Boosting ecommerce profit

Ecommerce created new sales channels and new opportunities for profit erosion. Stop leakage and deliver a positive customer experience.

Sam Ganga

Sam Ganga

National Consulting Leader, Consumer &Retail, KPMG LLP

+1 312-961-7289

How changing buyer behaviors are driving profit erosion

While consumers and businesses alike have been buying more through digital channels for years – a trend dramatically accelerated by the COVID-19 outbreak – realizing full value from this shift has proved elusive. Sellers have had to adapt to changing customer behaviors and expectations as well as new challenges around supply chain management and customer returns, many of which have cut into their profits. To help meet this challenge, KPMG has developed a tool and a methodology that businesses can use to quickly identify and correct the root causes of this profit erosion.

Online buying behaviors are different than traditional shopping behaviors, and continually evolving. Some of the ways these changing behaviors have made selling profitably online harder are clear. With customers unable to try before they buy, for example, both in the retail and business-to-business spaces, return rates tend to be higher.

Processing refunds and credits, restocking or discarding returns, and shipping replacements – each result in expenses for the seller.

Businesses also jeopardize potential sales and profits – and the customer experience – when they don’t offer the right assortment of products through their digital channels, get pricing or promotions wrong, or don’t have a distribution network that can get goods to customers fast enough to meet the expectations set by ecommerce leaders. Standards like two-day, one-day or even same-day shipping have some businesses racing faster than their operating models were designed to accommodate, which can lead to costly mistakes.

Simply put, the risk of profit erosion increases as companies expand their ecommerce footprint. Product returns and exchanges are one of the big drivers of that erosion, and in turn are a consequence of multiple factors that span the entire customer journey, beginning with their initial engagement with a brand or business. The customer orders the wrong product. The business ships the wrong product, or ships the right product twice. The product is delivered to the wrong location, lost, or damaged in transit. The product is delivered too early or too late and the buyer doesn’t take title. The product differs from its description on the seller’s website, or is expired, or defective, or of inferior quality. When returned items can’t be resold for any number of reasons – including, today, COVID-19-related concerns – losses to the seller compound.

Businesses need a way to spot trends and patterns in transactions that go wrong so they can identify the root causes and surgically address them.

It is unrealistic to think businesses can eliminate every possible misstep all the time or by applying a single solution. Tightening return policies may not be viable, for example, because it could alienate customers who experience legitimate problems. Rather, businesses need a way to spot trends and patterns in transactions that go wrong so they can identify the root causes and surgically address them, whether they’re related to customer behaviors, product shortcomings, inventory missteps or distribution issues. This can be a massive undertaking for organizations with thousands or even millions of different items for sale, sourced from a wide array of suppliers and distributed via multiple channels. It can be particularly difficult if the data needed to identify those patterns or trends is housed in disparate and disconnected information systems.

Identifying the top sources of profit erosion

But it’s not impossible. KPMG has developed an advanced analytics tool that can rapidly collect and analyze pertinent supply chain, sales, shipping, customer, product and return data, and then identify anomalies within that data. Powered by artificial intelligence and augmented by KPMG implementation expertise, the tool’s interactive dashboards allow businesses to pinpoint in near real time not only where profit erosion is happening but also why – as well as the cost implications.

Even within categories of problems – scrapped goods at a given distribution center, for example – it can drill down to identify the underlying issue, such as goods arriving damaged to the customer, an inability to restock items because they are spoiled, packages stolen from customer locations, or logistics costs that are higher than the product’s value.

Armed with these insights, businesses can take quick corrective measures to stem profit erosion.

Close analysis of ecommerce problems also can provide businesses with an opportunity to improve the customer experience – to fix or pull products that experience chronic returns due to high levels of customer dissatisfaction with fit or quality, for example, to rectify distribution or shipping bottlenecks, or to adjust inventory levels within warehouses to prevent having to ship items from distant facilities rather than ones closer to the customer.

“The KPMG tool is a sophisticated anomaly detection engine that can identify opportunities to plug holes and fix shortcomings in your company’s operations and across the customer journey, increase your profitability, and deliver a better customer experience,” says Sam Ganga, partner and global connected commerce lead for KPMG in the U.S. “This may require changes in your ordering experience, your fulfillment experience or your return experience. Whatever the issues, we can detect them and quantify the potential savings.”

With digital commerce growing so quickly, Ganga adds, it is important that businesses act quickly. “Every dollar of profit that erodes while you are not taking steps to identify and address the root cause is a dollar you will never get the chance to claw back,” he says. “And losses will only compound going forward.”

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