Staying Alive in South Africa's eTailing Market
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Faced with an ongoing downturn, many online retailers are being forced to closely monitor their expenses and focus on profitability.
Struggling e-tailers are frantically trimming their operations and focusing on their bottom line.
The knack of staying alive and online, however, undoubtedly lies in sussing the art of exactly where to trim and where to keep spending cash.
"Many of the failed e-tailers of 2000 established business plans that were intended to operate on negative gross margins for an extended period of time, a fundamentally flawed business strategy," stated retail analyst Paul Ritter from the Yankee Group.
"Clearly, substantial gross margins are required by online retailers looking to achieve long-term viability with their Internet operations."
According to Ritter, overspending on advertising and marketing gimmicks has cost many e-tailers dearly. He opines that those who are spending more than 50% of their revenues on marketing are doomed to the dot-com graveyard - likewise, those whose customer acquisition costs run above $20 to $40 per paying customer.
Ultimately online customers must be given compelling and convincing reasons as to why they should make a purchase on a particular site. Furthermore, customers must be coaxed into returning. Unless, e-tailers are effectively generating repeat business then they are, in-effect, signing up for a listing in the e-obituary.
"Online retailers rarely earn enough gross margin to cover acquisition costs with a customer's first purchase," stated James Vogtle, e-commerce research director for the Boston Consulting Group. "You have to have a customer come back in order for them to become a profitable customer."
"Customers must be able to find the products and information they are looking for quickly and with a minimal amount of effort and clicks," noted Ritter. "Online retailers who provide their customers with multiple points of customer support have the highest likelihood of success."