20/06/2022

The future of e-commerce: services, products or a mix of both?

 

 

One of the famous marketing delineations distinguishes between a product, a physical good with a specific function that is completely owned after purchase, and a service, an intangible benefit. E-commerce is often associated with physical products, but what about services? Might they have greater potential? What does the future of e-commerce look like in and around Switzerland? Products, services or a combination?

A revolution called e-commerce for services

Whether personal or business, training, accommodation, transport, catering or leisure, online sales of services includes any and all activities that offer a service, an intangible benefit, to consumers.

While e-commerce and products are often directly linked, it’s the sales of online services that are growing. In Switzerland, they represented 60% of the e-commerce market in 2021, while in France, sales of online services has recorded 43% growth in just one year and now represents 56% of the overall turnover of French e-commerce. E-commerce specialized in services can take two main forms:

– The digital shift in services and benefits (online banking platforms, marketing agencies, music streaming sites, etc …) or the online promotion/communication of services and benefits (photography agencies, concierge services, garages, etc …).

– And the services marketplaces which put in relation professionals (B2B), professionals and individuals (B2C) or individuals between them (C2C).

Offering online services has many advantages: no inventory, no or very low logistical and physical infrastructure costs, less initial investment costs, less staff required and a higher degree of flexibility, speed and simplicity in deploying, personalizing and modifying services. On the other hand, since the service is intangible by definition, it’s necessary to build a reputation and establish and manage a relationship of trust with consumers. This step is often easier with a product, due to its physical and tangible nature. Offering services online also means knowing how to set a price for a specific service, taking into account both experience, expertise and the competition.

The marketplace model as a cornerstone

Also operating with products (platforms like Amazon, eBay or Ricardo.ch), service marketplaces are mentioned as the next revolution in e-commerce. Driven in particular by the boom in the sharing economy, these platforms represent a winning formula for the three parties involved: the platform operators, the service providers and the consumers.
Service marketplaces allow the operators to test new features, offers and markets, as well as increasing the reach of their service portfolio and launching new online services. Service providers benefit from high visibility and an already established acquisition channel at a lower cost. And ultimately, consumers have quick and easy access to a diverse range of services.

By connecting customers, to whom an efficient and personalized service is offered, and service providers in search of visibility, service marketplaces can be found almost everywhere. Fiverr, JobUp or Amazon Business for B2B, Booking or Uber for B2C and Airbnb or Tinder for C2C are good examples. If the target audience (or audiences) has been well defined beforehand, this model of networking platform seems to be a winning solution to develop and run a business in the long term. If, in addition, we add to this a minimal need for personnel, an easier and less expensive deployment and above all an important flexibility in the evolution and transformation of the platform, we can easily understand why service marketplaces are growing.

What is the future for e-commerce of products?

With the impact of the pandemic and the ever-increasing digitalization and online consumption, e-commerce of products has exploded. But is the trend here to stay? In an era of overconsumption in the middle of the online shopping jungle, are customers returning to retail? Can e-commerce of products lose the momentum it has gained?

The main advantage of products is their tangible nature. This allows total control for the consumer because once purchased, it’s their property and if it has a defect or doesn’t fit, it can easily be returned or exchanged. Products allow companies to reach a wider audience as well. However, selling products online also has its share of drawbacks. These include high initial investment costs, the need for an optimized logistical infrastructure, the necessity to deal with rapid evolution, the constant need to innovate, and the barriers to entry that companies may face when entering a market.

So, if tomorrow I want to launch an e-commerce business, will I still be able to bring value to my offer? Will I still be able to stand out from the competition, avoid market overexploitation and aim for a sustainable and long-term business? This is the every day challenge for millions of people who still engage in selling products online. Is it a waste of time or is there still potential?

Niche market, value proposition and branding

The real challenge is to target a product with little or no preexisting competition that meets a real need and consumer expectations. To do so, it seems essential to move towards a niche market by targeting a well-defined customer segment to which the product will be offered and by analyzing the competition and the market conditions.

According to marketing fundamentals, you must also be able to add value to your product. This is more difficult when you enter a market where thousands of people are already selling the same thing as you. After two years of pandemic, local niches are on the rise. Making your own product and promoting the short circuit can greatly add value and, therefore, make a difference in the eyes of consumers. Eco-responsibility and fair trade are also elements that bring great added value to products in a world where we fight against mass consumption and where we seek to spend less, but better.

And let’s not forget about branding. Selling a product is also about standing out from the crowd by the way it’s marketed, seeking higher value and innovation through a recognizable brand identity that consumers can identify with. Actively shaping your brand by creating a strong and unifying identity in the eyes of your target audience will be reflected in your products. The more consistent and personalized the branding, the greater the value of the brand and its products.

A hybrid system: towards a service revolution?

After having looked at e-commerce specialized in services and products respectively, from different angles, why not make it a hybrid system? Offering a product and an associated service (or vice-versa) could in today’s world get the most out of the e-commerce sector.

It’s all about focusing on the customer experience and satisfaction by offering, in addition to products, services adapted to their new needs. This service revolution could, as an example, consist of offering a complimentary or additional service to the purchase of a product online: installation, classes, maintenance, repair or any other specific associated service… At a time when customer relationship management has a key role in e-commerce, this service revolution could definitely find its place among the activities of an e-shop.

To illustrate, let’s take a look at game consoles since they offer not only a product; you get the console itself, accessories, but also a complementary service in the form of a subscription to enjoy the associated online features. The question an e-shop could ask itself is the following: is the product axis sufficient to fulfill our overall mission, which is to answer the demands and needs of our customers? Would it be wise to add a service dimension in addition to the products in order to increase the value of its offer and stand out from our competition? Finally, can the product continue to exist without services?

The coexistence of product and service is not just a new phenomenon – an iPhone or a laptop is nothing without an operating system – but it’s also a future challenge. The new Live Shopping trend combines digital services, a platform for connecting consumers and sellers/influencers, and selling products online. Boosted by the advent of artificial intelligence and metaverses, online services will help determine consumers‘ needs and create a universe and an experience around them. The service dimension of a hybrid e-commerce system can then give new impetus to products by driving their sales or by acting as a complement to the sale of goods and products online.

Review

Is there still potential in e-commerce specializing in products or have the various markets been oversaturated? The post-pandemic period has already provided us with a verdict and the trend doesn’t look encouraging. The countdown might have already started, especially in small European markets like Switzerland, where foreign giants might very well come in and swallow the competition. Resellers could gradually disappear and brands could consolidate and directly sell their products themselves, utilizing the power of their own in-house branding.
Driven by the marketplace model, e-commerce specializing in services seems to be more easy to capitalize on, more stable, enjoy greater overall flexibility and greater opportunity for customization to match consumer needs. It would therefore not be a stretch to believe that the future of e-commerce, especially in small markets like Switzerland, takes the form of services.
Even if its future may seem less bright, e-commerce specializing products will not cease to exist because online consumption has become a habit for almost everyone and digitization continues to grow. However, just like retail when faced with e-commerce, the products will have to constantly innovate and reinvent themselves in order to maintain a strong Unique Selling Point. And this innovation will undoubtedly have to be combined with a service that will certainly be boosted by the arrival and emergence of Web 3.0. Let’s see what happens and then reassess the situation in a few years?