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eCommerce Victims – Strategy and Lessons for SMEs

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The invisible hand of the market is altering supply and demand in the eCommerce market too. Every SME should have a marketing plan and a simple SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) should provide guidance for setting your annual business goals and in a rapidly changing and aggressive eCommerce market it is a strategic tool to help SME owners position their products and services to compete successfully with more powerful competitors. Implementing this effectively has a lot to do with human psychology.

eCommerce bankruptcies
The last few years has seen a spate of eCommerce bankruptcies ranging from Radio Shack to HHGregg as well as the high-profile Toys R Us case. Facing a dominant power in any market is something an SME may face during its business lifecycle. Within the first year, the partnership of Toys R Us with Amazon led to Toys R Us being the world’s top toy site. Soon after they announced their partnership, Jeff Bezos launched Amazon Marketplace, which allowed anyone to sell anything on their site. Other retailers began selling toys not available from Toys R Us, giving customers greater choice. Bad ethics from Amazon in a calculated power play but it drove Amazon’s business faster and higher. Toys R Us sued Amazon for beach of contract and went back to trying to compete with Amazon and the rest of the Internet with their own website. Amazon sales went from $2.78 billion when the Toys R Us deal was first struck, to $8.49 billion when Toys R Us sued, then to $136 billion last year, making it the fastest company in history ever to reach $100 billion in sales. Toys R Us flat lined on $11 billion in sales in 2016, the same level of sales as ten years before and filed for bankruptcy. So what are the lessons for SMEs?

Know your strengths
Martin Seligman, the father of Positive Psychology, developed the theory of ‘learned optimism’. Traditional psychology focuses on curing negatives but Seligman took a new approach that includes finding and using your highest strengths to get the best results.

Applying this to eCommerce is a strategy to beat your competition and stay ahead in the market. Toys R Us had great products that with a great partnership took them to the top. Humility, not independence, may have been the best strategy for Toys R Us.

Improve your weaknesses
Everyone has weaknesses, some can be fatal, and lack of innovation is a key weakness for many SMEs. If you don’t keep moving with the times your products and services will become obsolete. Joining forces with a bigger partner may seem like a golden opportunity but the power dimensions change. Bad ethics is everywhere in business and in creative accounting too. Reneging on contracts is an unfortunate, but common, fact of business life. Winning a legal case and associated compensation was a positive result for Toys R Us but in their overall strategy it was a bad choice.

Maximise Opportunities
When you are on to a good thing, make the most of it. Maximise your profits or volume or whatever your goals are and use it to build other areas of your business. In a rising tide all boats float. Many of us may have worked in an SME during a boom or the golden years in a country where everything works and everyone makes money. All market driven economies go through booms and busts so it is essential for an SME owner to make the most of the good times whilst creating safety nets for unforeseen future changes. Developing new sales channels may have been a good strategy for Toys R Us at the time but it ended in bankruptcy.

Feeling Threatened
A lot about building a successful business and keeping it has to do with the psychology of the SME leader. Being successful and making money often goes to your head, until the unexpected happens. This could be bad ethics or disruption in your industry. Bowing down and accepting that certain things are beyond your control is a strategy for SME leaders that may just make the difference between swimming or sinking. The rise of global giants like Amazon has been rapid and, until recently, a good deal of the influence has been in the US. This is changing with Amazon Prime recently opening in Singapore with the effects of this on the local retail market and the across Asia are yet to be fully seen. Anticipating the effect of such an expansion on your own SME business requires a careful analysis of threats and the associated risks on your current markets.

Common causes of eCommerce failures
One experienced Asian eCommerce expert found several common reasons for failures.

  1. Owners choose actions with the highest ROI
    Measuring the ROI of each action indicates a serious approach to business. It is essential for SMEs to measure ROI and plan for the long-term. One SME retailer consistently eliminated all unprofitable (in the short term) sources of acquiring new customers. Without a strategic marketing vision, the company failed to attract new customers. The customer base was gradually eroded and after several years the store was in trouble.
  1. No successive investments in technology
    The owners of one SME declare that every four years their application is rewritten. They do it to preserve the freshness of technology and discontinue the technological debt. The longer you wait the more difficult the migration process is, but maintaining current technology can be risky. Components are no longer updated, it’s increasingly difficult to obtain resources for developing old technologies. Ignoring this change will make conducting good business impossible in the short-term. Of course, old technology can work but, if you’re stuck with it, over time you will lose security, flexibility and the possibility of using new innovations.
  1. New categories destroy perceptions
    Many stores keep on introducing new product categories. This good idea is based on new categories being a strategy to increase margins. However if say an online bookstore becomes a bizarre mix of books, household appliances and clothing, customers may feel confused. Extending your offer has to be aligned with brand consistency and effective communication with customers.
  1. No customer loyalty
    Customer acquisition is almost always unprofitable in the short-term as repeat customers sustain profits. In one online SME that acquired a lot of new customers, each of these customers generated a loss with their first purchase. The e-store owners believed that they would start earning after a second or third purchase, but there was no customer loyalty. If they had built their business more thoughtfully they would see that the forecasted revenue from loyal customers was missing. Monitoring loyalty and building loyalty programmes are crucial to effective marketing campaigns.

Make an eValuation
Developing a strategic marketing plan, in a pragmatic way, is a good strategy for preventing your SME from becoming an eCommerce victim. As Jeff Bezos says: “What we need to do is always lean into the future; when the world changes around you and when it changes against you – what used to be a tail wind is now a head wind – you have to lean into that and figure out what to do because complaining isn’t a strategy.”

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Paul Conway
Paul Conway
My role as CEO is to take the business to the next stage of growth. I already have a fantastic and growing team. There are opportunities with payments, banking channels, additional software, cloud deployment and with over 300,000 customers in South East Asia and a publicly listed majority shareholder in Censof holdings, the opportunity and tools for growth are very real.

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