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The rise of e-commerce in this “age of social distancing” didn’t come as a surprise, the year-over-year percentage growth of monthly online order for 2019 and 2020 January only saw a 2% increase, whereas for April it surged to 96%. (Bazaarvoice, 2020)
You’re probably thinking that this is another E-commerce bubble, and will soon diminish after offline retail stores are able to open and economies recover to a pre-pandemic level of activity or that E-commerce industry is pretty saturated. This view might be evidently backed by many historical digital bubbles we’ve seen, nevertheless, this time there are many aspects which suggest fundamental changes in the e-commerce environment itself, leading to a continuous growth and long term shift towards a new consumption ecosystem.
The Untapped Market — Changing Demographic
While the targeted customers of e-commerce merchants and the main participants in internet shopping were dominated by the millennial and people of working age from 25–45, recent growth of customer base actually comes mainly from people aged from 45+. The original market of e-commerce was quite saturated, as Fig.2 illustrated, percentage of UK households aged from 16–45 who uses online shopping have already reached around 95% in 2017, (Office of National Statistics, 2020) the growth potential is low, whereas the older customer group are more difficult to tap into due to reluctance to technological changes and lack of trust. In light of the pandemic, the older generation who are more vulnerable have more tendency to self-impose quarantine, thus are forced into adapting themselves into new methods of shopping. Rapid improvement in user interface design, recommendation systems backed by machine learning algorithms and AI, facilitated the fast integration of online shopping into their daily purchasing habit. This provides huge marginal growth of new customers for e-commerce merchants, and there is even greater expansion potential as they further share their experiences and influence their social groups, changing the demographic of the customer base and fueling future growth.
Complementary Growth — Development of Linked Services
Another aspect that greatly enhanced the long term potential of e-commerce growth is the acceleration of the improvements in related services, such as delivery, online payment, chatbot, CRM and more. The recent rise in the fintech field initiated various new payment methods requiring less intermediaries, which lowers transaction fee and time while ensuring a more secure payment. Ranging from Ripple, Bitpay which uses blockchain to secure a traceable ledging of payment settlements; to WeChat, Venmo that utilizes the networking effect of social networking apps; to Alipay, branching into Ant Financial, providing financial services and opens investment opportunities. Electronic payment methods are evolving, which in turns enables quicker, cheaper, secured online payments to be made by customers in online shopping. The execution rate is greatly improved, remember the last time you decided not to proceed with your purchase because the payment screen triggered an ‘unsecured’ notification on your browser or because of the repetitive and tedious steps you have to go through to verify your payment? Insured checkout is one of the top conversion optimization problem for online shopping businesses, 11% of online customers would abandon their whole cart because of slow and complex checkout process and 7% would do for not having enough payment option ( investp,2019 ) the percentage might seem small, but considering the high volume of transactions, the absolute effect could be enormous. A smooth, frictionless and secured payment is crucial.
Furthermore, development of faster delivery and shipping services improved customer satisfaction and experiences in online purchases. 49% of shoppers indicated that same day delivery will make them more likely to shop online ( investp,2019 ) , and especially in the age of the pandemic where the stake of daily utilities and food products in online purchases are hiking up unproportionally, more customers will demand for same day delivery. Technologies have enabled us to improve the logistics of shipping and delivery, the use of Artificial Intelligence in designing the fastest route, analyzing real-time data to make best scheduling drastically improved the efficiency in shipping. Autonomous shipping is at the frontline of shipping logistic technology development as in 2018, Rolls Royce and Finferries launched the first fully autonomous car ferry. The cost advantages of using autonomous truck in B2C last mile delivery is also substantial, with potential of reducing delivery costs by 10% comparing to traditional delivery method ( McKinsey,2018) The cost benefit encourages more merchants to explore autonomous last-mile delivery methods, fueling growth of the e-commerce industry as a whole.
Maintaining Post-Pandemic Momentum — “Vendor Lock in Effect”
Generally, Vendor lock-in effect is making it difficult for your customer to switch to other product or service providers, the fact that pandemic has led to a paradigm shift in how people purchase daily utilities essentially made it difficult for people to shift back to offline vendor shopping after the pandemic. During this long adaption and transaction period, businesses were able to accumulate customer data to be utilized for recommendation systems and enhance online shopping experiences. As the recommendations get more accurate it becomes more like a personalized vendor, customers could easily access the product they want, even before they realize they need it. Features such as exclusive online membership, buybacks offers, coupons that automatically get activated upon purchase builds up a self-enhancing online shopping system, making the “implicit cost” of switching back to offline shopping undesirable for customers.
To “Build back better”, we’re gradually entering a new ecosystem of consumption, in the post-pedantic economy, it is likely to see the stake of e-commerce continue to expand. We’re transforming into a ‘remote’ lifestyle with more shifting towards working from home, study from home, more businesses closing down offline retails shops and go completely online based, even services such as banking, doctor diagnosis are finding digital solutions. E-commerce businesses will largely benefit from this general trend and capitalize such opportunities.
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