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Marketing powering online sales but big brands struggling to turn profit

e-commerce

Marketing is powering booming digital sales but big brands are struggling to turn flying online sales into profits. Consumer Packaged Goods (CPG) giant P&G has reported double-digit year-on-year growth in e-commerce sales and says e-commerce now accounts for around 14 per cent of sales. Not to be outdone, rival Unilever is investing billions in high business segments, including e-commerce, which now accounts for 12 per cent of sales. Meanwhile, Nike and its sports band rivals are heavily pushing a digital-centred Direct to Consumer (DTC) model while Amazon is one of the most valuable companies in the world with a market cap of £1.6 trillion. But despite the best efforts of marketers, leveraging their creativity to magic up big-budget TV campaigns, influencer-fronted ads, TikTok and other social media campaigns, profits are remaining in the red.

In the UK, it has taken Tesco, the gorilla in the online food market, with a 30 per cent market share, 25 years and a pandemic for the grocer to say it's genuinely making an online profit. Meanwhile, digital retail pureplay Ocado has turned a pre-tax profit just three times in its 22 years of existence. Yet some brands are nailing the online space, with experts believing those winning out are offering the market something new or unconventional.

Why brands struggle to make money online?
Fundamentally, brands, particularly big ones, struggle to make e-commerce profits due to the sheer resource commitment. For example, for major grocers, the big challenge is shifting sales out of their most profitable channel, convenience, into the least profitable, e-commerce, particularly with the expanding cost of delivery operations. Back when e-commerce accounted for less than 10 per cent of a big grocer's sales, improving profitability could be put on the back burner, but as online sales balloon this is no longer the case.Major grocers are not the only ones struggling to make a profit from online, some direct-to-consumer retailers are struggling to turn a profit, hit by soaring digital ad costs, rising shipping costs, and Apple iOS privacy changes.

Brands pouring money into TV ads
Brands are pouring money into TV campaigns to help improve online profits. Last year, linear TV investment in pureplay digital brands (those that started lift without bricks and mortar) was the biggest riser, investing a total of £1.12bn, up 42 per cent on the year. In the UK, online-born businesses made up 20 per cent of all linear TV ads spend. Amazon was top of the tree, spending a total of £68.2m, ahead of Compare the Market. Google, and food delivery firms Deliveroo and Just Eat were also significant spenders.

Use of influencers
Big brands are still taking big bets on influencers, to help drive up online profits. While big brands have been partnering with celebrities, sports stars and the like since the start of advertising, the influencer game has opened up many new opportunities for brands. Last year, P&G acquired Ouai, a hair brand founded by beauty influencer Jen Aktin, who the New York Times named as the most influential hair stylist in the world. In 2019, Unilever Ventures, the venture capital and private equity arm of Unilever, invested in the influencer-marketing platform CreatorIQ. UK grocers have also used an array of influences, forming partnerships with social media stars, viral content creators and others with a vast number of social media followers to drive up sales.

TikTok driving online sales
TikTok's steep rise in popularity has opened up new and unique marketing opportunities for brands to drive up online sales, helped by a myriad of filters, effects and editing techniques. Martijn Vlasblom, strategist at Dutch advertising agency M2Media, says there is a "distinction" between firms using social media to build their brand, compared with those using social media to boost sales. He says: "A number of large fashion retailers such as Zalando, but also fashion brands such as G-Star, make very effective use of the various social channels to position their brand, but also to directly offer products. "It is very dependent on the category how difficult or easy it is to boost direct sales through ads. As a consumer, it feels much more logical and natural to pick out a new pair of summer shoes from a social ad than it is to take out a new car insurance policy."

Small brand experiencing "goliath" growth
Emily Rule, head of strategy at Wunderman Thompson UK, singles out small skincare brand Mallows Beauty which has experienced "goliath" growth powered by social media. "Mallows Beauty is definitely one to watch. It's a small skincare brand, boasting short-term goliath growth that puts established beauty brands in the shade," Rule said. "The start-up was founded in 2020 in Cardiff, and out of necessity it used a social-first brand building and sales strategy from day one, and has employed an experimental approach that has 100 per cent paid off. "Most recently tapping into TikTok's partnership with Shopify to create a catalogue-driven mini-storefront on TikTok, as well as its live shopping feature. "According to founder Laura Mallows, today, the brand typically generates more revenue through one live shopping event than its flagship Cardiff store does in a week."

Direct to Consumer
In days of yesteryear, brands would be anxious that DTC would cannibalise sales and outrage retail partners. Times have changed and brands today leverage DTC to collect valuable data, personalise the shopping experience and speedily launch new products, to help power online sales. According to Vlasblom, hoover brand Dyson is "king of the DTC trend". He said: "Apart from the fact that they have adapted their entire business model to it, they also use the 'buy from the maker' as a statement to increase their brand value. "This is a smart strategic move that fits in well with the broader trend of conscious consumption and the changing e-commerce playing field in which technology companies are becoming increasingly dominant." Rule points to Nike being a shining star amongst those that have made the DTC transition. She said: "During the pandemic, Nike, like other retailers, was forced to close most of its network of more than 900 stores across the world. "But in stark contrast to many other retailers, Nike transformed this Black Swan event into a Golden Goose opportunity to reimagine their retail experience, as an interconnected ecosystem. "Their rapid DTC transformation was dubbed the 'Consumer Direct Offense', and it has entailed smarter segmentation, a departure from the mall, an increase in the number of the smaller format, more local-feeling stores, and an app that is so useful to the in-store experience, that those without it are at a major disadvantage. "This best-in-class interconnected ecosystem seems to be a winning formula and is fuelling Nike towards its goal of becoming a 50 per cent digital business, in the medium term."

Conclusion
Marketers are doing their utmost to help drive online profits, employing their creativity, and fashioning innovative marketing campaign. However, for the time being, the sheer logistical challenge of shifting to an e-commerce-centred business is thwarting big brands, particularly grocers, from making big profits.

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