The Office of National Statistics reported in March 2011 that online retail accounts for about 10% of the overall retail spend in the UK. E-commerce is a sizable and growing chunk of retail.
Question: If online retail is growing, why do many e-commerce sites fail to grow at least as fast as the markets rate of expansion?
Many ecommerce businesses start well but sales soon flat-line
Answer: The retailer fails to understand their Google Analytics and change their digital strategy
Many e-commerce sites are frequently born from high street retail presence. It could be giftware, selling doors, apparel or even cars, many suffer the same fate of early strong growth followed by low growth.
The retailer launches online and promotes their site through off-line activities, capturing email addresses, encouraging opt-in on social media and building awareness of the website in their community.
Growth is usually rapid and sales go from little to lots. The management become excited by the growth profile of the sales graph and expects that the growth will continue at the same pace forever. The graph of sales however inevitably levels out.
Upon inspection of their Google Analytics they notice that all of their site traffic is coming from customers searching for their retail brand and not their product titles or generic product descriptions.
The initial sales growth came about as existing customers in the area became aware of the shops online presence. These customers had experienced the retail brand and had already bought into their marketing story.
Upon reflection, most of the sales came at the expense of the retail outlet. The e-commerce provider it could be argued has been competing with itself.
The solution for continued growth is to move from this word-of-mouth or ‘advocacy strategy’ to an ‘attention strategy’. That is the e-commerce provider needs to start investing in SEO, Adwords, online display advertising, affinity programmes, Amazon fulfillment and Ebay and even off-line TV, radio or other above the line activities.
All of these attention grabbing tactics are highly expensive and either requires cash up-front or a large chunk of the margin the store has been enjoying during the initial growth phase.
The e-commerce retailer spends months kidding themselves that they can hire a keen marketing graduate that can add some secret sauce that will restore their growth profile in order that they shortcut past this capital investment or margin giveaway. The outcome is always the same. The delay leaves them even further behind and disillusioned with e-commerce. They blame the student or even the digital agency that created the e-commerce platform in the first place.
With market research it transpires the competition in their sector is stiff and they have to spend £10,000 per month in order to compete in the SEO wars, give away 20% margin by the time fulfillment is complete via affiliates or pay the escalating Cost Per Click charges to Google.
So what is the solution? These costs could have been calculated before the retailer entered the lucrative e-commerce market and in order to grow beyond the initial burst usually requires substantial capital. The e-commerce retailer is left with two choices
1. Compete, invest and take the game seriously
2. Become content with their advocacy strategy and thus small growth.
Neither strategy is wrong. What is wrong is expecting the outcome of option 1 using the tactics for option 2.