Ten years ago you could get a basic store online, add a few products, buy some cheap traffic and – voilà! – you’d be able to build a successful online store.
Oh, how times have changed! While it’s still very feasible to build a thriving eCommerce business today, the competition has become stiffer, and merchants need to be much more strategic if they want to have a chance against giants like Amazon.
Here are the four ways I believe you can build a successful eCommerce business today:
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Compete on Price
Let’s start with the hardest and most common approach to eCommerce: competing on price. The low price proposition can seem alluring if you’re starting a new store, but it’s more often than not a siren’s cry that leads to disaster.
If you’re reselling common products based solely on low prices, how will you ever compete with Amazon or Wal-Mart? Both companies are well trusted and offer extremely low pricing. And even if you did match their pricing, why would buy purchase from you over a well-known and trusted retailer?
It’s not impossible, but competing on price is the hardest way to build a successful eCommerce business as an independent merchant. Even if you’re successful in driving revenues, your margins will likely be so small that you’ll need to scale enormously to receive a decent payoff.
There are a few exceptions when low pricing can be part of a viable strategy, like with my store TrollingMotors.net. Most of the motors we sell have a Minimum Advertised Price (MAP) enforced by the manufacturer that puts a floor on pricing. The sticker price is largely the same regardless of where you buy.
While you can still advertise low prices, it’s paramount that your online store offer something else of value. To set ourselves apart from Amazon, we spent months redesigning the website to include in-depth product information, technical articles and purchasing guides to help customers make an informed decision. They can’t get the level of detail and expertise we offer for trolling motors on Amazon.
Bottom line? It’s difficult to compete with the big boys solely on price as an independent merchant. If you do, make sure it’s only part of – and not the entire foundation – of your competitive strategy.
Manufacture Your Own Product
Less Competition: When you’re selling an existing product, people can easily comparison shop. But when you’re the only one making it, people have no choice but to buy through you.
Premium Pricing: It’s easier to charge a premium price when you don’t have 200 other stores driving the price of the item down. And with few or no other pricing data points to compare, customers will be less likely to balk at a higher price.
Higher Savings: Perhaps best of all, building your own product and/or buying directly from the manufacturer is the cheapest way to source products. It requires more capital up front, but is the best way to increase your profit margins.
Manufacturing your own products isn’t for the faint of heart and probably isn’t the best way to get your feet wet with eCommerce. A lot goes into creating a product, and the logistical issues will not be insignificant. But done correctly, it’s one of the best ways to build a long-term business in today’s environment.
Add Informational Value to Your Products
This is the approach I’ve traditionally taken and is one of the best ways to succeed if you’re building a drop shipping business. If you’re selling existing products in the marketplace and don’t want to compete on price, you need to offer something else of value. Some of the best things to offer are reassurance and guidance to customers.
Anxiety about purchasing an item that doesn’t work is a large reason people don’t buy, and this is especially true in confusing niches. Would you feel comfortable buying the components for a Do-It-Yourself home security system install on Amazon? Probably not, because they don’t specialize in the space and you’d have a hard time understanding what you needed. Instead, you’d likely seek out a business specializing in security equipment systems.
Will some people visit niche websites, use their focused resources to decide what to buy and then shop around for the lowest price? Absolutely. That’s why this approach works especially well in niches where lots of different accessories or components are required. The more items someone needs to purchase, the harder it is to comparison shop in a timely manner.
But despite the bargain shoppers, you’ll still earn the trust – and business – of many shoppers as a specialist. And the more you educate them up front, the more goodwill and sales you’ll generate.
Build a Brand
When you build a brand, you move beyond selling just a product and focus on also selling an experience, idea or philosophy. This is probably the hardest approach to take, but has the power to create a business that’s very defensible with high long-term value.
As a marketer, I like to think I’m above being influenced by mass media campaigns. Sadly, I’m as susceptible as anyone else to great advertising. The first time I saw the “Most Interesting Man in the World” ads by Dos Equis – the campaign using a sophisticated, George Clooney-type character to sell beer through funny commercials – I spent at least 10 minutes watching them on YouTube.
It wasn’t until a trip to the store that I realized how truly powerful their branding was. As my eyes scanned the beer cooler, they came to rest on a six-pack of Dos Equis, which I promptly pulled from the shelf. For a guy who usually bases my selection on what’s on sale, I surprisingly can’t remember how much it cost. I was too busy daydreaming about smoking cuban cigars, jumping out of airplanes and generally being studly to notice the price.
And consider Dollar Shave Club and their hilarious promotional video you’ve almost certainly seen. Instead of stopping with the funny ads, they also involved their brand with the entire experience of getting a razor.
As Jonathan Colman writes on his blog, the experience of getting your first razor is fun, cheeky and just as enjoyable as watching their video. Shaving with plastic razors is pretty boring stuff. But with some creativity, humor and consistent branding, Dollar Shave Club has built a viral business.
Which Approach Will You Choose?
If you’re on the verge of launching your first store – or if you own one now – make sure you know which one of these approaches you’ll take. Are you offering a unique product? Adding informational value? Or creating an experience for your customers? If you’re not sure, you may want to reconsider your strategy and think through how you can approach your business differently.
What do you think? Disagree and think there are other viable strategies that I’m missing? I’d love to hear your thoughts in the comments below.
Photo by danielygo
Post by Andrew Youderian