Whoever Said That Money Can’t Buy Happiness Simply Didn’t Know Where to Go Shopping
In a past post, we discussed the opportunity to re-orient ecommerce around discovery, and we continue to believe multibillion dollar companies will be born there. But the opportunity to differentiate the shopping experience is only part of the equation. Even with fantastic discovery, white glove support and perfect personalization, customers can be held back from ecommerce purchases by some pretty basic concerns – committing to something they’ve never interacted with and taking on the financial impact of the purchase, for example. Tremendous opportunity remains to grease the skids and accelerate new customer acquisition and conversion.
What comes after the purchase is just as important. The typical retailer dedicates tremendous resources to bring a customer to their site and to convert a customer, and with a “thank you for your purchase” the effort concludes. But an innovative retailer sees the interactions after the sale as opportunities to convert a single sale into a loyal customer.
Ultimately, we have three beliefs on this topic:
So let’s talk about why you should believe that.
Before COVID many digitally native vertical brands were opening physical sites to win over new customers and to develop more loyal customers with physical product interactions. Post-COVID those experiences will be slow to return, and the surge in ecommerce has largely happened without an opportunity to try on apparel, beauty products, or test electronics. Generally, customers rely on generous return policies to incentivize purchases, or they default to purchasing on platforms that offer them.
But even with generous returns, a customer may not be eager to charge four styles of the same jacket on their credit card. That’s a very real expense, and the more challenging the returns process is the higher the risk that transaction involves. Where feasible, younger generations are embracing the option: 48% of US consumers say they “bracket” their purchase, buying multiple sizes with the intention of returning some.
Try-Before-You-Buy is that enabling mechanism. Receiving multiple styles requires only a small payment upfront, and an easy path to returning everything that doesn’t fit is embedded. This is not new – Warby Parker has managed to migrate eyeglass purchases online with it. ASOS is rapidly growing global market share with it. And “you pay for what you keep” is fundamentally the model for many monthly boxes.
While these programs inevitably drive returns, a feared cost for all retailers, net net they have proven profitable for many. They accelerate the path to purchase for new customers and materially increase average order value. Especially for costly purchase categories, programs like this feel essential– think Gemist allowing you to try multiple engagement rings at home for $45, rather than paying the full cost for them upfront.
Of course, programs like this are not without fraud risk. Some retailers can stomach it internally, but I’d argue the logical move is to leverage a partner.
Some we’ve seen:
Offering credit to incentivize a purchase has been core to retail for a long time. And while there was much debate about Millennials shying away from credit, it does seem even that generation is scaling up their credit lines. But purchasing has clearly changed – a third of U.S. consumers plan to do at least 40% of their shopping from DTC companies in the next five years, and those shoppers are not seeing the store credit options large retailers offer.
It shouldn’t be a surprise that palatable financing options drive purchasing. What is surprising is that financing options can convert a customer well before checkout – 75% of consumers who seek financing decide to do so early in the purchasing journey.
Buy Now Pay Later programs offer a nice alternative to traditional checkout credit options, requiring no credit pull and charging no interest within a payment window. These no interest options are subsidized by the retailer, and are offered by installment players like Klarna, Sezzle and Affirm.
Many financial institutions are now offering these solutions directly to customers; Amex launched one, so did Citi and JPM. (Credit card companies could take the opportunity to take some risk on Try Before You Buy offerings as well, not letting charges of multiple similar items hit a card until the customer has kept one and returned the others.)
These are now common enough that the typical customer is used to the experience - over a third (37%) of U.S. consumers between 18 and 54 have used a buy now, pay later service. 50% of Gen Z’s surveyed say they would be inclined to use buy now, pay later plans to buy expensive items online.
In conversations about the evolution of ecommerce, we often hear founders suggest that Amazon has created impossible customer expectations for post-purchase experience. The belief is that Prime delivery has trained consumers to demand all their purchases to be delivered the next day or sooner. It’s a pervasive belief, one that has catalyzed the growth of many a logistics provider and generated anxiety among many retailers wondering how they can compete.
But remember that Amazon is a buying-centric, not shopping-centric, interface. Certainly no other US platform comes close when you need a lightbulb, and you do generally need that fast. The retailers hot on Amazon’s heals are playing the same game, so Walmart & Target have to get you toothpaste fast, too.
But much of ecommerce still happens outside of these large players, and shopping is not driven by necessity. Think about the growth of Shein, a Chinese app selling fast fashion to US customers and reportedly doing a few billion in revenue. Two week shipping is standard, but this influencer-hyped app allows you to buy a wardrobe for $100, and value is clearly outweighing wait time.
Customers certainly think faster access to their goods is valuable, but that doesn’t mean retailers need to offer a free two-day promise. Many customers are disappointed if they don’t see an expedited shipping option, but in reality 51% will consider slower shipping alternatives and 32% of consumers are willing to choose the slowest transit time to avoid paying for delivery. From the UPS Shopper Pulse: “online shoppers want transparency on fees, control over the delivery process, easy returns and loyalty rewards” – control over delivery, not a two-day promise, is what made the list. It is also possible that consumers are now making many of their purchases online, with packages rolling in daily, so it’s easier not to stress about the immediate arrival of any one item.
To best represent our belief, here’s a helpful graphic to highlight how we think consumers are making the trade-off between something valuable (because it is unique or simply cost effective) and something they need immediately, and how that factors into their willingness to wait. It does seem that COVID has sharpened the curve, extending customer patience on unique items and increasing their panic when they can’t get their groceries in an hour.
We would argue that what Amazon has really taught us to expect is clear ETA, transparency in delivery, accessibility of support for challenges, and a painless return process if the purchase disappoints. The customer experience is prioritized throughout the process, and the focus is placed on maintaining that member’s loyalty to the site.
A few categories of solutions exist to enable every brand to develop loyal customers, but I’ll only hit a few underappreciated ones: tracking, returns and collections (yes, collections).
Even if you don’t need something immediately, you could be frustrated by a delay, and you’d be very frustrated by a lack of ETA. Given the option, 56% of shoppers actively track all deliveries.
Accessibility to support of some kind is key – to surface packages or to resolve missed deliveries. Without a dedicated solution these support tickets will overwhelm your customer success team, who are best leveraged guiding purchases. Catered solutions also offer opportunity – tracking pages are often overlooked but are great places to continue marketing products to the customer, or to offer them other deals.
Some we’ve seen:
Returns are painful for retailers, and many a solution is dedicated to reducing returns by helping customers find the right product before they buy. But ultimately a solid returns policy influences purchases – 54% of customers look for it before they buy.
If customers do use it, the better a solution you have the more powerful it can be to drive LTV. The customer is facing a problem; think how different their feeling for the retailer is when in one click they can have a return authorized and a free label printed for a multitude of local drop off options, vs the daunting prospect of calling outsourced support to debate for a refund and then find a post office to handle the delivery. And then imagine how game changing it would be to quickly turn this customer disappointment and retailer revenue loss into a win for both parties with a one-click enabled exchange. Not surprising that 73% of shoppers say the experience impacts their choice to purchase again from a retailer.
Of course, not having to return a product is also really nice for the customer, and there are a number of solutions in market focused on ensuring customers find the right fit. Solutions that go beyond a size chart to highlight what styles are likely to fit best, for example, or varied and authentic site imagery/reviews to ensure customers have a realistic picture of the purchase. Though out of scope for this article given their core function as motivators of conversion, these tools also optimize the customers post-purchase experience in the most critical way – ensuring they are happy with their purchase.
Thought of another way, returns are a costly fact of life, and 69% of retailers are crucially not deploying technology solutions to process returns.
With increasing fragmentation in purchasing and more experimentation with DTC brands, retailers need to give customers the confidence to make a purchase somewhere new without fear that return rates will take their profit underwater.
While unlikely to be relevant for any retailer that charges upfront, getting creative with at home trials or installment options for high purchase consideration items inevitably brings some bad debt. Even this is an opportunity to reengage and strengthen a relationship with a customer, though it may feel like the easiest thing to do is pass on the debt to an agency. Clever firms are finding ways to engage customers with friendly payment plans that can get you paid and strengthen brand value over time.
Some we’ve seen:
From an investing perspective, all of these solutions are independently compelling as critical layers retailers are unlikely to build but very likely to need.
Even before COVID accelerated ecommerce, there was already a rapid transition away from traditional retail and toward a fragmentation of consumer spend across thousands of DTC brands. Many of those brands have great marketing, incredible product packaging, fantastic reviews – today it really is the transaction and the after-purchase experience that brands must use to differentiate. Especially as the challenge of cost-effectively acquiring a customer escalates and brands battle for expensive ad words, vide pre-roll and out-of-home space, reprioritizing to growing the LTV side of the question makes tremendous sense.
That said the most exciting prospect is that logically, many of these products should live in one solution. One of these players will have the right tip-of-spear alchemy to be able to offer multiple of the above, and maybe also profitable product warranties and logistics to boot. That could be an enormous company.
Let us know what you think.
 “The State of Online Returns in 2019: A Global Study” Narvar Report.
 Huffard, Jillian, “Direct-to-Consumer Statistics: Need to Know Numbers about the Brands Disrupting Retail“ Payability 8/20.
 Tracking the Sources of Robust Payments Growth.” McKinsey 9/19.
 Cocheo, Steve. “Gen Z, Millennials and COVID Fueling Rise in Buy Now, Pay Later Finance.” FinancialBrand 9/20.
 Levy, Adam. “Amazon’s Market Share Decline is Nothing to Worry About.” Motley Fool, 6/20.
 2019 UPS Pulse of the Online Shopper Survey.
 2019 UPS.
 TBYB Brightpearl Report.