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Thriving in the Wake of the Retail Apocalypse

by Kathleen Booth, on Nov 18, 2020 9:00:00 AM

How can retail businesses not only survive, but thrive, in the post "retail apocalypse" world?

The retail industry has been in the midst of massive shifts for some time now, but today, more than ever before, it finds itself at a crucial fork in the road. 

One fork leads deeper into the devastation of retail as we know it, while the other provides a path to a future where buyers and businesses can build real relationships, engage digitally, and create a thriving retail ecosystem.

Which fork will we choose?

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Future of eCommerce

The Shift

The rise of Amazon.com and explosion of direct-to-consumer brands has fueled a shift within the retail industry away from brick and mortar stores towards eCommerce and online shopping. While this shift has been happening for some time, COVID-19 has accelerated it dramatically, leaving some wondering whether it's the final nail in the proverbial coffin of traditional retail.

Brick and mortar retail has been on a steady decline since 2010, with recent years picking up at a rapid pace. For reference, prior to the decline, the highest ever recorded number of store closures in a single year was 6,163 closures in 2008 during the financial crisis.

Over the last five years, we’ve seen a continued race toward the demise of brick and mortar retail as we know it, with store closure numbers steadily on the rise:

And if that wasn’t enough, COVID-19 has taken this to an entirely new level, with projections upwards of 25,000 store closures for 2020.

In response, retailers are turning in increasing numbers to ecommerce as their new business model, and according to IBM's 2020 US Retail Index, COVID has accelerated the shift to ecommerce by up to 5 years.

The Rise of the Discount-Obsessed Consumer

As retailers have shifted to ecommerce, consumers themselves are changing the way they buy.

Now more than ever, we're seeing the rise of the discount-obsessed consumer, or the deal hunter. While discounts and coupons have been a part of the retail shopping experience for years, ecommerce has made it ridiculously easy to price compare across a large number of sellers and hunt for the cheapest deal.

Ecommerce websites make it easy to create deals and offer promo codes, so much so that it has become an expectation rather than a “nice to have.” In response, buyers have become trained to wait for sales before purchasing and to search online for discount codes to enter at checkout.

Discounts and coupons definitely have their place in ecommerce marketing, and when used correctly, can increase buyer loyalty and drive revenue. 

What is bad, for both businesses and consumers, is the rampant overuse—and particularly the misuse—of coupon codes.

How does this affect both businesses and buyers?

Businesses

  • This short term high may drive immediate sales but does little to foster long term or real loyalty on the part of buyers.
  • Price competition puts all retail businesses in a “race to the bottom” to the lowest price.
  • Businesses have to artificially inflate prices so they can use coupons to give consumers the feeling of saving.
  • Coupon apps are wreaking havoc on business margins and defeating the positive purposes for coupons.
  • Ultimately these things cut into ecommerce business margins so severely they put many out of business.

Buyers

  • Discounts and coupons deliver a short-term high,  very similar to the dopamine rush that leads to other forms of addiction.
  • Buyers become trained to wait for deals before purchasing.
  • Price-driven buyers and less loyal and will buy from whoever offers the lowest price.
  • The emergence of “coupon extensions” has allowed buyers easy access to coupons that aren't intended for them.
  • Ultimately this encourages opportunism and erodes the relationships buyers have with businesses.

 

The Advent of Coupon Extensions

Browser coupon extensions have become the easy way for buyers to “game the system” by relying on a robot do their price searching for them. 

But at what cost?

How do coupon extensions work? Coupon extensions allow buyers to tap into a database of existing coupon codes for a given website. The data on coupon codes is gathered by scraping the codes that buyers type into website shopping carts or via direct submission by buyers themselves. Once the codes enter the database, anyone with that coupon extension installed in their browser will have the largest potential discount codes for their purchase automatically entered into their shopping cart, and their cart price reduced, whether that code was intended for their use or not.

What are the problems with coupon extensions? Coupon code extensions pose a number of problems, including allowing the rampant use of unauthorized coupons, eroding ecommerce merchant margins, and making it impossible for merchants to use coupon codes for attribution reporting or to measure the effectiveness of their marketing campaigns.

Most coupons are created for a marketing purpose, for example to drive deeper relationships with your buyers or acquire new buyers.

Some examples of coupons types that are frequently used include:

  • Limited Use Coupons: For example, you offer a welcome coupon of 10% off to visitors who sign up for your newsletter. In this instance, you are offering a coupon in exchange for something of value (their email address for marketing purposes).
  • Affiliate Promotion Coupons: You may have a marketing partner or influencer to whom you give a specific coupon code for sharing your website and products with their audience. When they do so, the idea is that you'll be able to track the impact they've had by linking the use of the code they share with sales that come in through your website. In some cases, affiliate compensation may be tied to a percentage of sales from those codes.
  • Customer Reward Coupons: Many merchants will create specialized coupons for returning customers, birthday promotions, or to encourage past customers to come back.

While there are many more types of coupons, these common examples demonstrate how bad coupon extensions are for the businesses they affect.

  • Limited Use Coupons: In the example above, once a coupon extension gets ahold of the coupon, it will allow anyone (even those who didn’t sign up for your newsletter) to use the code.
  • Affiliate Promotion Coupons: Anyone, even those visitors not driven to the site by your Affiliate, will be able to use the Affiliate coupons you've issued. At best, this makes it impossible to track the effectiveness of your Affiliate relationships and campaigns, and at worst, it opens up the potential for Affiliate fraud if your Affiliates directly submit their codes to coupon extensions in order to artificially inflate their results and earnings.
  • Customer Reward Coupons: Again, anyone, even a first-time buyer, will be able to use coupons you've designed specifically for your most loyal customers.

As a business, this is enough to make you question all of your attribution reporting, and erode your margins so severely that it can bring you to your knees. 

As a buyer, coupon code extensions might feel good in the short run because they save you money, but in the long run, they're simply unfair to merchants and could even be the thing that kills the businesses that make the products you love.

A (Bleak) Future?

Ultimately, coupon code extensions are another factor fueling the vicious cycle of the retail apocalypse. This discount-driven race to the bottom will eventually erode the very retail economy on which we rely as consumers by forcing retailers to cut prices in order to stay in the game.

And when retailers have to compete on price, the only ones who will win are the big box merchants and Amazon.com.

Buyers who want a world in which they still have access to smaller, independent merchants have a choice to either be a part of the problem or a part of the solution.

A Better Way

We believe that the best customer experiences occur when buyers have a direct relationship with merchants.

We believe that buyers value a world in which there is a thriving retail ecosystem.

We believe businesses should own every digital engagement they have with buyers, so they can make them great.

We believe businesses should be able to directly control the way they operate and generate revenue.

We believe these things can all create a thriving retail ecosystem where both businesses and consumers win.

Are you ready to join us?

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Topics:ecommerceDigital Engagement Security

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