E-commerce businesses are considerably better business models with lower costs and higher profitability due to the elimination of the higher costs involved with offline stores. For this reason, online brands are considered to be a lot easier to start, run and operate than your traditional offline businesses. With internet accessibility increasing massively, aided by the massive reach and ease of doing business practices of behemoths such as Amazon, Google Shopping, Shopify, and others, several businesses exist that are purely e-commerce. Dropshipping at one point was a huge draw in the US. while margins in that particular model have dwindled but several profitable businesses still exist that are into dropshipping. Farfetch, Bonobos, Badgley Mischka, Misguided, Limeroad, Next, and several other brands exist that have done extremely well for themselves. However, high return rates, order cancellations, varying costs of customer acquisition can wreak havoc on an online brand’s profitability. Here’s how online brands can increase profitability to ensure longevity in the business.
Primarily, there are four ways to improve sales and profitability via eCommerce business models,
- Increase site traffic
- Improve conversion rate
- Increase average ticket size
- Optimize costs to improve profit margins
The focal point should be on all four aspects of the business. Site traffic, conversion rate, ticket size, and finally profit margins are all related. What online brands need to do is relook at their businesses and find better models to operate their businesses. Several strategies can be developed that enable a strong business however each strategy cannot be applied to a business blindly. Business owners need to look at each strategy and search for the best fit. Here are some strategies that are universally applicable:
- Push products with best profit margins
Products that are flying off the shelves are not the ones you need to push. As an e-commerce business, you need to push those products that have the best profit margins and focus your energy there. A healthy mix of high margin & best sellers has to be maintained. Run promotions and focus marketing on products are high margin
- Great Brand Story
E-commerce brands are driving sales by focussing on millennials and Generation Z. What resonates most with these consumers are brands that have a strong story that showcases their value systems. Marketing efforts that showcase such value systems have shown positive results. Ethical sourcing, fair trade practices, promoting local arts and craftsmanship are all part of the strategy and brands that do this well have performed well especially in the e-commerce space.
- Discount sales only when necessary
Discount sales are a great way of selling off products that may not have been selling otherwise. However, relying purely on discount sales hurts individual brands more in the long run as the brand then gets associated as a discount brand. This image mismatch can be disastrous for a brand in the long run. Rather than discounts as the primary value, Brands need to highlight the value of their products that the end-user can relate to. A great brand story that highlights this value system as mentioned earlier can help break the discount cycle. Besides, competing with big brands that are well funded by offering major discounts will only hurt the bottom lines.
- Increase Order Value
The best way to ensure a higher average ticket size is by enabling complimentary products with each product before any product is added to the cart. This ensures the consumers are able to add more products to the cart in the same purchase greatly increasing the order value per transaction. Farfetch does this beautifully by giving an additional option next to the product before and after the purchase with additional products that complete the ‘Look’.
- Target High-Value Shoppers With High-Value Emails
Nothing beats a limited edition sale for a very select few. Use the power of emails to the maximum by retargeting consumers with average ticket value. Showcase limited editions, highly selective products in beautifully designed emails that grab attention and bring those customers back to your site. Limited editions, preview sales, and Out of stock – restocked sales drive consumers crazy and bring hordes of them back to your site. Ensure to capture email ids at the time of purchase to ensure you are able to build a sizable retargeting email campaign.
- Get Inventory Creative
Don’t restrict yourself to the ordinary run of the mill. Millennials want Individualization. Brands that can offer products based on individual tastes have been able to perform better than others. Hence, offer products that are different. The benefit of being super smart about your inventory is that it allows you to manage your products and change what you offer on your site or mix the offering on the storefront. By offering limited run, special edition products, you have the benefit of offering a fresh take on your products that consumers love to collect.
- Improve Return Policy & reduce returns
For any e-commerce business, returns are the biggest pain area. Not only is it a loss in terms of delivery and logistics costs, but the products are also usually returned with full money-back guarantee. Several steps need to be taken in this sphere:
- Minimum order value to qualify for free delivery/ returns: This small mechanism pushes customers to choose more products by default. By enabling a minimum order value, customers purchase a few more items to qualify which further pushes your sales.
- Longer return periods: Several research studies have shown that longer return periods allow customers to use the product and become attached to it, known as the endowment effect, thereby, reducing the overall return rates.
- Gather customer feedback, improve your product: every product return is due to a concern with the product. Gather information about why a product is being returned. By improving your product based on the customer feedback, you are breaking away from the cycle of returns and eventually reducing the return rate. Be it product quality, delivery experience, user experience, everything leads to one final aspect i.e. customer experience. Improve what you can and you will be on your way to better customer experience
- Incorporate user reviews: Nothing says your product is great than social proof. Highlighting Instagram feed of products being used by your customers, and user reviews on your website is a great way to ensure that your future customers believe in the quality of your product. Add high-quality images, and videos of how the product looks, feels and operates. Use them on social media and gain further traction about your product and reviews. The more the better. Send in feedback emails to your past happy customers to gather feedback. Offer a discount on the next purchase as motivation and collect some great reviews. You get a great review for your product, additionally, you have also improved your sales figure by offering a small discount, ensuring customers come back to you again.
Develop a Strong Brand
Ultimately, maintaining a strong profitable brand is all about great customer experience. This is why Nike is Nike, Apple is a behemoth, and Farfetch and others are making oodles of money. Branding has become an integral part of every business. And Customer experience the rule of thumb for business success.