Reaching The Customers – “big-time”!
The most widely known online shopping websites are Amazon and eBay. These are large and successful companies, that both have one sole objective…
They want to completely dominate global online shopping.
Amazon in particular has been so ruthless in this quest, it has endured many, many years of substantial losses in a sort of “win at all costs” strategy that (at best) has re-shaped the way online shopping happens and (at worst) been a major catalyst in the demise of many traditional commercial models.
We won’t go into the ethics or morals here – that is not our purpose. We will look at these online shopping portals with one question in mind…
Will YOU be able to run a profitable business selling on Shopping Portals?
Before that can be answered, let’s look at how these giants operate.
Shopping Portals – including eBay and Amazon – all have one major objective, and that is to increase the number of eyeballs looking at their sites, and keeping them there for as long as it takes for the visit to end in a transaction.
Yes… selling is a vital component, but winning visitors is the most important goal. This is particularly true of eBay, who itself does not actually sell anything, but acts as a “broker”, putting buyers in touch with sellers, and then taking a fee for every transaction that occurs on their site.
These companies put huge value in “numbers of eyeballs”, because it is this single fact that makes their business models work (or not).
Amazon started out as a large online bookshop when Jeff Bezos noticed that the global publishing and book trade was a “cosy club” that (in its traditional and centuries-old model) effectively “shut out” aggressive competitors – especially in the distribution of books. By buying up large stocks of over-print books (that would otherwise have been pulped), Amazon started to offer a growing number of books at heavily discounted prices. For years they did this at a substantial loss, using investor funding to expand the operation. There were many calls from investors over the years to shut Amazon down to stop the bleeding, but Bezos tenaciously hung onto the model and the global giant is only now starting to show any meaningful profits. The company – as you will know – expanded (and continued to expand) into all online retail avenues and is now the world’s largest online retailer.
eBay began as an “auction” website – putting buyers in touch with sellers (the general public) who wanted to get rid of junk cluttering up the loft or garden shed, and like all auctioneers, eBay trousered a fee for each transaction. They had some strong competition in the early years but they wisely invested in technology and honed and refined the processes involved in online auctioneering.
eBay then made one of the most brilliant decisions ever, in the world of online commerce. They set up systems for people to open up eBay “shops” rather than to just auction old junk, and because they now had a huge user base, were able to offer aspiring online retailers an easy way of reaching literally hundreds of millions of potential customers. There was a massive flood of people setting up eBay shops, selling just about every item imaginable. eBay just sat back and watched the bunfight, safe in the knowledge that irrespective of which eBay shop made a sale, eBay would earn a commission. eBay did not (and still does not) care a hoot if the seller sold at a profit or loss – as long as the sale occured on eBay. They’d get their fee just for sitting back and watching it happen.
It didn’t take long for Amazon to follow suit…
Remember what I said (above)… their core objective is to increase their user-base, because in the world of eCommerce, the size of your user population is the most valuable asset by far. Amazon simply “copied” the eBay concept, refining it to suit their business model and operational infrastructure.
Today, there are millions of eBay and Amazon “webshop” owners – generally small sole traders operating from home, all keen to leverage eBay’s and Amazon’s immense public appeal and market reach.
A Race To The Bottom
On eBay, there are two types of auction:
- Where buyers bid upwards against each other to secure the sale.
- Where sellers bid downwards against each other to secure the sale.
… either way, eBay will earn a fee. It is not really interested in what is being bought or sold, or by whom to whom. eBay is only concerned that the sale will happen on eBay, and it employs scores of tactics to hold the visitor, even showing the visitors ever-cheaper options of the same thing from competitive shops, within the great eBay portal.
Because the vast majority of consumers shopping on eBay are looking mostly for the cheapest price, they are responsive to these “alerts” pumped out by eBay for ever-cheaper options, and will stay on eBay, navigating towards the seller who’s selling at the lowest price.
This is (for the eBay shop owner) a “Race To The Bottom” – where the only way to secure sales is to offer your goods at the lowest possible prices.
eBay trades (very successfully) on the ignorance and lack of business acumen of the vast majority of its online shop owners. Because it is so easy to open a shop on eBay and start selling, eBay makes itself hugely attractive to aspiring small retailers by promising to enable then to sell online (within a few minutes) and to earn the eyeballs of hundreds of millions of shoppers. This is absolutely true… nowhere on its website does eBay make any false claims or promises. It offers extremely easy ways to sell online, to do so safely and securely, and to put your goods in front of a massive global audience of keen buyers.
What eBay does not tell you (and why should they?), is that you are probably never going to be PROFITABLE, and all you will be doing (in reality) is pouring cash into eBay’s coffers, and basically giving away your products at stupid prices to extremely happy customers.
This cycle is self-fulfilling… Increasing numbers of bargain hunters navigate straight to eBay, seeking out any “sucker” who is desperately trying to win sales – even if it means trading at a loss.
Again… this is NOT a condemnation of either eBay or Amazon. We are not here to debate any ethical issues. These companies are successful because they have exploited a niche. They have done this legally, sensibly and extremely effectively.
CAVEAT-EMPTOR is the principle here… if you are intending to open up an online retail business, then only one thing matters… CAN YOU DO IT PROFITABLY ?
Part of your research, and business planning, will involve examining shopping portals an working out whether there is any viability in using them.
Don’t just blindly set up a portal shop.
eBay and Amazon have made billions by basing their businesses on the principle of
- WIN THE CUSTOMER, NOT THE SALE
… and they achieve this by trading on those who have the principle of
- WIN THE SALE, NOT THE CUSTOMER
Is it ever “OK” to set up a shop on a portal?
We estimate that the number of people (organisations) that make any meaningful profit on their portal shops is fewer than one in a hundred-thousand.
The vast majority of portal shop owners (at best) break even, but are more likely to trade at a loss.
This is particularly true for sellers of branded goods.
You stand a better chance of making a profit if what you are selling is “bespoke” such as custom-designed fashion and jewellery, or trinkets not made or sold by others. The difficulty here is – how do you get it to feature strongly on the portal? What is presented to viewers is the result of a specific search in most cases. If your items have unique names, then how will people know whether to search for them or not?
Some people (chiefly established businesses) use eBay and Amazon to sell off end-of-line goods, or items that would otherwise be scrapped, but which may have some use to someone out there. Rather than get a pittance for scrapping these items, they can offer them at a better price on shopping portals. This is best-suited to durable goods. It’s risky if the items have a short shelf-life, or are subject to “trends” (such as a clothing item that may have lost its appeal to customers).
For anybody who is seriously considering selling online, and has the objective of making it profitable and possibly earning a good living out of it, then shopping portals are probably NOT a good way of going about this.
Shopping portals can play an important role in the initial stages of determining the viability of an online selling idea.
Also, for those who have not run a “distance selling” operation before, handling an order after it has been placed is also a key component of the selling process. You can “practice” the logistics and fulfillment elements, without having to make huge up-front investments. Processing the orders, packing the goods, posting them, and tracking the delivery are all important to the customer experience. Rather practice this in the relative anonymity of eBay than on your own, branded webshop. If you make mistakes, then you won’t be tainting your core brand.
So… you can use shopping portals for strategic and research purposes. You can “test out” new products, you can plot sales successes (not profits, mind you…) to see if what you are selling, or intend to sell, has enough appeal to be a worthwhile undertaking.
Your purpose in selling is to do so SUCCESSFULLY and PROFITABLY.
If (after real, hard due-dilligence) you see that a shopping portal webshop is the best way of doing this, then consider using them.
But if there is even the smallest hint that you can’t be profitable, then don’t waste your time or money.