In my last article, I explained how the issue of “channel conflict” has evolved into the goal of “channel integration” as retailers scramble to serve customers consistently across stores, online sites and mobile devices. I said that retailers must embrace fundamental changes in consumer behavior or risk obsolescence. I would like to conclude this series of articles by outlining a framework for “pure play” ecommerce companies to create defensible strategies for growth.
The Fear of Being "Amazon'd"
For good reason, companies everywhere fear being “Amazon’d.” Amazon is far and away the dominant “e-tailer” on the planet. They make it very difficult for smaller players to compete in selling other people’s brands online. As CEO of an emerging growth e-tailer, how do you compete with Amazon? How do you differentiate yourself in a world in which retailers use technology to match each other’s prices multiple times a day and in which consumers use “price tracking” sites to monitor best deals?
The answer is simple: you don’t because you can’t. The downward pressure on your gross margin combined with your lack of scale means you won’t get past being a niche player.
Andy Dunn, founder and CEO, of Bonobos, an innovative online retailer of men’s clothing, suggests that ecommerce companies should consider four alternative strategies to combat Amazon’s dominance in the marketplace.
Proprietary Pricing
Proprietary pricing is the core of the flash sale model. By offering deeply discounted products for a limited period of time, an ecommerce player can grow quickly. Temporary price breaks are the single best way to drive conversions online. Successes include Gilt Groupe, Thrillist and One King’s Lane. However, off-price e-tailing is a difficult strategy long-term. As these businesses evolve, they are developing new approaches: offering proprietary merchandise, aligning with full-price retailers, and setting up bricks and mortar locations.
Proprietary Selection
Proprietary selection is a strategy that focuses on “curating” a narrow and deep assortment of products in a particular segment. While the merchandise may not be absolutely exclusive, it can feel exclusive due to the depth and originality of the assortment, the difficulty in finding the products elsewhere, and the power of customer communities. While the products may be available elsewhere, you can win by presenting them in a coherent and compelling way to your community of customers.
Proprietary Experience
Ecommerce has led to the rise of completely new business models that are reinventing the way people shop. Aside from flash sale sites, these include subscription sites and sites that bypass middlemen to offer branded products at competitive prices. This strategy also includes combining content and commerce, so that the shopper gets an entertaining experience, which produces sales. While these companies continue to evolve, all are focused on providing via ecommerce a memorable and enjoyable customer experience that rivals a trip to an engaging bricks and mortar store.
Proprietary Merchandise
This is a strategy that builds an exclusive brand with ecommerce as the core distribution channel. By offering goods that are not available elsewhere and selling them directly to the consumer online, you maintain much greater control over your margins. You avoid having to compete with other sites on price and market share. Whether by bypassing middlemen or setting up your own manufacturing operation, you are taking ownership of the supply chain.
As CEO of an emerging growth ecommerce company, you need to evaluate your alternatives in light of the above framework and chart a defensible path for growth. Ecommerce 2.0 is all about merchandising and creating an online experience that will keep your customers coming back for more.
Summing up
This series has explored various dimensions of ecommerce. First, we have seen that ecommerce goes well beyond selling good or services on the Web. It includes activities up and down your value chain--as disparate as researching the market, interacting with trading partners and promoting your product. Ecommerce is about creating a community of potential customers who see your site as a source to get insight and guidance from you and their peers, not just a place to buy stuff. Second, search engine optimization (SEO) and inbound marketing require that you develop original content, architected around a set of key words and meta tags. It is content that will help you rank high in potential customers’ search results--across Facebook, Twitter and Linked In, along with your web site.
Third, while readily available infrastructure “in a box” allows you to deploy a reliable shopping cart and pay system; you still have to “sweat the small stuff.” Perfect customer service such as flawless handling of merchandise returns and robust security are ecommerce imperatives. Brand-appropriate design and well-structured navigation remain key ingredients for attracting an audience across online platforms. Accurate forecasting of supply and fulfillment chains across networks and regional distribution centers are a must in order to stay cost competitive.
Fourth, there is a growing opportunity for small brands to work with larger manufacturers. Chinese factories have 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. Finally, ecommerce strategies must address how blurred-together channels can best complement each other. Implementing cloud-based supply chain technology to gain visibility into your performance across all channels on a single, real-time information platform is a key foundation.
The Rapid Development of ECommerce
The development of ecommerce since its beginnings in the mid 90’s to today has been dizzingly rapid. The speed of change in online commerce promises to become even more exponential in the years ahead, especially as mobility fulfills its promise. One thing you can count on: the ingredients for success in ecommerce—a well thought out strategy; disciplined execution; a dogged will to provide customers with a superb shopping experience across platforms—are unlikely to change.
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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