In my last article in this series about ecommerce, I discussed some of the key online trends that you should take into consideration as you invest in ecommerce systems. I said that you not only need to understand changing consumer behavior, but you must align your technology with marketplace demands. I will now explore a few of the emerging business models that are disrupting traditional supply chains.
Flash Sale Sites
Flash sale sites developed as a way to offer consumers deeply discounted goods or services for a limited period of time. They first gained traction in the apparel category with companies like Gilt Groupe and Rue La La. Consumers delighted in the low prices for high fashion goods and manufacturers gained a more efficient way to off-load over stocked merchandise. While this model has been successful in some categories, it may not survive long-term in its original configuration. The flash sale concept has proven to involve a very high cost of user acquisition, putting pressure on margins. There have been pressures and challenges around converting flash sale customers into repeat customers. In short, the model has proven difficult to scale. In some cases, these sites are “pivoting” into full-fledged digital storefronts with a mix of limited quantity goods and products that are consistently available. In other cases, these sites may merge with traditional retailers, offering both regular and deeply discounted goods.
Subscription Commerce
Subscription commerce has been around for years, but has picked up steam recently, as some reports suggest that the Customer Lifetime Value (CLV) of a subscription customer in ecommerce businesses is over 6 times that of a one-time buyer. There are two types of subscription models: replenishment and discovery. The replenishment model is simple; a commodity item is sent to you every month so you never go without it. The replenishment model is limited by the innate price sensitivity of commodity goods. The discovery model holds more promise as it is based on subscribing to a curated experience in which a company delivers a novel or hard-to-find or custom item periodically to your doorstep. Examples include cosmetics, men’s clothing, and food products from local makers. As with any retail model, in the end it’s all about the customer experience, specifically whether the merchant understands customers’ needs and desires.
Bypassing the Middlemen
Another group of e-commerce companies are cutting out the middlemen and going straight to manufacturers. These start-ups make everything from eyeglasses to bedding to office supplies. The result is often a less expensive product offering for consumers and higher profit margins for companies.
Big retailers discovered years ago that controlling the supply chain benefited their bottom lines, which is why stores like Macy’s and Wal-Mart sell many products under their own “private label” brands. Historically, start-ups have had difficulty matching these efforts as they lack the brand recognition and purchasing power of big retailers.
However, things are changing--as the Internet enables small companies to reach lots of consumers quickly and as manufacturers are increasingly willing to work with small brands. Post-recession, Chinese factories that had been unwilling to take small production orders were suddenly eager for business. This created an opportunity for smaller companies to work directly with factories. In the process, Chinese factories discovered that small brands are more likely to introduce new products to market because they are able to work within the constraints of shelf space and complex supply chains. And small companies benefit from market intelligence and R&D capabilities of the factories.
The common thread among the above models is that we now live in a world in which the consumer is in charge, and the entire supply chain must adapt to this new reality.
In my next article, I will take on the increasing importance of channel integration, that is – of offering your customers a seamless experience across all channels regardless of your business model.
About the Author
Jennifer brings to Newport over 10 years of C-level experience. She has demonstrated an ability to take strategy from conception to execution, achieving excellent results for family businesses and private equity-owned companies. Contact or learn more about Jennifer here.
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Photo credit: www.frugallivingforlife.com
