To compete in the e-commerce world, brand executives are finding 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 Nestle for hot chocolate) and store executives (think Target and Walmart) might meet over dinner, cut a deal on how much shelf space each product would get and what it would sell for, and then plan to talk again the next quarter to restock and renegotiate.
But, due in large part to Amazon’s influence, one half of that process has started to move online as consumers grab their computer instead of their car keys to go shopping. In the e-commerce world, salespeople are no longer talking to a human about physical shelf space; they’re talking to a machine that used software to figure out 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, the founder and CEO of CommerceIQ.
CommerceIQ — founded in 2012 with headquarters in Palo Alto, California, and an office in downtown Seattle — wants to help brands that might still be keeping track of orders on an Excel spreadsheet compete with in-store and digital retailers that are using algorithms to make business decisions. It works with more than 4,000 brands to collect and analyze data to make software-driven decisions about things like inventory, pricing and promotions.
The platform helps brands keep products in stock using technology to predict what is running low and redirect advertisements so they don’t focus on an item that is at risk of going out of stock. It also uses software to read through order forms that can be hundreds of pages long, speeding up the process and minimizing any errors.
This month, CommerceIQ launched a new tool that uses machine learning to stop revenue and profit “leakage.”
The company closed a $115 million funding round in March, bringing its valuation to more than $1 billion. The round was led by Softbank Vision Fund 2, part of the conglomerate that has invested in companies like DoorDash, Uber and Slack. Seattle-based Madrona Venture Group also invested in the startup.
As e-commerce grows, competition and advancing technology “will make it harder than ever for brands to stand out online,” Priya Saiprasad, a partner at SoftBank Investment Advisers and a member of the CommerceIQ board of directors, said in a statement.
While some estimates expect online shopping will continue to surge — Morgan Stanley predicted the global e-commerce market could jump from $3.3 trillion now to $5.4 trillion by 2026 — other metrics indicate consumers may be backing away from their digital carts as inflation squeezes 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 decline.
Shopify works on improving the “direct to consumer” chunk of the e-commerce business, or where brands sell directly to their own customers. CommerceIQ wants to focus on the chunk 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 relationships with suppliers.
Venture capitalists are taking notice, according to data from Statista, a German company that studies market and consumer data. Venture funding for e-commerce startups in the U.S. jumped from less than $1 billion at the start of 2020 to about $2.6 billion in the third quarter that year.
Connecting the left and right hand through data
Years before founding CommerceIQ, Hariharan was on the other side of the e-commerce business. He worked at eBay as the director of global marketplace experience and at Amazon, where he helped 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 were automating the marketplace and brands needed a way to compete with equally smart technology that helped them stock the digital shelves.
Imagine a brand is paying $3 a 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.
“This is happening because this is sitting in a different data store and this is sitting in a different data store,” Hariharan said. “Brands were coming to us and saying … can you help me connect my right and left hand together?”
Its newest tool — Revenue Recovery Automation — uses machine learning to detect errors that could 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 end of the order.
“All these retailers are tightening up the way they penalize brands for not fulfilling purchase orders,” Hariharan said. CommerceIQ’s new tool is meant to catch whatever caused the difference before it gets to the $1 million penalty.
Back in brick-and-mortar stores, brands can also use the platform to answer questions as specific as “why are my sales falling in Arkansas?”
CommerceIQ’s platform can use something called “scraping and crawling,” where it digs through websites like Walmart.com to gather data about what products are in stock and what products are flying off shelves. It uses machine learning that breaks that data down by ZIP code and keeps a log of the last 30-45 days of in-store activity.
It can peer into Walmart’s shelves, virtually, and give brands “store by store visibility into in-stock rates and their pricing so they are able to make corrective actions and be on top of their game,” Hariharan said.
Taking a page from his time at Amazon, Hariharan expects his employees won’t settle for status quo. But, he said, he had to add another guiding principle to his company dynamic: empathy. With supply chain disruptions, inflation and fears of a looming recession, those companies trying to sell toothpaste and hot chocolate are “going through hell right now.”