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Evaluating an Ecommerce Startup: Is an Online Store a Viable Business Option for You?

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The consumers everywhere are coming to accept ecommerce as a common means of shopping, rather than an exceptional one. This growing acceptance is making ecommerce more powerful and more competitive than ever before.

As a result, both the rewards and the risks of the ecommerce business have grown tremendously. The following guidelines are meant to help the ambitious but inexperienced ecommerce entrepreneur understand some basics of the online store business before making a commitment.

A potential ecommerce business must have four essential elements:

  1. Something to sell
  2. Someone to sell it to
  3. A means to keep the customer satisfied
  4. The resources to afford a few failures

Equally important is a commitment to making these four elements form themselves into a successful marketing program. More than 90% of all new ecommerce sites fail. The reason is usually some failing in one or more of the four key elements above.

Perhaps the merchandise was not unique or competitive enough. Maybe the traffic sources or customer house list was not well targeted. The initial promotions may have received a good response, but inadequate customer service reduced repeat orders. Perhaps an initial campaign did poorly, and funds were not adequate to support another try.

For any of these reasons (and many more), a new ecommerce venture could fail. Only by meeting the competitive requirements in each of these areas can you hope to succeed.

Something To Sell

The most critical elements for a successful product line for an online store are value, expertise and availability.

Every consumer is searching for value. This does not mean just price. It also means that perceived benefits will be delivered. At Eddie Bauer, a down parka advertised as comfortable at -10°F will indeed keep its owner warm at that temperature.

At L.L. Bean, hunting and fishing footwear will keep a sportsman’s feet warm and dry under all kinds of conditions. These are the benefits that purchasers of these items are expecting. They are willing to pay a fair price for the assurance that these benefits will be delivered.

L.L. Bean’s online store.

To deliver this value consistently, you must be aware of the competition. By looking at the price, positioning and benefits of competitive products, you can decide how to sell to the same market. If your product has distinctive features or benefits, then pictures and copy should stress these.

If your product is less expensive to manufacture than competitive products, then positioning should stress price/value. The fundamental idea is to show the consumer how he or she will receive value from the product.

The second requirement for a successful product line is expertise. You must convince customers that you know more about your product and its uses than anyone else. This is particularly critical in online shopping where consumers purchase products without examining them.

The consumer must trust the seller. To earn that trust, most successful ecommerce companies have built their businesses around a core product area. This provides a means of demonstrating expertise in particular products not available anywhere else.

At Eddie Bauer, this core has always been goose down insulated products. The founder of the company, Eddie Bauer Sr., developed warm garments for pilot friends back in the 1920s. As an avid outdoorsman, he discovered that goose down insulation could be used to make warm, lightweight clothing and sleeping bags for hunters and fishermen.

By developing a product better than anything else available, he founded what is now a respected retailing company with an international clientele and annual sales over $100 million. Similar stories can be told at many specialty ecommerce stores.

Eddie Bauer’s online store.

In each case, a central core of undisputable expertise in some marketable product area created the authority image necessary to overcome the consumer’s resistance to shopping by mail.

The last major factor of a successful product line is availability. The consumer must not only be assured the merchandise will be sent swiftly, but also must believe it is unavailable anywhere else.

The consumer has to believe it is absolutely necessary to take the risk of buying online in order to get the benefits of a unique product. As a result, it is difficult for an ecommerce shop to compete head-to-head with traditional retail stores for sales of identical products.

A successful online store must concentrate on offering merchandise that is “not available anywhere else.” This can be done in several ways. Labeling products as “new” or “hard-to-find” will encourage consumers to look no further in search of like items.

In clothing, offering special colors or sizes can provide the uniqueness required to create a sale. Ecommerce copy provides the opportunity to talk about the unique benefits of the merchandise. This uniqueness will contribute to the consumer’s perception that merchandise with these qualities is only available in one place.

Availability also applies to your supply of goods. Because online demand is independent of the actual inventory, there is always the possibility that demand will exceed supply. Profits in ecommerce come from filling orders, not just generating them.

It is extremely important that merchandise supply be flexible enough to react to demand. In addition, the life of an ecommerce promotional campaign can often be longer than a retail store “season”.

It may be necessary to maintain inventory support for an ecommerce venture much longer than normal retailing practice would dictate. Early liquidation of inventories could result in lost sales opportunities as orders trickle in over many months.

Someone To Sell It To

The heart of any ecommerce business is its customer list or database. When evaluating the feasibility of starting an online store, it is extremely important that you give careful thought to development of this list.

Consumers who have overcome the phobias of buying by mail (especially from new online stores) will be the most eager to buy again. For a successful ecommerce marketer these are the people who will generate the early profits.

But in the beginning, before large numbers of actual customers are on your customer list, you must answer two key questions:

  1. Who are my customers?
  2. How can I reach them?

The answer to the first question is largely dependent on your product line. People who buy competitive products are likely to be good potential customers. If the product appeals to a certain age group or class, then demographic factors may be important. These could include location, education, income, and occupation.

Market research to determine these factors for a new product could be helpful in finding your target audience.

Above all, the best potential customers for a new online store are already those people who already buy online from similar stores. This is a cardinal rule of ecommerce and mail order. No matter how well placed a group of users may be in terms of similar product use or demographic factors, if they are not already ecommerce buyers, they will not make a new online store successful.

After targeting the market, locate traffic sources, including email lists that might contain appropriate names. The most available sources will probably already be related to you.

These names could include customers for your other product lines, online or offline businesses, or from information inquiries, leads, lost/expired/inactive customers, or email newsletter subscribers.

The biggest step in establishing expertise has already been taken with these and they will be hopefully reasonably receptive to your new offers.

Kinds of Traffic Sources

There are basically four traffic source types of interest to an ecommerce startup. These are, in descending order of value:

  1. Ecommerce buyers of related merchandise
  2. Ecommerce buyers of unrelated merchandise
  3. Behavior-based audience lists (e.g., Facebook and Google-targeted)
  4. Cold traffic networks (e.g., Outbrain)

The first traffic category, buyers of related merchandise, will also be the most difficult to obtain for the new ecommerce startup. As a general rule, other ecommerce store owners do not rent their emails, retargeting pixels, ad space, or webpush clicks outright to competitors, but will often exchange these.

For a new startup with nothing to trade, this can be a fundamental problem.

The second category of traffic sources, buyers of unrelated merchandise, is more easily obtained for a rental fee but will not return as well. Here is where a good demographic profile comes in handy.

By knowing something about the lifestyle of the desired customer, it is possible to select rental lists which reflect that lifestyle even if related products are not involved. For example, lists of people who have bought kitchen equipment through the mail might work well for an ecommerce offering gift food packages.

The third category of traffic, behavior-based audiences, is by far the largest of the three. These are lists of people who have been linked by some factor other than buying. Anything that can be tracked by Facebook or Google appears here.

Because such lists do not necessarily include ecommerce buyers, they will not usually be highly responsive to straight sale offers. There are some exceptions, however, if the market is precisely targeted enough, and the perceived benefits great enough, a such a source may be effective.

For example, if an ecommerce selling branding irons were targeted to a Facebook audience of cattle ranchers, it might work. The perceived benefits and superior availability could outweigh the natural hesitancy to buy. But as a general rule, this traffic source should be approached very cautiously.

Potential Market

One important consideration in evaluating a new customer acquisition program is the size of the market for the products. Analyses of existing traffic sources will help determine the growth potential for a new venture.

If several clearly similar online stores already exist, then a new ecom will probably have a substantial market to attack. If there are only very few or exceedingly small potential competitors for a new offer, then it may be that the market for such products is quite limited.

Traffic analysis can be used to establish potential business size before the first campaign.

A Means To Keep The Customer Satisfied

For the new ecommerce entrepreneur, one of the most important steps in the mail order process begins after the order has been received. Now the pressure is on to make sure every customer is a thoroughly satisfied one – not just happy with the merchandise, but impressed by the speed, courtesy and competency of the service.

This is the true commitment of ecommerce. The process of eliciting an order online is such a delicate one that any impediment to that process, such as shipping delay or inconsiderate service, will result in a lost sale. Maybe not this time, but certainly the next.

Even before an order is placed, requests will come for information about the products. Many customers are more comfortable with a purchase if they can investigate their concerns before ordering.

Customer support emails, chats, and inquiries over the phone should be viewed as opportunities to sell, and the efficiency with which these inquiries are handled will make a big difference in the order rate.

The second opportunity to show your company’s commitment to service is in order shipping. Standard, in-stock merchandise should be shipped within 24 hours from receipt of order. Obviously, special treatment such as inseaming pants or embroidering monograms will cause delays. But normal processing that exceeds 24 hours is not competitive.

After your customer receives the merchandise, there will inevitably be some who are dissatisfied. One of the fundamental principles of successful ecommerce is that customer satisfaction must be unconditionally guaranteed.

There are very few exceptions to this. Without an extraordinarily strong guarantee, your online store will be unable to overcome the skepticism of the consumer who wants to feel the merchandise before deciding to buy.

Naturally, a strong guarantee means that returns must be dealt with. Make crystal clear in the copy the condition under which merchandise will be taken back for refund or exchange. These conditions should be as liberal as possible. Service must be just as prompt and friendly as it is in filling a new order.

For a new online store, these service systems will require an initial investment. Systems for order processing, customer information and returns processing may not require more capital investment than dedicated staff and a computer.

But such systems must be used in a fast, thorough, friendly, and customer-oriented manner. Without the attitude to support this customer service, a new business will not be able to develop a base of satisfied customers – the key to a profitable future.

The Resources To Afford A Few Failures

It is not technically difficult to start an online. A few photos, a little copy, some web development, an email service provider, Google Ads account, and it is done. Anyone with the resources for other types of retailing or advertising can do it. The bulk of the job can be done on credit, either with vendors or a banker.

The cash flow from the orders will enable you to pay off the suppliers well within 30 days – it is to be hoped. But what happens if the response is not great enough to cover costs? Will there be time to get another, better campaign out before the bills are due? Probably not.

While it may be possible to get out another ad quickly, it most likely will not be much more effective than the first. Nevertheless, the first shots will have accomplished two important things:

  1. The best and worst products will have been identified,
  2. The first customer names will have been acquired for your house email list and for all future mailings.

Now the process of refining the offer must begin. Increase the exposure of the most effective products. Make the pictures bigger or add copy to give the winners more impact in your promotional pieces.

At the same time, cull the losers out of the product line. Introduce new products in the next shots to complement the direction indicated by the response to the first ones. Also review the data from order forms. Find ways to improve the arrangement of the form to make ordering easier.

But all of this will again cost money. No profits have yet been realized. A new ecommerce company must be able to afford some unproductive promotional activities in the beginning. Some trial and error is required in order to find the right combination of products, graphics, copy and customer service that will become a successful online business.

Without the financial support to try, try again, entry into the ecommerce business will turn into a frustrating and defeating experience. As mentioned before, 90% of all new online stores fail – and usually within the first 12 months. They could not afford the failures and learn from them to build a successful online business.

Conclusion

This exposition is not meant to be discouraging. Ecommerce is indeed a huge industry and will continue to be one. As in any other business, the unwary entrepreneur may not see all the pitfalls in creating and promoting an online store for profit. These guidelines should help the novice ecommerce marketer evaluate a new venture before making an unprepared or fatal step.

If you like this blog post and want more expert advice on performance marketing, direct marketing, direct response advertising, please share it. Thank you!

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The expert's thoughts on direct response - growth hacking - performance-based marketing activities - DIRECT MARKETING

About Me, Rafal Lipnicki.

the direct / performance marketing consultant with a strange sounding name

Who.

Not your usual "guru" but a real-world performance marketing & innovation consultant based in Europe and an experienced senior executive at leading multinational companies.

What and Where.

I am a consultant for hire, working remotely and on-site all over the world (but Europe is always preferred). See my consulting services page for details.

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