Strategy Centre

Why Most Retailers Fail to Cross the Ecommerce Chasm

  
01 September 2016 14:34
  

Why Most Retailers Fail to Cross the Ecommerce Chasm

I have written a few articles about ecommerce recently that were about businesses and people.

The reality is that — and we all know it — most companies completely fail to maximise their ecommerce opportunity.

This is not down to the market or the technology. It is actually down to how the choices that the company makes affect their sales numbers.

Ultimately no company is anything in business without big sales numbers — and we should never forget that success comes down to sales especially in ecommerce.

It is very, very difficult for mid-market companies to take the ecommerce opportunity. This article aims to frame the challenge concisely and to outline the steps that companies need to take to make them successful.

The IRP has transacted over £1,000,000,000 (£1 billion) in ecommerce revenue — and in this we have not been passengers. We have continually pushed and adapted our technology and strategy to increase our client's sales. However, despite our best efforts, we have watched companies that on paper should succeed in ecommerce — fail to do so. Our failures of working with companies that should succeed online but do not have taught us many important lessons.

What retail and ecommerce share and why they are so fundamentally different

Retail and ecommerce share very little in common, but they do share a few things:

  • They are both about selling
  • Companies are often selling the same product online and offline
  • They both operate off the equation: Visitors * Conversion Rate * AOV = Sales.

But after this the similarities are few — and there are many more differences than similarities.

When you think rationally about it, how can there be many similarities in the channels? Retail is a physical presence on a High Street, something that has been around for thousands of years, one where you can see the customer that you sell to. Ecommerce is a completely electronic medium of selling, entirely based on technology and almost totally dependent on deep analytics to understand.

Why do retailers fail in ecommerce?

Retailers fail for the following reasons:

  1. Successful retailers are used to succeeding in retail. Believing they understand ecommerce before they actually do is often the thing that can guarantee their failure.
  2. Retailers expect to understand ecommerce easily. However it requires a completely different approach and skillset. This expectation — of being able to make decisions by instinct in the same way that it works in retail — fails 99% of the time in ecommerce. Ecommerce decisions are basically data driven.
  3. The new ecommerce channel requires specialisms, but in a totally unregulated market (there are no serious ecommerce qualifications) retailers do not know who the specialists are. Retailers cannot pick the right people to provide online marketing or technology services.
  4. As the ecommerce process becomes complex, retailers can forget that it is actually all about sales. They focus on the cogs in the wheel. They find themselves dealing with things that are unfamiliar such as Google or Facebook and can imagine that these things are an end in themselves. A classic statement we hear is, “I want to improve my Google rankings”, but almost never hear “I want 500% sales growth — how do I get it?”.
  5. They feel very personally about the website and how it looks as opposed to thinking about the customer and what they want to hear and how they want to interact. “It’s the customer stupid” concept that wins every time.
  6. In retail, they can see and sense the market, but online, only data and analytics work. This is a very different specialism and it is difficult to know which specialist to choose.
  7. They fail to adopt a ‘Cost of Sale’ accounting model. They can continue to see online marketing as a growing overhead — and this accounting view will be fatal to an online operation.

Certain retailers require a particular look and feel for their website and, aside from this, may even require a separate ‘Brand Marketing’ budget, where success is measured on different KPIs such as customer engagement or brand recognition. This branding requirement should not, however, alter the fact that the fundamental function of an ecommerce website is to transact sales and that this is the basis on which it should be judged.

What is the approach that works?

We have proved that the following approach is one that works:

  1. Accept completely that ecommerce is all about sales, accept the huge implications of this statement and judge everything based off this.
  2. Judge every specialist experience by how many sales that have transacted. Ask every PPC person or Facebook marketeer: “How many sales did you get and how much did these sales cost?”
  3. Get the basics right: use a cost of sale model for online marketing, use the website to identify needs and remove blocks to sale, get the right online marketeers.
  4. Use concise, accurate and readable financial reporting.
  5. Know what you don’t know — and gain the skill to know how to pick the right people and make the right decisions.
  6. Once the sales are rolling in, run a tight ship and keep the customer happy.

Without alignment on core principles, and a tried and tested approach, we see over and over again retailers wasting time and energy on their online operations that, if put into standard retail, would yield much better results.

The IRP World approach is how we try to completely systemise success, to make all decisions data driven and make success a natural outcome.

Summary

The best advice I personally could give is: judge everyone in eommerce based on the revenue they have generated online and the cost it took to generate.

I would also ask companies to trust the IRP World approach. The IRP has transacted over £1 billion for companies based in Ireland alone. We are 100% aligned in our ecosystem and commission arrangements to increase your sales. This permeates everything we do — so our advice comes from a very definite place: we want to help you sell more.

We want to take the complexity out of ecommerce and help you to succeed. Companies that take time to understand the IRP World approach and its implications will understand the methodology.

In conclusion, I recommend that you give the IRP World Data-Driven Approach to ecommerce a go — it will work for you — what do you have to lose?

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