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Companies need to sharpen their online performance to fulfil their potential
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Martin McElhinney
September 25 2022 02:30 AM
The Irish ecommerce market experienced around eight years growth in two years during the pandemic. Many Irish retailers rose to the challenge and created world class online operations that have had transformational effects on their entire business.
The funding made available through the government’s Covid-19 Online Retail Scheme to enhance retailers’ ecommerce capabilities was a much needed boost.
When spent well, it has supercharged the ecommerce capabilities of many companies. However, despite this stellar online sales growth over the pandemic, many retailers still struggle to sell online profitably and deliver that revenue growth to the bottom line.
There are a number of common causes and solutions to this problem:
Chasing sales at all costs
Amazon scaled its business for nine years before turning a profit. Irish retailers do not have that luxury. Building scale is important, and in the early stages of building an ecommerce business, the cost of acquiring new customers will often be unprofitable but it can’t be a long-term strategy. A bad digital marketer will never want to discuss your product margins, and consequently many businesses get caught paying unprofitable customer acquisition costs as their revenues grow.
Operating on a high customer acquisition cost can be very expensive to scale online and can create a ferocious cash burn. The resulting scenario – the more you sell, the more you lose – is not sustainable.
It is therefore vital that the business establishes what their profitable customer acquisition cost is, it is monitored as a KPI and made central to every digital marketing conversation in the business.
Cost behaviours
There are ecommerce vendors that work off the percentage of sales generated model.
This can be appropriate for the business in the early days when revenue generated may be modest. However, these charges grow with the site’s revenue and can quickly become a major drain on your online profitability. Always do the maths before entering into these arrangements and investigate your alternatives. Where appropriate agree a flat fee.
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Failure to replicate what makes you a great retailer online
Successful Irish retailers have long mastered the art of turning visitors to their stores into life-long customers. This is achieved by serving their customer well and establishing relationships.
But a lot of Irish online retailers are focusing on acquiring new customers rather than building relationships with their existing customer base. Success in ecommerce lies in replicating the great experience instore online and bringing your existing customers back time and again rather than buying new ones at an ever increasing cost. If you can bring a new customer back to purchase again on your site, you have halved their acquisition cost.
The most successful online retailers achieve this through a relentless focus on the user experience from when a customer first visits the site to the delivery of their order and any subsequent after-sales service. Something as simple as conducting a competitor analysis is extremely useful in helping determine where the “pain points” are for your customers in doing business with you.
Seeing the wood for the trees
It’s easy to become a busy fool in ecommerce, getting caught up in growing the business and making sure the orders are coming in.
There are any number of analytics packages to tell you in real time and in great detail how much traffic your site is getting, its sources, sales revenue, conversion rates and so on.
Feedback on the site’s financial performance tends to be less instantaneous or readily available. It can be very difficult to gauge exactly how the ecommerce operation is performing financially day-to-day with so many hidden costs that can be easily overlooked.
Robust monthly management accounts are vital to get a clear picture of how the business is performing and to anticipate issues coming down the track, rather than when it becomes a crisis.
Operational inefficiency
Anyone who has been buying from Irish retailers online for the last few years will know that often orders take too long to arrive. To date, Irish customers on the whole have tolerated longer delivery times than their British or US counterparts. This will change with Amazon opening more fulfilment centres in Ireland and making millions of products available for next day and ultimately, same day delivery.
Even more troubling is the stubbornly high rate of orders going unfulfilled due to mistakes on websites, stock errors, picking errors and so on. These can prove incredibly costly for a business in terms of refunds, wasted customer acquisition costs, customer service time, and most troublingly, negative customer experience.
To address this, processes around how orders are picked, packed and dispatched must be improved. Best in class Irish online retailers such as MicksGarage.com have got the time from when “Buy Now” is clicked to dispatch down to around 30 minutes. This is what good customer service looks like online, and needs to become the standard.
These are all significant issues, but they can be overcome. I am confident that Ireland will continue to create online retail champions that can challenge the international big-hitters domestically and beyond.
Irish people love shopping online, and given the option I believe they prefer to support Irish businesses. It is up to Irish retailers themselves to provide them with a compelling reason to do so.
l Martin McElhinney built the e-commerce business of Irish retailer McElhinney’s and now advises business on online retail. He works alongside David Fitzsimons, former CEO of Retail Excellence.
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