When was the last time your online grocery experience blew you away? Today, and in our current pandemic era, there is no doubt customers are more eager to purchase their groceries online repetitively. It’s faster, easier and more convenient. Online grocery shopping grew from a tiny slice of the e-commerce industry to a more critical and more extensive component with high contribution to the growth of the sector and is expected to rise by double digits in the next five years.
While new and existing players have emerged, by creating new marketplaces and home delivery services, many traditional players have seen a fivefold organic boost in their revenues and traffic metrics during the pandemic. However, it is apparent that when there is an exponential surge in organic online demand, operations and logistics, customer service needs to be addressed head-on. While logistics, delivery time and inventory levels played (and still play) a fundamental role, factors such as online acquisition strategies and incremental revenues have been put on hold to prioritise other aspects of the business. Bold companies, looking at long-term valuable strategies, have the chance to leverage the learnings to plan and assess how to increase the customer lifetime value. Most importantly, the critical success factor in this business is how to boost the frequency of purchases.
Now let’s delve a little deeper and look at the different customers and their respective behaviours. And ask which ones we are looking to convert.
Segment by purchase behaviour, not browsing behaviour
Looking at those customers, we can identify two main types: the loyal shopper, who tends to make repetitive purchases of the same goods week-on-week from their favourite brands; and the promotion-led shopper, who changes his shopping habits based on the most tempting current offers. Both are valuable and have immense potential to grow.
How? First off, by looking at their purchase habits we can draw common patterns and the expected frequency of purchases of certain products and categories, with specific attention to factors such as the expected lifetime of fresh products. This model can predict future dates of purchase, and a mechanism of reminder through tailored social and display dynamic shopping advertising can be activated one or two days in advance of the expected purchase date. Such a tool is efficient in messaging and channel placement, and, to be successful, the customer perceives it as a friendly reminder. In that way, the loyal shopper will be glad to see his favourite products available for delivery at the right time, while the promotion-led shopper will be glad to see the weekly promotions that matter most to him.
Deductive shopping approach
We have now identified what we call a ‘deductive shopping approach’, which is a data-led methodology to boost online grocery performances by leveraging the power of first-party data (loyalty cards) and customised consumer purchasing data.
Traditional grocery players that recently grew their e-commerce infrastructure have a significant competitive advantage compared with the new players: their first-party data.
In a cookieless world, their database is the most potent instrument to retain and grow their existing customer base and, most importantly, increase purchase frequency, stretching the lifetime value to new heights. In the grocery business, where gross margins are lower than other e-commerce categories, increasing frequency of purchases might completely change the revenue-boosting game. By applying our deductive shopping approach, it is hard to be beaten by any new entrant trying to acquire using the traditional inductive shopping approach, a comprehensive, mass-oriented, discount or promotion-led campaign management.
The implications for the industry
As of now, operational efficiency has been prioritised over revenue scalability. To succeed in the long run, grocery retailers should look at both dimensions. This market is strongly supply-driven, and today players fancy the freedom of experimenting and re-inventing processes and techniques that will shape their industry in the future. It was first the spectrum of product choice, then the time-to-deliver, and now the recurrent predictive shopping. If the deductive shopping approach becomes an industry standard, first-movers will gain a substantial competitive advantage, establishing extraordinary customer loyalty.