Customers Rule

It’s not just a trend like so many in ecommerce but a fact; customers rule. It’s the way online retailers respond to customers that helps decide their fate and as the FT notes, this time it’s Boden opening physical stores:

The move underlines the need for purely online retailers to have a physical presence as customers demand the ability to buy online but pick up in a physical store. Some customers are deterred by the inability to try on clothes on and others drive up returns by buying more than one size to ensure the correct fit.

Read the full piece here, an excellent overview of the topic.

Shop on Google

According to the WSJ, Google is taking the final step to becoming an online marketplace of sorts. The Journal says:

The buttons will accompany sponsored—or paid—search results, often displayed under a “Shop on Google” heading at the top of the page. Buttons won’t appear with the nonsponsored results that are driven by Google’s basic search algorithm.

This is big news and potentially at odds with the company’s long-standing position of being the ‘gateway’ as opposed to the ‘destination’. So why is Google doing this; the answer is very obvious yet often overlooked. Despite Google’s top keywords being ‘service’ related terms e.g. Lawyer, Doctor etc as shown by this excellent WordStream infographic, it’s physical goods commerce that helps drive revenue.

To demonstrate, AdAge listed Google’s largest advertisers and highlighted in bold are retailers:

Rank Advertiser Ad Spending
1 Amazon $157.7
2 Priceline Group $82.3
3 AT&T $81.9
4 Expedia $71.6
5 Microsoft Corp. $67.1
6 Experian $61.7
7 Walmart Stores $59.7
8 Sears Holdings Corp. $59.2
9 IAC $53.9
10 Apollo Education Group University of Phoenix $53.5
11 Bankrate $51.9
12 Fiat Chrysler Automobiles $47.5
13 Berkshire Hathaway $45.7
14 Comcast Corp. $45.2
15 Home Depot $40.2
16 Blucora $39.1
17 Verizon Communications $38.4
18 Best Buy $38.0
19 Yahoo $36.2
20 Target Corp. $35.8
21 Bank of America Corp. $35.8
22 General Motors Co. $35.5
23 Macy’s $35.1
24 Allstate Corp. $35.0
25 State Farm Mutual Auto Insurance Co. $33.

So almost a third of Google’s top advertisers are retailers and offcourse it’s largest customer, Amazon, is also a direct competitor. From the same AdAge piece:

Walmart Stores and Sears Holdings Corp. (parent of Sears and Kmart) cracked the top 10, and four other retailers made the list of the 25 biggest spenders. However, there’s good reason to have expected more stores to make the ranking, considering that search is the dominant digital-ad format for direct-response advertisers like retail brands. Retailers are expected to spend more than double what any other brand category will pay for digital direct-response ads this year, according to eMarketer.

So retailers – both large and small – embraced Google search and have been imperative to it’s success. The question now is, will Google’s increasing efforts to connect consumers with stores help their ad customers or perhaps offer a challenge? The WSJ article nails it:

Some retailers said they worry the move will turn Google from a valuable source of traffic into a marketplace where purchases happen on Google’s own websites. The retailers, who wouldn’t voice their concerns publicly, fear such a move will turn them into back-end order takers, weakening their relationships with shoppers.

Google has a fine balancing act to ensure but then again, maybe it has no choice; as more and more consumers prefer mobile and use apps to shop, this move is perhaps needed to stay relevant. (I’d love to hear your thoughts on this in the comments).

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.

Ecommerce Online and Offline Paradox

The Wall Streety Journal has highlighted the problem that many folks now investing in ecommerce are starting to realize; stores are actually more profitable in many cases.

The example used, Primark, is actually very interesting. Here we have a retailer that is completely ignoring ecommerce and instead investing all their resources in stores – and doing a great job. This quote from the finance director sums up their position:

“We are not in the business of doing something and not making any money on it,” said John Bason, finance director of Primark’s parent, Associated British Foods PLC.

This could be determined as a shot at Amazon and other ecommerce players who operate a near zero margins as a result of a focus on volume. But the paradox we are discussing, as stated by Kohl’s CEO:

“If you don’t play online, you are making a pretty big mistake, because that is where the market is moving,” said Kohl’s Chief Executive Kevin Mansell.

So confusing right? The WSJ article notes a critical point, one that many thinking about the online-offline paradox should think about carefully:

One reason for lower online margins at Kohl’s is its low prices. Retailers that sell inexpensive goods are at a particular disadvantage on the Web, because it costs roughly the same to warehouse and distribute lower-priced items as it does higher-priced items of the same size.

This is economics of selling dictate whether you sell online, offline or both. That is the bottom line and current state of retail as we know it.

1 Billion Credit Cards

iTunes

From Apple CEO Tim Cook’s Q2 earnings report, we find out that the company has circa 1 billion credit cards on file:

“iTunes software and services revenue continue to grow at a double-digit rate, thanks to an incredible ecosystem and our very large, loyal and engaged customer base. With its strong momentum in growing profitability, iTunes is a very important driver of our business not only here in the United States, but around the world. We now have an almost 800 million iTunes accounts, most of these with credit cards. This is a staggering number.”

Cook’s numbers tell us that with ecommerce, customer loyalty is absolutely crucial to growing the customer base.

Via Business Insider. Image: DigitalTrends.