Where Is Retail E-Commerce Going? Part 2: 10 Essential Small Businesses Strategies

With e-commerce in rapid flux, how should online businesses ride the wave and expand their Internet sales? In the previous article I outlined "10 Key E-Commerce Trends That Affect Your Business." Now that I've outlined the trends, I will suggest some strategies for responding to them. It is clear that people are moving rapidly to the Internet in the US and abroad, and we are moving beyond customer hesitance to shop on the Web. I would guess we have three to five years before e-commerce saturation. Now is the time to make your move.

The steps you take will vary a good deal depending upon your basic strategy, the size of your business, etc., but here are 10 strategies that are likely to strengthen small businesses in today's marketplace.

1. Find a Niche and Fill It with Excellence

With large retailers and mail order companies moving online and big money staking out large sectors of the online market, it's time for small businesses to move to the edges, to the niches that are not so hotly contested. Unless you have the money and the stamina for war, don't go head-to-head with big companies unless you have a better way, and a new angle that cannot be easily copied.

This may be déjà vu for small businesses that first struggled against the large chain stores moving into their communities. One book which outlines the strategy options for small businesses is Up Against the Wal-Marts: How Your Business Can Prosper in the Shadow of the Retail Giants by Don Taylor and Jeanne Smalling Archer (Amacom, 1994). Many of the same advice applies to the Web. Look for niches and find ways to differentiate your business.

There are many smaller niches that are only filled weakly. If you look carefully and innovatively, you can find your place. Perhaps you've already found a spot where you're making good sales on the Web. Now is the time to make the investments in your own site to fill this niche with excellence. You may have been putting off improvements until later; perhaps now is the time to consolidate your position. If you don't, some bright netpreneur will take it from you.

2. Create a Unique Ambience in Your Store

Your next strategy is to differentiate yourself from your competitors. What is unique about your company and the services you offer? Why don't you build on those distinctives to create a unique ambience and theme in your online store.

Carry the theme throughout so your site isn't just standard boring HTML, but suggests character and pizzazz. You must go beyond what a do-it-yourselfer can accomplish. This may be the time to hire a graphic designer to give your site a new look and feel.

You want visitors (1) to remember your site positively, (2) to want to return, and (3) to enjoy spending time at your site. This quarter's buzzword is "stickiness," that is, finding ways to get people to stay longer at your site and develop a loyalty. To do this provide lots of new information, community building, free tools, etc. While I don't recommend business chat rooms, bulletin boards can have much the same effect.

3. Analyze the Breakeven Points in Your Business

With strong price competition emerging on the Net, you need to study your financial data to determine where your breakeven points are, and how you can stay comfortably beyond them while still keeping prices attractive.

Study ways to save time and money in order fulfillment. You may not be able to control what you pay for a product, but you can control how much it costs you to send it out the door. In the book war between Amazon.com and BarnesAndNoble.com, what tips the scale will be fulfillment efficiency, not price. If you can knock a dollar or two off the cost of inventory, warehousing, picking, pulling, and shipping, it makes you much more competitive

For example, the extra cost of setting up real-time credit card authorization may save money in fulfillment time. How much time do you spend getting an order into your accounting or order tracking system? Do you have to rekey an entry? You may find it worth the expense of hiring a programmer to develop a macro to take data from your shopping cart system and import it automatically.

Which is better for your business model? Warehousing inventory yourself, getting the product cheaper, and being able to provide better customer service? Or drop-shipping through distributors and manufacturers, and saving yourself valuable time? You'll never uncover these vital answers without carefully studying your records. Look at the pros and cons of scaling up to the next level. What is the most cost-efficient size for you that will generate the income you need? Can you hire someone to run the day-to-day operations of your store if you need to?

Pull out the data and do some "what-ifs" on a spreadsheet. If you can move to a competitive position now, you'll be in much better shape when the Christmas season overwhelms you with orders.

4. Move Now to Increase Marketshare as the Web Expands

Companies capturing larger sectors of Web retail know that being first is much less expensive than trying to capture No. 1 from a competitor. Why don't you develop a plan to increase marketshare significantly now to move yourself to No. 1 or No. 2 in your niche?

Banner ads are prohibitively expensive for retailers unless you are selling high ticket items. Consider advertising in hobby magazines and trade journals with pointers to your website. Make an investment in search engine positioning. Develop an affiliate program. To carry your business to the next level you need to spend some money. Now's the time.

5. Begin an Affiliate Program

Affiliate programs are proving to be the merchant's best friend. Since you only pay out after you've made actual sales, such a program pays for itself. One of the problems with affiliate programs, however, is that they take a tremendous investment in time and energy to administer well. Consider outsourcing your affiliate program in the beginning. Sure, it will cost you a slice of your total sale, but developing a quality affiliate program may be beyond your own resources and aptitudes. Just make sure you structure the program so you can bring it in-house in the future without major disruptions.

There is some urgency about developing your affiliate program. Webmasters can handle just so many distractions. If you wait, other retailers will saturate the best sites and you won't get as enthusiastic a response.

6. Sign Up with Shopping Agents

Shopping agents that enable shoppers to find products and compare prices are responsible for a significant and growing amount of sales. Especially if your prices are competitive, consider signing up with one or more shopping agents this summer before the fall and Christmas shopping frenzy. You generally pay for clicks to your site or per sale, so this may be a very good way for you to generate traffic that pays for itself in sales. You may need to make changes to your site so the shopping agent can track your prices and URLs. Don't wait till the last minute to do this.

7. Upgrade Your Shopping Technology

We'll soon be in a kind of summer lull for many businesses. If you haven't already done so, evaluate your shopping cart program. Many merchants, in a rush to get on the Web, made a poor choice of programs and may be feeling stuck.

Some questions you might want to ask are: Is the software developer improving this product regularly, or have upgrades slacked off? Are there ways to connect my shopping cart program to my order fulfillment system to increase efficiency? Can I add and change products easily with this system?

If you're planning to ride this online sales wave, you can't afford to put off this key and strategic choice. Now that you've had some experience, determine if your present shopping cart program can handle your needs for the next two years. If it can't, it'll be much less painful to switch now rather than putting it off. Switching programs is messy at best. But if you must do it, do it as soon as you can.

8. Adopt SET When 25% of Browsers Include It

One of the trends we see is a growing acceptance of the current Secure Sockets Layer (SSL) standard for security. The SET security system developed by the credit card companies seems to have stalled, and few merchants seem enthusiastic to hurry it. However, I expect within a year or two SET or SET II or Son of SET will arrive. It'll take a number of months for it to be incorporated into browsers. But after that, merchants will be under increasing pressure to adopt it. I recommend waiting to adopt it until about 25% of the browsers include the capability, then move. You don't want to be considered behind the times.

But for now, do nothing. Just watch. Make sure that your shopping cart developers plan to include SET capability. If they don't, you're stuck. Get ready to move to SET, but delay the actual move until it begins to be adopted.

9. Compete on Service and Friendliness

The networked nature of the Web makes price wars inevitable. If you're a smaller business, you may not be able to compete on price as effectively as some of the larger companies. But consider this: People generally make shopping decisions based on three factors: price, convenience, and service. Of course, you must have a competitive price, if not the lowest price. But you are much wiser to make your strongest points convenience and service. Being the convenience and service leader doesn't bite into the small business bottom line as severely as being the price leader.

10. Design for Multilingual Sales

A final trend worth noting is the rapid move in Europe to online sales. America's monopoly on e-commerce is ending. If you want to take advantage of the vast marketplace these days, you'll need to translate parts of your site into several languages, and perhaps be willing to do business in several currencies. Going multilingual is a way you can greatly expand your market, but it means moving outside your comfort zone. You can find many places where you can find help in doing this. But I advise moving your Web offerings into Europe before the Europeans (who are much more comfortable with being multilingual) have that market locked up.

Don't neglect the burgeoning markets in India and Asia, but be careful of Eastern Europe and Russia, due to continual reports of credit card fraud, and governments that haven't been quick to crack down on Internet thieves.

Yes, competition is now rampant on the Web, but don't be discouraged. Just determine that you will do what you need to do to capture and maintain a competitive edge for your business. You've got a good "to do" list now. What are you waiting for?