Chapter Thirty Seven

Selling on the – World Wide Web

E-commerce threatens consumer-goods groups. Online retailers have unlimited shelf space, giving new brands ready market access. And, online consumer reviews affect choices, subordinating the role of branding.
Since a Dollar Shave Club promotional video went viral, its subscription-based model for razor deliveries has rapidly taken US market share from P&G’s Gillette business. Dollar Shave Club — which was built on the idea of inexpensive razors — in July 2016, sold itself to Unilever for a rich all-cash sale price of about $1 billion. Digital ecommerce start-ups like Dollar Shave Club, have gained popularity by coming up with new ways to sell consumer goods, largely without the overhead of brick-and-mortar stores.
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Online marketplaces are growing much faster than e-commerce overall. Why is that? And what new kinds of marketplaces powered by the internet and mobile are we now seeing? Andreessen Horowitz's Jeff Jordan and Anu Hariharan share their observations and also explain what makes a marketplace powered by software and reputation work -- as well as how to manage tensions, trust, and marketplace community reactions around change. In this Pod Cast Andreessen Horowitz, a16'z, provides interesting background on eBusiness.
Andreessen Horowitz backs bold entrepreneurs who move fast, think big, and are committed to building the next major franchises in technology. Founded by Marc Andreessen and Ben Horowitz, the firm provides entrepreneurs with access to expertise and insights in innovation, executive and technical talent, market intelligence, policy and regulatory affairs, business development, and marketing and brand-building.
Growth hacking is a marketing technique developed by technology startups which uses creativity, analytical thinking, and social metrics to sell products and gain exposure. It can be seen as part of the online marketing ecosystem, as in many cases growth hackers are using techniques such as search engine optimization, website analytics, content marketing and A/B testing. Growth hackers focus on low-cost and innovative alternatives to traditional marketing, for example utilizing social media and viral marketing instead of buying advertising through more traditional media such as radio, newspaper, and television. Growth hacking is particularly important for startups, as it allows for a 'lean' launch that focuses on 'growth first, budgets second'. Learn more at Wikipedia
A deal for a friend

Gathering customers. For 10% off the price of a new bike the company recruits a salesperson and gives him or her the ability to offer a 10% discount.
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If the reader has read to this point in the article he/she is motivated to read more for the mere price of a name and an email address. It appears that 4,731,903 investors have taken the bait. Additional information on Common Growth Hacking Myths (and How Growth Actually Works)
Bonobos is a great example of a company that used growth hacking to grow it's business. This Matt Daniels blog post offers a look at the early years of the clothing company. Lessons in Online Marketing: Bonobos.com, a startup
Today’s mom wants the flexibly to shop while on the subway home from work, at a kids soccer game, or anywhere else for that matter. I know it sounds crazy, but she really doesn’t want to spend 2 hours of her day inside a big, boxy store when she could be taking a yoga class or playing with her kids. The threat posed by the shift to the Mobile Mom also presents an enormous opportunity for CPG companies.

Consumable product goods such as food and beverages, footwear and apparel, tobacco, and cleaning products. In general, CPGs are things that get used up and have to be replaced frequently, in contrast to items that people usually keep for a long time, such as cars and furniture.

The mobile app becomes the virtual endcap, and every shopper gets a different look (an endcap is the display at the end of a store aisle — highly valued space inside the store), highly customized to her interests, preferences and shopping behavior.
A new service provided by Google to businesses. Provides information on search activity.
Carhart search activity provided by Google
A heat map showing monthly search activity for Carhartt
How do companies use Google search to drive traffic to their website? One way is to use Google AdWords. When you advertise online with AdWords, you can use different targeting methods to reach potential customers right when they're searching for your products or services. When you advertise alongside search results on the Google Search Network , you select keywords to help target your ads to people searching for related terms. You can also choose to show your ads at certain times of day, and specify a location and language. When you advertise on websites that show Google ads (called the Google Display Network), you can get even more specific by choosing the age of the people you want to reach, the types of sites they visit, and their areas of interest. Learn how Airbnb’s Approach to AdWords Wins More Customers.
These different ways to target your ads help make sure you're putting your advertising dollars towards reaching only the people most likely to become your customers. Watch this video for more information.

How do you know your strategy is working?

You can use a service like Go Squared

“Digital natives such as Amazon, eBay, and Google have been leading the pack in resetting consumers’ expectations for cross-channel convenience. Think of eBay’s Now mobile app, which provides one-touch ordering from any of eBay’s retail partners and same-day delivery in some US cities, or Amazon’s recent incorporation of a help button in the company’s latest-generation Kindle Fire tablet, linking users to a live help-desk representative. These players have perfected the ability to test new user experiences and constantly evolve their offers—often for segments of one.”
From: McKinsey -digitizing_the_consumer_decision_journey
Online retailers recognize that customers often forget to order household items when they run out, resulting in lost sales. Most deal with this problem using solutions that reside online: standing orders delivered on a periodic basis or checklists on the company website to jog customers’ memories. But Amazon bridged this gap by wholly transforming the order experience.
Amazon Dash Tide button
image from The Verge
Amazon’s pivotal insight was that the moment when people want and are most inclined to reorder is when they’re using an item and realize they’re about to run out. So it created Amazon Dash, a small Wi-Fi-connected device the size of a USB drive, decorated with the logo of a common household item such as laundry detergent, plastic wrap, or coffee. Customers place these “order buttons” around their home on appliances or cupboards and simply press them when they realize they are running low on an item.

The Unintented Consequence

“Sam Walton had a vision of consolidating products into larger stores and opening these larger stores in every town across America. He set out to create scale advantages in purchasing everything from goods for resale to materials for store construction. And with those advantages he offered customers lower prices to lure them away from the small retailers they formerly visited. And customers were lured. Today there are very few independent retailers. But, Wal-Mart has stopped growing. Since 2011, its revenues have grown unevenly, and on average less than 4%/year. Worse, it's profits have grown only 1%/year.
The market is shifting away from Wal-Mart's huge, plentiful stores toward on-line shopping. And this could have devastating consequences for Wal-Mart, due to what economists call 'marginal economics.' As a retailer, Wal-Mart spends 75 cents out of every $1 revenue on the stuff it sells (cost of goods sold.) That leaves it a gross margin of 25 cents - or 25%. But, all those stores, distribution centers and trucks create a huge fixed cost, representing 20% of revenue. Thus, the net profit margin before taxes is a mere 5% (Wal-Mart today makes about 5 cents on every $1 revenue.) Wal-Mart generates ~$220,000 revenue/employee.
But, as sales go from brick-and-mortar to online, this threatens that revenue base. Suppose that starts to happen at Wal-Mart - a slow decline in revenues. If revenues drop by 10% then every $100 of revenue shrinks to $90. And the gross margin (25%) declines to $22.50. But those pesky store costs remain stubbornly fixed at $20. Now net profit margin drops to 2.5% - a 50% decline from what they were before.
A relatively small decline in revenue (10%) has a 5x impact on the bottom line (50% decline.) The 'marginal revenue' is that last 10%. What the company achieves 'on the margin.' It has enormous impact on profits. And now you know why retailers are open seven days a week and 18 to 24 hours per day. They all desperately want those last few 'marginal revenues' because they are what makes - or breaks - their profitability.
And Amazon is succeeding. It has grown at almost 30% a year since 2010. That growth has not been due to market growth. It has been created by stealing sales from traditional retailers. And Amazon achieves $621,000 revenue per employee while having a far less fixed cost footprint.” reference - Seeking Alpha — story by Adam Hartung
Amazon has moved into content creation, in both publishing and video production. Amazon’s beginnings were simply delivery of goods. Starting as an online bookseller they quickly moved into selling other entertainment, such as music and movies. Its recommendation engine—an algorithm that suggests books, CDs, or DVDs a user might be interested in based on what similar users had already bought—is uncannily accurate and wildly successful. Amazon long ago moved beyond selling entertainment to selling virtually any consumer goods, ranging from electronics to patio furniture. The company has even moved into selling industrial products. Today, Amazon is one of the most effective e-commerce engines ever invented. In addition to convenience and ease of use, data underpins Amazon’s success. Each new purchase by a user only makes Amazon’s recommendation engine that much more accurate.
The Internet has completely transformed business by making both distribution and transaction costs effectively free. In turn, this has completely changed the calculus when it comes to adding new customers: specifically, it is now possible to build businesses where every incremental customer has both zero marginal costs and zero opportunity costs. In economics class we were taught that a producer should produce until marginal cost equaled marginal revenue. With zero marginal cost the producer, in theory, has the ability to scale his business infinitely.
“This has profound implications: instead of some companies serving the high end of a market with a superior experience while others serve the low-end with a ‘good-enough’ offering, one company can serve everyone. And, given the choice between a superior experience and one that is ‘good-enough’ of course the superior experience will win.” Ben Thompson

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