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The desire to be your own boss is still very strong in 2018 due to the ongoing hype surrounding the topic of entrepreneurship. In particular, the "passive-income-how-can-I-make-my-first-million-quickly-without-offering-any-added-value" type of entrepreneur resonates with the advertising promises of the numerous "online marketing experts". Unfortunately, there is also no real point of contact that answers the question "What do I need to be successful in eCommerce?". The IHK and the numerous eCommerce conferences/trade fairs do not address this question or they only provide answers that are generally only feasible for large companies (turnover +200 million).

If you are wondering whether your professional The future of eCommerce then this article is for you. The following points, which I describe in detail, are based on my own thoughts and are intended to give you an initial overview.

Things you should consider if you want to get started in eCommerce

1.horizontal trading models are dead!

You ask yourself what Horizontal trading models are? In retail, whether online or stationary, we distinguish between horizontal and vertical retail models. In horizontal retail models, the retailer has a wide range of different product groups, usually from third-party brands. MediaMarkt can serve as an example here. MediaMarkt has a wide range of products in the "consumer electronics" product group. In addition, the majority of the products offered by MediaMarkt come from third-party brands (Sony, HP, etc.). The small number of own brands offered by Mediamarkt/Saturn can be safely disregarded.

With vertical trading models the retailer focuses specifically on one product range and controls the majority of the supply chain. In this way, the retailer also becomes a manufacturer and can skip the wholesale stage. This leads to higher margins in sales and faster production adjustments when demand changes.

Why have horizontal trading models had their day?

Of course, there will still be horizontal retail models in the future. Amazon is the perfect example of a successful horizontal retail model. But how many horizontal retail models do we need in a Platform economyin which customer loyalty is on the decline and customer acquisition costs are rising steadily? Certainly no more than at present. For this reason, it should be clear to every future eCommerce entrepreneur that selling third-party brands without clear differentiation from the existing competition is a hopeless mission.

I didn't realize this myself in 2014, when I founded my first eCommerce company, also a horizontal retail model. You'd better not make this mistake.

2. successful customer retention is more important than successful customer acquisition

Most companies prioritize the acquisition of new customers over the retention of existing customers. For example, banks issue credit notes to attract new customers, or electricity providers advertise cashback systems for new customers. We can also observe this phenomenon in online retail: "Subscribe to the newsletter now and get a €10 credit on your first order." In comparison, existing customers feel disadvantaged as they hardly enjoy any benefits apart from regular emails with purchase requests.

Why is successful customer retention the key to success?

Amazon is the prime example of successful and Sustainable customer acquisition. This also reflects Amazon's objective: "Earth's most customer-centric company". This is not just a slogan developed by a "brand agency", but actually Amazon's corporate philosophy. For this reason, 70 million Americans and 17 million Germans already have a Prime membership.

In my opinion, the problem of the lack of appreciation of existing customers can only be explained by the fact that those responsible underestimate the costs of acquiring new customers. After all, the value of an existing customer results from the cost of New customer acquisition. The cost of acquiring new customers is eleven times higher than the cost of reactivating existing customers. In addition, satisfied existing customers lead to natural customer growth, as friends and family members are naturally more trusted than any "testimonials" from satisfied customers on the website.

However, the costs of acquisition via paid advertising formats in particular are making it increasingly difficult to acquire new customers profitably. Advertising platforms such as Google AdWords and Facebook are among the most important acquisition platforms for online retailers. Due to the increase in advertisers and their advertising budgets, advertising costs on both Google and Facebook will not decrease (marketplace dynamics). Ultimately, this means that acquiring new customers will become unprofitable and companies will have to focus on customer lifetime value (LTV) instead of simply focusing on customer acquisition costs (CAC).

The most successful companies maximize the LTV (Amazon, Apple, etc.), whereas unsuccessful companies only focus on the CAC.

It can therefore be said that customer lifetime value is the most important KPI in eCommerce!

By maximizing customer value, it will ultimately also be possible for companies to achieve higher Acquisition costs and generate customer value throughout the entire customer life cycle. On the other hand, companies that focus exclusively on acquiring new customers and reducing CAC will sooner or later disappear from the market.

I didn't consider this aspect either when I was self-employed in eCommerce. Acquiring new customers seemed "cool and sexy", whereas looking after existing customers was more of a chore. For this reason, a strategy for maintaining existing customers should be developed before customer acquisition begins.
And no, a weekly newsletter with the latest offers is not a measure for a sustainable customer relationship.

3. marketplace-first strategy (is an online store even necessary?)

This will Store software operator and Online store agencies We don't like to hear this, but the question of whether an online store is still up to date in 2018 should at least be asked. Nowadays, product research takes place to a large extent directly on the specialized platforms (Amazon for general merchandise, Zalando for fashion, Notebooksbilliger for computer accessories, ZooPlus for pet food, etc.). The use of mobile devices also promotes the shift of product research towards the respective platforms, as the mobile app is much more convenient for researching and completing purchases than operating the shopping process in the mobile browser.

Another reason why the structure of an online store should at least be questioned is the growing number of voice assistants. When making a purchase, they will of course not search through online stores to buy the desired products. When using Amazon Echo (market share of 76 %), for example, the order is then also processed via Amazon.

Basically, I believe that before investing in setting up an online store, the products to be advertised can be effectively tested via the marketplaces (Amazon, Wish, etc.) to see whether the respective product is popular. Of course, this approach is not universally applicable, as the platforms and touchpoints differ depending on the product category.

4. the end of free visitor flows

There are numerous ways to attract website visitors. For example, visitors can become aware of a project via Google, Facebook or PR. In addition to attracting visitors who will ultimately convert to customers, the question naturally arises as to which visitor sources are particularly suitable for a new online retailer.

The term "SEO", as the desire for "free visitors" is at the top of the to-do list. SEO largely refers to the Google search engine. In 2018, however, the dream of free traffic via the Google search engine is hardly feasible. Of course, the Google search engine can still be a reliable visitor channel, but not without a significant upfront investment in infrastructure and employees. A five-digit euro amount per year is considered Minimum investment amount and even this does not guarantee success. The presentation of search engine results (feature snippet etc.) in particular has been changing more and more frequently recently. Google AdWords ads dominate the mobile search results pages, meaning that the space for organic Google results is becoming smaller and smaller.

Placing your own products on Amazon is also no longer possible without investing in Amazon SEO and the various ad formats in the Amazon advertising cosmos possible. As investments in paid Amazon advertising formats have an impact on the organic Amazon ranking, the placement of Amazon ads is a basic requirement in many product categories in order to gain visibility for your own products.

The same applies to the generation of website visitors via Facebook, which since mid-January has worked almost exclusively via paid advertisements, as the number of visitors reached via fan page posts is tending towards zero.

What does that mean for me? Ultimately, you should be realistic about the advertising costs you need. If you are in a very competitive product range you may well generate a negative contribution margin on the first order from a customer. This can only be refinanced if you have deep pockets ("VC money") or if you are certain that the LTV of the acquired customer is higher than the advertising costs paid.

5. the creeping death of undifferentiated products (price leadership, quality leadership)

What you sell is just as important as how and where you sell. According to Michael Porter, there are three Competitive strategiesthat a company can pursue:

1. quality leadership
2. cost leadership
3. niche providers

Which category do your products fall into? Before actually starting out as an online retailer, you should consider this question. Because only with a clear initial strategy can the probability of success be assessed. An undifferentiated product strategy will sooner or later lead to misery. In most cases, cost leadership can only be secured in the long term through synergy effects in production and sales, meaning that the competitive strategy of price leadership cannot be maintained.
With the Quality leadership On the other hand, it requires a high level of investment in marketing/branding to justify the price difference to similar products.

With the Niche strategy is geared towards a very specific customer segment and attempts to serve the respective customer segment in the best possible way by concentrating resources. In contrast to quality and cost leadership, the niche strategy of the online retailer involves being a specialist rather than a generalist.

Many online retailers (like I was) do not pursue quality leadership, price leadership or a niche strategy, but sell a product range without differentiating features. These retailers are "stuck in the middle" and therefore sooner or later go out of business.

What strategy are you pursuing? Without a clear differentiation and competitive strategy, you should not become active in online retail. In my opinion, online retailers without large budgets should always choose the niche strategy, as the respective target group can be addressed very precisely via the various advertising channels (especially Facebook).

Tobias Dziuba

My name is Tobias and I am the founder and managing director of the Amazon agency Adsmasters GmbH based in Düsseldorf.

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