Marketing Costs are Real and How to Compete

Many folks think that with ecommerce, you essentially don’t have the typical marketing spend you would need with a physical store. This is probably one of the biggest myth’s out there with regards to online retail; in fact, the opposite is true and the costs are very real. Take this quote from Recode on soon to launch ecommerce startup Jet.com:

Or, the idea may simply be too expensive to build. Lore has previously said the company is budgeting $500 million for marketing over the next five years.

$500 million, on marketing, for a startup that hasn’t even launched. Or take a look at what the biggest retailers spend on Google to market their goods as noted by Wordsteam:

Amazon – Spent $55.2 Million on Google AdWords
Ebay – Spent $42.8 Million on Google AdWords
Macys – Spent $35.6 Million on Google AdWords
Sears – Spent $34.3 Million on Google AdWords
JC Penny – Spent $30.9 Million on Google AdWords

Amazon and Ebay spending over $50 million on Adwords is understandable in many ways given their entire business model is online retail. But look at the department stores; it’s no surprise to see how competition is essentially destroying all of the value in these businesses.

So what does one do if you’re a small scale ecommerce player with a equally small marketing budget? You have to compete in different ways. You will still have marketing costs, but the way you allocate that spend will dictate your overall chances of success. So if CPC and online advertising in general doesn’t work for you/your product(s), look to spend in other ways i.e email marketing, content marketing or even, offline marketing like events.

It’s worth re-iterating, the best and most powerful way to market your business is as old as time itself; word of mouth. Whatever you do that perpetuates word of mouth is worth pursuing vigorously. Once you have positive and far reaching word of mouth, not only are you not paying for it on the bottom line, it’s just the best way to connect with existing customers and your target audience.

Online to Offline Opportunity

It looks like Wanda, the Chinese Real Estate (Shopping Mall) company is attempting to do what no other company online ‘marketplace’ has done thus far – online to offline. eBay has made attempts and failed, likewise Google and Amazon to a large extent. Possibly the only player in the space today of scale is Instacart, who ironically have just raised a ton of money to go after the opportunity.

TechCrunch notes:

Wanda E-commerce hopes to differentiate from Alibaba and other rivals like JD.com by focusing on an online-to-offline business model. Wanda claims that its various holdings give the “world’s largest offline consumer network,” with 1.5 million customers in 2014, a number that it expects to reach six billion by 2020. The company’s advantage is that it already has a significant number of brick-and-mortar retail businesses that it can leverage to gain customers and data for its online services.

The opportunity is unprecedented – attempting to develop a true multi-channel marketplace model that allows shoppers to seamlessly shop in store and online. How exactly Wanda will pull this off (like Instacart’s financials) is unclear at this stage. For sure, we’re not seeing the rise of bricks and mortar utilizing this model so there’s no reason it shouldn’t work for the marketplaces either.