It’s time now the etailing companies should re-look at the strategy notes. The number of etailing companies starting is far too big than it was a few years ago. Low initial set-up cost and ease of starting a business has resulted into many new etailing websites entering in the space. We see websites focusing on specific niche product segments and also the ones that offer multiple product categories under same umbrella brand. Some websites focus on specific customer segment vis-à-vis websites that offers products and services for wide range of customer segments. Whatever is the strategy, it is very critical to keep consistency in the focus and have an alignment in the whole ecosystem around the same which compliments the target segment and strategy.
New etailers start the business with lots of enthusiasm and fanfare. Lots of money is pumped into technology, inventory, logistics, marketing and manpower. However the energy level of many of these new companies starts fading in less than six month of starting the business. What reason can we attribute to such situation? It is difficult to give a concrete reason. The reasons can be lower sale than expectations, no cash to run the business, high operating cost, shift of focus or something as different as high attrition rate of critical resources. Forget about small size enterprises that start disappearing in the initial phase itself, even the medium to large size etailing ventures also face a tough challenge to maintain the momentum of enthusiasm. However this does not mean that eCommerce is a non-lucrative sector and we should put our energy and attention somewhere else.
The problem that eCommerce companies are facing today is having unstructured evolution of business strategy. Founding members would have started with a unique concept which eventually gets diluted once different stakeholders join the league. Stakeholders can be senior employees, new partners, investors, lenders, customers and founders themselves. Everybody has a point of view on product offering, target market, suppliers and every aspect of business. Eventually the initial thought-out business strategy disappears in the quest of satisfying every stakeholder or gaining new business.
An entrepreneur of a baby product etailer started the company with the differentiating strategy of becoming a counselor to young working parents. The idea was to provide personalized attention to regular customers by offering them the products that fits them the best. This baby product etailer started getting customers and eventually managed to get the investor’s funds. The numbers were growing but the cost was high and also growing linearly. Eventually to make the venture look sustainable, the cost rationalization exercise started due to pressure from the investors. One of the areas to cut the cost down was to reduce the number of customer counselors. Now the customers which were used to have a nice chat with their counselors started feeling dejected and reduced their purchases. In order to increase the revenue, the company started offering parent’s lifestyle products alongside kid’s products. Adding of new parent’s lifestyle products changed the looks and feel of the website. Kid’s category started getting less attention. Due to limited funds, the pressure on inventory started piling up so the variety of kid’s products was cut down to control the inventory cost. To make higher margin, this company started making private label apparels and kids toys. The key people now had to put lots of attention in backend activities of designing and manufacturing of private labels. The important functions like marketing, logistics and manpower started getting messed up, resulting into chaos and losing customers.
From parent counselor to parent’s lifestyle to private labels to chaos; this is a standard example of what we are seeing in the etail world today.Thus it is very important to stick to the value proposition with which the venture had started and create the alignment of the supporting elements like supply chain, marketing, manpower in such a way that it not only compliments the value proposition but also scale up when needed.
One of the reasons for such disaster is a poor understanding of the term Strategy. Many etailers disguise themselves with certain business elements as differentiator strategy. Offerings such as Lowest Price, Wide Product Range, Free Shipping, Money Back Guarantee, Genuine Products, Warranty, Best Quality, 24×7 Customer Care are not strategy. These elements are mandatory business requirements. Let’s not mistake them with UniqueValue Proposition (UVP). The identified customer value proposition has to be something which is careful carved out after doing a detailed analysis in form of SWOT and Porter’s Five Forces with a clear decision making done of various trade-offs. Strategic decision always made out of choices. The choice needs to be evaluated through various management techniques and then finalized.
What is Strategy?
Strategy is about identifying a unique value proposition for the target customers and aligning all elements of the organization to contribute and enhance the identified value proposition. Value proposition can be providing the entire range of products or services to a target set of customers or it can also be selling or serving a niche need of mass market.
Figure 1 Elements of Strategy
The identification of Unique Value Proposition (UVP) supports the selection of product / service categories and target customer segment. The rest of the elements like technology, supply chain, infrastructure, manpower, suppliers and marketing are output of the business strategy. All the three elements of business strategy viz. UVP, Product / Service Categories and Target Customer Segment are interrelated. Any change in either of these elements will require a series of changes in supporting items like technology, supply chain, suppliers. The strategy required to manage the front and backend of one particular category might not necessarily suit the entire range of product categories. Managing a books etail store is very different than managing an electronic or fashion store. Not only the target audience is different but the service expectations, supply chain requirements, marketing techniques, UI design along with others are different from each other.
Table 1: Strategy Map of a Furniture etailer
Table 1 gives an illustration of a furniture etailer which shows two different target segments viz. Young Working Class and Middle Aged Business Class Settled Customer segment. The products and customer segment are the output of UVP. If an etailer identifies young working class as target customer then the strategy has to be aligned as per this young working segment. The furniture has to be modular, compact and economic because this segment would have middle range income with home and car loans. The etailer has to not only provide delivery but also installation services at the odd working hours because this segment will have no time to hire carpenter and be available in working hours. Probably an after sales service in form of AMC would also make a good value add in the value proposition. The furniture etailer has to make a trade-off between both the target segments. Remember Strategy always requires you to make a choice. If there is no choice and a company decides to sell the anything and everything to everybody without aligning the rest of the business elements than it’s the way to close down the shop with your own deeds and greed. An etailer wanting to sell books, footwear, electronics, vegetables, courier, software, warehousing, cars etc to everybody with the same infrastructure and resources needs to rethink if they are doing justice to the time and capital invested into the business.
Strategy is Dynamic
Strategy requires consistency in focus but it also needs continuous check with various external elements like government regulations, consumer expectation, technological changes, political and economic scenario. If a book etailer sees the major shift happening towards ebooks, than it become critical for this etailer to explore and align the product line in such a way that it offers ebook along with physical copy of the titles. The emergence of mobile app based eShops requires etailers to add this new sales channel apart from the conventional computer based internet shop. In the above example of furniture etailer which focused on the middle class segment would be required to rethink on the target segment if the interest rateconsistently drops resulting into increased purchasing capacity of the target segment.
There is no doubt that eCommerce is the future and the investment made in this sector is going to reap good returns in the long term. E-Commerce entrepreneurs are doing a good job of market analysis and business formulation however it is very important to understand that the identified Unique Value Proposition (UVP) should be completely aligned with all the business elements. The UVP and the associated strategy elements would require a relook if there are any major changes in the external environment. Probably it’s time now to elucidate yourbusiness strategy and also make the decision making process more structured and planned!
Now we are open for discussion, what do you think?
(About Author: Haresh is a Management Consultant having global experience across various industries including eCommerce. He is currently working with an International Logistics company in Mumbai.)
Disclaimer: The content of this article is authors’ personal point of view about the eCommerce business. Readers are requested to use their personal judgment to make any decision based on the article content.
(Feature Image Credit: impactbnd.com)