Many people think that online retailers simply sit on internet banking all day clicking refresh and watching the money roll in. They think that the main competitive advantage of an online retailer is that they have cheaper prices because they don’t need to pay retail rent or overheads. Anyone who thinks this doesn’t truly understand online retail.
I often get store owners come to me for advice, saying things like “I’ve got a store and it’s not doing well, so I want to get online. I’m 90% of the way there because I already have shelves filled with products, but I just need to build a website”. The reality is that they’re not 90% of the way there. They’re much closer to being 0% of the way there.
I often joke about Kogan.com being a statistics business masquerading as a retailer. Our competitive advantage is price leadership through efficiency. This efficiency comes about through many things I call “one percenters” – they all add up to give us a significant advantage over the rest of our competition. Here are a few of them:
John Wanamaker famously said, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
For an online retailer who properly takes advantage of targeted marketing services such as Google AdWords, they know what every single cent of their marketing is doing. They can monitor what people are searching and which keywords are most likely to result in sales for them.
At Kogan.com we monitor over 100,000 keywords on a daily basis to ensure they are bring us the right level of return on investment. On a daily basis we adjust bids on all words based on how many people search that term, what the click through rate is of each term, and the conversion rate. Targeted digital marketing will always bring about the best conversion rates because you are only paying to advertise to people who have specifically shown interest in the products you are selling.
Traditional marketers rely on a scattergun approach with their marketing, trying to secure advertising space that is seen by the masses – but we have become immune to this type of advertising. Next time you see a friend on page 30 of a newspaper, ask them what ads they have seen. You’ll be met with something resembling a confused expression.
And remember, by the time someone reaches page 30 of a newspaper, they have seen some of the most expensive advertising space available to a marketer.
Some “innovative” retailers use technology such as scanners at their doors to record how many people enter their store and at what time. In 2013, this is actually seen as advanced and innovative for some bricks and mortar retailers.
A good online retailer will have a huge amount of real, valuable, commercial insights about their customers available to them. For instance, at the click of a button we can see:
How many people are currently on our site and what they are looking at and where they came from
- Where they came from
- What they looked at
- How long they spent on our site
- What pages made them stay
- What pages made them leave
- Which pages had the highest conversion rates
We can see exactly how many visitors we had each day and:
We can then segment all of this information and gain valuable insights about our customers and keep optimising our site and product offering to suit their needs.
This would be the equivalent of a bricks and mortar retailer attaching a helmet camera to every single customer who walked into their store, and then paying someone to watch every single bit of footage and collate all the statistics. At Kogan, we have full time staff who analyse all our data and provide insights about our customers so that we can improve their shopping experience.
Many people ask me “Do you think my website is good?” I tell them, “Don’t ask me, I wouldn’t have a clue – ask your customers.”
One of the beautiful things that an online retailer can do is “A/B Testing”. This is where you can test any number of variations of a certain page to see how your customers react to it. It could be a simple test like changing the product title, and then half of your customers see one title and the rest see the other. You can then test it on metrics like conversion rate and bounce rate, and make an educated decision on which version works best for your customers.
We have hundreds of A/B tests running on Kogan.com at any one time, so that we can keep optimising our site based on what our customers actually want – not on what we think they want. This helps us base website changes and decisions on objective facts rather than emotions.
Every physical retail store has a fixed layout – it is a layout that is designed for the masses. However, every single customer is an individual who has their own needs.
While a store manager might decide that Blu-ray players are the hot item for the month, and place them at the entrance of the store, not every customer who walks through the door will agree. Conversely, if you show the right product to the right person you are going to increase your conversion rates.
Why do you think Facebook is one of the most frequented sites on the Internet? Because it looks different to every single person who visits. It is personalised based on their friends.
Good online retailers all personalise their site to the individual. The results are amazing! We personalise the shopping experience to every single user based on their purchase and browsing behaviour. We use algorithms that tell us what the person likes and what they are likely looking for. We then improve their browsing experience by being able to save them time by showing them the right products at the right time. This makes conversion rates skyrocket and makes customers happy.
We are always looking at how to improve the personalisation of our website for the individual. Showing them the right product at the right time is just the first step. We are currently working on customising our product listings to the individual to ensure it presents the information they are most interested in them. For instance, if we know that a tech-savvy person has come to the site we may advertise a TV to them as “55” Full HD 1080p LED TV with 100Hz refresh rate”. But if my mum came to our site, the same TV would be advertised as a “Big screen TV perfect for action movies and sport”.
The better your personalisation, the higher your conversion rates will be.
Build a Community
In direct marketing terms, it costs 12 times more to find a new customer than it does to keep an existing one. Keeping an existing customer is just as (if not more) important than finding a new one.
When a high street retailer sells someone an iPad, they have no way to contact that customer again. They need to continue screaming at this customer through expensive TV and newspaper ads to get them into the store again.
For a good online retailer, that’s not the case. We have the ability to build a community around our brand and store. We can easily share all the latest deals and offers to our customers, and engage in meaningful conversation with them.
Use Technology to Keep Distributors Honest
With our market position as price leader, it’s our duty to our customers to ensure that we drive prices down with every vendor that we do business with. When we source snacks for our office, we’re comparing pink lady apples with pink lady apples and getting the best deal. We do the same when we’re sourcing products from our distributors.
Most retailers sign exclusive distribution agreements with their suppliers. We don’t do this. The moment you sign an “exclusive distribution agreement” you become the distributor’s bitch. If the distributor raises their prices, you have to raise your prices. If they are sold out, you have to be sold out.
To get around this and to drive lower prices for our customers, we have built a proprietary cloud based system that makes the leading distributors from around the world bid on a daily basis to win our orders. On a daily basis, the sales of our 3rd party brands go into the system and distributors login and see our sales volumes of each SKU and bid to win the orders on a SKU by SKU basis. As a result of this, our distributors know that no matter how many football games and concerts they offer to take us to, they’ll only win our orders if they are the cheapest for that product on that day.
Initially distributors didn’t want to participate in this process because they are used to the whole “exclusive” arrangement they have with bricks and mortar retailers. So we gave them a temporary username and password and told them. “just login and have a look and let us know if you want to participate”. After they saw our volumes, most of them were begging to be part of the process pretty quickly.
As a result of this competition, we are able to have the best prices in the world on some of the most popular consumer electronics products in the world. The efficiency we have created with this technology would not be possible without being an internet based analytics driven business.
In the past, to gain huge efficiencies in the traditional retail world you had to be a goliath like Walmart. That’s not the case in the online world. These efficiencies, if done properly, are available to all retailers – large and small.
Compared to Goliaths like Amazon.com, Kogan.com is tiny. We’re only set to do about $300M of revenue this year – that’s about 0.3% of what Amazon does.
But, you can be nimble and efficient, even if you’re not a goliath. Kogan.com does $1.9million of revenue per employee. Amazon does $600k of revenue per employee. It’s through the accumulated benefits of these one-percenters that makes Kogan.com more efficient than what many people regard as the most efficient retailer in the world.