If you think about someone who was there when ecommerce started, who would you picture? Jeff Bezos? You may be wrong because Bezos started Amazon in 1995, a full 17 years after ecommerce was born, in the UK.
The ecommerce revolution was televised
Back in 1979 a 38 year old innovator put together an online shopping system called Videotex. It was one of the first end-user technologies that displayed interactive information on a TV screen. Unlike most other connectivity breakthroughs of that age, the Videotex was more of a TV than a computer.
It was basically a domestic TV connected through a phone line to a central transaction processor. It might sound simple now but at the time things like e-commerce, online orders, online banking and others were pretty close to science-fiction.
One day, early 1979, Michael Aldrich received in his office a 26” TV, capable of teletext. The TV was able to display news and weather information, broadcasted by the BBC. It had several components that allowed it to do that. Among them – a modem and an auto-dialer.
Those two components proved to be really useful to Aldrich. Later that year, after superficially examining the device, Aldrich was out with his wife, walking their dog, Tessa.
They chatted about the kids and such. At some point the subject of weekly supermarket expedition came up. Aldrich was thinking of how could he make that boring trip easier – and that’s when it hit him: He could connect the modem enabled TV to a central server and help companies process transactions and sell things. Things such as groceries.
Online shopping before the Internet
He worked with his colleagues, set up a basic system and demo-ed it to major companies. As he had sales and marketing jobs before, he was able to convince executives of the system’s competitive advantage.
It as a hit and his team received some heavy requests for the system. He spent most of the ’80s designing and implementing online shopping systems. Remember – this was an era predating even the most basic forms of computer technology – such as MS DOS, the IBM PC , internet and yes, the World Wide Web.
It wasn’t until 1990 that another great brit, Tim Berners Lee would write the World Wide Web and unlock the Internet’s potential.
Tesco shipped the first online shopping order
Truth be told, Videotex never really caught up with end consumers. It was mainly used as a B2B shopping / ordering technology. But people did use it to place the world’s first online shopping orders.
She needed only 15 minutes to learn how to use the remote. After that she was able to choose from the 1000 products available on Videotex. Her order was payed on delivery as no card processing was available at that time. But she did order and the order did arrive.
She, among other senior shoppers, were the first to shop online. What was then a local experiment with little success is now a $1 trillion industry and growing fast.
Aldrich, now a grandfather of 8 grandchildren, may not have been the Jeff Bezos of its time but he is the man that invented online shopping, among others. There was no B2C market for him to work on, but there was a B2B market. His innovations started what we now call the IT industry and revolutionized the way people thought of media (from few-to-many to many-to-many).
This is a man that innovated his way to ecommerce, the IT industry, and basic Social Media notions we apply today. Pretty great, right?
When it comes to ecommerce most of the information you’ll be able to find online is marketing related. Because marketing is the easy part. That’s why almost everybody assumes that all it takes to build an ecommerce operation is good marketing, a technological sound shopping catalogue solution and a lot of luck.
Marketing and frontend ecommerce solutions are just the tip of the iceberg and in this post I’ll walk you through the most important areas you need to focus on (and you probably don’t) when building an online commerce business. Not site, not catalogue, business.
What does it take to build a great online store?
No successful store was ever built on luck and marketing alone. Top online retailers got where they are selling great products at great prices, delivering fast and making sure that customers are well rewarded for their choice. That takes a lot of work in areas most of us never notice, areas such as:
1. Suppliers and supply chain management
You are or plan to be a retailer in an increasingly competitive market. It means a lot to come up with a great idea, drive good traffic and convert it to sales but you can’t do that without the right products, delivered at the right time, with a price the market is willing to pay.
Suppliers meant a whole lot when ecommerce was not around. Now – even more so. When it comes to ecommerce, suppliers can provide you with the right merchandise but they can also take the stocks burden off your shoulders. Amazon, for example, relies heavily on its marketplace partners to increase listed products number, without buying stocks for those products.
Key take away: before starting an ecommerce operation make sure:
you have enough and the right merchandise suppliers
they are financially and operational safe
they are able to provide real-time stock inventory
Post brick-and-mortar retail relies on electronic communication and product display. But when a product is bought it has to come from somewhere, right? Seal the deal with the suppliers and it’s off to the Warehouse, that magical place where online retailers pick products from the shelf, pack them neatly and prepare those products to be delivered.
Sounds simple? Well, usually, it is not. A decent store with its own warehouse operations has thousands of products at any time on its inventory, employs at least a couple of dozens of people to store products, pick and pack, and prepare for delivery. That’s why so many large companies choose to outsource their fulfillment operations to “third party logistics” suppliers such as Anchor 3PL or the ever-growing Fulfillment by Amazon so they can focus on what they do best (usually purchase the best assortment of merchandise, service customers and marketing).
Key Take Aways: A much larger post regarding 3PL/YPL (third party logistics) will soon be available on Netonomy.NET but until then, let’s have a look at things to consider when developing your own warehouse operations:
technology is the key – all 3PL service providers use technology (warehouse management systems) to know at all times where the products are, what’s the most efficient way to pick those products, who should be the person in charge for each package and others
think about the season – some seasons (such as the Holidays) are more operationally intensive then others. Be ready to employ temporary workforce to fulfill your orders
everything needs to be tracked and monitored – security and accountability are the key to handling large numbers of orders and workforce
3. Shipping and returns
Just as mentioned above your merchandise may be displayed and marketed online but it has to be packed and reach its destination in the real world. That’s why you need a good warehouse management and that’s why you need a great shipping service.
Shipping is usually an outsourced service. The best thing to do, unless you’re swimming in cash and you want to start competing the likes of FedEx and DHL, is employ one of the shipping providers and negotiate your way to a marketable shipping cost. Such a cost is likely to be, in the future, one you will be paying yourself – so pay attention.
Once you’ve contracted these shipping providers integrate their system with yours so you can streamline packaging and delivery.
Once in a while customers do not like what they’ve bought. You will need to handle the returns and reimburse customers for their purchase. Here you can team up with the shipping provider but your store has to handle all the communication.
Key take aways:
hire a shipping provider – It’s probably not worth it to have a shipping service of your own
pay attention to systems integrations when it comes to online store – warehouse – shipping flow
handle your returns as gracefully as possible – it may mean the difference between an unsatisfied customer and a lifetime brand ambassador
Before we skip to the next component I just wanted to make sure you’ve noticed I haven’t yet mentioned anything you would expect would be ecommerce related or innovative. So far – it’s just plain ol’ supply chain management and logistics. Got it? Great. Let’s move on to …
4. Client Relationship Management (CRM) – software and policies
Before even considering selling – you need to think about how are you going to treat your customer and keep him coming back. That’s where CRM comes in. While the term is usually used to describe a type of software, it is actually the term describing the whole policy on how are you going to handle interactions between you and your customer.
CRM needs to be “customer-centric”. Big words – but what do they mean? It just means that everything you do needs to be done “for the customer, by the retailer”. You need to understand the customer purchase patterns so you can recommend the most suited products. You need to record purchases, interests, preferred channels and basically all there is to it when it comes to understanding your customer.
Then act on that – after you’ve analyzed data make sure customer care, warehouse operations, shipping providers and even your purchase operations – all know who the customer is and what it wants.
Key Take Aways:
CRM is not just software – it’s a company policy on how to treat clients
Profiling is a must – understand as much as possible about your customer so you can serve better
“Customer-centric” is not a buzz-word – it’s common sense
There is no “client service department” – everybody working in an ecommerce store needs to know who the client is, record interactions and treat customers accordingly
5. Ecommerce catalogue and product display
Here’s one you surely expected, maybe not so down the list: your online store catalogue. Of course – this one is important. Without one we would be back to mail orders and inventing the wheel. However, as you’ve probably seen so far – it is just a small part of the whole ecommerce store business.
When it comes to it some things you really should be taking into account:
make sure you don’t over-design your store – your products are the most important items. Make them shine.
analyze and predict: predictive analytics is the practice of analyzing users behavior and predicting what would they rather buy at any given time. Read more about it here.
search, search and let’s not forget search: most of your customers will be using a search engine to navigate to your store (1) . Make sure your store is optimized. Once there, when in doubt, they will want to search for products (2) – make sure your site search works. Finally – when their order was shipped they will want to search for its location (3). Show them.
6. Marketing and loyalty programs
I know, i know – one includes the other. But for the sake of the argument let’s just assume that maybe loyalty programs online are so important that they should be a separate item to marketing. Because they are.
Loyalty is really hard to acquire these days. Especially when it comes to ecommerce. Most users will be searching for the lowest price and buy from whomever the seller is. But you can fight the trend with loyalty programs such as:
rewarding purchases – reward your users with points they can spend on your store. It’s really effective in keeping your customers tied to your brand, as well as making them feel great about it
social shopping – make your customer feel like a king when he can give out discounts and freebies to its peers and friends
reward social media – most online users have some kind of influence in their micro community of friends. Encourage them to take part in your story, share your products and reward them with freebies, discounts and … well …sometimes “Thank you” is enough
As for marketing at large – there is an increasing number of marketing solutions you an use to market your products and store but not all are alike. Not all are as efficient. Focus on:
Search engine optimization and paid search results
They may not look like much but together the “incredible four of ecommerce” can mean the difference between a failed startup and the next Amazon.
Last but not least …
7. Showroom and offline purchases
What – you thought that brick and mortar is all gone? Of course not. Online retail is still at just 7% of total retail but growing fast. One of the things that’s helping it grow is showrooming. That is the practice of checking a product in-store and buying it (usually cheaper) – online.
Don’t think about ecommerce as online-vs-offline. Think in terms of customer. The customer wants to feel the product before it makes the purchase. So you’ll need to show it to him. Even a small offline showroom can work miracles for your online store.
So now you have it – online retail is a rather big iceberg. Most of it unseen. Check where others don’t look because that’s where you’ll find success in ecommerce.
Google checkout is soon to be dead. Recent changes to Google’s strategy made the product obsolete. The change will affect mostly physical goods merchants as Google offers options for digital goods and app sellers.
While PayPal can surely be happy about it, customers will not be. However, the company has partnered with companies providing payment processing options (Braintree), online store solutions (Shopify) and online invoicing (FreshBooks).
If anything – Google is moving even deeper into ecommerce services
The recent changes and Google Checkout’s “Sunset” (definitely a great spin) will not change the interest Google has for ecommerce services. The company is looking for places it can grab a larger market share, places with a faster growth rate. Here are some:
Shopping Express – Same day delivery service for companies such as Staples (second largest online retailer), Office Depot, Toys’R’Us. Launched in march 2013, it expanded september 2013 to include the area between San Francisco and San Jose. It currently offers 6 months free trial to customers signing up until Dec. 31st
Google Wallet Instant Buy – a service that provides a multichannel solution to payments, allowing customers to pay on mobile, on the desktop and in app.
Google is still interested in ecommerce. It just figured out Google Checkout was not going to happen.
So – if you are a Google Checkout customer – remember, remember, the 20th of November.
The second biggest online retailer in the world, Staples.com, made $24.4 billion last year. Apparently the office supplies online market is growing steadily and attracting unwanted attention from Amazon, while its brick-and-mortar counterpart is struggling with recession. Below we’ll have a look at the market overview, main sales drivers, top retailers and marketing.
Let’s start with:
Office supplies online – market overview
The US market, as well as the global market for office supplies is heading to a small rebound, mostly due to a small decrease in demand and a larger decrease in physical store space.
For example, leader Staples.com, is planning on closing 40 underperforming stores this year (out of a total of 1886 stores in the US and Canada), 10 more than previously announced. Challengers Office Max and Office Depot, some of those late at the ecommerce party, have been blown even harder by reduced sales, as well as online retailers increased competition. The two companies are planning on closing 175 and 150 stores, respectively.
On the other hand online and multichannel stores are doing great and Staples announced a new type of smaller stores that engage visitors with interactive kiosks and staff aimed at driving more sales to staples.com.
Staples.com is embracing showrooming and engaging customers offline to drive them to buy online. This means that the company is expecting a decrease in offline buying interest. It also means that the age of the behemoth stores is over and now customers will be expecting offline experience that leads them to buy online.
Office Depot also shifted focus towards a multichannel approach. Monica Luechtefeld, who’s been with Office Depot for the past 17 years restructured marketing teams into a single department, to offer a 360 degrees approach, focused on the customer.
“Instead of looking at you as an online shopper, it’s an attempt to think of you as the customer of Office Depot. The more we look at you horizontally and look at the multiple ways you engage us and the multiple tools that you use to buy − one day a store, one day online, one day a call center − the better we’ll be able to serve you.” said Luechtefeld.
In order to counterbalance Staples’ and Amazon’s competition, Office Depot is also moving into a merger with Office Max, as WSJ reports. The two companies worth $1.3 billion (Office Depot) and $933 million (Office Max) will probably be trading stocks. With almost 60 000 employees and $17.5 billion in combined sales, the two companies will decrease costs and increase market share, if the deal pulls through. Office Depot also tried a merger with Staples in 1997, but the deal was shut down by the U.S. Federal Trade Commission.
Until the merger goes through the US market is shared by Staples (39% market share, also the largest office supplies company in the world), Office Depot (22%), Office Max (13.5%). These companies control 74.5% of the market so they are really setting the trends, and the trends are:
decreasing brick-and-mortar store space
transforming stores into offline experiences aimed at converting customers to online buyers
increase profitability by increasing online sales
focus on customer centric, multichannel marketing
Product segmentation and best sellers in office supplies
Office supplies are some of the most sought products online, up there with computer hardware and consumer electronics. The online market for office supplies totals $22.8 in US alone but not all office supplies are created equal. When purchasing online customers spend their money on:
Office and school supplies – largest portion of total office supplies category – 45% of total sales. Among these office supplies account for 80%.
Office equipment (fax machines, photocopiers, computers, recorders) amount to 24% of total sales
Last but not least – stationary and computer paper account for 23% of total revenue, as stated by IBIS World.
Among the office supplies the ones that stand out are the ink and toner cartridge supplies. For office supplies retailers the fact that these product sales decreased in the past year meant a hard blow to the market cap.
Ink and toner Cartridge online market – opportunities and threats
Cartridge supplies make up for a large part of office supplies retailers’ margin. In 2011 the ink market alone was worth $14 billion globally so it’s safe to say that the market is here to stay, although growth has suffered due to global recession. New developments in ink manufacturing, online retailing and customer acquisition have changed the landscape but printer ink is still one of the most needed and expensive products on the planet.
As for the vendors, a recent study by Research and Markets shows top vendors as Brother Industries Ltd., Cannon Inc., Hewlett-Packard Co., and Seiko Epson Corp.
The study also shows that among the key growth drivers there is an increase in demand for cheap, high-speed continuous-feed inkjet printers. Recent changes in technology are making possible for buyers to expect reasonably priced color printing.
Although the overall cartridge supplies market is not doing great, thus affecting leaders like Staples, Office Depot and Office Max, a few trends have really picked up:
Labels and Packaging have increased demands for ink: part due to companies expanding into emerging markets but most important due to a ecommerce growth labels and packaging show increase needs for ink and will probably continue to do so for the foreseeable future. A slower growth can be seen in commercial printing.
There is a growing demand for cartridge refills: the global recession helped increase demand for cartridge refills. Information regarding inflated ink cost and news of printers wasting ink all helped pushing the consumer into finding new ways to decrease print costs.
Companies are helping consumers recycle used cartridges in a move that helps companies retain clients, fight the cartridge refill trend and position themselves as “green”. Staples announced it has recycled over 350 million cartridges through its ink and toner cartridge recycling program. Through this program customers receive $2 back in Staples Rewards points and can be used either online and offline.
As such – companies looking into expanding ink and toner sales need to seriously look into:
cartridge buy back and recycling
refill options for customers
loyalty programs that offer incentives such as buyback points or discounts
Markets and marketing for office supplies online
When it comes to customers, the main targets a office supply retailer has are, according to IBIS World:
Households make up the largest share of all sales, with 50% of total revenue
Businesses amount to 45% of total revenue
Government is just a small part of office supplies sales (5%)
When it comes to marketing and customer care, it seems that most office supplies retailers are moving towards a multichannel approach as to leverage the existing stores and maximize profit. Customer care and retention, location based marketing, mobile marketing, direct marketing and social media also seem to be playing a big role when it comes to customer acquisition and retention.
Customer care and retention – loyalty programs
A very important part in Staples.com customer care is their Staples Rewards program. Every purchase offers customers 5% back in online/offline purchases as well as free shipping. Customers can redeem rewards when buying from a physical store, online or on their mobile device, thus ensuring a multichannel experience.
As a very large chunk of the market are households, usually families with one or more children, Staples.com now offers a program targeted at parents and teachers. Parents can offer a teacher of their choice a chance to earn as much as $2000 a year, in reward points.
Office Max also offers a loyalty program – MaxPerks – that allows customers to receive 5% off every purchase in rewards, rewards on cartridge recycling, and other bonus rewards.
Using mobile to connect multichannel customers
Office supplies retailers use mobile to leverage increased mobile commerce traffic, drive foot traffic in store, helping customers find product information and help them check rewards quickly.
When it comes to mobile the largest player on the market, Staples.com is using both a scaled-down mobile version of the site, as well as native apps on iOS and Android.
The mobile experience is extremely easy to use and focuses on:
Office Depot also offers a mobile version, as well as iOS / Android native app but it features more information regarding products and a clearly visible “ink finder” section.
It is clear that both companies are really working on providing their customers with a great mobile experience and help them find the best deals and the right products quickly.
Staples.com has really set a target at providing the best mobile approach it can and Brian Tilzer, VP of Global Ecommerce declared:
“More and more shoppers are turning to their mobile devices as a way to research and shop whenever and wherever they want. Staples is thinking ahead and anticipating customers’ needs, providing an offering that not only serves as an m-commerce tool but listens to, and solves, customers’ pain points.”
When it comes to social media there is no really big winner and tactics and strategies are really similar. Some overall trends seem to be more prevalent though:
social media engagement – companies such as Staples, Office Depot and Office Max are all channeling their efforts to discussing new products and deals, occasionally engaging in social responsibility programs such as Office Depot’s “Stop Bullying”
deals apps – wether it’s Staples’ “Weekly Ad” or Office Depot’s “Weekly Deals”, the companies are showcasing their best offers wherever they can. That includes Social Media.
companies have a cross-channel social media approach, as seen here.
Direct marketing / customer targeting
Traditionally direct marketing has been one of the best marketing and sales channels before ecommerce started getting traction. Now companies need to face a world where the customer expects real-time, personalized offers.
Amazon is closing in with its beta Amazon Supply, an online store targeting office and home supplies. As such, Staples needed to find a way to fight fire with fire and acquired Runa, a California-based software company that specializes in personalized shopping. The company analyzes browsing history, previous purchases to create a virtual profile for the customer and predict what products would he be interested in.
Profiling is clearly the key to direct marketing as customers are looking into personalized offers and expect companies to provide them with it.
Key take aways:
If you’ve read so far, let’s just assume you’ve probably missed a couple of ideas along the way so let’s just wrap this report with the most important take aways:
office supplies brick-and-mortar stores are struggling and will soon be gone
they will be replaced by multichannel retailers that use physical stores to showcase merchandise and sell online
there are three big players in the office supply market in the US: Staples, Office Depot, Office Max. They make up 74.5% of the market
the office supply market has slightly decreased. So did the ink market.
new trends in the ink market: increased consumption in packaging and labeling, cartridge refills are up, companies need to provide recycling options to customers
mobile is a very important factor in office supplies online retail as it bridges the gap in multichannel shopping