E-shop? How to choose a business model of online operation?
One of the most common mistakes made by entrepreneurs who decide to start trading on the Internet is excessive concentration on building an e-store.
It sounds paradoxical, but it is true. Opening your own e-shop is just one of the many business models available. In addition, it is not very effective if we do not have an idea how to reach potential customers. There is a high risk that such a store will operate on the periphery of the Internet and no one will find it without huge expenditure on promotion. At best, a few people will accidentally visit it.
What if not an e-shop?
But what if, as a result of the crisis, traditional sales channels fail and the company seeks a quick solution to the problem? So if not an e-shop, then what? An alternative to your own online store is to use the services of sales platforms such as Allegro, OLX or Amazon. This solution has several significant advantages. Having the goods in stock, you can start selling immediately. It does not require any investments or IT knowledge, and the most important benefit is access to a huge number of platform customers and the income generated thanks to them.
However, cooperation with sales platforms also has its significant drawbacks. First of all, it should be remembered that the most important commercial goal of the company is not to make a single sale. The most important goal is to attract and retain the customer. When we use the services of sales platforms, the acquired customer always belongs to the platform. We can be sure that the Allegro or Amazon marketing department will send the customer an offer with products offered by our competitors within one week after the sale. We have no control over it, and building a brand and acquiring loyal customers is extremely difficult.
Or maybe an e-shop and a platform?
Therefore, the optimal solution seems to be to use both distribution channels with full awareness of the advantages and disadvantages of each of them. If we want to get rid of goods remaining in the warehouse, trading platforms will be a very useful tool, while if we are interested in acquiring loyal customers, our own sales channel will be more effective. When the entrepreneur starts selling his goods online, it may be beneficial to use trading platforms and invest some of the funds raised in building his own electronic distribution channel.
The key parameter that should be taken into account is the long-term customer value (customer life time value or LTV). This is the total revenue that can be obtained from establishing a commercial relationship. It should be compared with the cost of acquiring a customer using the various methods available. In the case of trading platforms, this cost is very low, but we cannot count on customer loyalty, so the LTV value is also very low. On the other hand, acquiring a customer for your own e-shop is quite expensive, but it can be compensated by a high LTV value. And it’s not just that the client may come back to us in some time. We also have the opportunity to generate additional income through upselling or cross-selling. Both tactics are fundamental to success in the e-commerce industry. However, when selling via marketplaces, their use is impossible.
So without a doubt, the best long-term solution is to have your own sales channel. However, it should be realized that regardless of the size and financial capabilities of the enterprise, its construction will be a significant investment. Therefore, it is very important to have a thorough understanding of the new type of business financially from the beginning. Customer acquisition costs and their relation to LTV should be carefully monitored. It should be remembered that thanks to consistent promotional activities, this proportion will significantly improve. As a result, the company will over time be able to abandon external distribution channels and gain more and more benefits from establishing long-term relationships with buyers.