What Is eCommerce's Best "Must Win" Strategy?
The growth in online sales continues to attract more entrants to the segment. But as with any enterprise, there are keys to making sure that the effort is a successful one. Sadly, so often the basics that go into making an online success are ignored and the result is needless loss of time, investment and self-image. True, the effort is often a highly variable, one and what is eCommerce success to one may be a disappointment to others. Yet, here are some key elements (from our experience and others) that simply must be considered before (and during) the big jump.
1. Do you have a product and a market that is eCommerce supportive?
This is the time to be realistic. What good is an eCommerce effort when there are so many doing the same exact thing in a limited market where sources, prices and inventory is pretty much the same across all suppliers? There may always be room for one more, if that one has something a bit different or better to offer. But the market has to care. We used to define "unique selling proposition" as "something different or better that someone wants." Here are some examples where considering an online effort may or may not make sense:
Scenario: Local sporting goods store selling national brands
While this store may have been in it's market for 50 years, and has a great franchise with local sports clubs, schools and sportsman based on a great inventory and fair prices, is eCommerce what it should do next? Probably not, unless it can extend itself a bit further in one direction or another and solve a problem or create an advantage, for instance could it:
- Find and specialize in new and emerging brands and applications that may not yet be featured in the brand driven larger sites, for example taking popular brands from overseas markets
- Specialize in larger or smaller sizes, customized sporting equipment (such as custom grip tennis rackets, custom colors, organization/business imprint (known as advertising specialities) or even custom fitting/tailoring for apparel
- Extreme warranty such as life time replacement for any item, broken under any circumstances
- Individualized profiles/content such as publishing individual best scores or statistics, training regiments and amassing an online competition in which the best amateurs can attract a larger following as semi-pros and leagues often do
- Create a network of independent local sporting goods stores that agree to stock and deliver (fulfill) the network's items on its website, perhaps even providing group buying to gain a better price
Scenario: Vitamin, herb supplement site
Local food cooperative that has a large stock of vitamins and herbs as part of its natural foods offering decides to go online by offering an extended version of the supplements offered to their local customers. Does the world need another online vitamin shop? Maybe not, unless they can find a "cure" that no one else has tried, for instance:
- Could they survey customers and provide more than a review of a particular item, but a mini study asking the same questions (i.e. dosages, weeks used, ailment type, age, diet, etc.) and then compiling the results since alternative treatments are usually not studied as extensively as prescription drugs
- Could they partner with a laboratory and provide "potency" ratings based on the claimed active ingredients, and/or look for potential contaminants
- Create a personalized profile for their customers where specific information and supplement suggestions are sent based on their interests and issues (i.e. weight loss, sports training, etc.)
- Specialize in one area of herbal treatment like skin treatments or types of herbs such as South American rainforest herbs<
- An "in plain English" description of the pharmacology of hundreds of herbs and vitamins
More general "differentiators" could be things like "instant shipping," very wide product selection, emphasis on new products, depth of subject matter, interviews with industry experts or "stars" in the field, etc. There are many ways to stand out, but what is ecommerce's value to the potential customer in the segment you are serving? That's the question you must answer.
2. How crowded is your segment, how much growth potential is there, and how formidable are your competitors?
This can be a difficult question to ask and it may depend upon your resources and the stature of your competitors, as well as the growth potential of the segment. After all, Walmart has made their way on conquering over smaller, less capitalized competitors, but Apple has recently bested rival Microsoft who was certainly an economic winner over them at one point in their rivalry. The key here is online competition since there may be large disparities between this channel and more traditional ones. Here are some tools and ideas for weighing the market size, trends and competition:
- Open a Google adwords account and use their keyword volume tool. It helps you decide what terms are searched for in your segment, how many searches are performed and the competitive level for those terms by how much people are bidding for clicks. (This will also help you answer the next question.) You can then search for some of the terms that seem to fit in a standard Google search and see who is listed first in the organic results and also who is advertising in the paid results. Generally speaking, these will be your top competitors.
- To figure competition levels, you can use a variety of indicators such as figuring out how many pages each competitor has in Google's index (bigger sites are generally more established. You can also check the Page Rank assigned by Google to the site. While this is only rough approximation, those with higher page rank (it's a zero to 10 scale with 10 being the best), are generally more authoritative sites. You can also check the number of backlinks to those sites, using Yahoo's explorer tool. (Google has a similar tool, but it tends to understate the number of links.)
- You can also use website traffic estimating tools like Compete.com, SemRush.com, Quantcast.com and Alexa.com to get a rough idea of how much traffic these sites get. (Hint: use all of them and see if you see a trend. Since they depend on a sampling of a smaller number of users to see trends, individual reporting may vary wildly.) You can only get a relative idea, but if there are competitors with high levels of traffic, your costs to defeat them in those particular search term categories may be high. This research can also help you determine what search terms have the highest traffic and lowest cost later on if you decide to do any search marketing, in effect what is ecommerce search strategy for your site.
3. Is your average customer value and profit margin likely to outweigh your acquisition costs
One of the key questions becomes the value of a customer, both in terms of immediate purchases and repeat purchases. For sites that have little potential repeat business, the cost of acquisition of that customer must be lower. For those categories that have higher repeat business (such as a recurring newsletter or software service), the acquisition costs can be higher.
For example, a specialized publisher that produces materials used in attaining certain government or industry certifications may have an average sale of $300 (almost three times the normal retail sale by the way). But may have a very low repeat business because the certification may only need to be gained once. A company that offers a tool such as a website monitoring service, however, may have a very high repeat purchase cycle, particularly if once installed the software is difficult to replace. In this case a small monthly fee of $10-20 may be repeated for years with a very high per customer value. In the first case, the company probably cannot spend more than $100-$200 to acquire a customer and make a reasonable profit, in the second case the company may spend $1000-$2000 dollars and still be profitable.
Of course acquisition costs and average order size vary by the channel used to attract customers. Some analysts report that it takes an average of 50 visits to the website to generate a sale. (This figure varies wildly by product/market by the way with figures reported as high as 500 or more. Some research can reveal potential conversion rates for some vendors, but again your "mileage may vary" greatly from these.) If you are paying $.50 per click, that means $25 at 50 visits to generate a sale. If your average sale is only $50, can that cover all of your other costs in addition to marketing? Affiliate marketers, acting as product resellers, may be happy with a lower commission only paid when a sale is completed, whereas per click or pay per impression fees are fixed and may be much higher depending on competition and skill in managing the program. What is eCommerce profitability in your situation?
4. What must you spend your time and money on first in order to prosper?
In the end, there will always be an evaluation of the category based on risk assessment and resources. For example, purchasing an existing website with demonstrated cash flow may be a more predictable outcome than a brand new launch. But purchase costs will have to be factored into to revenue. Plus, things can change fast in the online business so having a plan capital and a plan for growth will be essential for survival in that case.
Tasks such as content creation (for information-based sites), inventory, product price negotiation, search engine marketing, affiliate program management, joint marketing exchanges or partnerships all have a cost assigned to them. (For example, you may not be able to invest in a lot of inventory and create "drop ship" arrangements with other suppliers. If this is the case, you'll need a shopping cart like UltraCart that can integrate your site seamlessly with your product fulfillment source to ensure inventories, shipping status and address and order details are correctly reported to them and your customers.)
Even though all of these areas will ultimately need attention, deciding upon which to concentrate to reap the largest return on investment will be a critical decision. And there will always be a "make versus buy" decision on your part: What is eCommerce's unique skill set that you bring? The less you know about technology, marketing and finance, the more you will pay others to do it for you.