Direct-to-Consumer Brands Are Losing Their Cookies, and Maybe Their Sales

When it comes to cookies, who doesn't love them? Not all cookies are edible, though, and it is those nonedible ones that consumers have become frustrated with.

As the push for greater online privacy has grown, regulations around the world have cropped up that put restrictions on how much consumer data that internet businesses can track. For any company relying on the internet to market and/or sell its products, these restrictions promise to disrupt their business.

It is an unintended consequence of the privacy push and one that could dent sales for e-commerce businesses that rely on this data to generate relevant product suggestions and create a seamless online shopping experience.

"The single most important job of a cookie is to keep a user logged in as they browse from page to page. A user's browsing history becomes part of a database which the website then uses to improve the customer experience," explained e-commerce platform BigCommerce in a blog posting.

Cookies are digital text coding. There are typically two types of cookies most people discuss — first party and third party. First-party cookies are used by websites you visit to collect data on your visit. Third-party cookies are those used by outside sites to track behavior.

Cookies drive personalization

And they are big business for e-commerce sellers. Research from Bloomreach, which offers a digital experience platform to sellers, found that the ability to personalize a customer's shopping experience leads to a 20% increase in sales. In addition, 44% of consumers said they would likely become a repeat purchasers after a personalized shopping experience and 80% said they are more likely to buy from a company that offers personalized shopping experiences.

Those experiences, in 2021, rely primarily on the ability to collect third-party data on users' previous actions, including browsing behaviors, purchase history, and demographics. In sum, they depend on cookies. When a customer visits a pet site online and then is served advertisements for pet products on Facebook, that is an example of third-party cookie use. The data also contributes to providing a seamless shopping experience across devices.

"It comes in many different forms – from personalized product recommendations on a retailer's homepage or product detail page to cart-abandonment marketing emails to onboarding quizzes that provide a personalized showroom of items to consumers, among many other applications," Bloomreach wrote in a recent blog.

Cookies – at least third-party cookies – are going away, though. Several browsers – Firefox, Brave, and Apple's AAPL Safari – already ban the use of third-party cookies. Google's Chrome, which holds a 65% market share, is also planning a ban on its use.

Experts say that brands should be transparent about their collection of cookies and how they use customers' data. That has led many companies, such as Macy's, to include cookie disclosures on their home pages. (Photo: Macys.com homepage)

Privacy concerns

The global push for more private browsing sessions is behind the ban on cookies, but it creates a technical challenge for businesses – like e-commerce sellers – that rely on these critical pieces of data-collection tools to find potential customers and serve them with products they are likely to purchase.

The evidence has already started showing up in company earnings reports. On Oct. 21, Snap SNAP cited a change in Apple's App Store privacy rules – allowing users to opt-out of data sharing – as a reason why revenue would slow-moving forward on its popular social media platform.

"While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our ad partners to measure and manage their ad campaigns for iOS," Snap, which relies on third-party data, said in a statement.

Facebook FB, Twitter TWTR, and Google-owner Alphabet GOOGL are also facing similar concerns. In fact, Google was supposed to ban third-party cookies in 2022 but has pushed that back to 2023 as the search giant struggles to find a suitable workaround to keep its ad revenues flowing.

Troy Cox, senior vice president of product at e-commerce platform BigCommerce BIGC, told Modern Shipper it is a concern for sellers, but not one that can't be overcome.

"While there are certainly some near-term challenges for merchants to replace the cookie data that's going away, at the end of the day, this pushback from consumers against cookies and other tracking tools means that brands need to find innovative ways to collect that information themselves with the customer's consent," he said. 

T.J. Waldorf, vice president of marketing and customer success at 1WorldSync, said that brands should try to engage with customers in different ways, including collecting information from the customer directly. (Photo: Bestbuy.com homepage)

Customer engagement

"This can include getting them to join a loyalty program or subscribe to regular emails and marketing newsletters. Rather than taking away from the customer experience, retailers can use this shift to enhance their personalized consumer touchpoints and, in turn, gain direct access to customer data that they own."

Nick Agar is founder of Axia Coin, which is a digital currency company and has developed the AXplorer Browser. He said that brands need to find innovative ways to reach consumers to counteract the privacy push.

"Simply put, yielding vast amounts of personal data should not be a prerequisite to shop," he told Modern Shipper. "Building loyalty and trust can instead earn retailers the right to hold a customer's data, which can and should be acquired via permission from the individual."

The experts Modern Shipper spoke with all said brands need to work to gather first-party data that is vital to improving the shopping experience.

"If businesses aren't addressing a cookieless world now, they're already behind," Agar noted. "The growth in digital privacy goes beyond the browser, often to the operating system and hardware level. Customers have more options than ever to proactively turn on and off features."

Axia's browser is one of the next-generation systems that offer rewards to users that choose to allow their data to be shared.

T.J. Waldorf, vice president of marketing and customer success at 1WorldSync, which provides customer analytics, data collection and content publishing services for many of the world's largest CPG companies, said the value of cookies is seen in the nearly $80 billion in yearly digital ad spend for CPG and retail companies. While many brands may be caught unaware of the coming changes, Waldorf said that is not the case for many of the more digitally savvy enterprises.

"I've had a different experience, especially with larger brands," he said. "They seem to be further out in front of it than I would have expected. On the lower end, the smaller brands and SMBs have more work to do."

Sellers, regardless of size, need to start working now to build customer relationships, Waldorf said.

"Direct to consumer is a growing trend, so building relationships with customers is going to be key," he said, noting that companies need to be transparent with consumers on the data they collect and how they plan to use it.

As online shopping has grown, so too have privacy concerns. Regulations in Europe and the U.S. are making it more difficult for brands to collect the data necessary to ensure a seamless online shopping experience across devices. (Photo: Burst)

It's about the brand

"It's a lot about brand building and investing more in the brand so the consumer is comfortable interacting in that way," Waldorf added. "Being on the cutting edge of direct-to-consumer strategies will allow you to build that relationship."

Agar also said building trust with the customer is crucial.

"Rather than paying for tracking data stealthily, arrangements can now be made between those companies seeking the data and the individuals themselves," he said. "This builds customer loyalty and trust in the sense that retailers and other companies can now much more openly hold customer data because it has been provided by the individual in exchange for some form of compensation."

Cox said brands should choose to look at the privacy push as a positive, if they choose to address it.

"When you collect data yourself with the customer's consent, you own it and you've given your customers the power to decide for themselves what they provide," he said. "It can be even more useful than outside data because merchants can really drill deep into the customer's preferences and interests and then leverage those insights in marketing and merchandising strategies. 

"Plus, brands can show customers that they truly respect their privacy and are not collecting or using data in a way that could be conceived as creepy."

In some respects, privacy advocates could be doing a big favor to brands.

Find new opportunities

"Instead of lamenting about the loss of third-party data, retailers should think about the opportunities that lay ahead. Merchants can now show customers that they care about their privacy by only collecting information via consent, but more importantly they can leverage that data to directly market to and connect with their own customers," Cox noted. 

"To do this effectively, brands will need access to business intelligence tools, customer data platforms and personalized solutions that allow them to collect and analyze data. Smart merchants will make sure all of these tools are directly integrated into their e-commerce platform."

All the experts said brands need to get ahead of the changes before they negatively impact operations.

"It's coming, it's going to happen, and the more prepared you are when it does happen the better off you will be," Waldorf said.

Click for more articles by Brian Straight.

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