In 2015, e-commerce turned 20 years old. Over the last two decades, e-commerce has dramatically evolved not only in terms of technology but in its core general approach. In the late 1990’s electronic commerce was conceived as transactional and over time it has evolved into relationship-based commerce, which is focused on retention and customer lifetime value. In this article, we explore the trends that led to this evolution, the differences between the models, and the essential requirements for modern e-commerce players to stay competitive.
Transactional Commerce Model
This model is the original e-commerce model and remained dominant until recently. The focus is on acquiring customer transactions with the primary mechanism for acquisition being search. The idea is to make your website SEO-friendly and wait for users to come through search. As the prospects arrive through organic search and search marketing, e-commerce sites put the right mechanisms in place to drive them down the funnel: by putting product recommendations of similar products, creating shopping cart email triggers, and allowing a very easy and often anonymous (also known as guest) checkout. The key is to maximize the transactional revenue per acquired customer.
Relationship Commerce Model
The focus of relationship commerce is not just on acquiring customers but developing loyal customers. Rather than focusing on capturing transactions off the search queries, the goal is to build a relationship and long-term value. In this model, search should be viewed as a user acquisition mechanism rather than a transaction driver. Most revenue and profit comes from repeat buyers rather than one-time transactions. The whole point is to develop a relationship with customers and offer meaningful reasons for them to feel a connection and to keep coming back. Methods for maintaining the relationship include email subscriptions, social mechanics, and a stream of uniquely curated content.
Why Relationship Commerce?
Fierce competition from Amazon in practically every vertical with superior selection of merchandise, better prices, and faster logistics are displacing other transactional commerce players. All recent success stories in e-commerce are prime examples of relationship commerce: Wayfair, Dollar Shave Club, Zulily, even marketplaces like Etsy. Instead of focusing on acquiring transactions, these companies established themselves as leaders in specific verticals by providing a unique, differentiated experience with sticky retention mechanisms.
What are the traits of Relationship Commerce?
Operating as a relationship rather than transaction model impacts the entire business from the acquisition of customers to how a customer encounters a brand or retailer:
- No more guest checkouts -- Many e-commerce transactions are done through guest checkouts. Web sites have supported this option from the early days to reduce friction for transactions. As a result, when given a choice, most users choose not to create an account and proceed with a guest checkout. But guest checkouts fundamentally contradict the relationship commerce model: the point is to acquire customers, not one-time transactions. For this specific reason, relationship commerce leaders, such as Wayfair, Etsy, Zulily and Dollar Shave Club (you can purchase hygiene and hair styling products in addition to shaving accessories), do not allow you to checkout without creating an account. While it may come at the expense of a lower conversion rate for first-time buyers, forcing users to create an account and opt-in for future communication puts brands and retailers in the best position to drive repeat purchases.
- Maximize the percentage of logged-in traffic -- Most relationship commerce sites not only force users to create an account upon checkout but they make it easy for users to stay logged in. Almost all of them have persistent “remember me” login and they remember your size and geography (in the case of omni-channel retailers) to pre-filter inventory, match your favorite styles, and personalize items curated for display. Sites like Amazon and Wayfair go as far as having a rewards loyalty program that gives you a percentage back on every purchase. The point is not only to provide strong incentives for the users to shop again but to build more accurate user behavioral profiles that are essential for personalized content curation that drives retention and repeat purchases. For an example on building and using unified profiles to personalize experiences, click here.
- Have users invest in their profiles by contributing data -- Wayfair provides features to save products, photos, and decorating advice to your “Idea Boards”. Etsy allows you to create lists of favorite items, follow specific shops and users, including your friends, creating a very social shopping experience. The idea is to have users contribute data and invest in their profiles (via reviews, favorites, likes, etc.) The more invested users are in their profiles and the more social the whole experience is, the bigger the barrier is for them to leave and the more reasons they have to come back frequently.
- Invest in the upper funnel experience -- Every successful relationship commerce company has built an engaging upper funnel experience designed to keep users coming back. Users visit Zulily, Wayfair, or Etsy not only when they are looking to buy something specific, but when they are compelled to discover something. The Zulily experience is about short-lived curated product collections. Wayfair is about how-to-guides, ideas, and advice boards. Etsy is about your feed updated with items from your favorite shops and the people you follow. What unites all of these experiences is the presence of constantly changing content personalized to a user’s tastes. eBay has borrowed this concept by introducing user-curated collections and the ability to follow other users. Contrast this with the more traditional transactional commerce experience in the upper funnel: “one size fits all” promotions, static sub-catalog banners, and repetitive recommendation widgets that keep showing items that look like the last item you clicked on. None of these experiences are particularly engaging to give users reasons to come back.
Relationship commerce is crucial to the future of e-commerce
While e-commerce continues to grow at a healthy pace, it’s getting increasingly competitive every year. Competition not only drives prices and margins down, but it also increases customer acquisitions costs. The only way to succeed is through strong customer retention, repeat purchases, and high customer lifetime value. Hence the emergence of relationship commerce with its strong emphasis on user identity and profiles and offering uniquely curated upper funnel experiences driven by algorithmic personalization.
At Jetlore, we are strong believers in the relationship commerce model and have the goal of helping every single retail business transform itself from a transactional player into a relationship player. We empower every company to make this transition through our algorithmic technology that curates unique content for every customer experience at scale (learn more here).