Bryan Gildenberg

Earlier this summer Omnicom’s Media and Commerce teams (OMD and OCG) published our second annual Future of Commerce report — looking at the consumer, shopper and media/marketing dynamics shaping the future of digital and physical shopping. We surveyed consumers across a range of major countries and asked questions about their attitudes to shopping (physical and digital) as well as to a broader range of topics like their comfort in returning to cities and their attitudes to data and technology now and in the future.

The report covers three main areas — Part 3 contains forward-looking observations on data, technology and the metaverse, but this piece will summarize the conclusions from the first two parts:

1. The Disrupted Basics — navigating an inflation and supply chain disrupted value chain.
2. Contextual Commerce — the most critical factors for reaching shoppers are centered on shopping, and for all of the discussion around creating new benefits for shoppers they are often simply looking for the core promise of the shopping trip delivered in a friction-free way.

The simple conclusion is the single best navigational principle for the future of commerce is not understanding demographics or technology, but having a deep understanding of the behaviors, rewards and challenges inherent in shopping — to understand a person’s commerce behavior your mantra should be “You are how you buy.”

Disrupted Basics — winning in a world of rising prices and out-of-stocks

Across all the categories and markets we studied, the twin disruptors of inflation and supply chain outages have forged a new era of shopper behavior. Our data backs up the generally accepted wisdom that shoppers have by necessity become willing to try new brands when theirs is unavailable, and will change behavior when their chosen brand is too expensive.

Inflation — We investigated a series of potential responses to inflationary pressure — and these responses can be loosely grouped into three buckets:

• Trading in — shoppers bought the product they were planning to buy despite a higher cost.
• Trading down — shoppers bought something cheaper instead.
• Trading out — shoppers didn’t make the purchase.

Across all the categories we surveyed there was roughly a 50/50 split between buying and trading out, and about a 70/30 split when buying to buying the original product (only 30% of buyers traded down, or 15% of shoppers).

One of the major differences is for grocery shopping in the U.S., where the trade down rate was over two times the global average — 33% of U.S. grocery shoppers traded down when faced with a product that was more expensive than they expected. In contrast, health and beauty shoppers behaved much more like shoppers in considered purchase categories like electronics and automotive — only 24% of U.S. HBC shoppers elected to trade down. Keep in mind, we fielded this research in February, before the most intense inflationary period kicked in.

Out-of-stocks/shipping delay — Across all categories a similar dynamic to inflation — when shoppers saw a supply chain outage they engaged in a variety of behaviors that can loosely be described as:

• Trading In — Buying the product while noticing low stock levels.
• Trading Across — buying a substitute when the desired product is unavailable.
• Trading Out — delaying purchase until the product is back in stock.

The major shift here again around the world was U.S. grocery shoppers, almost half of whom when presented with a supply chain outage switched products. This was almost double the global rate.

In contrast, HBA shoppers only switched 20% of the time — instead their most common response was trading out — delaying their purchase or simply not purchasing, which was 50% of responses.

One other critical learning is that younger shoppers (buying more DTC-style fringe brands from less traditional retail channels) are markedly more exposed to out-of-stock/shipping delays than older shoppers — 51% versus 18% Gen Z versus boomers.

Implications for retailers and brands:

• Knowing the “strike zone” for your brand in the category — the trade in/down/across/out map — what are the choices and elasticities associated with the dynamic options the shopper has.
• Health and beauty shoppers are exhibiting significantly more brand/product loyalty during inflation and supply chain disruption than grocery shoppers — for retailers that sell a lot of both this means that health and beauty categories are simply performing more predictably than grocery ones. Leverage that insight when building merchandising and promotional planning.
• Suppliers should be using the abundance of real-time supply chain information available today to set up a war room for opportunities to gain share where competitors are out-of-stock by targeting fast response digital/regional advertising.
• Price/pack architecture — with price reference points disrupted and brand switch propensity at an elevated level this is the time to reimagine the core shelf proposition — category management should be approached with a relatively blank piece of paper and a vision on what a healthy category should look like. Inflation is going to disrupt relative price-value relationships significantly — between brands and particularly between brands and private label.

Contextual Commerce — the great conversion

We looked at a series of factors that drive people to shop in-store versus online — you can group those factors into three buckets:

• Wow (engagement) — primarily experiential/enjoyment/fun
• Right (precise value) — finding the right item at the right price.
• Now (immediacy) — as close to immediate gratification as possible.

At that aggregate level, the reasons why people shop online are remarkably consistent across geographies and categories — it’s a 50/50 split between “right” and the other two, which split the remaining 50% fairly evenly. There are some fluctuations in the component metrics, but the critical thing to take away is the main value of omnichannel/online shopping is being able to find the right combination of item and price easily.

Also, the reasons people shop in-store are similarly consistent, and the role of experience, which is often cited as the key reason people shop in-store, can be overrated. More “Wow” — experiential, yes, — but still over 50% of the motivation is around right item/price and immediacy (it’s basically a 40/40/20 split between Wow, Right and Now). There was almost no variance in this ratio across geographies or categories.

The critical piece for each of these is that despite the millions of words that have been written elsewhere about the importance of digital experience to younger shoppers or the in-store experience for boomers, or anything — our data suggests there is very little statistical difference in what shoppers in different markets, categories or age brackets broadly want from digital and physical retail experiences. And that what they want is a hybrid of factors, largely driven by the practical commerce drivers — getting the right product, at the right price, as quickly as possible. As retailers increase their role as “media platforms,” traditional demographically based targeting will not solve problems in commerce as effectively as understanding the commerce-specific behavioral drivers and identifiers.

Implications for retailers and brands:

• Personalization at scale in commerce means personalizing “right” — these clues and indicators are more contextual/behavioral than demographic:
• The right moment.
• The right place (digital/physical “location”).
• The right barrier to overcome.
• The right value ­configuration.

Winning these rights will be as much about “shelf-back differentiation” as anything else — understanding, within a commerce context, how a brand achieves differentiation in physical and digital commerce ecosystems by being “right” as well as being loved.

• Winning in commerce is often about eliminating wrongs, as much as driving rights. Especially removing friction from the transaction — emphasizing findability, in-stock performance and the “brilliant basics” of commerce may be more important than sophisticated next-generation commerce strategy.
• If personalization in commerce is really about that person’s commerce behavior, integrating 1P behavioral data becomes critical. Leveraging partnerships with retailers (like Omnicom is increasingly doing with Walmart, Kroger, Amazon, etc.) is the only way commerce personalization at scale can be brought to life.
• Identifying value creating store-based experience is more about understanding more universal context than personalized anything — the time involved in engaging someone in a personal experience in-store often simply isn’t worth it — store-based media shares more in common with connected TV than digital commerce (lead times on production and a message that needs to appeal to a broader denominator), and teams developing connected TV strategies can/should learn a fair amount from how in-store purchase driving has worked.

To conclude, though predicting the future of commerce is obviously challenging, given the uncertainty of the present both this choppy present and the future are navigable, and strategies can be developed that are rooted in deep shopper understanding. “You are how you buy” means that the most successful pathway to insights in commerce goes through the motivations and behaviors attached to the buying process itself.

Bryan Gildenberg is senior vice president of commerce at Omnicom Commerce Group. He can be contacted at [email protected].