Solving an Unsustainable Market
Buying and selling online is easier than ever before. Despite the return of in-person shopping, ecommerce continues to grow, with a projected annual worldwide sales total of more than $8 trillion USD by 2026. Additionally, a 2021 survey of retail leaders by McKinsey found that ecommerce is expected to reach “25 to 40 percent of sales across categories as the pandemic abates.”
Brands, however, continue to face significant challenges. Digital advertising costs across all platforms continue to rise, while yielding less return over time. The organic reach on social media channels such as Facebook and Instagram continues to decline: organic reach has plummeted from 20% to 2%, forcing businesses to adopt a pay-to-play advertising model.
As a result, it is becoming more difficult to attract and retain the attention of shoppers in a crowded, competitive marketplace.
The pitfalls, however, aren’t just there for brands: consumers are feeling the pain as well. Shoppers’ voices aren’t being heard, and consequently, never get the products they actually want when it comes to style, fit, and needs. Their hard-earned dollars are spent on products that will shortly end up in landfills, perpetuating a wasteful and sustainably unsound industry.
I wanted to become part of the solution when I co-founded TBô, a menswear brand that put the consumer’s needs first. By putting consumers at the centre of the product development process, we could ensure we were making pieces they would want, in the quantities we needed. Simply by listening to consumers, we could reduce waste.
The current retail environment is unsustainable in so many ways. As a result, I believe that the future of ecommerce depends on a paradigm shift based on collaborative creation that connects and rewards all relationships in a brand community, transforming consumers into creators.
4 Challenges Facing Brands Today
It is important to identify the challenges currently facing brands: unsustainable unit economics, combined with dependency on a few large platforms as sources for advertising traffic. The following factors have contributed to this unique retail climate:
1. Rising Customer Acquisition Costs
Prioritizing marketing spend for customer acquisition has always been key to e-commerce business success. However, the Coronavirus pandemic has significantly accelerated market trends that heavily contribute to rising customer acquisition costs. The proof is in the numbers: over the last five years, customer acquisition costs have increased by 60%.
2. Low Customer Retention
E-commerce businesses also face the ongoing challenge of low repeat purchase rates. In a 2021 Retail Touchpoints survey of 103 retail executives and their customer retention rates, the largest brand segment of 23% were only able to convert 10–20% of buyers into repeat customers — and 60% of surveyed brands were unable to exceed 30% conversion rates.
3. Wasted Production
It is no secret that the retail industry is generating waste on an unsustainable scale. In the fashion industry, for example, a 2017 report released by Global Fashion Agenda and Boston Consulting Group stated that an estimated 53 million tonnes of clothing are manufactured annually — 73% of which is landfilled or incinerated. This can be attributed to manufactured products not meeting consumer desires or needs–a lack of informed decision making leading to waste.
This waste on a global scale is not only ecologically unsustainable, but also financially untenable: the value of all landfilled fibres over that period was estimated to be a staggering €80 billion.
4. Adapting to the rise of Web 3.0
Web 3.0 is also characterized by popular topics such as cryptocurrencies, NFTs, and the Metaverse Market, which are growing exponentially in size: NFT sales volume hit $2.5 billion in the first half of 2021 alone, compared to $13.7 million in the first half of 2020.
As well, the Metaverse Market reached $21.9 billion in value in 2021, and is forecasted to grow at a rate of 41.7% CAGR from 2021 to 2030. It is safe to assume then, that very tangible shifts in consumer behavior can be expected as new technologies emerge.
Solution: A Shift to Collaborative Commerce
The advent of social media gave brands unprecedented access to consumers, but its effectiveness has declined rapidly over the past several years. Organic reach has dropped from 20% to 2%, which means that brands need seven to 10 times more followers to have the same social impact as five years ago! This also means that 98% of a brand’s followers –
the community that the brand has invested in building — will never see the content they signed up for, unless the brand pays to play.
Despite this stagnation, brands around the world are reliant on centralized platforms such as Instagram, Facebook, Twitter, Pinterest and others for reaching out to newer generations of consumers. There must be a better way for brand communities to connect and grow…and there is. And it is powered by Web 3 technology.
Web 3 offers the capability to decentralize the product creation process, giving consumers, brands, influencers, and creators the ability to collaborate and gain value together. Decommerce, for example, is a tool purpose-built to connect all the parties in a brand’s community for seamless collaboration and engagement.
Instead of a two-way relationship between brands and customers, a collaborative, community-led model will prove to be mutually beneficial for all parties–especially putting power back in the hands of consumers.
Envision this: a community built upon a blockchain-enabled infrastructure allows for the seamless exchange of creation, physical products, and digital assets. This infrastructure would be founded upon three core pillars of technology:
- Software: To enable community building and management, co-creation and insight generation.
- Physical: Products are co-created through demand-driven innovation and sustainable production.
- Digital: Contributors are rewarded with digital asset micro rewards for their engagement activity in the brand community.
The results are already being produced: a study by ETH Zürich together with a men’s retail brand using a Web 3 commerce community tool has shown: 3x repeat purchase rates within three months of a user’s first purchase; 80% higher average order value per purchase; and 70% higher customer lifetime value within nine months of a user’s first purchase.
The numbers speak for themselves: the business value of a brand-owned, brand-hosted community-first commerce enabler simply delivers.
Why Collaborative Commerce is Needed Now
The success and sustainability of brands in the future will rely on collaborative commerce, wherein all parties in the co-creation process can engage and gain value together.
Decentralizing the influence of third-party platforms allows for brands to host, engage and reward consumers directly on their own website of the brand. Subsequently, every individual holds and shares their own data; every consumer and brand owns their own data; consumers can be rewarded for the value they bring, not only for the products they buy; and brands boost sales growth and profitability due to an engaged community
This new model requires Web 3 capabilities that can seamlessly combine the physical and digital world. Thus, new challenges require new solutions: as new Web 3 technologies emerge and as the consumer landscape adapts, the onus is on brands and vendors to adapt to consumer behavior — or risk being left behind by the competition.
Ready to see how Decommerce can help build collaborative brand communities and drive consumer engagement for your brand? Schedule a demo online today.