I’ve been working on a new e-commerce business for the past few weeks. E-commerce is new to me. Not that I don’t use it on a regular basis but synching up my target demographics to the sales channel ended up being a little more convoluted than I thought.
Let’s get one thing out in the open before we dig in to the specifics. I did not open this business strictly to make quick money. If that were the case, then choosing the sales channel would have been a no-brainer. I would have gone with Amazon or eBay, picked best-selling, high profit items (regardless of category), and listed them for purchase within the hour. However, the brands I plan to offer to my demographic largely prohibit selling on 3rd party sites like Amazon and eBay.
So, why would a manufacturer not allow retailers to sell on Amazon or eBay? There are a myriad of reasons but the quick answer is ‘Brand Management’. It is almost impossible to manage a customer’s brand experience when resellers are using 3rd party platforms.
Third party sites draw people who are typically cost-conscious. I am an avid Amazon user and when ten sellers are offering the same product, I’m going to go with the lowest price. That means sellers on Amazon use a low-cost strategy and even ‘luxury’ items are subject to this same low-cost strategy.
The brands I plan to offer aren’t necessarily luxury items but many are eco-friendly, organic, or locally-sourced which means the price is a little higher than a similar product made with cheaper materials. These product manufacturers strive to support the perception of high-quality and this is almost impossible if their items sell on a platform known globally for its low-cost strategy.
Synching up my products and sales channels is my first misstep. I’m sure there will be many more so stay tuned. If I could have done things differently for my e-commerce business, I would have asked the following questions to clarify things before investing any money.
Why am I starting an e-commerce business?
I mentioned above that I started my business because I’m passionate about the products I sell. The draw-back is that some of my products won’t move quickly. If I start an e-commerce business strictly to make money, I can select mainly fast-moving, high profit products. Knowing your motivation is key to feeding your staying power.
Is this an established industry/product or a ‘Blue Ocean’ opportunity?
Moving into an established industry or product is a little easier than starting a new one. Competition is brutal but niche marketing can help carve out a sizable market share. It doesn’t take as long to build a following with established products and services so you can expect to see profit within the first year (if expenses are controlled).
Starting a new industry or product is known as a ‘Blue Ocean’ opportunity. There are very few limits to how successful you can be but it is hard to convince consumers that they need your product or service. Blue ocean strategies take time and patience to build the business and following. Profits typically lag a little more than a year so don’t quit your day job.
What sales channels am I considering?
Think about how you will get products in front of your customers. Today’s customers are comfortable moving across sales channels so consider employing multiple channels. A start-up restaurateur may opt for a food truck as well as a brick-and-mortar storefront. An accountant may offer cloud accounting services across the state as well as maintaining a physical presence. And an e-commerce store can leverage Amazon, eBay, Pinterest, and Facebook in addition to maintaining their own website and selling products at conventions and farmer’s markets.
A follow on question is “What sales channels are a no-go?”. It is important to acknowledge which sales channels are outside your comfort zone.
Who is my target demographic and where do they shop for my brands?
We’ve talked about this in previous blogs. No need to beat a dead horse but you can read through some of the earlier posts if you want to refresh your memory.
However, we haven’t talked a lot about where your buyers will shop for your products. It is amazing how many people buy and sell products and services strictly on their mobile devices. This blog is e-commerce centric so you need to think about how your buyers will find, browse, and buy your products. Are they on the train, at home, or at a restaurant? Maybe they are comparing products while standing inside a big box store. (I do this on a regular basis.)
Do my manufacturers/wholesalers have resell restrictions?
Examples of resell restrictions include where you can sell (i.e., physical location, 3rd party sites, etc.) or the minimum price you can sell an item. Are their restrictions a deal breaker? Essentially, you are asking whether your sales channel or their products are more important. For me, their products trumped Amazon and eBay.
How many supply chain companies will I use and what services do they provide?
Don’t hang your hat on just a few suppliers. Unless you are close friends with the supplier, you won’t know they are going out of business until your orders and phone calls are ignored for weeks. Diversify your supply chain to prevent back-orders and maintain some form of power in your supply chain relationship.
Do they have the services you need to keep your business alive? If you promise delivery within 10 business days but the supplier ships to you sporadically, then you will have unhappy customers. If you depend on a combination of drop shipping and bulk shipments, make sure your supplier can deliver both on time and with items in good condition.
I’m focused on my target demographic so not being able to sell on 3rd party sites isn’t a make-or-break revelation. I may still sell some common items that aren’t restricted on 3rd party sites but I won’t use Amazon for my core items.
What were some of the pitfalls you experienced during your first days as an e-commerce entrepreneur?