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Trends in the e-commerce marketplace

trends in the e commerce marketplace - Trends in the e-commerce marketplace

As I write this, thousands of companies are under pressure to re-invent their businesses to adapt to the new normal. Products must be re-engineered to better suit home consumption, distribution channels must shift to direct deliveries, and brick and mortar retail outlets must morph into online stores. All these must be done in a matter of months or for as long as cash  runways lasts.

Manufacturers, retailers and restaurateurs must set aside the business practices they’ve perfected over the years and learn how to succeed in e-commerce and modern trade (supermarket and convenience store distribution). It is a gargantuan task — it is like asking a medical doctor to become a competent engineer in just six months. But regardless of how daunting the process of re-invention may be, businessmen must rise to the occasion if they are to survive in the post-COVID-19 world.

Businesses undergoing re-invention must answer several basic questions. They must decide how to tweak their products (or services) to better suit the market’s new preferences; they must determine the attributes that will make their products stand out and be competitive. They must identify their target market and the most efficient distribution channels to get to them. Making these decisions require timely and accurate data on consumer behavior.

Last week, I wrote about the shift in Filipino consumers habits and how e-commerce is now in the mainstream. Businesses today must have a digital strategy to stay relevant. Hence, this piece talks about e-commerce trends.

New York City-based McKinsey and Company, one of the world’s most trusted management consulting firms, recently released a report that accurately describes consumer behavior in digital marketplaces. Although the survey was conducted in America, the trends generally hold true for all market-driven economies like the Philippines. Released just three weeks ago, the report contains meaningful insights that will surely help existing and would-be e-commerce merchants.

Who exactly are the big spenders in e-commerce and what are they buying? The study shows that Millennials, or those aged 25 to 40 years old, lead the way in e-commerce adoption. The five product categories that Millennials spend most on are (from highest to lowest): Home entertainment products (e.g. Netflix), books and magazines, consumer electronics, non-food children’s products (strollers and toys), and groceries.

Generation X, or those aged 35 to 45, have also taken to e-commerce but not to the same extent as Millennials. They spend 55% of what Millennials do. The five product categories purchased most by Gen Xers are: home entertainment products, books and magazines, fitness and wellness products, non-food children’s products, and vitamins and supplements.

Generation Z, or those aged 10 to 25 years old, spend an even smaller fraction of the pie and their purchases are largely focused on apparel, footwear, at-home entertainment products (eg. video games) and food delivery.

Baby boomers, or those 55 years old or older, have generally not adopted to e-commerce and their share of the pie is too small to be relevant.

In terms of future growth, the 10 product categories seen to register the highest e-commerce growth include (from highest to lowest): over-the-counter medicines, groceries (including food, household supplies and personal care products), alcoholic beverages, furnishings and appliances, food take-out, fitness and wellness products, vitamins and supplements, non-food children’s products, snacks, jewelry, apparel, skincare and cosmetics.

The study also shows that brand loyalties were shattered by the pandemic. Nearly half of all respondents said that they switched brands primarily due to the unavailability of their usual brands in both brick and mortar stores and on the internet. Other respondents said that they were attracted by cheaper prices and promotions from competing brands. What is surprising is that among those that have switched brands, as many as 75% said they will continue using the new brands they switched to. For e-commerce merchants, this means the market is now open and ready to be wooed away from their usual brands.

So what product attributes matter most to e-commerce customers in the post-COVID-19 era?

No surprise, hygiene has emerged as the most important consideration. The survey shows that it is no longer enough for merchants to practice hygienic protocols in their back-of-house operations. These days, it is equally important to communicate these protocols to the market. Customers need assurances that the products they consume are safe. Further, merchants who employ technology to enhance hygiene, particularly contactless activities, have an advantage.

About 59% of respondents claim that their incomes have been negatively affected by the pandemic; 54% say that they are already finding it difficult to make ends meet. That said, consumers will continue to cut-back on non-essential items and will stick to buying only the essentials.

What product categories constitute “the essentials”? The top 11 “essential” categories, in order of importance, are: groceries, take-out food, snacks, non-food children’s products, fast-food restaurants, casual and fine-dining restaurants, skincare and cosmetics, apparel, footwear, furnishings and  appliances, and jewelry.

As people spend more time at home, we need to know what activities consume most of their time. The activities most indulged in gives us an idea of what goods and services will likely me more sellable.

Not counting office work, the home activities where time is mostly spent are: cooking, home improvement projects, watching movies, exercising, social media, texting and chatting, reading online news and watching television.

Fifty three percent of all respondents said they still fear going out of the house and will continue to stay at home. For the e-commerce merchant, this means home based products will continue to be in high demand until such time as a vaccine becomes commercially available.

No one said that the process of re-imagining, restructuring and re-tooling a business is easy. But executed well and backed by accurate information, businesses will not only adapt to the new normal — they will thrive.

 

Andrew J. Masigan is an economist

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