Event Report from the Churchill Club’s eCommerce Success

From notes taken by me at the Churchill Club’s event “eCommerce Success” on the 10th February 2011.

With
Nathan Huppatz – Director, Directshop
Martin Hosking – Chairman, Red Bubble
Mark Freidin – COO, Catch of the Day
Chris Dwyer – Director, eMatters

Our Stories

Redbubble is global artists community that sells “creative consumables” it doesn’t compete with other online t-shirt shops. It currently has 350,000 members, was born global and has averaged 100% growth per year over the last 5 years in the USA.

Catch of the Day is a highly successful Australian eCommerce site that sells one good deal a day. It attributes its success to the quality of the deal (you always get viral marketing from a great deal) and the media profile of its spokesperson. Its started off as an eBay store.

Directshop regularly deploys its own eCommerce sites as well as assisting clients deploy and integrate their own. Some of their sites, such as the recently sold Tacklemania grew from $0 – $130K pm within 6 months. They attribute their success to understanding the data and listening to customer feedback where ever it appears.

eMatters is an Australian payment gateway that has been around for around 12 years. Its customers are web developers, not Joe Public, so its marketing spend on Google Adwords is minimal. It was started with the concept of “lets sell shovels to Gold Miners” and has ridden the eCommerce wave. Although in 1999 it was just two servers in a data centre with some anti-virus running, now their world is much more complex, especially with PCI compliance.

So why eCommerce?

Apart from the obvious attributes of being open 24 hours a day to global audience, eCommerce websites had a number of other attributes that were highlighted by the panel.

Low barriers to entry (cost and time) means new concepts can quickly be validated.
The fast rate of change on the internet means new opportunities are constantly appearing
Costs are much lower when you operate without a shop front and potentially with no stock.
Its easy to increase your range as you don’t need to carry stock.

But some things you need to be aware of include:

You need to be very clear about your strategic marketing, the who, what, when and why.
Its okay to evolve your solution if you know your “true north”.
You will lose the human touch so you need to find new ways to engage.
Feedback will be more visible, both good and bad and needs to be monitored across social media and other websites.

But an example of how effective it can be. Directshop started Tacklemania after determining via eBay data there was an unsatisfied demand. Within 6 months they were turning over $130K per month and then sold the business.

So what are some great eCommerce sites?

Apart from Red Bubble and Catch of the Day, the following websites rated a mention:
Amazon – was considered a great eCommerce offering because of its vast footprint and its heavy used of customer feedback.
Etsy – because of its user interface and allowing customers to shop the way they want to.
Groupon – because of its success in using aggregation of buying power as its business model.
Australia’s Dealsdirect – because of its dominance as an online clearance centre.
Ebay – because of its size, online auction model and its transparency for trends and margins

Note Foreign markets were considered to be 3-4 years ahead for eCommerce trends so they are the places to watch.

Some hybrid models are appearing such as MSY which is an eCommerce shop-front with delivery being pick up from a warehouse.

So which Platform should I use?

Currently there are a number of options available.

Build your own store from scratch.
Setup, configure and host free shop solutions such as Magento or O/S Commerce, or paysomeelse to do it for you/
Pay a small fee for a hosted shop solution such as Yahoo eCommerce.
Sell products through a speciality retailer such as RedBubble or Catch of the Day.
Sell products a third party with a huge audience such as as Amazon or eBay

There is no best solution. It depends on what you want to achieve and who your customers are.

eBay was considered to be fantastic for validating a market. Having a store on eBay was very cheap (between $16 – $300 per month). It also has some fantastic analysis tools such as Pulse and Terapeak to help you understand where the opportunities are. However your potential competitors will also be watching and if you get volume, they will notice. You will need to either move away or stay and constantly innovate.

Building a successful eCommerce Strategy

The top points to come out of the discussion about building a successful eCommerce site were:

Be completely transparent – hidden charges will lead to you being savaged in social media.
High price can create perceived quality online as well as off-line.
Clarity about what you do means you don’t compete on just price. Eg Competitors sell T-shirts, Red Bubble sells creative consumables at a much higher price.
Being highly focussed means your growth will be viral. Understand exactly who your customers are and the experience they want, it may not be who/what you expect.
Integrity and customer experience are critical.
The barriers to entry for a start-up are very low, with costs approaching zero if you are technically literate. Growth will cost though as your volume increases and you need to integrate your shop into other systems you may run such as accounting, CRM and fulfilment.
Getting your business model right means that you will benefit from word of mouth or viral marketing. SEO and SEM aren’t overly useful if you don’t have a great value proposition that’s well targeted.

Interestingly, even though eCommerce is very cheap to deploy (eg $20K for a shop) its considered expensive compared to a bricks and mortar shop (eg $200K to fit out and stock).

Mobile eCommerce

Mobile Commerce or mCommerce is considered to be the next wave, but you shouldn’t dive into it just because of this. The key advice was get your business model and web site right and working properly before thinking about other platforms.

Australia is only just starting to catch up with the rest of the world in terms of all eCommerce activity

Note the Apple App store is not secure – You don’t want to create Apps where users need to put in their credit card numbers. Leave that to a secure web site and then integrate the App.

Directshop’s experience is that 5-10% transactions in Australia are now phone based. However there is strong resistance to typing credit cards details into phones due to clumsiness and security concerns. Setting up an account on the web, then logging into your account on a phone is a normal way to proceed.

Payment Gateways

High transaction charges in Australia has killed the idea of micropayments (eg transactions under $2). Generally you need to have a prepaid accounts that you are accessing. Australian Banks don’t want micropayments as they want to earn at least $1 plus per transaction.

Some banks charge fees on the gross amount of transactions, some on the net. Note some banks will charge you their fee on fraudulent transactions, but not reverse it later when a charge back occurs.

NAB and St George were considered about the easiest and best Australian banks to do online business with. Westpac was considered the most difficult to do online business with.

Selling services is more difficult and normally involves prepayments or deposits as banks wish to minimise their liability. However you can minimise issues with mid or end of month charging (ie after the service) rather than month ahead.

Paypal is always a good solution, albeit somewhat expensive and slower to get at your money.

Fraud

Fraud cannot be stopped and chargebacks can be a material cost to an online business.

The ways of fraud are quite varied, even received bank to bank transfers can get reversed later. Quite often the shipping address and stolen credit card details are local, but goods are immediately transhipped to another country – this is regularly occurs via the “earn $500 pw working from home” situation.

Verified by Visa simply doesn’t work properly as it kills too many transactions that are valid.

You can block some countries based on IP address (easy) and based on first four numbers of credit cards (difficult to achieve as the list is not publicly available). Privacy laws make it harder to detect fraud.

Maxmind (USA) has a product that assists in minimising fraud through analysing factors on the fly such as location and credit card numbers, to generate a fraud likelihood score.

Always remember, if the deal is too good to be true it probably is – eg don’t ship 50 mobile phones to Nigeria.

Multicurrency

An early consideration in selling in the global market place, is “what currencies should I sell in? Obviously the answer is the currency of the target markets you wish to address. However trading outside of AUD$, US$, Canadian, Euro, GBP and NZ$ will make life a lot more complex and some currencies should be avoided all together – eg Selling in African currencies asking for trouble.

Exchange rates will also be a problem. The choices are:

Fixed Exchange Rates
Automatic (market linked) fluctuations
Regular Manual Adjustments

Each option will bring its own benefits and problems such as near parity between AUD$ and the US$, not being reflected in the price, or silly looking prices such as AUD$100.32 each.

Supply Chain Considerations

Auspost is amazing for Australia/NZ delivery but too expensive for overseas shipping. Their eParcel solution is great because parcels will be left at a local post office if delivery can’t be made. Couriers don’t offer this service.

Aggregating goods on a pallet for shipping to another country, then using a local company for distribution once there is normally the cheapest solution.

Shipping from US to Australia is much much cheaper than shipping from Australia to the US. Eg its cheaper to ship from California to Carlton than to ship from Carlton to Richmond. You need to take shipping costs into account when determining where manufacturing will occur.

Insurance for your supply chain should be reviewed.

Christmas is a popular time of year for buying online. Unfortunately its a difficult time of year to get fast shipping and many western world manufacturers will be closing their doors for a period.

Freight costs can easily kill a business if you don’t closely monitor them. Bricks and Mortar retail can carry the high costs (gouging) as they are used to it and consequently their prices are so much higher.

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