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Optimization Versus Innovation in Digital Commerce

In a year of disruption, businesses are reminded of how critical it is to be able to pivot and adapt.

The number of executives who listed innovation as a top-three priority for their company jumped from 65% in 2020 to 75% in 2021, the largest year-over-year shift seen in 15 years of BCG’s Most Innovative Companies survey.

However, it’s hard to say how many of those executives are talking about bringing completely fresh ideas to market (innovation) and how many are talking about adopting the hottest emerging strategies, technologies, and business models and tailoring them to their customers (optimization).

In a space that moves as fast as commerce, the distinction between innovation and optimization is never black and white. This is especially true in a year where necessity drove massive amounts of innovation. As physical stores shut down, companies had to spin up solutions they had no blueprint for, turning shops into fulfillment centers or transitioning in-store staff to online consultants in a matter of days.

Innovation, however, is a brief window. The early adopters lay the groundwork, the next wave of users find best practices to streamline processes and measure efforts, technology vendors figure out how to commoditize it, and it becomes an industry standard. Adding curbside pickup in 2021 is still valuable, but it’s no longer an innovation – it’s expected.

Luckily, a large part of the value of industry breakthroughs comes after the innovation window. As the technology to measure and test innovation matures, companies put their creative spin on it, and the approach can be steadily optimized over time to capture the full long-tail value.

Different paths to the same destinations

Often the drivers behind optimization and innovation are the same, you want happy customers, happy co-workers, and a better bottom line.

Customer experience: Tapping into the wisdom of the crowd and making continuous, small optimizations is the surefire way to please the majority of your customers. From convenience to community, a solid feedback loop keeps a finger on the pulse of changing customer expectations. Innovation offers customers the unexpected. It brings radically new experiences that may only impact a small group of customers at first, but that group is going to be over the moon about it.

Return on Investment. There’s more certainty in optimization, as you’re fine-tuning something that is already working with your customer or proven in your industry. Tools to measure these efforts are usually more mature, making it easier to validate your work and secure a budget. With innovation, you’re hoping that one of the 15 experiments you run pays off all of them. This typically means working with leaner tools that let you get prototypes up and running quickly, and making larger investments into scale and optimization after the prototype has proven itself.

Job satisfaction. There’s a lot of gratification in seeing your well-oiled machine steadily become more efficient. With nearly unending possibilities to automate and tweak the system, optimization is a playground for data lovers. Innovation, being more driven by gut feeling, is likely going to draw more emotional investment. This is important because if you’re doing something brand new you’re going to have to be able to advocate for it and get others on board and excited.

Essentially, optimization and innovation come down to three key actions: Think, make, and test.

  Optimization Innovation
Think From 100 proof points – internal data and industry insights – we’re confident about the results this will bring Out of 100 ideas – good and bad – this is the one we’re most excited to take a chance on
Make Long-term investment, specified roles, aim to streamline and automate Low-cost experiments, a collaborative group of generalists, aim for fast prototypes to test in the wild
Test Driven by positive feedback – make incremental improvements based on what’s working well Driven by negative feedback – pull the plug quickly on what doesn’t work to make space for the next experiment

Examples of commerce optimization

Optimization is crucial for scaling the commerce experience, steady improvements that bring convenience to customers or efficiency to teams can quickly build-up to a major competitive advantage.

When CHRONEXT, a platform for luxury watches, CHRONEXT, found it too cumbersome to manage and update their website they knew they needed to replace get away from their outdated technology – without pausing having to pause for a major replatform. So they adopted a commerce frontend platform, which gave them the freedom to refresh their customer-facing experience, roll out global sites one by one, and gradually step off their legacy software without disrupting business.

When Nuun was looking to create a loyalty program, they wanted one that was optimized for their community of adventure and fitness enthusiasts that love their hydration products. They put a fresh spin on an industry-standard by gamifying loyalty with points for engagements such as referrals and social sharing, ultimately seeing 70% of members making multiple purchases after joining the program.

Examples of commerce innovation

In a year where many traditional business models were disrupted, companies responded by pivoting to brand new markets. While some of these switches were short-term efforts to help out with the pandemic response, such as Burton Snowboards adapting their factories to make PPE masks and the many distilleries producing hand sanitizer, some pivots have opened new markets permanently. When offices shut down, SnapCab suddenly had no market for their open-office privacy pods. They quickly realize their pods could be useful for two of the most pressing needs in the pandemic, with potential for long-term relevance in the space. First, they worked with healthcare experts to revamp their pods to be suitable for medical testing. Second, they created a home-office pod for those who needed a quiet space in their own house.

Other innovations occur as companies explore new technologies to amplify the reasons their customers already love them. Louis Vuitton, Cartier, and Prada are leveraging blockchain to provide another layer of authenticity that is essential for luxury buyers. While LUSH has developed an AR app that provides product information for unpackaged bath bombs, an experience that is both novel and fits well with the cosmetic brand’s focus on ethical shopping and sustainability.

There’s also the option to buy innovation, such as Lululemon’s acquisition of the fitness startup, Mirror, which is catalyzing their transition from athleisure company to a lifestyle brand.

The double duty of eCommerce teams

While innovation and optimization can happen in any area of commerce, they both tend to be most associated with the digital side of business. As a result, Leading to many eCommerce teams finding themselves in a hybrid position.

The digital commerce department has the most detailed view of the customer, with insights into purchasing behavior and engagement trends that offer a wealth of opportunities for optimization. At the same time, it’s often the department with the most access to cutting-edge tools and technologies, which sets the stage for innovation.

The demand for new digital commerce experiences is clear there, with 54% of shoppers enjoying browsing and discovering online more than in-store. The expectation is clear there, with 1 in 5 CEOs citing “digital” as part of their top priorities in a 2021 Gartner CEO survey. The investment is clear there, with 75% of consumer goods companies expecting digital transformation funding to increase, according to a 2020 survey from BCG.

However, there is a key resource missing for many eCommerce teams to make this all happen. In a survey of 146 marketing professionals, the number one challenge cited across all sizes of companies was limited time.

Customer expectations are high, and relatively small eCommerce teams are taking on demands for new channels, personalization, rich product information, multiple payment methods, a widening range of shipping and return options, 24/7 support, and the seamless experience that connects it all. Even more challenging, many teams are doing this on outdated technology that was built for online commerce five years ago.

In the next two articles in this series, we’ll take a look at how eCommerce teams are tackling the ballooning expectations of digital commerce, practical tips for balancing optimization and innovation, and why companies with omnichannel ambitions are adopting composable commerce to stop wasting time managing the status quo and start pushing the boundaries of today’s shopping experience.