We've asked the question of office product resellers many times about how important e-commerce is for their future, and, most times, the answer comes back that it's "mission critical." However, success stories are few and far between for such a mission-critical objective; Resellers need to think hard about what they understand e-commerce to be and what some effective strategies may be for developing it.
This article aims to develop the argument that, between web traffic and e-commerce, the former is the more important of the two. This is logical because, to create an e-commerce business, you must first build web traffic. E-commerce may be achieved due to web traffic but cannot possibly take place without it.
We've published many articles on the subject of web traffic development. We've stressed, over and over, that accomplishing this objective is not easy and requires a consistent application of time and effort. Suppose e-commerce is genuine "mission critical" for office product resellers. In that case, web traffic is more so, and efforts to develop it must occur before sustainable e-commerce.
Web traffic is a precursor to e-commerce so, traffic development must be more important than e-commerce. With traffic, options are available, without, they are not.
Having established this foundation that web traffic development is more critical (at least initially) than e-commerce, it becomes vital to think carefully about who to target in terms of ideal site traffic.
The following components must be considered:
- Cost of customer acquisition
- Lifetime value, churn, and the inverse relationship between the two
- Visit to lead conversion rates
- Sales funnel conversion rates
Think carefully before you set up a site that (intentionally or not) competes with Amazon or (when it fails) is then made part of the Amazon marketplace!
Amazon was founded in 1994 and, by 2005, had accumulated losses of $2.2 billion and shareholder equity of just $6M! Massive human and financial resources were invested in building its foundation before it became the dominant e-commerce behemoth we know today.
Amazon's cumulative revenue in the twenty years between 1995 and 2014 was $409 billion, and net profits were just $1.96 billion. By contrast, Walmart's revenue in 2014 alone was $486 billion, and its net profit was over $16 billion. In other words, Walmart generated eight times the gain in 2014 than Amazon during the twenty years between 1995 and 2014.
What does this mean for independent office product resellers and their e-commerce strategy?
Attempts to copy Amazon's model will fail - small businesses cannot execute a strategy similar to that of Amazon. Even Walmart will be hard-pushed to close the gap and compete effectively.
Walmart recognizes the threat Amazon poses to its business model and has started to invest billions to develop its e-commerce initiative. The scale of investment required to compete with Amazon is clearly outside the scope of office products resellers.
- Amazon sets the benchmark in terms of e-commerce pricing. However, the Amazon model creates a downward spiral of pricing that can quickly eliminate the weakest players while simultaneously delivering all their customers to the Amazon marketplace. Only Amazon (not the marketplace resellers) has the resources to sustain losses while it builds market share.
- Office product resellers attempting to compete with Amazon must be competitive with their pricing. However, it's low-volume office product resellers can't be price-competitive and make a profit.
- In the Amazon marketplace, where individual office product resellers participate, customer retention is low (churn is high), and average order size is standard. This means the cost of acquisition (relatively high) and lifetime value (relatively low) will likely result in an unsustainable business model.
A strategy that attempts to compete with Amazon and its marketplace merchants is flawed and will almost certainly fail. The pricing model is an issue and competition for their traffic is an issue.
There is an average of 3.5 billion Google searches per day.
- Web traffic goes to Amazon to shop.
- Web traffic goes to Google for research.
- 80%+ of web traffic is researching, not buying.
- Researchers are likely to become shoppers at some point in the future.
The competition for "Intent-to-Buy" searches is high. Unless you're paying for results and have sufficient domain authority to win a place on the first page, satisfactory results are not likely to occur.
Even if office product resellers win a few random searches, subsequent customer transactions will likely be relatively small. Furthermore, it isn't easy to develop loyalty with the resulting profile of customers that are required for repeat orders, up-sell, or cross-sell opportunities or to successfully work on improving these critical business metrics. As a result, average revenue per customer will remain low and churn high. This translates to a high acquisition cost and a low lifetime value which, in turn, does not equate to a sustainable business model.
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As shown in the two sales funnel images above, the Analog Reseller, using a "bottom-of-the-funnel" instant conversion strategy, needs massive traffic volumes to achieve its sales goal. Conversely, the Digital Reseller, targeting visits from "top-of-the-funnel" researchers for nurturing through the sales funnel, can accomplish the same sales goal with less than 10% of the Analog Resellers' required traffic volume.
Furthermore, in developing customer relationships and focusing on its value proposition, the Digital Reseller will likely have lower churn rates, meaning fewer customers are required to reach the same sales goal.