By: David Sandstrom, Chief Marketing Officer, Klarna
Today’s consumers expect tailored, curated experiences and brands are now on the hook to deliver a future of shopping that includes hyper-personalization and AI-driven experiences. In a 2022 survey, Salesforce reported 73% of respondents expect companies to understand their unique needs and expectations, and over half think companies should go as far as anticipating them. To reach a truly hyper-personalized world where brands, people, and goods are interconnected, there are three phases of e-commerce I believe we need to move through before achieving the ultimate shopping experience.
E-commerce 1.0: People Searching For Goods
The Western world is currently in the E-commerce 1.0 phase, characterized by a transactional shopping experience where consumers search for the item they want to buy. Whether it’s choosing milk from the grocery store or looking for a pair of sneakers online, the act of proactively searching for the product is the same. While websites have evolved in their sophistication over time, the fundamental shopping experience of e-commerce has remained largely unchanged for the past two decades.
Compared to Asia, the e-commerce experience is very different. In China, for example, a few years ago 80% of online purchases began with search and 20% were driven by product recommendations. Whereas now the opposite is true with 80% of online purchases driven by product recommendations. Which brings us to our next phase.
E-commerce 2.0: Goods Searching For People
With E-commerce 2.0, we witness the rise of recommendation engines and hyper-personalized product feeds. Imagine going in to enter a search query for a specific product, only to be greeted with unlimited product recommendations that you didn't even know you wanted or needed. Or what if you could scan a photo of your colleague’s watch and receive countless product comparisons with similar items at the best price points? Platforms like Alibaba’s Taobao, China's largest online marketplace, have already embraced e-commerce 2.0 by combining personalization, entertainment, and infinite scroll to transform the way people shop and pay, and it won’t be long before the West follows suit.
Businesses armed with SKU-level purchase data have a distinct advantage in driving tailored experiences. At the moment, only a handful of companies possess the complete mix required to succeed in this space. For instance, traditional credit cards may know where consumers shop, but don’t know the exact items they buy; social media platforms may know if consumers click on a link, but not if the purchase was made; and search engines may hold data on purchase intent, but lack full attribution. Then there’s the question of trust. As a consumer, am I seeing truly unbiased results when I search for a product, or am I seeing sponsored content and algorithms that are optimizing links for ad revenue? Meanwhile retailers are increasing their spend to compete for the number one spot. This may be one of the reasons why $52 billion will be spent on Retail Media Networks in 2023 according to Statista.
E-commerce 3.0: Connecting Goods With People
If the first phase of e-commerce was in search, and the second phase is personalization, the third phase lies with creators. While the creator economy is alive and thriving today, it is nowhere near reaching its full potential. Nowadays, retailers and stores are still the main intermediaries between people and products, sprinkled with paid influencer campaigns. Brands like Burberry are reimagining physical storefronts of the future through more socially interactive elements for consumers, while others like Lancome look to expand audience reach with influencer partnerships with Emma Chamberlain. In the future, brands and stores will be a part of the mix, but creators will take the lead as key players in connecting goods and people to transform the now transactional way of shopping into more meaningful, relevant and entertaining experiences.
According to a recent Future of Retail report by Klarna, 26% of US Gen Zers and Millennials envision a future where the shopping experience will be so customized and driven by AI that they will no longer have to do the shopping at all if they don’t want to. In this future, AI understands their unique preferences, tastes, and wants with such precision that it can autonomously navigate the discovery and purchase process. An ecosystem like this will then be layered with content creators and various forms of media to highlight the products in more enjoyable ways and make the overall shopping experience smoother.
Inspiration and desire will no longer be separated from the checkout and transaction when we reach E-commerce 3.0. AI-powered recommendation engines fueled by SKU-level data will create opportunities for unparalleled consumer engagement between retailers, creators, and products themselves. Companies that embrace these trends and invest in the right technologies will be well-positioned for success.
David Sandstrom is the Chief Marketing Officer at Klarna.