We've asked the question of office products resellers many times about how important e-commerce is for their future and, the majority of times, the answer comes back that it's "mission critical". However, success stories are few and far between for such a mission critical objective and resellers need to think hard about what they understand e-commerce to be, and what some effective strategies may be for developing it.
The purpose of this article is to develop the argument that, between web traffic or e-commerce, the former is by far, the more important of the two. This is logical because, to develop an e-commerce business, you must first develop web traffic. E-commerce may be achieved as a result of web traffic but cannot possibly take place without it.
We've published many articles on the subject of web traffic development. We've stressed, over and over, that accomplishing this objective is not easy and requires a consistent application of time and effort. If e-commerce is truly "mission critical" for office products resellers, then web traffic is more so and, efforts to develop it, must occur before sustainable e-commerce can take place.
Web traffic is a precursor to e-commerce so, traffic development must be more important than e-commerce. With traffic, options are available, without, they are not.
Having established this foundation that web traffic development is more important (at least initially) than e-commerce, it becomes vital to think carefully about who to target in terms of ideal site traffic.
The following components must be considered:
- Cost of customer acquisition
- Life time value, churn and the inverse relationship between the two
- Visit to lead conversion rates
- Sales funnel conversion rates
Think carefully before you set up a site that (intentionally or not) competes with Amazon or (when it fails) is then made part of the Amazon marketplace!
Amazon was founded in 1994 and, by 2005, had accumulated losses of $2.2 billion and shareholder equity of just $6M! Massive human and financial resources were invested to build its foundation before it became the dominant e-commerce behemoth we know today.
Amazon's cumulative revenue in the twenty years between 1995 and 2014 was $409 billion and net profits just $1.96 billion. By contrast, Walmart's revenue in 2014 alone, was $486 billion and net profit over $16 billion. In other words, Walmart generated eight times the profit in 2014 than Amazon did during the twenty-year period between 1995 and 2014.
What does this mean for independent office products resellers and their e-commerce strategy?
Attempts to copy Amazon's model will fail - small business cannot execute a strategy similar to that of Amazon. Even Walmart will be hard pushed to close the gap and compete effectively.
Walmart recognizes the threat Amazon poses to its business model and has started to invest billions to develop its e-commerce initiative. The scale of investment required to compete with Amazon is clearly outside the scope of office products resellers.
- Amazon sets the benchmark in terms of e-commerce pricing. However, the Amazon model creates a downward spiral of pricing that can quickly eliminate the weakest players while simultaneously delivering all their customers to the Amazon marketplace. Only Amazon (not the marketplace resellers) has the resources to sustain losses while it builds market share.
- Office products resellers attempting to compete with Amazon must be competitive with their pricing. However, it's not possible for a low volume office products reseller to be price-competitive and to make a profit.
- In the Amazon marketplace, where the individual office products resellers participate, customer retention is low (churn is high) and average order size is low. This means the cost of acquisition (relatively high) and lifetime value (relatively low) is likely to result in an unsustainable business model.
A strategy that attempts to compete with Amazon and its marketplace merchants is flawed and will almost certainly fail. The pricing model is an issue and competition for their traffic is an issue.
There is an average of 3.5 billion Google searches per day.
- Web traffic goes to Amazon to shop.
- Web traffic goes to Google for research.
- 80%+ of web traffic is researching, not buying.
- Researchers are likely to become shoppers at some point in the future.
The competition for "Intent-to-Buy" searches is high. Unless you're paying for results, and unless you have sufficient domain authority to win a place on the first page, satisfactory results are not likely to occur.
Even if office products resellers do win a few random searches, subsequent customer transactions are likely to be relatively small. Furthermore, it's difficult to develop loyalty with the resulting profile of customers that's required for repeat orders, up-sell, or cross-sell opportunities, or to successfully work on improving these important business metrics. As a result, average revenue per customer will remain low and churn high. This translates to a high cost of acquisition and a low lifetime value which, in turn, does not equate to a sustainable business model.
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As shown in the two sales funnel images above, the Analog Reseller, using a "bottom-of-the-funnel" instant conversion strategy, needs massive traffic volumes to achieve its sales goal. Conversely, the Digital Reseller, targeting visits from "top-of-the-funnel" researchers for nurturing through the sales funnel, can accomplish the same sales goal with less than 10% of the Analog Resellers required traffic volume.
Furthermore, in developing customer relationships and focusing on its value proposition, the Digital Reseller is likely to have lower churn rates, meaning less customers are required to reach the same sales goal.
For access to our proprietary, interactive churn calculator, please click the button below:
Remember, developing e-commerce and website traffic is hard work and the traffic volumes necessary for Analog Resellers, using bottom-of-the-funnel tactics to achieve their sales goal, are not attainable. Furthermore, any customer wins would be likely to have low average revenue per customer, high churn rates, and low profit margins.
The Digital Reseller, however, stands a chance. With attainable traffic volumes, higher average revenue per customer, lower churn rates, and higher profit margins, it's far more likely a sustainable business model can be developed.
Conclusions:
E-commerce for independent office products resellers is contingent on web traffic. Targeting "top-of-the-funnel" traffic is the only way a sales revenue target, dependent on attainable traffic volumes, can be achieved. The resulting customers are likely to pay higher prices for the overall value proposition compared to that which can be earned from random shoppers searching for Analog Resellers providing the best deal of the day.
However, in targeting a "sticky" customer who's more likely to stay loyal and listen to up-sell and cross-sell opportunities, it's also more likely their back-office systems will be used to generate purchase orders that are then emailed, or transmitted in some other electronic form, to their suppliers.
This is the final step that resellers should avoid getting hung-up on. The objective must be to win new business and, if new orders come in by email, then they must be keyed into the resellers back office system. Regardless of how the reseller chooses to process the order he must not expect customers to key it twice!
Overall, it's about the resellers, their value proposition, and their ability to communicate it to customers and prospects. It's about a lot more than the shopping cart and who fills it, than debating if it "checks the box" for conventional thinking of what may, or may not, constitute e-commerce!
The digital footprint for office products resellers is very weak and there's an urgent need for these businesses to get on their paths to a digital transformation. There's an office products growth opportunity to be gained by leveraging aftermarket office supplies alongside the new behavioral norm as buyers research before ever contacting a salesperson.
Please check out our series of proprietary business calculators developed specifically for forward-thinking office products resellers interested to start down the path of a digital business transformation.
