In the past two years I have been actively involved in eCommerce, launching new brands exclusively online, or expanding established brands to take advantage of the online channel and grow sales.
I have gained enough hands-on experience managing branded online stores, as well as selling on third party retailers such as Amazon, to put together this article that explores the eCommerce channel from a strategic perspective.
Many brand owners acknowledge the need to expand online, but are unable to take action. The most common reasons are fear of channel conflict, and lack financial and human resources necessary to manage the online channel.
Selling online used to be prohibitive, especially for small businesses, but times have changed. Currently are many accessible options for expanding online, each with its advantages and disadvantages. Below are the most popular strategies, explained.
Your Own Branded Online Store
Today’s eCommerce platforms eliminate most of the barriers to selling online with easy-to-customize templates, bulk product uploads, integrated payment gateways, enhanced security and customer support.
The two eCommerce platforms I use and highly recommend are Shopify and WooCommerce. For those interested in a direct comparison and analysis of different platforms, the eCommerce Platforms blog is an excellent resource.
- You have complete control of user experience, including branding, messaging, marketing activities and customer support.
- You know who your customers are, which gives you the opportunity to develop long-term relationships and grow your brands on all channels.
- Your margins are typically higher, as there are no intermediaries, fees and commissions to pay to third party retailers.
- You can quickly add, remove and change products based on your strategic objectives.
- You can build a community around your brand, with positive effects across all channels.
- A successful eCommerce store is an important business asset.
- While setup costs have drastically decreased, launching an eCommerce store still require a financial and human investment.
- Building quality traffic and trust online takes considerable resources and skills.
- You may need additional resources for shipping orders and providing customer support, in addition to marketing.
Third Party e-Retailers (excluding Amazon)
Many established retailers, such as Walmart, Sears, Best Buy, Home Depot, Staples are actively looking to expand their online assortment.
Let’s take Best Buy for example: their in-store assortment consists mainly of electronics, while their eCommerce store carries many un-related categories including furniture, baby, maternity and beauty products, sports and recreation.
Getting in-store shelf space with big retailers is often difficult. However these retailers are much more receptive to carrying your brand online, given the virtually unlimited “shelf space” available.
- Your brand will benefit from the high traffic these stores already enjoy.
- You bring credibility to your brand by associating it with an established retailer.
- The investment in additional resources is not as high as launching and managing your own store.
- Depending on the distribution model, the retailer can manage your order shipping and customer support.
- Your brand will be one of many available on the online store, which makes it challenging to stand out.
- You have limited knowledge of your buyer, as most retailers will not allow direct contact with customers.
- Marketing tools available to influence purchase decision are usually limited, costly or both.
- The fees paid to the retailer might put pressure on your margin.
- The decision to keep or drop lines belongs to retailer, which increases your brand vulnerability.
Selling on Amazon requires a multi-layered strategy and probably a dedicated article.
At the time of writing this article (April 2017) there are three ways to have your products available on the Amazon platform:
Sell TO Amazon (Amazon acting as a distributor of your products): Amazon buys your products upfront at wholesale prices, stocks them in its warehouses and sells them to customers. Amazon is in full control of retail prices, and will re-order from you based on inventory and sales algorithms, just like any other independent distributor.
In order to take advantage of this model you will have to receive an invitation and acceptance from Amazon.
The main advantage of this model is that you will receive money upfront for your products, and don’t have to wait for the sale to be made. On the negative side, Amazon does little marketing effort to push your product, at least in the case of smaller brands. You will also have no knowledge of who is actually buying your product.
Sell ON Amazon using Fulfill-by-Merchant (FBM) model: This model gives you access to the Amazon Marketplace, where you can list, market, sell and provide customer support for your products. The products are stored and shipped from your location.
This model gives you full control of the retail price for your products. Once you made a sale, you are responsible for shipping the product to the end-use customer, and cover freight costs.
Amazon will charge a Marketing and Referral fee for giving you access to the platform.
Sell ON Amazon using Fulfill-by-Amazon (FBA) model: This is the most hands-off approach to selling on Amazon using the self-managed Amazon Marketplace platform. Just like in the FBM model, you are in full control of the retail price and any price reductions.
The difference is that with FBA Amazon is responsible for warehousing your product, and order fulfillment. In other words, you ship the products you decide to sell online to the Amazon warehouse(s), and they fulfill the orders. The biggest advantage is that your order will qualify for Amazon Prime service that has at least 66 million subscribers.
All this convenience comes at a cost. Amazon charges an FBA fee based on the type of product your are selling and its retail price. This fee is naturally higher than the FBM fee, as it includes storage, order picking, packing and shipping.
I personally use all 3 models to sell on Amazon. Each model has advantages and disadvantages; here are my personal observations:
-The Sell TO Amazon model gives you the least control of your brand. While the upfront payment for stock is nice, the fact that Amazon is free to set retail prices at its discretion can drastically impact your overall pricing strategy and create channel conflict. The is also very little involvement from Amazon to push smaller, less known brands.
-The FBM model works well for businesses that have excellent fulfillment capabilities, including good shipping rates. The other benefit is that you have your customers’ contact information, which could give you an idea of who your customer is (however, trying to persuade the customer away from amazon is strictly monitored by amazon and leads to account suspension).
-The FBA model is very popular, as it requires relatively little involvement once your products are shipped to the Amazon warehouse. This model is also great for accessing international markets. As a downside the FBA can eat your margins quickly, especially if your product is retail-priced under $10 USD.
Ecommerce is a channel most brands can and should take advantage of upon careful research and planning. Brand owners must decide on what method(s) work best given their specific product, target audience and internal expertise.
If you have any concrete questions about selling your brand online, feel free to contact me directly or leave a comment below.
Photo Credit: Robbert Noordzij on Flickr