To compete in the world of e-commerce, brand executives realize they might have to schmooze an algorithm.
In the brick-and-mortar world in the days before online shopping, brand executives (think Colgate for toothpaste or Nestlé for hot chocolate) and store executives (think Target and Walmart) might meet over dinner, reach a deal on how much shelf space each product would get and what price it would sell for, then consider talking again next quarter to restock and renegotiate.
But, largely because of Amazon’s influence, half of that process has started to move online as consumers grab their computers instead of their car keys to shop. In the world of e-commerce, salespeople no longer talk to a human about the physical space on the shelf; they talk to a machine that used software to determine the best deal it would offer.
That’s where startup CommerceIQ comes in. It wants to “be that algorithm that works on behalf of the brand” because “you can’t take an algorithm to dinner,” said Guru Hariharan, founder and CEO of CommerceIQ. .
CommerceIQ — founded in 2012 with headquarters in Palo Alto, Calif., and an office in downtown Seattle — wants to help brands that might still be tracking orders on an Excel spreadsheet to compete with in-store and digital retailers who use algorithms to make trading decisions. It works with over 4,000 brands to collect and analyze data to make software-based decisions about things like inventory, pricing, and promotions.
The platform helps brands keep products in stock by using technology to predict what’s missing and redirect ads so they don’t focus on an item that may be out of stock. It also uses software to read order forms which can be hundreds of pages, speeding up the process and minimizing errors.
This month, CommerceIQ launched a new tool that uses machine learning to stop revenue and profit “leaks”.
The company closed a $115 million funding round in March, taking its valuation to over $1 billion. The round was led by Softbank Vision Fund 2, part of the conglomerate that invested in companies like DoorDash, Uber and Slack. Seattle-based Madrona Venture Group also invested in the startup.
As e-commerce grows, competition and technological advancements “will make it harder than ever for brands to stand out online,” said Priya Saiprasad, partner at SoftBank Investment Advisers and CommerceIQ board member. , in a press release.
While some estimates predict that online shopping will continue to grow — Morgan Stanley predicted the global e-commerce market could grow from $3.3 trillion now to $5.4 trillion by 2026 — Other metrics indicate consumers could abandon their digital shopping carts as inflation pressures prices and pandemic restrictions continue to ease.
Shopify, which started as a web designer for retailers and now offers a suite of services including payments, marketing and shipping, recently announced it was cutting 10% of its staff as sales slumped.
Shopify strives to improve the “direct-to-consumer” part of the e-commerce business, or where brands sell directly to their own customers. CommerceIQ wants to focus on the segment where brands market their products on other platforms, like Amazon, Walmart, and Instacart. Other startups are looking for business opportunities in between, like developing an app to help brands manage supplier relationships.
Venture capitalists take note, according to data from Statista, a German company that studies market and consumer data. Venture capital funding for e-commerce startups in the United States has grown from less than $1 billion at the start of 2020 to around $2.6 billion in the third quarter of this year.
Connect left hand and right hand through data
Years before founding CommerceIQ, Hariharan was on the other side of e-commerce. He worked at eBay as Director of Global Marketplace Experience and at Amazon, where he supported third-party sellers and worked on automated vendor management and supply chain.
Amazon’s expansion from selling books to turning into a so-called “everything store” partly inspired the idea behind CommerceIQ, Hariharan said. Suddenly, companies like Amazon automated the marketplace, and brands needed a way to compete with equally smart technology that helped them stock the digital shelves.
Imagine a brand paying $3 per click for a sponsored ad on Amazon, hoping to reach new customers for a product, he said. Let’s say the ad worked and the brand only has 18 products left in stock, and then those sell out in about 20 minutes. Now the brand is paying to advertise a product it can’t sell right away.
“It happens because it’s in a different datastore and it’s in a different datastore,” Hariharan said. “Brands would come to us and say…can you help me connect my right hand and my left hand?”
Its new tool, Revenue Recovery Automation, uses machine learning to detect errors that can prevent what the industry calls “chargebacks.” A chargeback happens when a company like Amazon goes to a company like Hamilton Beach and says I’m going to sell 100 blenders for $50, and Hamilton Beach says no, we agreed to sell them for $70. Amazon’s response: You owe me $1 million for not fulfilling your order.
“All of these retailers are getting tough on how they penalize brands that don’t fulfill order forms,” Hariharan said. CommerceIQ’s new tool is meant to catch whatever caused the difference before it hits the $1 million penalty.
Back in physical stores, brands can also use the platform to answer questions as specific as “why are my sales dropping in Arkansas?”
CommerceIQ’s platform can use something called “scraping and crawling,” where it digs through websites like Walmart.com to gather data on products in stock and products flying off the shelves. It uses machine learning that breaks this data down by zip code and keeps a log of the last 30-45 days of store activity.
It can virtually scan Walmart’s shelves and give brands “store-by-store visibility into stock rates and their prices so they can take corrective action and be on top of their game,” Hariharan said.
Drawing inspiration from his time at Amazon, Hariharan expects his employees to not be content with the status quo. But, he says, he needed to add another guiding principle to his business dynamic: empathy. With supply chain disruptions, inflation and fears of a looming recession, companies trying to sell toothpaste and hot chocolate are “living through hell right now”.