Mystery
The digital landscape initially seemed to offer boundless opportunities for brands to expand from local to global entities. The promise of direct customer relationships and hyper-personalised online shopping experiences, driven by data analytics, suggested a future of immense growth and profits. However, the anticipated simplicity of establishing a digital business has been overshadowed by unexpected complexities.
The digital market, once perceived as a blue ocean, quickly became saturated, igniting a fierce competition for consumer attention. Regular discounts and aggressive marketing strategies evolved from occasional tactics to survival necessities. Advertising costs on platforms like Google and Facebook soared as the battle for visibility intensified.
Customers became more discerning, raising the bar for customer service and driving up the cost of technological innovation. Logistical demands tightened, leaving no room for error, and even minor product flaws could result in returns and lost profits.
Marketplaces like Amazon and Alibaba offered access to large customer bases but exerted significant control over brands, sometimes undermining their autonomy and identity. Facing these challenges and the plateau of digital growth, D2C brands are now reconsidering physical stores to enhance customer experience and reach new markets, though this requires substantial investment. The digital dream, while still alive, has proven far more complex than originally envisioned.
As I wrote in “Mystery of the Missing Profits”: “Even as digital/B2C/D2C/ecommerce companies are growing rapidly, their profits are not keeping pace. Every B2C/D2C CEO must be thinking: “I’ve integrated every digital facet—from an optimised website and app to a seamless omnichannel experience and prompt delivery. What’s missing in this equation? Why aren’t the profits pouring in?” Even traditional retailers who have invested in digital transformation initiatives would be asking themselves the same question: “Where are the returns on my investment?”… while digital and eCommerce platforms were once hailed as the democratising force for businesses, the evolving landscape paints a more complex picture. The mystery of the missing profits isn’t really a mystery at all when one understands the intricate web of costs and dependencies in the current digital ecosystem.”
I have had scores of conversations with CXOs of these companies in the past few years. What surprises me is a complete lack of understanding in most cases of how much money they are wasting on new customer acquisition and not generating from their existing customers – a double whammy. As I have analysed customer and sales data, I have come to a stunning conclusion: eCommece brands can increase their profit margins by 1000 basis points. In other words, if they make a 2% margin, they can increase that to 12%. If they are losing 5%, they can convert that into a 5% profit, in essence, they can generate ten additional dollars (or rupees) in profit from every 100 dollars (or rupees) of revenue. This can be transformative for the eCommerce industry which has been struggling with profits for an extremely long time. It can ensure long-term survival of many digital brands and additional funds for innovation. It can fulfil the true promise of the Internet in delivering low-cost and convenience for billions of customers globally. In this series, I will show how and why eCommerce companies can make this happen. It is a theme I have covered in many of my past essays. This essay moves the story forward – quantifying gains, offering a playbook, and recommending the first steps – and thus solving the mystery of the missing profits.
