Why Digital Availability aids Strategic decision making plus why digital ads aren’t analogous to rent or signage

I published a paper with WARC a couple of weeks ago that expanded the detail on one of my earlier blog posts on a concept called Digital Availability. I’ve tweaked and extended it a bit here –

• Researchers such as Professor Byron Sharp have written about the need to build mental and physical availability. These are rightly considered key factors in driving brand growth because it makes it easier for people to notice and buy your brand.

• A lack of nuance in language and detailed knowledge mean that a third “availability” should be added to improve understanding and serve as a partner to mental and physical availability. Digital availability is concerned with improving the breadth and depth of a brands distribution brands online.

• Digital Availability channels include the likes of PPC, affiliates, mobile commerce, social commerce, review sites and third– party retailers like Amazon or vertical specialists like Mastersofmalt.com or the various websites of The Hut Group

By enhancing the nuance around ‘availability’ we can improve our communication with the C-suite by clearly talking about all the levers at play to help brands grow in three simple classifications – mental, physical and digital.  

Conclusions

• Many digital availability channels and routes to market are more akin to merchandising/purchasing models rather than advertising models which require a whole different way of thinking and skillsets, including complex fulfilment engines required to service and stock goods
• If you view digital channels as separate (Digital Availability) the budget and structural implications become clear. You cannot compare a Google Shopping or Amazon link to a TV ad – although they both fall under the auspices of the 4P’s one is concerned with Place whilst the other with Promotion.  
• Just like Physical Availability a true cost benefit analysis still needs to be done for Digital Availability channels to make financial sense. 
• Strategic decision making is improved through enhancing the nuance around the options to drive growth
• All ads with a CTA are signage not just certain types of digital “ad”, and the term “signage” lacks nuance as these “units” are more akin to being stocked in a shop i.e. shelf space
• Digital Ads aren’t replacements for RENT because there is so much more that goes into e-commerce over and above placing ads (storage, fulfilment and distribution) plus accountancy terminology treats them very differently (revex vs capex)

THE BIG definitions

Physical availability = brands being available to buy in more places (offline )

Mental availability = being the first brand in mind when an individual comes to buy

Digital availability  = brands being available to buy in more places (online)

Here is where we start –

Mental and Physical availability, according to Professor Byron Sharp (source HBG 2011)

At first glance all seems fine. The all-encompassing nature of the Physical Availability definition seems to encapsulate every eventuality, including availability to purchase within the digital sphere.  In fact Professor Sharp has on occasion stated that PPC (as an example) is simply a Physical availability channel.  I agree. To simplify, view Google as similar to Tesco.  Brands merchandise their product within the Tesco store just as much as they could in Googles “store”.  Brands negotiate with Tesco about where their product will sit on shelf (or Gondola end/POS) just as they do with Google’s search listings.  

So why am I suggesting that a new categorisation is required? Much of the world is digital and if the COVID-19 era has taught us anything it’s that conceptually Physical vs Digital distinctions are less important than maybe we thought. That said, whilst concepts can be great, in the real-world language matters, and over-simplification can lead to blind spots.

To enhance an already influential and well known concept is risky. However; I think it’s worth learning from the realm of science that Professor Sharp has less time for, the social sciences, and in particular Behavioural Economics. I believe “Physical Availability” has a Framing problem. Words matter and it’s a simple truth that for some people the word “Physical” clouds their thinking to physical-only environments (like Bricks & Mortar) and whether we think that’s foolish or not, it’s still a fact. 

Taking it one step further, If we take Sharps/Ehrenbergs heavy and light users, we can apply them to knowledge too.  The “heavy users” in this example will know the complete definition of Physical Availability and be comfortable encapsulating and communicating every potential distribution channel however; the majority (the light users) will simply use the term “physical availability” and a proportion will trip up on the language and consider it only in a Physical sense not a Digital Sense.  

This has major strategic implications and as marketers we should be looking to enhance understanding through communication rather than dismissing the “light users”.

As such I have proposed an expansion of the Availability Duo to an Availability Trio.

Now I’m sure there will be many, including Professor Sharp himself, who will think this is pointless, it confuses, “we spent years trying to educate people that digital isn’t a separate thing” (privilege is writ large here) and I agree it is, for those who are “heavy users” that is i.e. those who know the definition inside out.

You could also argue that a simple “be available to buy in more places” and “be the first brand to appear in someones mind at point of purchase” would suffice. I actually prefer this but we’re working in a world where Physical and Mental Availability are known concepts and have worked their way into the lexicon (even if they are jargon)

But; a reminder, we aren’t doing this for the “heavy users”. This isn’t for them, it’s for the light (and non) users so that we can grow the influence of marketing at the boardroom level by effectively talking about all the levers at play to help brands grow.  In other words I’m talking about driving penetration growth of the availability concept.  Better thinking and better marketing helps everyone. The concept, in practice also aids allocation of resources within client businesses where Marketing is very separate from Operations (and on and offline ops are also separated).

So, that’s the simple extension of the concept and its definition. That said it’s also useful to understand what Digital Availability channels are and which brands are demonstrating an effective and strategically beneficial use of them.  Like most things in strategy there is a degree of “it depends” at play but for simplicities sake here’s a (definitely) non-exhaustive list:

• SEO – Optimisation of availability (this works across e-commerce platforms
• Generic PPC and Google Shopping – Using Googles shop to sell
• Affiliates – Essentially using a digital  3^rd party to sell your product,
• “Collapsed” ad formats (click to buy etc)
• Mobile commerce – Can you easily buy the product via a mobile device?
• Social commerce – Do you have social media commerce capability activated?
• Review sites – Are you present with click to buy activated?
• Third party retailer listings (online only retailers including amazon  or vertical specialists such as The Hut group or a website like Mastersofmalt 

The list could go on and on. Each one opens up a new avenue to purchase. A new avenue that services a potential new customer and could extend market penetration. Obviously, the cost of set-up and ongoing fulfilment needs to be validated against the potential opportunity. Some of this would be Revex  and some would be Capex (adverts are typically defined as revex in financial parlance whilst capital builds e.g. website builds are capex) which takes you further down the road with strategic applicability and C-suite influence.

Another key thing to point out is that many Digital Availability channels and routes to market are more akin to merchandising/buying models and require a whole different way of thinking and skillsets. Strategic choice requires you to factor in the complex fulfilment engines required to service and stock management implications too, e-commerce is rarely easy as I have written about before here and here.  

The point being that if you view these type of digital channels (Digital Availability) as separate, the budget and structural implications become clear. You cannot compare a Google Shopping or Amazon link to a TV ad (the same difference is akin to comparing product on shelf at Tesco with a TV ad) although they both fall under the auspices of Marketings 4P’s (Price, Product, Promotion and Place).  Even in this categorisation of marketing tasks its clear that Google and Amazon are “Place” whilst the TV ad is “Promotion”.  I believe that by splitting out Digital Availability in the way I have choices become more transparent and therefore more useful to strategic decision making.

The recent COVID-19 impact on e-commerce really sheds a light on those who are being successful in this field and on the strategic intent that comes to light by creating distinction from Physical Availability.  

One of the most interesting is Nike who are shifting their Digital Availability emphasis away from third party vendors towards owned assets .  At face value this suggests that they are reducing their digital availability however strategically they have made the choice to “own” the full brand experience, relying on fewer intermediaries where they have little control. A decision which; over time may lead to greater profits (there is much more going on here that won’t fit in this paper).  Obviously this approach isn’t open to everyone and therefore it’s certainly a problem for CX and UX management for brands that can’t.   There is an argument that there is no real difference to relying on Tesco to appropriately manage your sales channel.  That said, Tescos are a retailer, Amazon are not (really).

This stands in contrast to Adidas who have signed a deal with Zalando to run their digital fulfilment which requires a truly integrated strategic partnership between the two German companies .  Adidas are essentially outsourcing this function rather than owning it, allowing Zalando to run the CX and UX for a large proportion of sales online.   The implication being an acknowledgement that e-commerce is tough to do right and even the biggest brands need a little help in making it all work. There is a loosening of control here and a different kind of risk, which is clearly a strategic choice.  Whether it is the right choice will be seen.

Looking at the UK grocery market as another example, you can see that very few are really “outstanding” when it comes to e-Commerce.  What do I mean by this? Well  a review of the financial literature by these players suggests that they all saw penetration double  as a result of covid restrictions, this suggests that no one Brand really outperforms/is stealing share via Digital Availability i.e. it’s not driving relative growth.  That said, all the brands are active in this space meaning that it’s probably restricting loss i.e. game stakes.  There are clearly different models of fulfilment within this category though which is probably another article in itself.  

In the opposite direction many direct-to-consumer brands are finding that despite their success (in building digital availability) they are reaching a ceiling due to a lack of physical availability. Brands like Harrys and Fenty have looked to build Physical availability via merchandising deals with large retailers.  

This duality between Physical and Digital availability is clearly a balance and a strategic choice which needs to be identified at a brand and category level.  

Just like Physical Availability a true cost benefit analysis still needs to be done for Digital Availability channels to make financial sense.  This is another reason to split it out and make it separate .  The immediate capital investment for much digital availability will be lower but; there are other implications linked to the full value/supply chain that need to be factored in.  Just because you can doesn’t mean you should, you still need to ask “Is there really enough demand to justify creating the avenue and also is it driving incremental sales?”  

Why Ads for online businesses are NOT rent or signage – The pursuit of nuance

Related to the above concept are a few papers written in the summer. Around this time Grace Kite published a paper on the two-types of online advertisement. This states there are two types of ads online. One that is similar to traditional “brand” ads and the other that of a signpost for e-commerce businesses, it also suggests that marketers may not be aware of this dichotomy. I’m not sure i agree here. There is clearly a “future cashflow” & “present cashflow” or Brand & DR situation going on online (much like in the offline world) but also a third type of solution which is really what this is about. This concept of of “e-commerce signposting” relates more strongly to the concept of Digital Availability.

There are some similarities to my thinking, not least the belief that there are some quirks in the online advertising ecosystem that mean that some of the “ad” solutions aren’t actually ads at all (and are closer to the traditional retail Merchandising or Buying roles) however this is the 3rd type of “ad” not the 2nd. i also don’t think the term “signpost” is that helpful. All ads with a call to action are effectively signposts, whether they are online or offline. Bundling terms is great but not when it reduces nuance and there is plenty here.

Furthermore the water was muddied somewhat with the paper in WARC based on another paper in the Economist suggesting that Ads are similar to Rent. So, is it Rent or a Signpost?. Does it matter? Yes, i think it does. As mentioned above, i think “signposting” is incorrect as it doesn’t add enough nuance to the debate. I also think that when thinking about these Digital Availability channels the term Rent is also incorrect. There are two reasons for this, both from an accounting perspective and also from a task perspective.

I’ll explain – Rent is a periodical cost and is typically Capex. Ads are a variable unit cost (they’re typically CPC) and are typically Revex. So in simple accounting terms we have clear difference (and remember part of this exercise is to help improve communication at a c-cuite level).

These “digital availability” placements are typically situated in online marketplaces, listings or e-commerce platforms i.e. you are paying upon completion of a sale by another entity. Google is allowing you to use its “shop”, Amazon is allowing you to use its “shop” etc There is no signage (you could argue that a partner ad placed by a media agency next to the listing is signage). It’s like being stocked on Tescos shelves (as i mention above). Would you consider being stocked in Tescos as “rent” or “signage”? I’m sure you wouldn’t. BTW this isn’t an attack but more an attempt to pursue clarity and aid strategic decision making.

Ben Evans has also alluded to this here with a little more nuance as he groups the trade-off between online and offline in a way that acknowledges the difficulties of e-commerce. That is, its not as simple as just transmitting offline rent into online ads, you must also include fulfilment costs, returns, storage etc etc, so that the Rent signifier obscures a lot of additional cost associated with trade online. Its striking how many people still think that e-commerce is cheap and easy, this sort of labelling does nothing to dissuade this thinking.

In all of this, that should be our objective, to aid strategic decision making with enough nuance to provide context. Words matter and we’re in the effective communications industry after all.

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The rise of E-commerce, changing expectations and the great unbundling (Retail and motor)

A few weeks before Christmas I was invited to the annual “future of technology series” run by https://www.apcuk.co.uk . It was a great line-up and the videos are all here for your perusal including my own short presentation. I took the opportunity to present on how changes in consumer expectations are likely to drive structural changes in logistics and last mile fulfilment and why understanding the commercial impact brands can mitigate through their businesses strategies. I specifically focussed on the Motor in this presentation but some of the insights are cross-category. It was whistle stop and i’ve certainly gone deeper here than i did for the 10mins i had then, with some more examples, so hopefully it may help spark some interesting thoughts of your own…

So, the first slide started with ONS data showing the shift in share of retail (online vs offline). Obviously grocery is overwhelmingly offline (penetration is around 13% which is double pre-covid but still low) but even total retail excluding grocery only comes in at 27% i.e. lets not accelerate the decline of offline by believing its dead already. That said, there appears to be a step change of around 7.5% which is not insignificant and a new baseline.

That said, the previous chart is in % terms and when offline retail effectively closed in LD1 (lockdown 1) its perhaps unsurprising that e-commerce saw a % increase. To add more colour to the scenario its worth looking at actuals and as you can see whilst there has been a clear acceleration, the total offline retail dwarfs the online world. When you hear people calling for Amazon to be broken up because of the stranglehold on retail, its worth remembering this chart. Amazon is only a proportion (and a small one) of that red line. Its certainly not a monopoly here.

Something that this change has affected though is consumer expectations. When it comes to e-commerce and delivery the biggest impact Amazon have arguably had is on perceptions of service. We expect cheap, quick delivery with the minimum of fuss. I’ve written previously about e-commerce and how fulfilment is expensive and hard and how the costs of decent delivery have to come from somewhere but its worth reiterating

Fulfilment networks are costly. The set-up is vastly different from a retail outlet and the limited distribution required to stock fixed units plus they have “last mile delivery” issues too. The “hub-and spoke” model of Argos and the regional and local hubs operated by Next are designed to mitigate this and improve efficiency/reduce cost. Interestingly the key, non-covid, statement in last years Next company report, for me, is “The focus will be on systems that consolidate items, quickly and accurately, into individual parcels”. Why is this important?

What do i mean by this? Well its about distribution, especially that last mile. Its one of the problems with the food delivery businesses like UBER and Deliveroo and explains why they are trying to shift into broader logistics because what’s that problem?.. marginal costs. Let me explain, a van or bike (plus driver) represents a cost and as soon as you have a single package this cost is incurred. The first parcel is always the most expensive whilst subsequent packages reduce that cost by spreading it, that’s marginal cost, the extra cost incurred for each subsequent unit.

In traditional store based logistics this is fine. You fill the lorry to its capacity and off it goes. In the new e-commerce model where parcels are being delivered to multiple houses in a small geographical area plus the expectations for instant delivery (and cheap) set by AMAZON you have a problem, because its unlikely that you’ll be able to send that package out on a full truck, ergo its highly cost inefficient. This is happening all over the country too in multiple locations, every day. As a business you could hire 3rd parties to do this part for you, but; even with multiple potential clients this can still be a problem and there is an elevated cost for utilising their network because they know this and clients pay for the inefficiency. This is what I mean by “stepped” because each vehicle started is contributing marginal cost that is not optimal, kranking up the negative effect on margins and explains why brands that operate in the mid-low end of margins struggle with e-commerce and have to find the savings somewhere else in their business (see the BOOHOO paper again for the wrong way to do it). Back to that mention in NEXTs report. They’re looking to cross subsidise this uncontrollable aspect by focussing on their own operations and reducing inefficiency there. clever stuff eh!.

So, why did i leap to bundling and unbundling. Well everything above is fairly general. This is an actual trend and its fuelled by consumer expectations with clear commercial impact. This is also where the implications start. So, a reminder, if the logistics scenario above is the the case, businesses have a choice. Either continue to run their own logistics networks or utilise someone else, a good example in modern retail is NIKE vs Adidas.

Over the Summer Nike were raving about the rise in e-commerce, they’d pulled off some of the big ecomm platforms and the shares were skyrocketing. Read the company reports again and you’ll notice that margins declined and admin costs also declined hugely (including demand generation or marketing). In simple terms a huge cost centre was removed which lended a glossy glow to the bottom line figures BUT also; despite full price sales increasing (this is a function of an excellent stock management system) margins have consistently declined. check here, here and here for more info. I’m digressing from my original point a bit here but if you remove £3bn (combination of operating expenses, they namecheck flights!! and marketing here) from £10bn revenue its going to look good on the bottom line (and its also likely to come storming back when covid is over) but also that consistent 1% drop in margin is due to the owned e-commerce focus and represents how difficult it really is to cross subsidise the old world with the new and stay the same. Adidas on the other hand are currently piloting using Zalando to do their fulfilment. How does this relate to bundling and unbundling, well its simply do your logistics or don’t?

The bundling vs unbundling example Is clear in this example. Hiut the specialist jeans maker from Wales who “ONLY DO JEANS” and make a virtue out of it or Tesco and Booker and a vertical integration play that is arguably Sir Dave Lewis’ finest gift to the TESCO business. Especially when you remember the context of the business he came into, with multiple acquisitions struggling to do anything other than drag. He made one BIG play and it was a step up the chain I.e. a big bundle. So onto the car market…

Its worth reminding everyone at this point that the thesis of this presentation was e-commerce has risen (but not as much as you’d think), but its real impact is on the expectations of service. E-commerce is a drag on margins because of marginal cost inefficiency and therefore businesses have a strategic choice to make, do they bundle or unbundle…. So Motors and motor sales, a market ripe for disruption.

There has been an acceleration of new brands in the car buying space in recent years but the two that catch the eye are Alex Chestermans Cazoo and BCA’s Cinch. Why is this and how does the above trend feed in? Simply put, if buying a car is shifting to the e-commerce model then imagine the commercial implications of the “last mile”. The car has to be dropped off at a house. Its going to be either driven (in which case you need a following car) or via a truck (which has only one car on board for residential streets, probably with a HGV driver and a sales person on board) which means the marginal costs are steep. The opportunity costs are also huge because that sales exec can only service ONE delivery/sale during his time on the van vs the multiple ones he can manage when on the forecourt. You can see how costs are going to rise exponentially! Now i’m not saying that buying online is going to be mainstream anytime soon, its still a tiny % but combine this with the national coverage of online sales (imagine i’m in London but buy a car in Glasgow) and the whole regional/local garage model is under significant pressure. OEMs (original equipment manufacturers) for new cars can’t do this and whilst they often handover control to sales networks, that becomes complicated too as they’re often not fully national.

So (longwinded) that leaves the door open for the aggregators to step in and they’re perfectly placed to dis-intermediate the sales networks by building out their logistics back end + a digital forecourt front end and cover the whole of the UK, essentially bundling sales and logistics up and leveraging economies of scale. BCA already do logistics for the motor industry (and they own We Buy Any Car) but Cinch is them entering the new car sales marketing (they’re a £2.5bn business) whilst Cazoo are coming from the other direction and going sales platform, supported by a logistics network (and then they’ve bought some forecourts, probably as a holding pen).

If i were to conclude this rather rambling section I’d say that size matters in the e-commerce sphere to mitigate those changing expectations and bundling sales plus logistics plus forecourts/warehousing is the future. OEMs would be better placed to just give up sales (unbundle), whilst the sales networks themselves face an existential threat.

Ah yes TESLA. They can do it. They sell direct after all (despite Elon backtracking on closing his forecourts) Well can they? They’re already losing money and as we’ve set out the e-commerce model doesn’t help here. In fact it does the opposite. So its really not the DTC model you need to be worrying about. It’s the aggregators who bundle.

WOW. I definitely added loads of other stuff in there that was in my head especially as the original video was only 10 mins long. I summarised here and i still think this is the best overall way to do it, so i’ll leave it at that.