The retail industry had another transformative year in 2018, with more tech-savvy startups entering the arena and more legacy brick and mortar merchants on the brink of collapse. Smarter retailers are preparing for a future where the lines between online and in-person shopping are blurring, and where change happens fast.
As we take a look back, we see four major trends in 2018, which will play a large role in determining the future of retail:
Direct-to-consumer (DTC) Brands
Instead of selling products via physical stores or even online channels like Amazon, DTC businesses take orders through their own online storefront and fulfill them from their own facilities. This gives them more control of their business, lowers their costs, and enables them to build personal relationships with their customers.
For new brands, DTC is especially powerful because it provides unprecedented marketing insights that help them grow quickly. They can test consumer messages on many different ad channels – Google, Facebook, Instagram – with multiple imagery and copy options. It's a low-cost way to fine tune a brand before scaling it up.
It also enables deeper customer connections and personalized experiences that are bigger than just buying a hand lotion or a t-shirt. Luggage seller Away, for example, offers monogrammed suitcases with USB chargers from a website that has bar graphs showing how they cost less than their competitors and how customers purchases support charity. All that with a 100-day free trial and a lifetime guarantee.
The maturation of DTC in 2018 was supported by an array of advertising channels that help sellers build and scale brands outside Amazon. Meanwhile, manufacturing and distribution partners helped create and ship more products with unique specifications. And finally, a healthy venture capitalist network helped out by bankrolling more and more DTC companies.
But the success of DTC means that the field is now much more crowded, which brings some challenges in the year ahead. How many new brands can people and advertising channels absorb?
More than ever, DTC brands will need to sharpen their focus on the customer needs they’re solving and how they differentiate themselves. They will need to deliver innovative products and an ongoing unique value proposition to build a loyal customer base with long-term staying power. And more of them will need to build experiential physical retail stores to provide more customer options, like eyewear seller Warby Parker, or tap additional retail channels.
Point of sale advertising
Retailers have long understood the value of marketing to customers at the precise moment they commit to making a purchase. It's the last chance to influence that decision, whether through supermarket displays, premium shelf space or the traditional candy and magazine rack at the checkout line.
In 2018, we saw an explosion of digital point of sale marketing, and validation that it’s for real. While you can find almost any product online, the customer is only going to buy what they see. They won’t scroll through hundreds of pages to find your product. If you aren’t investing in getting that visibility, you won’t get the sale.
Amazon is an increasingly important point of sale option for online advertisers. Shoppers use it to research products, to find complimentary products, and of course to make actual purchases. Very few people will go to five or six different stores to do all that research. Even people in a physical store will pull out a phone to look up information on the goods they’re seeing.
In 2019, more brands will realize the value of point of sale marketing. And brands will yield the opportunity to sell more products, and spend more on it. It will not be about just shifting money from video or display advertising, or search, but, instead, recognizing the need to create new budgets by shifting traditional trade marketing spend into digital that can move product at the point of purchase.
From a technical standpoint, machine learning continued to improve step by step in 2018. Algorithms are getting better at detecting objects and images and understanding text and speech. As a result, many more merchants are deploying machine learning.
This trend was accelerated by the lowering of technical barriers. The major cloud platforms – Amazon Web Services (AWS), Oracle, Google, Microsoft Azure Cloud Computing Platform – now offer algorithms that are accessible to any engineer who already knows how to code.
Google Cloud Platform and AWS offer rich APIs that enable engineers to incorporate sophisticated machine learning features into their applications for speech recognition, natural language processing, and computer vision. Microsoft Azure even enables non-engineers to apply machine learning. For example, direct marketers can use drag-and-drop interfaces to deploy algorithms to cluster their customers by value.
While non-practitioners can now apply sophisticated algorithms without deep knowledge and experience, experts can go even further. Cloud services offer specialized hardware to train models, and open-source libraries enable scientists and engineers to train and deploy more accurate domain-specific models more quickly.
Easier-to-tap ML capabilities enable everyone to create new and differentiated online retail experiences. Customers can use computer-generated catalogs and augmented reality to envision products in their home or similar environments. Brands can extract relevant qualitative feedback from large volumes of reviews and surveys to refine their positioning and offerings. Merchants can decide, with surgical precision, when and where to place their products in front of the customer.
Looking ahead, we will see accelerating supply of new infrastructure, better algorithms, and more accessible machine learning tools. Smarter software will help us determine outcomes and answer questions that we haven’t even asked, while brands and merchants will create new and more compelling customer experiences.
Privacy and security
Any discussion of machine learning and tracking customers should include the implications for privacy and security. We can’t just collect mountains of data and allow algorithms to make decisions without creating frameworks guiding entrepreneurs and engineers to respect ethical and moral standards.
Facebook’s very public challenges in 2018 have sharpened the discussion and could even lead to legislation and regulation in 2019. Monster data breaches happen with regularity. The U.S. Congress is investigating the threat of deepfakes, an artificial intelligence tool that can allow digital impersonation in video. We may start to see more accountability and consequences for entities that misuse data.
The industry is also developing new safeguards that help give consumers rich and exciting experiences without betraying their privacy. Companies like Amazon and Google could soon enable on-device training of machine learning models, allowing less sensitive and more obscure data to be sent back to their clouds for processing. The implication is that applications that currently require sending, say, customer audio data to the cloud can deliver the same experiences without having to do so.
Respect for privacy and security has become increasingly important for retailers. When something goes wrong it damages customer trust, which can take years to repair.
We’re optimistic that the retail industry will continue to address its challenges while also using all the available tools to deliver innovations that delight its customers in 2019. eCommerce and digital marketing are entering a new and exciting phase. We’ll be back throughout 2019 to take a closer look at 12 specific trends that will impact our digital retail future.