Australian consumers are embracing digital commerce, but Australian retailers are failing to build long-term relationships with their customers online, according to new research.
But the Australian retail sector is late to the party. A recent Deloitte survey found that “Australian retailers are going digital at a snail’s pace”.
More than 50% of respondents expect to generate less than 2% of their Christmas sales online.
And while David Jones’ 1,000% quarterly increase in online sales recently made headlines, this increase comes from a very low base, with digital commerce now accounting for a mere 1% of the retail giant’s total sales figure.
From a warehouse in California
NAB’s Online Retail Sales Index puts the proportion of online retail at 6.3% of bricks and mortar consumer retail spending.
But recent figures from the Australian Bureau of Statistics should worry local retailers: Australian consumers spend more money online with overseas retailers than with their domestic counterparts.
Australian retailers have to come to grips with the new reality of a global marketplace and strong competition from overseas internet giants like Amazon or fashion retailer ASOS.
Easy access, convenience and price transparency of digital commerce are only some factors explaining the trend, others lie in the strong Australian dollar and a relatively high threshold for GST-free overseas purchases, much complained about by the local retail sector.
Motivated by these trends, in a recent study we have investigated the state of play in Australian Digital Commerce. Using a catalogue of 63 single criteria we have evaluated in detail the digital presences of 89 Australian retailers. Taking the consumer point-of-view, for each retailer we recorded if they utilise certain digital commerce tools, techniques or features. This allows us to draw conclusions about the maturity of digital commerce in Australian retail.
The four dimensions of digital commerce
Our evaluation spans four dimensions. The informational dimension is the most basic category. It covers the ways in which retailers provide information about product portfolio and shopping process.
The transactional dimension is what turns websites into e-commerce. It comprises features such as shopping basket, delivery, payment and financing options.
The relational dimension marks the evolution from transaction-focused e-commerce to relationship building with customers. These include personalisation, recommender systems, and features that allow customers to interact with the retailer.
The social dimension is the latest addition to the digital commerce portfolio. It includes integration with various social media platforms and features that allow customers to create and review content, or recommend products to friends.
Most Australian retailers have achieved a reasonable level of maturity in the basics of e-commerce with a good coverage in the informational and transactional dimensions.
Australian retailers have also been quick to embrace social media, where most companies have created some form of presence in various channels such as Twitter, Facebook, Instagram or Youtube, even though this is most often used for driving the company’s marketing message.
Relationships are hard work
The most striking result from our analysis is that retailers across all sectors are slow to embrace the relational dimension. This is a worrying finding. It means that, while many retailers have leaped into social media to promote their services, most have not invested much in building 1-to-1 relationships with their existing customers. This is necessary however for growing a customer base that allows reaping the benefits from repeat purchases, cross selling and up-selling.
In a space where prices become globally transparent and competitors are only a click away, it is all the more important to invest not only in winning new customers, but in keeping them.
Converting banner clicks to paying customers is costly. Investing in measures to keep and develop customers should be a priority. Yet features that aim to create a personalised experience, provide product recommendations, and allow customers to establish a history and relationship with the company are conspicuously absent, according to our analysis.
This means that Australian retailers forgo important opportunities to build loyalty and create switching costs to make customers less likely to defect to the competition.
More importantly, Australian retailers are lagging far behind international market leaders, such as Amazon, that have long invested in sophisticated digital recommender systems, based on the exploitation of what has become known as big data.
Since the US e-commerce giant is likely to already be preparing its Australian market entry, it is time for the local retail sector to evolve its digital commerce offerings beyond the execution of transactions and the creation of social media buzz.
The key to competing successfully online, in a market where matching the lowest price is impossible, is to offer innovative services and to build loyalty and profitable relationships with customers.