Voice Commerce (or voice shopping) is rapidly becoming a focal point in academic, business, and industry research because of its swift adoption and disruptive potential in buying dynamics. With over 70 million U.S. owners, in-home voice assistants currently see a faster adoption rate than smartphones and tablets. The number of consumers who have completed at least one purchase through a smart speaker is rising fast, and marketers already speculate on how voice assistants may alter market interactions. To shed light on the potential impact that the diffusion of shopping-related voice assistants has on consumer brands, we conducted 30 in-depth interviews with AI-aware executives familiar with the topic.
A popular belief says that as Voice Assistants (VA) become better at learning consumer preferences and habits, they will increasingly influence consumer behaviors. In doing so, voice assistants may assume a central relational role in the consumer market and progressively mediate market interactions. These fast-changing market dynamics within the context of voice shopping may have a severe impact on consumer brands and retailers. Loss of brand visibility, the increased relevance of retailers’ private labels, and the growth of advertising costs are the main consequences anticipated by marketing and technology experts.
THREAT 1: REDUCED BRAND VISIBILITY
Search algorithms represent the gatekeeper for modern companies and retailers. Compared to display-enabled smart devices, the optimization of voice search results on VAs presents three structural challenges due to the nature of consumer interactions and information framing.
- During voice shopping, users can review one to three options before they start forgetting information, such as the price or quantity of the mentioned products. Reduced attention span and short-term memory can negatively influence the satisfaction of this shopping system, especially when the user is required to search for products in an explorative way extensively.
- VAs deliver search results to users in the form of recommendations. The assistive nature of the interaction with VAs implies a delegation of responsibility, at least in the absence of explicit requests by the user. Whenever a user directly asks for a specific brand or product, VAs respond with the closest option available to them. However, when shopping for items without specifying a brand, VAs are more likely to recommend their private labels, if available.
- The search engine results continuously adapt to the user’s purchase history and the evolving understanding that VA acquires about its interlocutor. However, after a user has purchased a product, for example, Nespresso coffee capsules, the subsequent suggestions for coffee start from the same manufacturer. As such, this dynamic might favor lock-in mechanisms and reduce variety seeking in shoppers.
Alexa does commoditize entire product categories, all the way from diamonds to detergents. During a product search, by the time you get to the third item, you have forgotten what the first was and what the price of the second one was. You’re done beyond the third results. You’ve become a commodity fighting for air space.
Dr. A. K. Pradeep, CEO at MachineVantage
THREAT 2: GROWING RELEVANCE OF PRIVATE LABELS
Private label development is seen as particularly dangerous by national brands. In utilitarian product categories characterized by low purchase involvement, the parallel expansion of private labels and VAs represent a risk for category “commoditization.” An emblematic example of this process comes from the battery business. A few years after its launch in 2009, Amazon’s private label “AmazonBasics” accounts for 31% of the overall battery sales online by large margins from national brands such as Duracell (21%) and Energizer (12%). With Amazon’s private label portfolio growing to 135 brands and more than 330 Amazon exclusive brands, similar trends gradually become visible in a variety of product categories such as skincare, home improvement tool, and golf equipment. The limited “shelf space” available to merchants on in-home smart devices strengthens the private brands’ position. In categories in which Amazon offers private-label products, Alexa recommends the private-label products 17% of the time, although these products represent only about 2% of the total volume sold (Bain & Company, 2017). Amazon’s biased placement on VAs of its private labels against national brands challenges the traditional retail marketing practice that expects a distribution of a given brand, “share of shelf,” proportional to its sales, “market share.”
If I ask Alexa to send me twenty AA batteries, I will probably get Amazon’s branded batteries. However, if I explicitly ask for Duracell, I receive my preferred brand, provided it is available on the platform. Thus, companies have to invest in branding even more than they did before so that consumers asked for a product by the name.
Jim Sterne, Emeritus Director of the Digital Analytics Association (DAA)
THREAT 3: INCREASING ADVERTISING COST
For decades, advertising represented the primary tool to generate brand awareness, improving both recall and recognition. With the rise of the Internet, the concept of advertising transmuted to search engines where advertisers buy promotional spaces in response to a set of keywords searched by the user. Within digital advertising, “search advertising” represents the most successful format, accounting for 45% of the total spending. Advertisers face an overall cost increase of search ads with a particular impact on highly competitive consumer products. For instance, the cost per click on the search term “laundry detergent liquid” reached $17 on Amazon in a given period. Search advertising, in the form of voice, has a paramount role in voice commerce marketing. Although brands are generally positive towards this new form of investment, the peculiarities of the voice channel induce concerns. Compared to web browser navigation, where search engines can display ten results per page and up to five advertisements, VAs can only suggest a few results with limited space for sponsored messages. This scarcity of space might increase competition among advertisers with a consequent rise in advertising costs.
From the voice commerce perspective, VAs pose a challenge to advertisers. They bring up a “real estate” problem. While I can display several ads on the same Google Search results page, I don’t have the same ad space on smart speakers. Thus, I expect the cost of voice ads to be more than two times higher than regular search ads. Am I able to justify this cost increase?
Maurizio Miggiano, Head of Digital at Generali (Ex Mediacom)
In light of these potential dynamics, researchers are called to study the interplay between consumers, brands, and retailers’ behaviors in response to “machine behaviors” (see Rahwan et al., 2019). Providing structure and guidance to researchers and marketers in order to further explore this emerging stream of research is fundamental.
“Voice Commerce: Understanding shopping-related voice assistants and their effect on brands”.