Margin of Opportunity

What is the best way to increase your margins as a merchant? Sell your own merchandise. Quartz as an interesting piece on Amazon’s “secret” plans for private merchandise:

Trawling through over 800 trademarks that Amazon has either been awarded or applied for through the US Patent and Trademark Office (USPTO), Quartz identified 19 brands that are owned by Amazon and sell products or have product pages on amazon.com.

The key strategy behind private label brands is this however:

Perhaps what Amazon is trying to do as it rapidly expands into new businesses—especially business areas where it might not have forged partnerships with well-known brands—is to give the impression to customers that there are tons of options to choose from, when in fact, they’re really just choosing between different Amazon brands. “Consumers pay a premium for a brand, that’s why they’re not store-generic,” DiMassimo suggested.

Retailers have long adopted a multifaceted brand approach to retailing – think Zara plus Massimo Dutti, Oyosho, Bershka etc or HM plus COS, Cheap Monday or indeed pretty much any other major retailer these days. As above, it’s about generating margin whilst at the same time, presenting a feeling of choice.

Read the full piece

Amazon’s PR Genius

“Our teams remain heads-down and focused on customers,” said Jeff Bezos, Amazon founder and CEO. “In the last few months, we launched Echo Show (our newest Echo device with a video screen), introduced calling and messaging via Alexa on all Echo devices, debuted Inside Edgeon Prime Video (the first of 18 Indian Original Series), introduced Amazon Channels in both the U.K. and Germany, launched four new Fire tablets, expanded Amazon Fresh to Germany, launched Prime Now in Singapore, launched our 25th airplane with Prime Air, hired more than 30,000 new employees, opened three new Amazon Books stores, launched more than 400 significant AWS features and services, migrated more than 7,000 databases using AWS Database Migration Service, and held our third annual Prime Day — signing up more Prime members than ever before. It’s energizing to invent on behalf of customers, and we continue to see many high-quality opportunities to invest.”

Jeff Bezos comments on Amazon’s 2017 Q2 earnings. This idea ‘to invent on behalf of customers’ works out more often than not for Amazon, we see AWS, Kindle etc as proof of that. But what people often overlook is the public relations genius of Bezos and Amazon in these situations.

Remember Prime Air drones on 60 minutes? Or the orange Amazon Robotics (formerly Kiva) robots we see in the warehouses? Or how about Zappos and their famous customer service? Many of these will be loss making – perhaps indefinitely – but what they do for Amazon is priceless. They give them press, more often than not at the expense of other retailers and increasingly, other firms in general.

Not everyone can make splashy purchases like Whole Foods or The Washington Post, but as an entrepreneur, you can always think of creative ways to get press.

A Primer on Sourcing

What sets a successful production run apart from the rest is a company’s initiative to engage with a manufacturer while maintaining their relationship. If you’ve been looking to start producing your products overseas, it’s about time you tried. What are you waiting for!

Nathan Resnick has written an excellent piece on sourcing goods from China that can be applied to any business (regardless of sourcing country).

Go to A Better Lemonade Stand to read more.

What China Reveals About the Future of Shopping

China has more e-commerce activity than any country in the world today. According to China’s National Bureau of Statistics, Chinese consumers spent $750 billion online in 2016—more than the US and the UK combined. That is a jaw-dropping number, but even more interesting is how differently China’s digital marketplace, technology platforms, and online behaviors have evolved compared with those in Western markets.

Read More at BCG

Chewy Acquired by PetSmart

In a deal announced by the best ecommerce reporter, Jason Del Rey, Chewy.com has been acquired by PetsSmart for over $3 billion. Yes, billion. Similar to the recent Walmart purchase of Jet.com, is this nuts?

Forbes recently wrote about the company, of particular interest:

One pet industry veteran, who says he knows three people who are familiar with Chewy’s finances, doubts the company will reach profitability. He says Chewy’s average sale is $75, its average margin after discounts 30% and its average cost of delivery–which Chewy offers for free on orders of more than $49–around $12. A competitor estimates that Chewy’s customer-acquisition cost could run as high as $200 per first sale, given that the company pays to appear at the top of Google searches for each of the hundreds of brands it carries. “The bottom line is that Chewy is incredibly predatory, and they’re willing to lose money to grow their volume,” says the industry veteran.

So, it’s likely Chewy, like Jet, is unprofitable and will be for some time if not ever. But co-founder Ryan Cohen says he is convinced that e-commerce will eventually take at least 50% of total pet product sales and that Chewy will log more than $5 billion in revenue by 2020.

Potential. That’s the price paid by PetSmart and others for what perhaps the future of ecommerce and retail will look like in a few years.

One Brand to Rule Them All

Six years after purchasing the competing online retailer for $545 million, Amazon is shuttering Quidsi, citing struggles to make the unit profitable. The decision will affect about 263 jobs in New Jersey, where the company is based, according to Bloomberg.

Quidsi is the owner of Diapers.com, Soap.com, Wag.com, BeautyBar.com, Casa.com, and YoYo.com. Its founder, Marc Lore, begrudgingly sold to Amazon amid a pricing war. He went on to found Jet.com and sold that to Walmart, where he now runs e-commerce. Read more from Bloomberg here.

It’s commonly accepted in bricks and mortar retail that to capture as much market share as possible, multi-brand formats are required. Retailers in fashion (Zara and HM) or grocery (Walmart and Tesco) operate under numerous brands whilst utilising a common backend infrastructure in product, warehousing and logistics. So, how about E-commerce?

Well, Amazon’s strategy of operating under the Amazon banner might be a hint at what’s to come. The marginal cost of software has perhaps fooled companies into a broader brand portfolio when in fact, it pays to be singularly focused on your flagship brand. After all, even if you continue to operate multiple brands, applying the 80:20 rule, it’s usually that one flagship brand that makes the vast majority of revenues/profits.

What do you think? Should you put all your resources behind one brand or spread risk and capture market share with multi-brand? Let us know in the comments.

Taking your first steps in China? What makes this market unique?

The Chinese market place is, in my humble opinion, the most fascinating in the world. I have had the pleasure of working in and studying this digital eco-system in China for a number of years. For western businesses looking to expand into the most lucrative [in terms of sustained return on investment and lead generation] yet different marketplace in the world it is important to understand what makes it so unique and why..

China is contradictory in many ways, the country has opened up to foreign investment and business opportunity like never before yet still remains a very separate and distinct proposition for business.

In China digital is king

In China EVERYTHING is now digital. The digital revolution has been unprecedented in the last decade and now become the absolute norm. The country boasts a 58% internet penetration rate which is expected to grow to 65% by the end of 2017. This is relatively low compared to many countries in the world but consider China’s population of 1.4 billion, this therefore equates to 800 million netziens.

Consumer culture is increasingly orientated around digital engagement, online to offline, and e-payment. The growth of Alibaba, WeChat and Baidu as the key online giants has helped facilitate such consumer trends.

You don’t need to spend long in China to realize the prevalence of digital. Chinese citizens are glued to their smartphones, in-fact, latest figures show there are approximately 550 million smartphones in China. Even physical adverts [without exception] embed QR codes into the images whilst e-payment in stores via Alipay or WeChat has become common practice.

The digital advertising and marketing industry is worth $320 billion in China, the future is digital. But so is the present. You have to understand that whilst offline methods still exist they are old news, you have to be where your target market is, and that is online on search engines, e-forums, social networks.

The key fact to digest is the scale of China’s internet penetration, typically it was the east coast of the country with the largest 1st tier cities that had the largest online communities but of course most of the population of China live in  tier 2 and 3 cities, the growth of internet access here is increasing at the fastest pace, in part because of the success of Alibaba’s e-commerce infrastructure.. but more  on this later.

The market is different, Chinese platforms dominate.

The market developed under a unique and different set of conditions. What you have in China is effectively a closed intranet, rather than the open source web we are used to. The online sphere has been shaped by state regulation, policy and Chinese cultural trends. This has produced a market place where Chinese, home-grown platforms dominate. State regulation shut western competitors such as Facebook, Google, Youtube etc out of the largest market in the world, in this vacuum Chinese specific adaptions evolved to cater more specifically for the Chinese user. Instead therefore we have WeChat, Baidu and Youku.

Western brands, products and services need to utilize this Chinese infrastructure for growth in order to succeed.

Chinese platforms are world leading

Chinese platforms are not just unique but also world leading, innovative businesses in their own right. They may have started out as western ‘copycats’ but have now evolved into very different, multi-faceted creatures.

Baidu is the largest search engine in China with 70% of all online research conducted here. For any business a strong presence on Baidu is vital but takes time as you need to appear in the natural results based on Chinese keyword searches. Baidu’s intelligent system named ‘the spider’ prioritizes websites hosted on a local server which are optimized for Mandarin character searches. Like Google, the engine rewards fresh content and backlinks from other sites to increase visibility in the search results.

Baidu are investing heavily in virtual and augmented reality with aim of incorporating this into their searching services as well as facilitating their wider uptake and commercialization in Chinese society.

WeChat is arguably the most integrated platform in the world with 750 million active user accounts. It is designed as a ‘one stop shop’ for everyday life with a host of their own and third party apps on offer within the network. WeChat functions as a browser, app store, instant messenger, is used for sharing video’s and pictures, a taxi ordering application, voice messaging, an e-payment system as well as providing services in dating, financial investment and geo-mapping location.

Weibo (akin to Twitter) is a micro-blogging platform with 250 million users. Users can see posts from anyone, they do not have to be connected first. This makes it an ideal place to work on branding or for spreading a message with articles often the subject of posts. User interactions remains high on Weibo with posts up-ranked based on the number of likes and comments from the community. If content is going to go ‘viral’, it will most likely be on Weibo. Many online influencers and celebrities also use Weibo as their main network for posting and interacting with followers.

In China you have to start over again.

Regardless of your status outside of China, because the internet has been ring-fenced, you need to build a reputation and visibility from scratch to generate leads. Baidu, the largest search engine presiding over 70% of all online research, is based on Mandarin Character keyword searches, English optimized keywords are redundant.

This does present a great opportunity too, the barriers for entry also result in fewer international competitors, and this is what sets you apart. Being first to market in China is vital, I have seen time and time again that, if you brand yourself and grow your online presence ahead of the competition you are far more likely to succeed.

Everything moves fast

In China everything moves quickly, part of the frantic pace of modern life as the country hurtles into the future. This results in large scale investments and innovations being made quickly and decisively. You need to move fast to get ahead of competitors. Take the ‘mobile biking revolution’ as an example. The leading player is ‘Mobike’ who launched an app where you scan their branded bike to start riding and scan to finish, leaving it wherever you want. Using mapping services users can locate the nearest bike. Mobike launched and within two weeks had placed over 30 000 bikes in the first tier city centres. The app launched and within a single month boasted over 200 000 registered users. Digital growth is fast paced, decisive and exciting..

The behaviour of Chinese online

Chinese ‘netziens’ are arguably the most engaged online users in the world. They spend on average a whopping 2.5 hours per day online. 1.5 hours of this is spent on social networks. The Chinese user see’s the internet as their greatest resource for researching, and this is their key trait, the Chinese research online like no other nation.

This is due to a number of factors. Many Chinese have been cheated or let down by poor quality products and services. This makes them more discerning in their purchasing habits and sceptical of new brands without a reputation.

The other factor is that Forums remain wildly popular, in search engine results forums will often appear above an official website. The ‘forum’ is unfashionable now in the west but remains vital to any marketing strategy in China. I would suggest this is due to the Chinese reliance on peer based reviews and shared opinions, perhaps because of their more collectivist nature.

The importance of mobile

There are now 550 million smartphones in China. This is because of mass market, affordable models from brands such as Vivo and Xiaomei. It has led to a mobile-centric digital market place and underscores the importance of mobile optimized content, app development and mini-sites.

Mobile has produced a type of ‘on the go’ engagement. WeChat was built as a mobile app with users spending an average of 1.5 hours a day on the platform. This is because of this culture of instant gratification, frequent usage and mobile interactions.

With the dominance of smartphones comes the proliferation of apps. The largest app store is Tencent’s ‘My App’ with a 24% market share, in second is ‘360 mobile assistant’ with a 16% coverage. WeChat are also launching their own internal app store which will tap into their 750 million active user accounts.

E-payments

E-payments are the norm in China now. The largest third party payment app is ‘Alipay’, part of the Alibaba group. Users can simply scan a QR code to make instant payment from their e-wallet, this is linked to their banking. E-finance services have developed with users able to transfer funds to each others accounts, make investments and manage accounts. WeChat also launched an e-wallet service to compete with Alipay.

‘Hongbaos’, the traditional red envelope given at important Chinese festivals and life events, has now been updated in our digital era. E-wallet services allow users to send and receive hongbaos with either a fixed or random allocation of money inside. Alipay spent millions in offering ‘lucky dips’ on red envelopes to incentivize users to give digitally. The search for envelopes has even been integrated into the physical environment with new Augmented Reality based games, users through geo-location services and their camera on a smart phone can find and open envelopes. Think ‘Pokemon Go’ but there is a financial inventive.

QR Codes

QR codes really took off here and have created strong opportunities to drive traffic from offline to online. By scanning a code, users can be linked to a company website, wechat page or some specific content. QR’s are now featured on most ads, in magazines and newspapers and on physical products. This highlights the nations pre-occupation with digital engagement. It is commonplace to see someone scan the code from an ad in a metro station because this links to the bulk of the content. The take home message is that even with offline activities, the main goal is to drive the prospect online, especially as paying via digital wallets is the best and easiest method for payment.

 

China is a fascinating market, especially because of its uniqueness coupled with its profitability. Nowhere else on earth will you find a closed system with such a vast user uptake of digital services and as a passionate marketer this captivates me.

Benji is a digital marketing specialist focused on the Chinese market, for more information see his blog and website here.