OK, we’ve done our research, we know what we’re going to sell, we know who else is in the market, we’ve established that there is a market and that there’s a fighting chance that we can make money from this (that’s certainly what all the projections say!). We’ve also tried to mitigate issues as much as possible by thinking through, researching and planning. In this instalment we move on to developing the range, price points, how we’ll take money and how we’ll fulfil orders and respond to queries.
So what’s the product range?
The web allows businesses to set up in any area of merchandise, from multiple product “Variety chain” outlets or to specialise in very niche markets – often too niche for the high street, however online there’s the opportunity to find and engage with pretty much any audience (if you’re going to go down the niche route, it helps if you’re a user of the products or have a detailed knowledge of the sector, otherwise you’re not going to engage with your intended audience). But we’ll assume that you have your target audience and you think they’re going to like what you can offer, how are you going to structure the range? Seems like a pretty stupid question, however the range needs to flow – it needs to allow the site visitor to explore options/ easily see the difference between products/ view fantastic shots of the product/ view detailed customer reviews/ quickly identify key benefits and be able to shop the site in the way that they choose, not the way your software vendor decides (we’ll come on to speccing requirements in number 4 of this series).
It will need to “hang together” as a range – either by theme (eg “holidays”), product (eg “sunglasses”), mood (eg “all things white”)
You also need to be aware that different markets may have different requirements and may shop differently (this may be a step too far for an initial build, but still needs to at least be considered at this point).
So what are the price points? For the UK market, will you go for a rounded price (eg £10/ £20 etc) or a “just under” price (£9.99/ £9.99 or possibly £9.95/ 19.95 etc) or go for the “definitely under” price (£9.90/ £9.90 etc). Do these prices include VAT? Do you need to account for VAT?
One thing you should avoid at all costs is determining the retail price based on your cost price. The range should be determined based on the price points you want to hit and if you should negotiate (where you can) on cost price to hit these price points. We talked about margins in the first post, however to reiterate here’s an example:
- £30 cost price from Supplier
- 40% gross margin required
- 20% (UK) tax rate
So that’s a x2 multiplier to give you a retail (inc VAT) of £60 (£50 ex VAT and £20 profit – giving you your 40% margin). So £30 works OK and you can sell at £60 or £59.99 and achieve your margin, but what happens when the cost doesn’t mark-up so easily eg £30.21 which gives you a retail of £60.42? Do you sell at £60 or below and take a loss against your budgeted margin or do you increase the price and potentially become uncompetitive? The acid test is to see who else is selling and at what price and rather than achieve 40% margin on all products, blend the range so that some are at more attractive retail price points at lower margins and others are at higher price points with more generous margins – it’s easier to flex the retail prices when you aren’t competing with numerous other online retailers for the same sale. That’s why retailers like own brand, it makes them different, means that customers have to come to them and allows them to achieve more generous margins because they’re not in direct competition for exactly the same product.
The other thing I wanted to say about price points is that there needs to be price-point transition throughout the range – it’s no use having £20 products and £2000 products – there needs to be transition from less expensive to more expensive, so that customers can search the range, find exactly what they are looking for, with the features they want, but be able to easily move up a price point or down a price point.
Postage & Packing
To include or not to include? If there’s one thing that will see your customers abandoning their shopping baskets and that’s P&P charges at the end of the checkout process. If you need to charge for P&P, that’s fine, but make sure that your customers know in advance that there will be a charge. Even better, incentivise them to purchase more and get free shipping. There are lots of tips and tricks that you could deploy – building in some of the P&P cost into the retail price in the first place (assuming that this doesn’t make you uncompetitive); have a sliding scale of charges – “the more you order, the cheaper it gets”; offer the cost of the P&P off of their next order, or as I’ve already said, set a threshold over which free shipping makes business sense.
We’ve touched on this previously, however, it’s not enough to trade online, you need to set up a structure which will hold your customer data (a Customer Relationship Management system), keep your finances right (ie some sort of Finance system – eg Sage) and a stock control system (so you know what you have, when you need to reorder etc). This can be done simply and cheaply to get you started and we’ll come on to that in the next post on “choosing your tech”. What I have found, is that you need to get this pretty straight from the get-go, because when things start to ramp up, you don’t want to be spending 10′s of minutes of your time trying to process 1 order! It goes without saying (but I’ll say it anyway!) that there should be some level of integration with back-office functionality from the start.
There’s also the technical considerations around the build (and again we’ll come on to this in the next post), however the site needs to be built for as many of your customers to view as possible – whether they’re using Tablets, Mobiles or Desk-based machines, whether they have a disability or not, whether they have the latest and greatest browser, or something a little older, whether they have a fast connection or a slower one. Don’t alienate the people who want to buy your products!
You will need to stay compliant. A useful resource is www.out-law.com/page-5813 which gives the Top 10 considerations. What I would add is that you may well want to trade internationally and therefore you need to be aware of potential issues around particular countries you wish to sell in to.
You obviously want to get paid for what you offer and so need a way of taking people’s money. That’s not as easy as it seems!
This will involve getting an IMA – Internet Merchant Account from your bank, so that you can take card payments where the “cardholder (is) not present”, you’ll also need a Payment Gateway provider and a Payment Service provider (now think how I felt trying to set up my first ecommerce store back in 1997 when the first question asked by my bank was “what’s ecommmerce?”). By far the simplest way to get started is to use one of the various payment providers, who act essentially as the guarantor between the customer and your bank. For much more detail, have a look at www.electronic-payments.co.uk. The important thing is to choose the right Payment provider, which can depend on what ecommerce software you use and also whether you want a hosted service or an integrated one. In my experience – to maximise conversion you need an integrated one, however they can cost a little more and we will explore in a later post (number 7 I think!) how to maximise sales through a hosted service (eg PayPal)
Those parts of your site where you are collecting a customer’s private information (eg private details) need to be collected in a secure environment (ie https:// in the browser window accompanied by a padlock), however recently an EV certificate has become available, which whilst a little more expensive, also gives the consumer additional piece of mind against internet fraud. I mention this because certainly for the US market, the EV certificate is looked for when online purchases are made and seriously improves a customer’s purchasing confidence. You’ll know an EV certificate because in modern browsers it turns the address bar green.
So how are you going to get your product to the customer?
- Are you going to hold stock and fulfil yourself? This is the way many businesses start, they purchase stock, hold it in a room, lock-up/ warehouse and fulfil from there. This will often involve undertaking the picking, packing and dispatching (PPD) themselves and can mean that working capital is tied up in stock and business time tied up in “administration”
- Are you going to hold stock and get someone else to fulfil? And by this I mean that rather than you becoming a fulfilment house, look at using a 3rd party to pick, pack and dispatch on your behalf – there are often local business that will do this and of course Amazon fulfilment offers this service. OK, there’s a cost associated with using such a service, however you need to weigh up whether the cost of PPD is better served with your time or someone else’s
- Are you going to get someone else to hold stock and fulfil? Now this is where I started. I was selling niche (Scottish!) music and video products on a very low budget and so, I came to an arrangement with a distributor of Scottish Music (who had no desire to trade online) that I would pass them orders which they would pick/ pack and dispatch and then bill me (minus a small handling fee). The beauty of this was that there was no stock investment, which meant I could spend my money on developing the site and on marketing.
Complaints/ Queries/ Returns
What will happen when you have a complaint/ query/ return – you need to consider how you’re going to handle these. After all recent research from Zendesk (http://assets.econsultancy.com/images/0002/4646/zendesk_infog.jpeg) shows that customer service is key to customer loyalty. I’m not going to answer this question here, however you do have to consider how these issues, which will arise will be handled and these should be clearly displayed on your website. Remember it is 5 times harder to get a new customer than it is to sell to an existing one, so how you handle things when there’s an issue will see the business live or die.
Delight & Surprise
And as a follow on to this point consider the customer experience on receipt of the goods. Many of the most successful retailers go that extra mile by “surprising and delighting”, either by the way the item is wrapped and packed or a little extra gift may be included. And there’s always what Victoria Secrets does, which is to allow the customer who has forgotten to buy their partner a gift for a special occasion, the option to blame the store for the late delivery of the gift, which arrives with a “sorry” note! Partners, boyfriends and husbands take note – now that’s customer service!
Next time – 4. Choosing your tech/ finding a development partner