Top 3 Reasons E-Commerce Brands Need to Study Their Retail Competition
E-commerce sales have more than doubled across most consumer categories during the SARS-CoV-2 pandemic. Some e-commerce consumer brands will soon want to enter physical retail to find the next wave of consumers. The problem is that most pure-play e-commerce brands aren’t ready for retail because many have tunnel vision regarding the real competitive landscape they sell in.
Imagine if SkinnyPop had analyzed its 2010 competition only from the perspective of the shelves of Whole Foods where it started? They would not have studied up on Smartfood, the single largest ready-to-eat popcorn brand at the time. They might have gone too fast with the wrong playbook into conventional supermarkets, a retail channel where Frito-Lay’s direct-store delivery system would have crushed them.
E-Commerce tunnel vision leads to three big problems for consumer brands: 1) miscalculating retail entry, 2) reliance on super-premium price points and 3) un-focused packaged symbolism that fails to hook busy retail shoppers. Any one of these problems can lead to significant setbacks in physical retail.
Problem #1: Mis-calculating Your Point of Retail Entry
If you scale initially via Amazon sales, for example, you may be lulled quickly into an exclusive focus on your online competition. If you’re D2C and growing fast, you may even believe you have little competition. As you pursue growth in an online world, are you even paying attention to what the legacy incumbents are doing in your category?
The less innovative you are in an omnichannel context, the less you can afford to ignore what is going on in retail. The consumer who discovers you online and then sees something very similar in store for $2 less is very likely to betray your brand unless you can match that competitor’s price. You might find that you become a marketing tool for someone else’s better-priced offering.
Solution: Knowing if you’re first to market or not is critical to plot the optimum growth strategy.
Problem #2: Reliance on ultra-premium pricing that won’t survive in retail
I recently worked for a DTC client who, after building to nearly $30M in trailing, annual online sales, had no idea that their highly innovative product is almost 1,000% higher than the category’s average retail price per unit in conventional retailers. Did the brand owners sweep up a tiny niche with overly successful Instagram ads, leaving few others left out there willing to trade up that far? My research suggests that the sweet spot for retail premium pricing in consumer packaged goods is roughly 50-200% above the category average. Go much higher than that, even at Whole Foods, and you are likely to become a low purchase frequency, gift brand.
Solution: Understand your online price gap to retail peers early, so you don’t build a business model wedded to super-premium price points.
Problem #3: Un-focused package symbolism that will under-perform at retail
Many online-only brands do not realize that their packaging will not work at retail. The logo/trademark is often too small to be read from a distance in a retail environment. It may not even contain any key symbolism intended to provoke strong purchase intent trial. On retail shelves, you have almost no messaging real estate beyond the front of your package. But online-only businesses often get used to spraying language across vast swaths of digital real estate and seeing what works. Sexy, 24/7, A/B testing and message proliferation do not prepare a company to design a tidy retail package that quickly signals something compelling to busy shoppers in physical retail.
Solution: E-commerce consumer brands need to evaluate their packaging design for the ability to compete for trial on crowded retail shelves
I urge pure-play e-commerce founders to do their competitive homework early and to prepare well in advance before approaching retail buyers with a line not quite ready for retail.
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