The New Conversation In Retail Commerce

By Matt Pillar, chief editor

September 2016 Innovative Retail Technologies

A Q&A With Matt Pillar & Janie Yu, Managing Partner, Fung Capital

Conversational commerce is coming of age, and it’s being powered by a simple, inexpensive chatbot that virtually anyone can use.

Janie Yu’s resume speaks for itself. Her highlights include a master’s from Harvard, a journalism stint with the BBC (British Broadcasting Corporation) and PRI (Public Radio International), International Marketing Director at Burt’s Bees, and executive leadership at Cone Communications, where she worked on campaigns for such powerhouse brands as Timberland, Mattel, and Nestlé Waters. Today, she’s putting all that experience to work as managing partner at Fung Capital. In that position, Yu keeps a close eye on the technologies and trends that will propel the success of consumer-facing brands. At the moment, few of those trends are holding her interest more than conversational commerce. We recently caught up with Yu and asked her a few questions about the trend and how retail brands can leverage it.

IRT: Can you define “conversational commerce” for us?

YU: We are seeing a paradigm shift in how consumers interact with information as well as companies. Today, there are more users on chat platforms (What’s App, Facebook Messenger, WeChat, Snap- Chat, Line, Kik, Telegram, Apple’s newly launched iMessage, and Google’s soon-to-be- launched Allo, etc.) than social media. What’s App has over 1 billion monthly active users, Facebook Messenger now has 900 million users, up from 800 million users announced in January 2016, and WeChat has over 700 million users.

This paradigm shift has led to a new way of consumer engagement and shopping, happening through messaging and/ or voice-enabled chat interfaces. Silicon Valley has coined the term “Conversational Commerce” to describe this new wave of commerce. There are three forms of conversational commerce – chat on ecommerce sites, chat in mobile apps, and chatbot within a messaging app, such as Facebook Messenger. However, chat on ecommerce sites and mobile apps has not really caught on due to a suboptimal experience. Chatbot is generating a real breakthrough and gaining significant traction. Since Facebook launched the chatbot platform on Messenger in April 2016, there have been over 11,000 chatbots built, across many categories, such as weather, news, commerce, etc.

A chatbot sits within a user’s messaging app, such as Facebook Messenger. The user has complete control over when to engage with the bot and what content they’d like to see. When the bot is not needed, it sits quietly in the background. This eliminates the need for the user to download individual apps from the companies they want to engage with or shop from.

Today, a chatbot is typically powered by a combination of AI (artificial intelligence) and human agents. As the chatbot learns more about its users, the AI gets better, and the need for the human agent diminishes.

Conversational commerce is really happening. According to the Mobile Messaging 2016 report, 66 percent of consumers have used a chat app to communicate with a business.

IRT: Give us some clear examples of conversational commerce in action.

YU: Thanks to the easy nature of chat interface, the prime use cases for conversational commerce are high consideration purchases, product discovery, and customer service.

When you are considering purchasing a big-ticket item, such as a trip (flight and hotel), a Hipmunk chatbot (which is available on Facebook Messenger and Slack) can be your personal concierge. You can send queries in plain English, and the chatbot can start the search for you. The AI-powered response is nearly real-time. If the search becomes complicated, for example, when you want a hotel room to have two queen beds with an ocean view and far away from the elevator, then a human agent will take over. While it may take longer, you can do your work, have your lunch, or whatever you fancy while waiting for the results to come back. The actual time you spend is just a couple of minutes. Once you find your ideal flight and hotel, you can complete the booking within the chatbot. If your payment is always linked to Facebook Messenger or Slack, then it’s a one-click experience.

If you are looking for a present for someone but have no idea what to get, then a chat app like Operator becomes very handy. You are essentially outsourcing this task to a network of experts, who do the product research on your behalf and recommend options to you. They are your personal shoppers.

In the case of customer service, the experience is straightforward and compelling. If you have questions about a purchase you made, you can chat directly with a customer service representative, versus having to wait on a phone line and push many buttons to get to a live operator, who will inevitably ask you the same questions again.

IRT: What’s the market opportunity for conversational commerce, and how have you defined that opportunity?

YU: In the new wave of conversational commerce, the consumer — especially the highly coveted millennial consumer — dictates when and how they want to engage with the brand/retailer. They don’t buy or browse products as did previous generations. They spend more time on chat than email. If a brand/retailer wants to reach this group of consumers, it has to be available and ready to engage when a consumer calls on a chat platform such as Facebook Messenger.

It’s hard to quantify the size of the opportunity; however, as consumers move to chat and spend more time on chat, brands/ retailers have to follow the shift in order to stay relevant.

IRT: What types of merchant (size/ segment) are best poised to leverage conversational commerce to their benefit?

YU: As mentioned earlier, the three primary use cases for conversation commerce are high consideration purchases, product discovery, and customer service. If any of the use cases matter to you as a merchant, then you should consider having a presence on chat platforms. Here are a few examples of industries and product categories that are a natural fit for conversational commerce.

• High consideration purchases: travel, auto, luxury products
• Product discovery: gift, fashion, consumer electronics
• Customer service: banking, insurance, telecommunication, utility providers.

IRT: What are the customer experience and business advantages?

YU: From the consumer’s perspective, there are several benefits:

• Time savings: In the examples mentioned above, you can see the consumer is in the driver’s seat, but the chatbot (be it AI or human agent) does all the legwork. The task of booking a trip can take hours if you do the research and booking yourself. If you use a chatbot, you spend only a few minutes giving directions and guidelines to the bot, and they do everything else for you.
• Convenience: When you are chatting with a chatbot, you are doing so at your own leisure. You don’t have to dedicate the time to pick up the phone to call, or sit in front of a computer to chat with an agent, or keep an app open.
• Recommendations: When you explicitly express your purchase intent to a chatbot, it is able to leverage the data and their expertise to recommend products and services for you. The more chatbots learn about you, the better the AI gets, and the more relevant the recommendations become.

Businesses also have a lot to gain from chatbots:

• Easier and cheaper to build: From a technical perspective, it’s much easier and cheaper to build and maintain a chatbot on Facebook Messenger or other chat platforms than building a mobile app.
• Reduced user acquisition cost: When you build a chatbot on a chat platform, you are leveraging an existing and typically large user base, versus having to spend an exorbitant amount of money on user acquisition and retention.
• Better understanding of your customers: In a chatbot, the consumer opts in to give you data about themselves and their purchase intent in exchange for services. Such data is rich and explicit, and it gives the brand/retailer a unique opportunity to better understand and engage with the consumer.

IRT: What actions should merchants be taking today to set the stage for the growth of conversational commerce?

YU: Conversational commerce is still in its nascent days, despite the buzz and interest in the tech community. However, businesses need to embrace the trend before it’s too late. Taking a test-and-learn approach is a sensible way to prepare for the hockey-stick growth of conversational commerce. If you are not quite ready to sell products on chat platforms, you can always start with customer service. The chat platform is a much more natural way to communicate with your customers if they want to know where their package is or have any other questions. While you are testing and learning, define the key metrics that really matter to you as a business (engagement time, problem solving rate, conversion rate, etc.) and track these metrics and improve them.

Conversational commerce is not a fad. It is taking consumer engagement and shopping to a personalized level (as shopping is meant to be), but doing it in a scalable manner. The cost to build a chatbot is so low that businesses have no reason not to try.