Online retailer strategy

Why read this? : Choosing which e-Commerce channels to use is a trade off between complexity and control. Selling through someone else makes selling easier, but you have less control than selling direct. We review the pros and cons of the different types of online retailer. Read this to improve the way you build your online retailer strategy.

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Where your online retailer strategy comes in

In the e-Commerce planning process, you normally look at e-Commerce channels after you identify and validate the online selling opportunity.

The opportunity identification and validation stages should generate insights about customers and the market. You should understand where customers currently shop online, and what they might be looking for.

Even if you don’t do direct research, you can use use secondary research tools like Google Autocomplete and Google Trends to get an idea of which online retailers are winning online, based on their search ranking.

You should also have some idea of your business objective and how you that will influence your choice of channel. The bigger your objective, the more control you’re likely to want over how your product is sold.

However, that control always comes at a price. You have to handle more parts of the customer experience yourself if you want to be in control. That adds complexity. And trying to find the right sweet spot between control and complexity is a big part of deciding on your online retailer strategy.

Some online retailers make things very easy for you. But in return, you have very little control over how your product is sold online.

Other retailers take more hard work to deal with. But in return, you can often have more control over how you sell your products with them.

Impact on financials

This control / complexity trade-off is important for your online retailer strategy. The level of control and complexity impacts your e-Commerce profit and loss. It impacts how you drive sales, how much you need to spend, and your bottom line.

For each part of the selling process the online retailer manages, the bigger the share of the selling price they take. Which of course, means you receive a smaller share of the selling.

This shouldn’t be too much of a surprise.

Each step of the e-Commerce process comes with costs. So, when the retailer has to cover the cost, they take more of the selling price to cover those costs.

Your online retailer strategy then means you need to find the right balance of control, complexity and financials to suit your digital business model. So, let’s have a look at the pros and cons of each one :-

Bricks and clicks

Bricks and clicks retailers (sometimes also called omni-channel retailers) sell through both physical stores AND an online store.

They’re a step up from marketplaces, as they buy the product from you.

They list it on their website (albeit with your help to fill in their product information management system details) and they handle order to delivery and customer service.

You work directly with the buying team or program at the online retailer. You’re not involved in handling individual orders and transactions.

That makes bricks and clicks less complex than most other e-Commerce channels. Your main focus is to drive sales using the online equivalents of how you’d drive sales in their physical stores.

So, for example, research into what shoppers want. Advertising and media to increase the appeal of the products. Sales promotions and price discounts. There are also more advanced selling techniques like offering exclusives, targeted offers using their customer data and shop in shop you can use to grow your online sales.

It’s just that each of these processes is seen in the context of e-Commerce when they sell through their online stores.

So, the market research relates to online shopping.

The advertising and media appear in digital media channels, not in-store.

And the sales promotions have to work online on their website, rather than in-store.

Often, you’ll also have to work with different teams at the retailers to manage these activities. even though they’re basically the same activities.

Bricks and clicks business model

You also have to think about how the broader bricks and clicks business model works. There are implications on your finances, what you have to do, and what you can do.

They’ll have a strong negotiating position to get a good trade selling price out of you. They take their margin out of the retail selling price, and the more they buy from you, the bigger the discount they want. That will impact what your profit and loss looks like.

Bricks and clicks retailers also won’t give you much control over how your products is sold.

You supply product images, information and recommend pricing to their product information management systems. But, how all of these actually appear in their online store is ultimately down to the online retailer, not you.

If they want to sell your product differently, that’s their choice.

For example, if the online retailer decides to price discount your product, or change the selling message, you don’t have much scope to influence this. It’ll depend on your relationship with them, and how transactional it is.

If you add extra value, like market research, advertising, media and sales promotion support, you can use these investments in selling to persuade the online retailer to go with your view.

But, your competitors are also doing this. Online retailers will always do what’s best for their business, not yours. You aim to find solutions that work for them and you. This relationship is normally formalised as part of your ongoing commercial agreement with them.

Commercial agreement - online considerations

With these types of retailers, it would be unusual to have a completely separate commercial agreement with them for offline sales and online sales. They normally form part of the overall commercial agreement that covers prices, quantities, and other commercial operating principles.

But within that agreement, there may well be online retail specific commitments and terms.

For example, these may be as simple as asking you to commit to supplying relevant and up-to-date product images and information.

But, a clause such as this also needs to cover how often such information needs to be reviewed and updated. It needs to be clear whose responsibility that it is.

Terms might also be needed to identify who is legally responsible if any wrong or misleading information appears. So, it might be “your’ product information, but on “their” (the retailers) website. What if something goes wrong? What if inaccurate allergy information is included on a food product for example, and someone falls ill? Your online retailer agreement needs to make clear who is responsible in those circumstances.

Complaints and refunds

What if your product sells, is delivered but the customer isn’t happy and complains? The online retailer will manage the refund. But do they suck up the cost? Or do they come back to you to repay their costs?

Your commercial agreement needs to identify under which circumstances you’ll cover refunds.

If your product needs special packaging for online deliveries, say it’s fragile or needs to be transported under certain temperature conditions, who covers the cost of that?

Your commercial agreement needs to clarify who pays for these extra costs. (see also our article on the role of packaging in e-Commerce).

If the product is damaged while being delivered, who is responsible for covering the cost of that? Again, this needs to be clear in your commercial agreement.

Because if any of these clauses aren’t clear, the online retailer will push the costs back on to you.

Commercial agreement - supply chain

Each online retailer will also have their own supply chain set-up for online sales.

So, they may manage online orders from a central warehouse. Or they have people to pick online orders from the shelf in-store.

From your point of view, you need to understand how these systems and delivery costs work. You don’t want to get hit with unexpected costs or problems.

For example, who pays the transport costs to move these products around? And when does the retailer actually pay for and take “ownership” of the product?

You also need to understand how the online retailer will manage stock levels. For example, how fast do you need to re-supply when they sell products? And, do you need to limit the number of items individual shoppers can buy at any one time, so they don’t drain your stock for example?

When you work with online retailers, your retail prices and sales promotions will be very visible to other online retailers. If you run different activities with different retailers, you need to be clear with them, why they get one activity and their online competitor gets another.

Be prepared for online retailers to look for better deals, based on what you do with their competitors.

Bricks and clicks - how to move forward

Your online retailer strategy and plan needs to work through all these types of questions. It needs to understand who the most popular bricks and clicks retailers in the category are. And, how they operate.

None of these challenges are impossible. But they take time to work through, as you have to persuade and influence the bricks and clicks retailer.

Think about the marketing support you can offer them, for example. Think about the value of your products. What can you ask them for in return for those?

What sales and shopper data can they share with you, for example? For privacy reasons, you will be unlikely to get access to specific individual shopper data. But you should be able to get access to aggregate segment level data. You can use this as a more advanced e-Commerce technique to make targeted offers online.

You don’t have control over their website or supply chain systems. But you need to make sure you have the right skills and assets to work with retailers in those areas. Overall, you usually build an e-Commerce category management plan with each key retailer.

Pure Players

Pure players are online stores with no physical outlets. They’re online only.

Like Bricks and Clicks retailers, they generally buy the product from you. And then, they take ownership of selling that product online through their online store.

Many of their advantages and disadvantages are similar to bricks and clicks. They make it easier to sell online for example as they operate the online store. And they manage the payments and deliveries. But, they also control how your product is sold. It’s their order to delivery process that supports the sales.

Different ways of working from bricks and clicks

However, the way they work, does bring some different factors in to your online retailer strategy.

Because Pure Players have no physical stores, they don’t have the costs of owning and running physical stores. That affects how much of the selling price they want. This also means they focus more on reducing storage and delivery costs.

They aim to keep costs low and often have the lowest delivery charges. They have no legacy systems and processes to protect and manage, unlike Bricks and Clicks retailers.

Because their business is 100% online, they’re more likely to operate in a digital way. They’ll move faster. And they’ll focus on improving the online customer experience. They’ll often be the first to introduce new marketing technology breakthroughs.

Because, they focus so much on the online shopper, they’re likely to gain a disproportionate share of the online market. So, for your online retailer strategy, they bring a lot of additional advantages compared to bricks and clicks sellers.

Amazon

When you look at Pure Players, it’s hard not to start with the most well known of them all. And that’s Amazon. Although, with the purchase of Whole Foods in the US, you could argue that they’re technically no longer a Pure Player.

But even if they do now own physical stores, their approach to doing business is still very different from traditional Bricks and Clicks retailers. They actually operate two selling models – Vendors and Marketplace.

Amazon Vendors

In the ‘vendor’ model, Amazon operates like an online retailer. They buy your products from you. Then, they sell them on their main Amazon site.

They set the selling price. But you can access a series of marketing tools that Amazon provide in order to improve the sales of your products.

These marketing tools are usually more advanced than what traditional bricks and clicks retailers offer. Amazon have global scale. They have a history and a track record of investing in customer experience improvements.

That, along with their high level of visits, make them attractive to work with as an online retailer.

Amazon vendor services and marketing tools

However, one of the challenges is that good as these marketing tools are, you do not automatically get access to them when you become an Amazon vendor. They charge for everything. You pay to drive your sales on their store.

So, for example, if you want access to a good level of sales data about your product, you need to pay for it. This service called ARAP – Amazon Retail Analytics Premium – charges a % on every transaction you do with Amazon.

With Amazon, you generally don’t even have a dedicated account manager for your business. The “buyer” will manage a large range of products within a category. If you want more personalised and bespoke support, this comes at an additional cost. It’s part of their service offer called SVS – Strategic Vendor Services.

So those can be costs BEFORE you even get to the ‘marketing tools’.

Amazon updates their marketing tools regularly, but nothing is freely given. If you want to access A+ Content and Vine for example, which help create better product pages and generate faster reviews, then yes, more cost.

Listing your products in Subscribe and Save and Events can be great for driving sales. But again, come at a cost. If you want to work with the Amazon Marketing and Media services to run ads or improve your search position on Amazon, all those things come at a cost.

Amazon is undoubtedly an interesting retailer to consider when building your online retailer strategy due to their high reach. But we recommend you do some research into their offer before engaging them. Make sure you’ve identified and are happy with the selling costs, because those will affect your profit and loss.

Amazon Marketplace

Amazon also offer their own version of the marketplace selling model.

In this model, Amazon don’t ‘buy’ your product from you, they rent you space on their website for you to sell your own products. They take a percentage of the sales price as commission on each sale.

In this case, as you’re the seller, you control the price. However, you don’t have access to the same level of marketing support as under the vendor model.

They manage the payments, and you have some options where they can also manage the delivery.

You can also choose “Fulfilled by Merchant” where you manage all the orders and delivery yourself. Or, you can choose “Fulfilled by Amazon” where you use Amazon’s supply chain set up and they deliver it for you. Of course, they do this for a much higher percentage fee of the transaction.

Whichever way you sell through Amazon, they’re generally much more focussed on the online customer than traditional bricks and clicks retailers. This means they want to make it as easy for you to sell online as they can. It’s in their interests to sell more, as they take commission on every sale.

It helps keep their costs down, the more items they sell. That, and making you pay for all their services.

So, in terms of control and complexity, they do offer that extra level of control over the selling process that is harder to achieve with bricks and clicks retailers.

But they do also bring some additional complexities.

Amazon complexities

We have a separate article which goes into more detail on the challenges of why selling with Amazon. But in short, you will likely face tough negotiations with them. They are big for a reason, and they squeeze suppliers hard on margins and fees. And that’s in fact, if you even get a chance to negotiate with them.

They are a notoriously ‘lean’ organisation in terms of the number of employees. They try to automate as much as possible, and reduce the number of contact points. That applies to how they deal with customers AND suppliers. So, unless you sign up to their way of working, they won’t make it easy to work with them.

It can be challenging that they charge for EVERY service they provide. Even down to having sales data and having someone who manages your business. You have to work through their costs and fees very carefully, to make sure you are clear on what you sign up for.

Other Pure Players

Amazon offers the broadest range of goods in the Pure Player space. They started with the ambition to be the “everything store” with the widest range of products.

Many others have tried to copy this model and been less successful. It’s only really the pure players who have been successful in China and South East Asia like alibaba who offer real competition for Amazon on a ‘widest range basis’.

Where you do however, find more competition is when the shopping category is more specific, and less wide.

And, some categories tend to work better than others when it comes to online selling.

So, for example in online fashion, you can find pure players like The Iconic and ASOS. The wide range they offer, and the relative high value of clothing helps make their business model work. Similarly, in beauty, pure players like Adore Beauty do really well.

Categories with products that are heavy or bulky also pull in pure players. So for example, online alcohol pure players like Jimmy Brings and Boozebud, and pet food suppliers like Pet Circle.

In general these types of players work to distinguish themselves from more generalist online retailers.

They work harder to improve the online shopping experience and add in extra levels of service to the customer experience. This builds traffic and loyal customers.

So, when you work with these types of pure players, your market research for example can give you an advantage with them. Your level of product information and ability to produce entertaining of educational advertising or blog-type copy can be a big help.

These types of online retailers want to build their presence against bigger and more established retailers. So, they’re open to any ways you can work with them to deliver this.

Dropshipping and Print on Demand

As per our guide to the e-Commerce planning process, this is a more involved way of selling online.

Your online store website “sells” products that aren’t yet made. You set up and manage all the product pages. Customers pay you the retail price.

You pass the order to a supplier (dropshipper) or printer and pay them the wholesale price. They make and send out the product to the buyer.

You never actually see the product.

Most dropshipping suppliers are in China, and you can look for them on alibaba.com. However, you can find suppliers in many other markets too. Print on Demand is usually US-based though again, not exclusively.

Your profit comes from the difference between the retail and wholesale price. This profit needs to cover costs like your website, advertising and any refunds.

The appeal of the dropshipping / POD model is you use the dropshipper to manage stocks and delivery. Products are sold “to order”. So, you don’t pay for any items until you order them. This means no money tied up in storage costs.

Control over the selling experience

And, unlike all the previous channels, you have more control over the front-end of the selling experience.

You set up your own store front, directly manage the product pages and sell to the consumer. You then piggy back on the services of the drop shipping supplier to handle the delivery of the order.

This is a halfway house model between working with an online retailer and running your own full direct to consumer store.

You become the online retailer, but you outsource the back-end functions to create the products and deliver them to a third party.

This gives you more control over the selling experience since you create the advertising and media plan, you set up the online store and you manage the payments and the interaction with the individual shopper.

Of course, with this extra level of control, also comes an additional level of complexity. While you may not have to physically produce or ship the goods, you’re responsible if anything goes wrong.

It’s important to review who your suppliers are, and to make sure they have good quality systems and customer service processes in place.

On sites where you can find dropshipping suppliers like aliexpress. com for example, you should always look at reviews and comments about the suppliers you want to use.

When you plan to operate this way, you need to map out all stages of the order to delivery process, as if you were setting up the whole online store yourself. You then need to identify at which stage the order passes to the supplier to complete. It’s important to plan for any issues or queries that might come up.

While this added complexity is less than running a full D2C store, it can still be challenging when you have to work with third parties, You want to identity partners who are reliable and have a proven track record of delivery.

Dropshipping pros and cons

But obviously on the upside, you have more flexibility to adjust pricing and manage costs than you would with a marketplace, bricks and clicks retailer or pure player. You have the most control over the whole online shopping experience, and take ownership of the payment.

So, from a profit and loss point of view, it’s an attractive model as long as you can manage the costs between the retail and wholesale prices. And obviously you need to allow for operating costs like the store set-up and maintenance, advertising and media costs and the costs of dealing with any customer complaints.

You also need to factor in that you have no control over shipping times and tracking. Those come down to the supplier.

So, as we cover in our article on Print on Demand shipping times, for example, this can have an impact on how much the online shopper has to pay, and how long they have to wait for deliveries.

Key skills to drive your online retailer strategy and plan

In this guide, we’ve covered the different types of online retailers you should consider as part of your online retailer strategy. But you also need to consider how you will work with them. There are a number of skills you need to build to have a successful selling relationship with online retailers. (part of your overall e-Commerce capability plan).

Digital performance management

E-Commerce stores are “live” sites, where information updates on a regular basis.

You need to be able to check that all your products appear correctly, and that there are no mistakes.

So for example, is the product / range in stock and available to buy? Where does it sit on the digital shelf compared to competitors? Are your competitors running promotions, and if so, what is the impact?

If you have a small range, and a small number of online retailers you can check these sorts of areas manually.

But increasingly, these sorts of online store checks are being automated by companies like Edge Ascential.

For a fee, they’ll set you up with an online tool, that automatically scrapes online retailers sites and answers these types of questions with live data. You can then identify any issues and act to fix them quickly.

Digital marketing

All of the skills we cover in our digital marketing guides play a role in helping to drive your e-Commerce performance.

So, for example, understanding how digital media channels like search, social media and display helps you drive shoppers to online retailers and product pages.

Understanding the benefits of websites and how they work, helps you gather marketing data, and review and improve product pages and site navigation.

It helps you make sure all relevant marketing technology systems are in place to manage the different processes needed to sell online.

When you understand how data and insights work online, you can build better insights and make more targeted offers to online shoppers. (see our article on advanced e-Commerce techniques).

Combining all these types of skills for e-Commerce ultimately helps you improve the overall Customer Experience. And that means, more online sales.

Account management and commercial negotiation

Working with online retailers, you also need skills to build strong relationships with them. You need skills to negotiate commercial agreements that work for both parties.

It’s important to understand their business objectives. It’s important to understand what they need to drive their own customer experience.

If you don’t sell direct, they’ll have more detail about online shoppers than you. So, it’s important you try to bring something additional and valuable to the table.

Create strong business plans. Be clear on what you want the online retailer to do, and what’s in it for them. Make sure both parties get their fair share of all sales and profits.

Business Systems - Finance and Supply chain

While you can sell online without knowing the finances or supply chain set-up of the online retailer, it’s in your interests to find out.

As per our guide to the functions of e-commerce, after marketing, these are the two key other functional skills that matter in e-Commerce.

For example, knowing the sales, cost and profit breakdown puts you in a better negotiating position with online retailers.

You build your online retailer strategy with a strong commercial grounding. You create more accurate forecasts, price your products at the right level to drive sales, and manage your costs.

When you understand how products move through the supply chain, you can look for opportunities to improve the customer experience. Look at adding better services like order tracking and faster deliveries, for example. Or you can identify inefficient handling or delivery practices, and eliminate these to lower costs.

Creativity and perseverance

The final two skills you need to drive your online retailer strategy are more about how you work. e-Commerce is a fast moving channel with potentially lots of complexity.

You need to have solid marketing skills, but also be able to pull in skills from creative thinking and from innovation to come up with new ideas.

These are important skills to keep winning over online shoppers, and therefore winning over online retailers.

The nature of e-Commerce is that it’s a lot of trial and error. Be unafraid to test new ideas, and be prepared to follow up on the ones which work. Throw away the ones which don’t.

It takes a lot of resilience and perseverance to succeed with your online retailer strategy. But if it was easy, everyone would do it.

And what would be the fun in that?

Three-brains and e-Commerce

We’ve worked on many e-Commerce projects and have good experience across the e-commerce planning process. This includes working with online retailers and building D2C stores and operations. We know how to connect these expertise areas back into driving your brand marketing and growing your sales.

Contact us to find out how we can support your e-Commerce to grow your business through our coaching and consulting services.

We can coach you to reach the top of your competitive game.

Online retailer strategy

Online retailer strategy

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