Moving to E-Commerce

Digital Marketing - Study Notes:

Potential pitfalls

But there are also some potential pitfalls along the way of this transition from traditional retailer to a more e-commerce focused retailer.

Approaching with existing resources

One of these is approaching the change with your existing resource and existing mindset. Argos is a great example of how they managed to do it. But that transition wasn’t necessarily smooth. So when they first started trying to do it, they were kind of dabbling in e-commerce. But they still had the core of their business focused on how to drive as many sales as possible through the stores. And it wasn’t until they were almost at the point of collapse where that real burning platform was created, for them to take the bold step of really backing everything to do with e-commerce. And then, thinking about how the stores and how the existing infrastructure can support that.

So it’s, again, really important to be clear on what your priorities are and whether e-commerce is really leading things and also how that works together with the existing offering.

Lack of familiarity with the business model

Secondly, there can be a lack of familiarity with the business model. So, there are lots of similarities in retail between traditional retail and e-commerce. For example, understanding what the consumer wants. How you merchandise your product in a way that makes it easy to find. But often the implementation of that and some of the particular examples of it are very different when you get into an e-commerce world. And so it’s important that businesses recognize that and employ the right type of expertise. Either internally, into their business, or by partnering with external agencies, or doing joint ventures with different businesses to make sure they have real e-commerce expertise and real understanding of the e-commerce business model to give themselves the best chance at success.

Lack of insight into capital investments required

And thirdly, there can be a lack of insight into the capital investment required to move to e-commerce. This is both from an initial set-up point of view but also from an ongoing operation point of view. So from the initial set-up, it can be very expensive to build new websites and create the infrastructure required to support them. And secondly, from an operations point of view, there can be lots of additional costs that aren’t necessarily foreseen from the outset.

So for example, from the outside looking in, it may look that on the face of things actually, you don’t need many employees to run a successful e-commerce site. And it should be reasonably cheap to send the product from your warehouse to the end consumer. But actually, when you get into the detail of that, you can find that to get people converting in the way that you want, you actually need a very high level of customer service, that can require a very high number of highly skilled customer service people that has a significant cost associated with it. And going to the delivery example, again, people might purchase in a slightly different way online. For example, buying two products that are the same, just in slightly different sizes, seeing which one fits best and sending one of them back.

So while the business model might have accounted for just having to handle the cost of sending the product to the consumer, they actually should have been factoring in the cost of sending product to the consumer and having it returned. So these are just two examples of how knowing how e-commerce businesses work compared to more traditional businesses can help you foresee some of the investment you’re going to require.