless” channel strategy, where no single channel is favored over another, in order to serve customers wherever they are, online and off. They have built fully integrated customer, inventory, and order management systems that manage data and experience flows across channels and inventory locations based on what customers prefer rather than on how systems are set up.
Grainger embraced this headless approach to provide whatever its customers needed by installing vending machines on factory floors so workers could access parts immediately. The machines are connected to automatic replenishment systems. The company also developed and continually added a range of services to its website and mobile app, such as access to previous orders, 24/7 customer service, and advanced search, as well as e-procurement and digital stock-fulfillment solutions. These digitally driven initiatives are now responsible for 75 percent of Grainger’s revenue.
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