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customer-centric sales

Customer-centric Sales is the New Competitive Advantage

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This Veracle explains why customer-centric sales is the new competitive advantage.

Earlier, we recognised the need for a new frontier for sustainable competitive advantage.

We explored if product differentiation can be that frontier.

The car, coffee, and cosmetic examples illustrate that product differentiation is ephemeral. It has become transient. It is now more a hygiene factor than a source of sustainable competitive advantage.

So, if product differentiation is merely a hygiene factor, how to compete in the cut-throat marketplace?

To answer this question, let us go back to basics.

Consider our typical sales situation. Three entities are present here: the seller, the product (or service), and the buyer (or customer).

Here, many salespeople focus on the first two:

  • How they as seller are different
  • How their product is different

This is the seller-centric approach.

It focuses on sellers and their products.

It reminds me of a captivating scene in the movie The Wolf of Wall Street. When Jordan Belfort (Leo DiCaprio) asks some conference attendees to “sell me this pen”, they take this same approach.

Sell me this pen” from the movie The Wolf of Wall Street

However, this seller-centric approach is suboptimal.

It may work in certain situations. But it isn’t ideal for building long-term customer relationships. Hence, it is not sustainable.

That brings us to the third entity present in the sales process – the customer.

Today, the customer has access to a lot more information at the touch of a screen. They can easily compare products and prices. If they don’t like something in a product, they switch just as easily. They know what is best for them.

In short, customers want to be in control of their buying process.

The problem is, the seller-centric sales does not do that.

A working strategy is ‘CUSTOMER-CENTRIC SALES.’

What is customer-centric sales?

Customer-centric sales is the approach that puts the customer’s needs and purchase motivations at the centre of the sales conversation.

In customer-centric sales, you don’t try to get people to buy your stuff they don’t need, by dwelling on seller or product differentiation.

Instead, you focus on knowing customers better. Make it data-driven. We call it developing customer intelligence. You strive to understand customers at a much deeper level.

Generally, salespeople know which customers buy their products?

But many times, they do not know ‘WHY do those customers buy their products.’ Unfortunately, this is more common than we think.

The key is to know the real reason and motive behind the purchase.

But, why is THE WHY important?

Because, customer’s reason to buy your product is likely to be different from your reason to sell it.

And guess what?

Your reasons to sell do not matter; while customers’ reasons to buy do.

This may sound harsh. But it is true.

You may be selling dog food because it is so good in quality that you can also eat. Whereas, the customer may be buying it because it is cheap and convenient.

You may be selling expensive maple wood furniture because the wood is durable and sourced from hardwood forests of North America. The customer may be buying it simply because it is lighter.

You may be selling homemade food as you have fresh organic homegrown ingredients. But the customer may be buying your homemade food because they can get it customised.

The point is this.

Customers buy anything for THEIR own reasons, not yours.

Businesses that get this insight embrace customer-centric sales approach and thrive.

Others that fixate on their own seller-centric differentiation without concern to customers’ reasons struggle.

Consider examples of a few companies where a seller-centric sales approach failed them.

Example 1: A video rental company closed because of not knowing their customer’s why.

You guessed it right.

Blockbuster was in the business of ‘renting out DVDs’. Their competitor Netflix also started ‘renting out DVDs’ in 1997.

Blockbuster’s model was seller-centric. It focused heavily on high street retail sales. Apart from other things, they maximised revenues by charging late returns (of DVDs). Blockbuster made 16% of their revenues in late fees.

On the contrary, Netflix pursued customer-centric sales strategy and studied customers. They enabled consumers to watch videos for a flat monthly fee without worrying about returns.

Blockbuster’s seller-centric model frustrated customers. Netflix’s customer-centric approach eased customers about returns.

Blockbuster vs Netflix

Meanwhile, faster internet allowed online streaming. It enabled customers to watch videos online. Ergo, customer buying preferences changed. They stopped going to stores altogether.

As a result, blockbusters seller-centric model collapsed. Whereas, Netflix re-aligned with customer’s watching preferences by offering videos online on-demand.

Eventually, Blockbuster ended up bankrupt. And Netflix emerged as one of the top ‘over-the-top content platforms.’

customer-centric sales
Source credit: Strategyjourney.com

According to the UK CMO of blockbuster Bryn Owen, Blockbuster’s sales-driven model did them in.

Example 2: “Share memories, Share life.” A Kodak moment (in 2012) that saddened everyone.

George Eastman, Kodak’s founder, invented roll film in 1888.

Kodak was primarily in the photographic film business. They prided on their silver-halide film technology.

Listening to customer demand, Fujifilm started selling film in 1934.

Meanwhile, the digital revolution started in the 1960s.

Steve Sasson, the Kodak engineer, developed the first digital camera in 1975.
Source credit: James Rajotte for The New York Times

By the late 1990s, the demand for photographic films dropped in line with the growing popularity of digital cameras.

Source: PMA, Business 2 community

The rapid spread of digital technology disrupted the photographic equipment industry.

Fujifilm invested in knowing customer’s changing preferences. They adapted to this shift by switching to digital lines of business.

Despite that, Kodak focused on film.

Not just that.

Kodak had acquired a photo-sharing site called Ofoto in 2001. If they were customer-centric, they would have been the pioneer of something like present-day Instagram.

Instead, Kodak used Ofoto to try to get more people to print digital images.

In the end, Kodak filed for chapter 11 bankruptcy in January-2012.

customer-centric sales
Kodak and Fujifilm stock performance comparison with key events.

Don Strickland, a former vice-president of Kodak, said: “We developed the world’s first consumer digital camera but we could not get approval to launch or sell it because of fear of the effects on the film market.”

Once the world’s biggest film company, Kodak became a posterchild for failure due to not being customer-centric.

Unfortunately, these aren’t isolated examples of companies stuck with seller-centric sales approach. GM, Nokia, Xerox, JCPenney, Palm, Sony are but to name a few.

Building a new competitive advantage with customer-centric sales

Building a true competitive advantage requires implementing customer-centric sales strategy. This strategy has these three benefits:

  1. You give customers, control in their buying process
  2. Customers get what they want
  3. It is sustainable

Most internet-age companies that are growing rapidly are customer-centric.

Amazon obsesses over customers as they want to be known as Earth’s most customer-centric company. Everyone knows about customer-centricity of Google, Nordstrom, and Southwest.

Companies like Lululemon, John Lewis, and Target have invested in developing customer intelligence to be customer-centric.

So, how are these successful businesses pursuing this deliberate strategy of customer-centric sales?

We will discuss in the next Veracle.

Related Posts:

<– Product Differentiation: Why it isn’t enough anymore

Startup Pitch: Are You Ready for the Shark Tank? (External: The Hitavada) –>

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Product Differentiation

Product Differentiation: Why it isn’t enough anymore

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What is Product Differentiation?

Product differentiation is a strategy employed by businesses to achieve a competitive advantage by differentiating their products from those of their competitors.

Product Differentiation – why?

Generally, salespeople highlight their differentiation advantage to customers in two ways:

  • Our company is unique and special. Buy from our company.
    • This is seller differentiation.
  • Our product is unique and special. Buy our product.
    • This is product differentiation.

We will analyse seller differentiation later.

In product differentiation, special typically means high quality. The source of uniqueness and high quality in a product could be varied. Some of them are rare raw materials, advanced technology, distinctive design, superior personnel, or unusual methods. These become the sources of product differentiation. Customers perceive such products as high performance or exclusive. So, they are willing to pay a higher price for them.

Up until now, product differentiation helped businesses sell, and charge premium to their customers.

However, this is changing.

In a recent conversation with the CEO of a cosmetics company in Europe, he gave a thought-provoking perspective in the context of their product differentiation.

The CEO: “[First] it was ‘natural’. Then we introduced ‘natural fruit-based’. Then it became ‘natural fruit-based paraben-free allergen-free’. And it went on like that… Whenever I try to differentiate my product further, I feel I am narrowing my customer base. It is a big problem because my loyal customer base keeps shifting…

Evidently, his concern is not misplaced.

In an online survey in Europe, 900 women aged 25-65 years buying cosmetics and being interested in organic and natural cosmetics associated different characteristics and qualities with organic and natural cosmetics (see EXHIBIT 1).

Source: Statista 2021, Veravizion analysis

To be honest, this finding isn’t surprising.

There are so many ways to differentiate a product within a category. They may not appear truly differentiated at all.

It appears, product differentiation as a source of competitive advantage is losing its sheen. It may not be enough going forward to compete.

Wonder why it is so?

To find out, we analysed the sources of product differentiation. Our analysis yielded these insights.

In our increasingly global and digital world, the sources of product differentiation have become pervasive.

  • Global supply chains make it easy to procure raw materials from any place on the Earth. That too fairly quickly.
  • A free market economy facilitates the effortless movement of goods and expert personnel.
  • The Internet makes it simple to share information and technology.

Basically, it has become easy to procure stuff and change. This helps your rivals achieve parity with your products in no time.

Let’s see how.

Consider examples from three diverse product categories: cosmetics, coffee, and car. Notice how a product that once appeared differentiated from their competitors’ doesn’t seem so anymore.

Example 1: The Body Shop – the first natural and organic cosmetic brand?

The Body Shop is perhaps the first global company to popularise the use of ‘natural ingredients’ in cosmetics. Anita Roddick, an activist, founded it to also promote ethical consumerism. The business’s original vision was to sell products with ethically-sourced, cruelty-free, and natural ingredients. The company was one of the first to prohibit the use of ingredients tested on animals. The Body Shop truly differentiated itself at the time. And it thrived. This was in the eighties and early nineties.

Product Differentiation
Source: The Body Shop

However, competitors followed suit soon after. Every cosmetic company wanted to show natural ingredients in their product. So much so that, it might be difficult to find a cosmetic company that does not seek to differentiate itself as natural or organic. Looks like, Natural is a hygiene factor in cosmetics now.

Example 2: Kopi Luwak – world’s most expensive coffee

Product Differentiation
Source: Pinterest

Civet coffee, also called Luwark coffee (or Kopi Luwak), is advertised as the world’s most expensive coffee. It is expensive because of an uncommon method of producing it. Civet coffee is produced from the coffee beans digested by civet cat. The faeces of this cat are collected, processed, and sold. A unique process indeed!

Civet coffee is originally from Indonesia. But, it is now produced across many countries in South East Asia. It is available in India too. It may only be a matter of time before we see this coffee in our favourite coffee shops. Moreover, there are other coffee brands such as Black Ivory, Finca El Injerto, Hacienda La Esmeralda, Saint Helena, and Jamaican Blue Mountain that are touted as the world’s most expensive coffee. Apparently, Kopi Luwak seems to have lost its flavour as world’s most expensive coffee.

Example 3: Exotic and handmade Phantom – an epitome of luxury

Product Differentiation
Source: Caranddriver.com

Rolls-Royce Phantom Coupé gained fame as your own bespoke exotic car handmade by expert craftsmen. Rolls-Royce claims that no two Phantoms in the world are exactly the same.

Finally, a true differentiator? We thought so too.

Only, there are at least ten other cars which take pride in calling themselves most exotic and handmade. Lamborghini, Bugatti, Pagani trump the track where Aston Martin is not even in the top-3.

Therefore, that forces us to ask.

Product Differentiation: is it a competitive advantage or a hygiene factor?

The point from the above examples is this.

The Body Shop might be natural and organic; Kopi Luwak might be a billionaire’s brew; Rolls-Royce Phantom might be exotic and handmade.

But they are not the only ones doing it in their industry. Rather, they join the crowd by competing on product differentiation.

Ironic, isn’t it!

The truth is this. The more you pursue product differentiation, the more you risk looking like the scores of your competitors doing the same.

It makes one wonder whether ‘our product is high quality’ has become a hygiene factor. It will not guarantee you sales, let alone premium prices. But not having it will definitely hurt sales.

But wait!

Apple pursues a product differentiation strategy. And Apple continues selling huge numbers of iPhones and iOS devices. In fact, iOS had more than 50% of the market share in the US as of May-2020 (see EXHIBIT 2).

Source: Statista

How do we explain this?

Clearly, something is at play here.

Is product differentiation a source of competitive advantage? Or has it merely become a hygiene factor?

If the latter, then how can you compete in the fiercely competitive marketplace?

What are your thoughts on this?

Let us analyse this aspect in the next Veracle.

Related Posts:

<– Competitive Advantage: do you have one? Is it sustainable?

Customer-centric Sales is the New Competitive Advantage –>

Cover Photo courtesy: Vix.com

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Competitive Advantage

Competitive Advantage: you have one? Is it sustainable?

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In a sales situation, a salesperson looks to convince a customer to buy their (product or service) offering. To do that, they must showcase how their offering creates value for the customer. They are aware that the customer would be comparing their offering with those of their competitors. This is where the competitive advantage comes into the picture.

Competitive advantage renders you an edge over your rivals. A company’s competitive advantage makes their (product or service) offering more desirable to customers than those of their competitors.

According to Investopedia, competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals.

The factors could be price, product quality, delivery speed, customer service, location, and so on.

Among these, the price factor is different from the other factors.

Let’s see how.

Competitive Advantage: the ‘Price factor’

When a business competes on price, they price their products lower than their competitors’ prices. Therefore, they must produce the product at a low cost to sell it at a profit.

Source: Walmart.com

For example, Walmart competes on price. Their slogan is “everyday low prices”. They must produce or procure products at a very low cost to sell at a profit.

Competitive Advantage: the ‘Other factors’

When a business competes on factors other than price, they must ensure high differentiation from the competitors on that factor. Their slogan would be the best quality, higher speed, better customer service, and so on. However, it takes additional resources, and thus higher costs, to create differentiation. Hence, they must price the product at a premium to sell it at a profit.

Competitive Advantage
Source: Christies.com

For example, dubbed as the world’s most coveted handbags, Hermès Birkin bags are super-expensive. Each bag is handmade by a single artisan craftsman using premium materials like calf skin, alligator skin, and even ostrich skin. And there is a waiting list for the top ones like the one shown here.

This low cost and high differentiation form the basis of business strategy for firms.

Porter defined these two ways in which an organization can achieve a competitive advantage over its rivals as cost advantage and differentiation advantage.

Cost advantage & differentiation advantage served us well.

Thus far.

However, competitive advantage must be sustainable. It should help us sell in today’s fiercely competitive markets and tomorrows. In the absence of sustainable competitive advantage, your product may not continue to sell for long.

This is where the challenge is.

Both these sources of competitive advantage are seller-centric. They talk about seller’s cost advantage and seller’s differentiation advantage.

The thing is, competitive advantage for a business is the factor (or reason) for which the business wants customers to buy their products.

And the truth is, customers buy anything for THEIR own reasons, not yours.

Please do let the above two insights sink-in before you read ahead.

Therefore, it follows that, the factor for which a business wants customers to buy their products should be customer-centric.

That is, the source of competitive advantage for a business should be customer-centric (and not seller-centric).

This is like the movement of scientific theory from the Ptolemaic system (the earth at the centre of the universe) to the Copernican system (the sun at the centre of the universe).

It is a paradigm shift.

When that happens, a business will always be aligned with customer-needs. As and when the customer buying preference changes, a business will be able to respond to the change by correspondingly aligning their source of competitive advantage.

Savvy?! But wait.

What is the significance of this finding?

This signifies that the existing ways of building competitive advantage – cost and differentiation advantage – alone may not suffice.

The evidence is in the huge number of businesses shutting down, like Arcadia group, Chuck E. Cheese, Debenhams, J. Crew, JC Penny, Mamas & Papas, Mothercare, Neiman Marcus, and Wallis to name a few. Some of them are (sorry, were) iconic retailers. The list is long. Many of them are permanently closing most of their stores. Don’t we know that all of them had built competitive advantage the traditional way?

In short, we need to build the next frontier for developing sustainable competitive advantage.

And how do we do that?

Can we do it through product differentiation?

We do it by putting in place a mechanism to understand your customers like never before.

This doesn’t sound anything new, right?

Except, the ways of understanding a customer have undergone a sea-change. There is a lot more we can learn about a customer to help them.

Let us summarise the whole thing.

In the internet age, when brick-and-mortar businesses are finding it difficult to compete and are closing down, companies cannot rely only on the traditional meaning and sources of competitive advantage.

There is a need to build new frontier.

Developing your customer intelligence is the first step in that direction. That entails understanding many more things than we have ever known until now. This new frontier of competitive advantage helps you build a solid platform to grow further and beyond.

Besides, who has ever gone wrong knowing more about their customers?

Related Posts:

<– e-Retail Innovations – How e-Retail is Changing?

Product Differentiation: Why it isn’t enough anymore –>

Cover Photo courtesy: Rob Wingate on Unsplash

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e-Retail Innovations

e-Retail Innovations – How e-Retail is Changing?

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e-Retail Innovations and Growth

Over the last 15 years, the share of online retail (or e-retail) has increased steadily all over the world. For instance, the graph below shows the percentage of e-retail sales out of total sales for the US.

*Note: Data of first 2 quarters of 2020 is taken
Source: United States Census Bureau

Earlier in 2019, e-retail sales accounted for only 10.9% of total retail sales. Yet, in 2020, it rose to 13.9%. Thus, it shows that e-retail has good potential to grow in the coming years.

A major reason for low e-retail sales is customer shopping behaviour. In fact, physical retail and e-retail KPIs are also different.

Notably, there is a basic difference between how customers shop offline and online. It is down to how customers interact with products while purchasing.

Why e-Retail is less than traditional retail?

According to KPMG, the top-three reasons people go to physical shops are to do with touching or trying the product. Indeed, 56% of customers prefer shopping offline for the ability to see and touch the product. Whereas, these are limitations of e-Retail.

Now, e-retail businesses like Amazon have grown with continuous innovations. In 2018 alone, Amazon spent 12.7% of their revenue on R&D. Likewise, many e-retail businesses have disrupted the retail industry over the years with innovations like chatbot, voice search, and drone delivery, to name a few.

The e-retail innovations we discuss here expect to overcome the top-three limitations of e-retail. The aim is to improve the engagement of customers with the products they intend to purchase.

So, what are the most recent e-retail innovations?

Here are three of them:

  1. 3D Models (and videos of product)
  2. Livestreaming
  3. Augmented-reality (AR)

3D Models (and videos of product)

On 14th March 2020, Shopify announced that merchants could upload 3D models or videos directly to their product pages. Fashion merchants selling on Shopify were happy with this new technology. Results showed that the visitors who interacted with a 3D model were 44% more likely to add a product to their shopping cart. Also, they were 27% more likely to place an order than visitors that did not. 

This helped the merchants too. For example, after implementing 3D models in their store, Bumbleride saw a conversion rate increase of 33% for strollers and increased time on page by up to 21%.

Advantage:

In traditional retail, customers can ‘see’ and ‘feel’ a product before buying. In the same way, by using a 3D model of products in e-retail, customers can virtually ‘see’ a product interacting with their home or office environment. This feature increases the engagement rate and ultimately leads to more sales.

Livestreaming

Taobao Live is a live streaming service integrated into the Taobao App of Alibaba Group. On 1st June 2020, Taobao Live sold goods worth $280 million in the initial 90 minutes. Merchants can apply on Taobao app for free and start live streaming of their products. Also, customers can ask queries, buy, and pay on the same app.

Advantages:

  • It is similar to a traditional store being open for customers. But in this case, customers who are interested in the category will join the Livestream. This is a significant advantage as users are already lower down the sales funnel.

  • In digital media, brands have to hire celebrities and tap their brand equity to sell their products. However, in Livestream, anyone can display the products.

  • Users watching Livestream can ask queries related to product and host can answer them or display in real-time. For example, a user might ask ‘can you show how size 7 will fit me?’ The host can then try on size 7 shoe in real-time during Livestream. Subsequently, this increases the engagement of products with potential customers.

Augmented Reality (AR)

In May 2020, Kendra Scott, a jewelry brand, introduced a virtual try-on. This feature implements augmented reality and allows users to preview products.

AR is also being used by furniture retailers like Wayfair and Ikea for displaying how furniture will look in their homes after purchase.

In December 2019, L’Oreal announced a virtual try-on that lets shoppers try on makeup virtually using their phones. Garnier (owned by L’Oreal) also launched a virtual try-on named “Garnier hair colour”. Using the Google Lens image-recognition mobile app made by Google Inc., shoppers can point their phone cameras at the hair-colour boxes to activate the virtual try-on service.

Advantage:

  • In e-retail, users can only visually see 2D product images. But with AR, users can virtually try-on products. They can also get some idea of how the products will look in their surroundings.

As the e-commerce and e-retail industry matures, innovations are likely to continue in this space.

Related Posts:

<– Online Business Growth – The Easy or The Right Way?

Competitive Advantage: do you have one? Is it sustainable? –>

Author: Sumit Patil

Cover Photo courtesy: Vectary

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Online Business Growth

Online Business Growth – The Easy or The Right Way?

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Online business growth – the easy way or the right way?

Onine business growth is a topic concerning most retailers. How can retailers grow their business in these times? The key message is at the very end.

Consider this scenario.

You are the owner of a mid-sized retail business. You presently sell your product to your customers in physical stores. A typical sale goes like this: Customers show up at your store. They specify their needs, you give options. You counsel, they choose. You pack, they pay, and you complete the transaction.  

Thus far, you have been successful in your current brick-and-mortar model. Your business has a loyal customer base. The net profit margin is in the range of 15%-20%. And, the cash flow is good too.

So, you decide to take your business to the next level.

How would you do it?

The answer is ‘you go omnichannel’.

The internet penetration of above 90% in most developed countries makes it a no-brainer. Among the developing countries, the internet has grown by over 5000% since year 2000 to around 59%. Moreover, customers now prefer to buy in an omnichannel environment.

In omnichannel retail, the focus is on providing seamless shopping experience to the customer across multiple channels. Omnichannel strategy helps you integrate physical store, online store, mobile app, and social media.

In-short, your business growth strategy now revolves around selling online.

To sell online, there are two main options:

  1. Create your ‘own online channel’
  2. Sell through existing ‘online marketplaces’

This decision determines the future course of your business.

Let us dissect each option.

Option-1: Create your own online channel

Creating your own online channel includes two things: first, setting up an e-store – an e-commerce website – to display products and receive customer orders. Second, you need to have an efficient and trustworthy logistics system to fulfil the customer orders. The entire order-to-fulfilment process must run smoothly to give customers a seamless shopping experience.

Having your own online channel has several benefits.

Top three benefits are:

  • You can create bespoke personalised experience for your customers. It allows you to ensure stronger connection and engagement with them.
  • You have total control over your business throughout the customer buying process. So, you decide how customers interact with your brand while being on your website. Also, you can create relevant content around your offerings to engage with target customers.
  • Most importantly, you gain direct access to your customers and their data. You can leverage advanced analytical techniques to analyse this data. This analysis can give you crucial insights about the type of visitors, their visiting trends, and their buying patterns. These insights help you decode the online customer behaviour. Using that, you can make appropriate changes to the way you sell online. This data-driven online selling strategy promises to help you grow your online sales.

What do top-brands do?

While it is not a surprise that top brands like Apple, Starbucks, Disney, and Under Armour have their own online channels, most mid-size businesses have also launched their own online stores. It helps them create unique customer experience. The successful ones have implemented advanced analytics to reveal insights about their customer buying behaviour.

Online Business Growth
How top brands ensure unique and enjoyable customer experience through their e-stores

However, a common perception among small retailers is that there are a few disadvantages with this option, viz. higher upfront investment, additional analysis and marketing costs, and higher lead-time for online business growth. Perhaps, that is why, almost one-third of small businesses in the US do not have a website of their own.

That brings us to the second option.

Option-2: Sell through existing ‘online marketplaces’

Online marketplaces allow you to sell products without you having to set up your own online store. The marketplaces host many sellers on their website. Marketplaces are popular among buyers because they allow to buy different products across categories without having to leave the site.

The marketplace owns everything on their website. They take care of the marketing too. In return, you pay them product listing fees and a commission on every product sold.

There are many online marketplaces around. A few are global, some are regional, and many of them are national. The popular ones are Amazon, eBay, Flipkart, AliExpress, Rakuten, Etsy, and Target, amongst many others.

Many retailers tend to choose this second option over the first. It seems easier to them. Ostensibly, they see the following ‘advantages’ in this option – no upfront set-up cost, reduced marketing costs, and no waiting for online business growth.

Except, these advantages hide the real disadvantages.

Let us explain by listing out six key disadvantages of ‘selling through marketplaces’ option:

No Upfront cost = Lose control over sales

You don’t incur upfront cost if you don’t invest in your own e-commerce set-up. Instead, you use the marketplace’s infrastructure to sell. You use their e-commerce applications, their algorithms, and their processes. You depend on them for the sales.

Sure, the sales can increase, but you may not know why. [GE executives recall how Mr. Jack Welch would get angry when the sales went high and they couldn’t explain why.]

In a way, you lose control over your sales process and data to the marketplace.

Why is it a big problem?

Because, if the sales go down, you would be clueless about it. And so, would not know how to fix the problem.

Let us see an example of what it means by not having control.

When you are selling on marketplaces, you cannot control what products are being sold beside yours. Worse, what if the other product looks identical to yours but is from your competitor. Worse still, what if the other product being sold has the same brand-name as yours, but in altogether different category.

It DOES happen!

Here is a real example* of a brand selling at one of the top marketplaces:

The organic soft-cotton baby onesie, is selling alongside

woman’s cocktail dress of the ‘same’ brand-name (but from a competitor); selling alongside

motor flush oil of the ‘same brand-name; selling alongside

a music label of the ‘sam-e brand-name

– all of them in the same window.

And you cannot do anything about it.

Reduced analysis and marketing costs = Risking business survival

Generally, marketplaces own the data on your product sales. The minute a retailer signs up to a seller’s account on a marketplace, they give permission to the marketplace to use their sales data however they choose. Most marketplaces don’t share that data back with the sellers.

So, in reality, when you choose to sell through a marketplace, you don’t just pay listing fees and a commission per transaction. You also pay with your sales data, and future sales.

[I would re-read that last sentence to let it sink in.]

Marketplaces can use your sales data to gather your customer intelligence. They can leverage it to offer your customers better deals through their in-house labels.

Sellers have shared stories about how this has impacted their business.

In short, you risk losing your loyal customers to your competitors if you do not leverage your sales data yourself.

No waiting for sales-success = Less opportunity to build your brand

Online marketplaces try to make the seller onboarding process easy to bring more offline sellers on their e-commerce platform. They try to make it smooth and quick. You can start selling in a few days [and you may stop selling in fewer days if you violate their policies].

Not just that, you may also start realising sales quickly on marketplaces. However, the presence of many other products makes it difficult for consumer to register your brand among so many others in their minds.

You are successful quickly = Threat of getting undercut on prices

If you start doing really well, someone will notice and one of the two things may happen – they may offer to buy you out or they may undercut you on price and terms, eventually killing you.

Online Business Growth

Remember Zappos? Zappos was extremely customer-centric, very successful. It was the first company that sold shoes online, at scale. They put a lot of importance on understanding shoes, their culture and customer centricity.

When Amazon wasn’t going anywhere with its own online shoe store, Endless.com, they made their first attempt to acquire Zappos in 2005. Zappos declined. What happened later is not up in public domain. However, Amazon eventually acquired Zappos in July-2009.

Hyper-competitiveness – Forced to sell on price, not differentiation

Conservative estimates put the number of active sellers on Amazon at 2.3 million as of 2019. Chances are, many of them are selling the same products as you do. This makes it difficult for you to compete, if you do not have aggressive [read: less] pricing, that helps the algorithm pick your product ahead of the competitors’.

Diapers.com may be the case in point. They built a $100 million business selling diapers online. They offered free delivery of diapers and other products to parents. But they couldn’t sustain the competitive pressures and ceased to exist in 2017.

Restrictive TnC on how you can communicate with customers = Limits brand building

There may be marketplace limitations on how your business can brand and communicate itself on the marketplace. Moreover, any slightest hint of violating the strict policies will earn you the dreaded ‘seller suspension’ message.

Does that mean marketplaces are bad?

NO! Not at all.

In fact, they have disrupted some aspects of retail for the better.

For example, online shoppers love Amazon. Amazon is allowing them to have wider selection, shop-anytime-anywhere convenience, and enjoyable shopping experience, all at a cheaper price. They have developed a world-class e-commerce platform over the years.

Marketplaces can be good for small retailers, that do not have resources to have their own e-store. Also, marketplaces may be useful for those businesses not aiming to create an enduring brand.

But they may not be for everyone.

You need to figure out whether marketplaces are right for you.

Then, what is the way forward to online business growth?

Companies are waking up to the risk of increasing their dependency on marketplaces. More and more mid- and large-sized companies are embracing “direct-to-consumer” sales model.

Almost all large businesses and brands have their own e-commerce stores. Some of them were tempted initially but then recovered themselves from increasing their dependency on the marketplaces.

Nike – just doing it without a marketplace!

Nike is one such example. Recently, Nike confirmed to CNBC that it will stop selling merchandise directly to Amazon, as part of its push to sell more directly to consumers.

To quote CNBC, “Prior to 2017, Nike had resisted such a deal with Amazon, focusing its attention on its own online marketplace and stores. The fear for many brands has always been that, by partnering with Amazon, a company loses control over how its brand is represented on the site.”

This Veracle makes a point that mid-sized businesses should strive to have their own e-commerce set-up. They should attempt to leverage their sales data using analytics. This could be the right way for their online business growth.

What do you think? Have you seen a mid-sized business struggle with this dilemma?

Related Posts:

<– Know customer shopping behaviour KPIs in e-retail?

e-Retail Innovations – How e-Retail is Changing? –>

*name withheld on request.

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customer shopping behaviour in e-retail

Know customer shopping behaviour KPIs in e-retail?

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Customer shopping behaviour is an important concept in retail.

This is why.

How do you grow your retail business? You sell what customers want. How do you know what customers want? Well, you observe how they buy.

When customers buy a product or service, they do certain things. First, they search for the product online or in stores. Next, they try to seek more information and compare prices. Then, they check product ratings and seek feedback from friends. Over time, they engage with brands through social media.

All the actions mentioned above describe customer shopping behaviour.

Customer shopping behaviour in e-retail refers to how customers interact with your website. It involves understanding the actions a customer performs between landing on your website and leaving.

So, how exactly do we “observe customers”?

We do this using the various Key Performance Indicators (KPIs). KPIs help us get a sense of real-situation quantitatively.

Previously, we saw that e-retail and physical retail have different KPIs.

Now, we can measure the customer shopping behaviour in e-retail using the following KPIs:

  • Total visits
  • Bounce rate
  • Shopping cart abandonment rate
  • Shopping cart conversion rate
  • Sales conversion rate
  • Average duration on page

The flowchart in the figure below illustrates these actions. The little boxes on the right of each process show the corresponding KPI.

customer shopping behaviour flowchart
Flowchart depicting customer shopping behaviour in e-retail

Customer Shopping Behaviour KPIs in e-retail

Here is a brief explanation of each KPI.

Total Customer Visits

Total visits KPI is the total number of visitor landings on a website.

According to Google, 63% of all shopping begins online. That makes ‘Total Visits’ the vital first KPI for an e-retail sale. E-retailers try to increase this KPI to increase sales.

Bounce Rate

Bounce rate is the proportion of visitors landing on your website and leaving without taking any action.

If the website is engaging for customers, they interact with it. More the interaction, lower is the bounce rate, and better are the prospects of making a sale.

There are various reasons for a high bounce rate. Moreover, a high bounce rate doesn’t tell the entire story. Also, there are ways to improve it.

Shopping cart abandonment rate

This KPI means a customer added products in their e-retail shopping cart but later abandoned the order.

According to Statista, 63% carts were abandoned because shipping cost was too high. While these customers have not yet purchased, they are most easy to convert to a sale.

Shopping cart conversion rate

Similarly, this metric helps e-retailers measure the number of completed orders compared to the total number of shopping carts initiated by potential customers.

It is calculated as a ratio of number of visitors who placed an order, to the total number of visitors who started a shopping cart. It is expressed as a percentage.

Sales conversion rate

Google defines sales conversion rate as the ratio of transactions to sessions, expressed as a percentage.

The recent Adobe Digital Index 2020 report pegs average global conversion rate in retail at 3% of the total visits. The sales conversion rate varies across various retail categories. Conversion of consumer electronics is only half at 1.4%. Gifts, and Health & Pharmacy generate the highest conversion rates at around 4.9%.

Average duration per page

One e-retail KPI to measure is the time spent on each webpage. This is tracked as ‘average duration per page’.

This KPIs is based on similar one in traditional retail. In physical retail store, more the time a customer spends inside a shop, higher are the chances of purchase.

So, what do you think? Do you track these metrics? If yes, which ones do you think are the most important for your business?

Related Posts:

<– How E-Retail KPIs different from traditional Retail KPIs?

Online Business Growth – The Easy or The Right Way? –>

Author: Sumit Patil

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E-Retail KPIs

How E-Retail KPIs different from traditional Retail KPIs?

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How are E-Retail KPIs different from traditional Retail KPIs?

What is E-Retail KPI?

E-retail is the online website of a retail store. KPI means Key Performance Indicators. So, the key performance indicators for an online website of a retail store are e-retail KPIs.

Traditional retail is a physical brick-and-mortar retail store. Let’s call their KPIs, traditional retail KPIs.

E-retail and traditional retail by their nature are different. The difference exists from two perspectives: the customer perspective and the retailer perspective.

Let us see the customer’s perspective first.

The customer perspective drives their shopping preferences and buying behaviour. For instance, customers who value convenience, price comparison, time-saving, and the ability to shop 24×7 prefer to shop online. Whereas, customers who want to touch, feel, and try the product first tend to shop in physical stores.

Increasingly, customers are buying in an Omnichannel environment. Omnichannel means all channels work seamlessly as one. That is, they discover a product in one channel, check it out in another one, and buy through a third. Such as shown in the figure below.

E-Retail KPIs
Omnichannel shopping is becoming the norm

Now, the retailer perspective.

The retailer’s perspective influences their business operating behaviour. Traditional retailers focus on maximizing the in-store experience for their customers while optimizing store space. While e-retailers focus on the online shopping experience and user personalization.

These two perspectives influence their KPIs.

How E-Retail KPIs Differ?

Many e-retail KPIs are common with traditional KPIs. Some of these are the various financial ratios, customer retention, and conversion rate. However, e-retail KPIs are different from traditional retail KPIs in two major areas:

  1. Customer Acquisition Channels
  2. Customer Shopping Behaviour

Let us see how.

Customer Acquisition Channels

This is the source of customer traffic to your business. Understanding where your customers are coming from is extremely important for business growth.

E-retail channels are primarily organic search, direct search, referral, e-mails, and social media. These channels actually lead customers to e-retail stores (i.e. the website). So, e-retailers can easily measure the percent of customers acquired from these channels. They can then devise their deliberate strategy around these insights.

For example, Facebook generates 13.9% of e-retail website traffic, but actual sale happens in only 4.7% of cases. This is a critical piece of information in two ways: First, it allows you to allocate resources efficiently. Also, it improves ROI.

Traditional retail channels are different.

They are mainly word of mouth or advertisements in print, television, radio, and social media. For traditional retailers, it is nearly impossible to accurately calculate the percent of customers acquired from these different channels. This is because these channels do not ‘redirect’ them to the store.

For example, a customer actually visiting a store may have seen an ad or may have been referred by word of mouth. But, they may not even remember this information when they visit the store.

Customer Shopping Behaviour

Customer behaviour varies a lot between in-store purchases and online purchases. Understanding customer behaviour is central to acquiring more customers.

In e-retail, KPIs like Shopping Cart Abandonment (SCA) and Customer Lifetime Value (CLV) are important and helpful. The analysis of the shopping cart abandonment rate and the list of discarded items can help improve our understanding of the purchase intent of customers. Similarly, understanding a customer’s lifetime value helps in targeting profitable customers more effectively.

Whereas for traditional retail, understanding shopping behaviour for every customer is tricky and costly. We can only perform market basket analysis. This will only analyze the products added together in the cart. But there is no definite way to measure discarded items from carts in the physical stores. Moreover, physical space-oriented KPIs like sales per square foot are not relevant to e-retail.  

In a nutshell, it is essential for retailers to rethink the right KPIs while taking the retail business online. This is especially true since omnichannel shopping is becoming the norm.

Related Posts:

<– Are you survival-oriented or a growth-oriented executive?

Know customer shopping behaviour KPIs in e-retail? –>

Author: Sumit Patil

You can also subscribe to our blog – Veracles – to receive interesting articles and insights in email. We would love to read your perspectives and comments on that.

Do follow Veravizion on LinkedInTwitter or Facebook to receive easy updates.

Cover Photo courtesy: Blue Planet Studio

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