Thinking of creating an online store?
Today creating a store online is relatively easy. That doesn’t mean you should do it. Many people discover too late that managing online store and making it successful can be as complicated as running a traditional bricks and mortar retail store.
What kind of businesses make great online stores?
In one article, it’s impossible to teach everything you need to know for successful store. This week’s post is designed as an overview of online retailing.
What products should I sell?
For the sake of this article, we are assuming you are selling physical products. Certainly online stores exist that sell information-based and downloadable products, but that’s a topic planned in a future post.
Good products have several criteria:
Uniqueness – Offering a product that’s hard to find draws people to your store. Additionally, the more unique the product, the higher price you can charge.
Shipping – Physical products must be shipped to the recipient. Make sure to clearly identify everything from packing materials to the carrier for each product. Refrigerators can be high-margin items, but shipping them economically isn’t realistic. Clothing, books, paper products, electronics and toys are very easy to ship generally. Other products such as liquids or food items can ship easily, but take more planning and perhaps special packaging.
Reorder potential – Products that are used up or have a short lifespan can create great customer loyalty. Amazon.com started as a bookstore. They chose books because they could be shipped and inventoried easily, plus avid readers purchase many books. Today Amazon owes lots of it success to its intensely loyal customer base.
Inventory systems are critical to success.
In any retail business, inventory is the single largest headache, and your largest potential for failure. Over the years, Sears, JCPenney, Kmart and many other retail chains have faced crises because of inventory problems. There are four processes that must be mastered.
Acquisition – You must be able to manufacture or acquire new inventory. A small percentage of your products will become your best sellers and generate the most profits. You must be able to require more of those products for success.
Storage – Online businesses have an advantage in that their inventory doesn’t need to be displayed. However, your storage system still must be well thought out. You have to be able to store product economically, while still making it accessible for fulfillment.
Fulfillment – Your hottest products fly off the shelves. However, less successful products will make up the bulk of your inventory. It’s important to keep the inventory accessible, and retain a large enough stock to prevent frequent reorders and get your best margins. Any company can be great at fulfilling your top 10% of products, but the other 90% have to be delivered efficiently to remain profitable.
Liquidation – About 20% of your products simply won’t sell. These products actually cost you money just sitting there. Over time, this 20% will account for more than half of your inventory unless you have a process to liquidate it. Liquidation can be done one of three ways; clearance sales, sales to jobbers, or disposal/recycling. All of these have benefits and pitfalls.
Customer loyalty is paramount.
Successful online businesses don’t require huge audiences. They do, however, require an intensely loyal customer base. There are many techniques to strengthen loyalty. Here are a few we recommend.
Introductory Products – Many companies rely on impulse items and loss leaders to get you in the proverbial door. Even retailers like Target, Walmart, RadioShack and Victoria’s Secret put low-priced “loss leaders” at the store entrance. This technique gives customers a reason to visit, and assures their first experience will be pleasurable. The same techniques work for online retailers.
Special Deals – Reaching out to your audience through advertising or promotional campaigns with regular limited time offers is critical. Physical stores depend on location to attract the majority of their customers. Online stores don’t have that luxury (or burden). If you stop promoting, your customers stop buying, even the most loyal.
Loyalty rewards – If you have a niche audience, it’s important to encourage as many of them as possible to become frequent shoppers. Allowing your most loyal customers to earn rewards reinforces this. Be creative. It could be as simple as public recognition, badges for frequent shoppers. It could be specials or exclusive deals. Everyone loves free stuff. Amazon has even been successful charging for Amazon Prime, their unique loyalty program guaranteeing free shipping and lots of free downloadable content.
Crunch the numbers for ultimate success.
The largest difference between retail stores and online retail is data. Customer data and analysis is becoming more critical today than ever. If you aren’t a math nerd, make sure you have access to one as your online store grows.
This cycle is the key to exponential growth of your company.
The more customers you have the more data you can acquire.
The more sales you make, analyzing that data becomes easier.
The more data you have and the quality of analysis leads to more customers and more sales.
If you have a terrific product that generates lots of profitability, but you ignore the data it’s guaranteed that some other company will come in and steal your business. Having a good grip on where to acquire customers, how to encourage them to buy, and what to do to get them back can all be boiled down to numbers. The winner rarely is the best idea. In retail, the winner is the company that takes a good idea then pays attention to those numbers.
The good news for retailers is that data is more accessible than ever. There are a variety of great tools and knowledgeable people (including the Mediastead team) that can help you wrap your arms around the information flow.
If you’ve been contemplating building an online store, or if your current online store is less successful than you’d like, call Mediastead for a free consultation.