This month we introduce a new columnist to Multichannel Merchant: Jim Okamura, a senior partner managing the Chicago office of multichannel retail consulting firm J.C. Williams Group. In his columns, Okamura will explore ways to extend the reach of your multiple marketing and sales channels. This month, he looks at expanding overseas using the Web.
Although more multichannel merchants are taking their businesses to international markets, few feel comfortable with the many challenges of trying to entice shoppers from foreign lands. So far it’s primarily been the biggest players (Wal-Mart, Carrefour, Home Depot) or those with internationally known brands (Tiffany & Co., Ralph Lauren) that have succeeded globally. Nonetheless, the rapidly maturing e-commerce channel is providing even smaller, lesser-known companies the opportunity to cost-effectively sell to Web-savvy shoppers worldwide.
There are compelling reasons for you to make international e-commerce a priority. While the forecasts for U.S. e-commerce indicate continued robust growth for several years, it is much less than the high growth rate of the past few years. This growth deceleration, coupled with intensifying domestic competition, is creating a battle for market share in many categories. At the same time, customer acquisition opportunities have grown scarcer and more costly. Both factors have made emerging international e-commerce markets more attractive.
Consider the following international growth curves:
We know that the growth rate of new Internet users, especially broadband users, is flattening out in the U.S., whereas many foreign markets are at or about to hit their inflection point where the curve is steepest.
Similarly, e-commerce growth curves mimic overall Web penetration, with a lag effect, as Web users gain tenure online and shopping opportunities arise.
Not coincidentally, the biggest e-commerce players, Amazon.com and eBay, have seen overseas sales as a percentage of their total sales rise dramatically from 2000 to 2004 (13.8% to 44.4% and 6.7% to 42.2% respectively).
While harder to plot on a curve, the “twinsumer” trend — defined by marketing newsletter Trendwatching.com as “consumers looking for the best of the best, the first of the first, the most relevant of the relevant… hooking up with (and listening to) their taste ‘twins’; fellow consumers somewhere in the world who think, react, enjoy and consume the way they do” — is just as likely to span the ocean as to span the street. To observe the speed of emerging consumer trends, many “cool hunters” note the fashions of urban youth sprouting almost simultaneously in New York, Berlin, and Tokyo, not to mention new-wealth cities such as Shanghai and Bangalore. This means that our consumer brands are most likely gaining followers overseas as well.
And while not just a function of international growth, the cost curve is also favoring international expansion. The operating-cost-per-transaction curve is declining as e-commerce volume increases for most merchants, enticing many to seek out new customers. So why shouldn’t they be overseas customers?
The Web makes it possible to enter a foreign market without the financial commitment of building stores or an offline catalog infrastructure. The growth in Web users means that online shoppers are not far behind in many emerging e-commerce markets. That said, all countries will experience their own unique barriers to e-commerce growth, and your particular brand and strategy may not translate well in another market. That’s where the challenges start for most international-wannabe marketers.
Several merchants we’ve talked to about their existing international e-commerce operations said that the driving force behind their push overseas was assets they had to leverage: brand equity in foreign markets and distribution infrastructure already in place (distribution centers, call centers, franchise or corporate stores). They are the lucky ones. They may not feel lucky, as they’ve expressed how challenging the business is and how they’re still in the steep part of the learning curve. But from our viewpoint, they are better off than those merchants that have less of a starting point.
If you’re like most merchants, you lack both overseas brand equity and any infrastructure to lean on in building your international business model. Yet the allure of tapping into new growth markets is tempting nonetheless. That’s why we strongly advocate a thorough due diligence process that determines the business potential and the effort and cost it will take to achieve that potential. Before you begin the investment in making international e-commerce operational, minimize your risk through a deep understanding of what you’re potentially getting into.
We often find that marketers do not have enough appreciation for what we mean by “deep understanding.” This is more than asking some of your merchandisers who are traveling overseas to form an opinion of the opportunity. And it’s more than just Googling which e-commerce players are prominent in a given foreign market. We mean a substantial “deep dive” into a total market assessment, coupled with an honest internal review of the strengths and weaknesses your company has to work with.
While we do not have the space here to fully explore all elements of a total market assessment or internal review, let’s look at a few pieces of the puzzle that may help you achieve this deep understanding:
Market data sourcing
Several marketers have mentioned how frustrating it is to try to obtain data that help them understand the total e-commerce market potential and how difficult it is to drill down into meaningful merchandise category data. This becomes barrier number one in assessing business potential. We are spoiled by the cheap and easy access to market data in the U.S.; in most foreign markets you will not find the same access. Get over it and find other solutions. If you’re serious about your due diligence, consider commissioning a study to get a firm handle on market potential. If you can’t afford that, then you need to use what is available, but find as many sources as possible to reconcile and validate your market sizing and growth forecasts.
Consumer acceptance and barriers
As mentioned above, each market will have a unique growth curve, so do not try to overlay our recent U.S. e-commerce experience on foreign consumers. Try to deconstruct the shopping-buying cycle for your target market, using as much data as you can gather, to understand where e-commerce solutions may be coming of age and where stubborn barriers exist. For example, are consumers in the foreign market you’re considering experiencing the same time pressures in their lives that have made the convenience of e-commerce so appealing in the U.S.? Does this translate into a willingness to pay for this convenience, in the form of full-price merchandise and shipping charges? How satisfied are e-commerce buyers with the postpurchase experience, and does this represent an opportunity for you to win them over with excellent service and efficient operations? Avoid generalizing your insights from the overall e-commerce industry in each country. Instead try to apply your analysis specifically to your target customer and market category. And since this specific information is not likely to be readily available, ask yourself, “Who might be willing to share their local experiences and/or facts about a similar target customer?”
Your market due diligence should also include thorough competitive intelligence and an industry analysis of your merchandise category, including channel analysis that assesses e-commerce maturity and forecasts. Granted, as you gather data you’ll probably find that you’re raising as many — if not more — questions as you’re answering. That’s all the more reason to get creative in sourcing information in the due diligence. Again, who could you call upon to exchange information or share the costs of investigating the market? Which of your business partners, vendors, and technology providers have experience with or access to information that might benefit your analysis?
When asked for advice on international e-commerce, many marketers emphasized the need to focus on the brand. We hear the importance of brand all the time, but as several companies found out the hard way, the lack of understanding of their brand among overseas employees magnified the already-steep challenges of building the business. As one international e-commerce director stated, “I’d rather teach online merchandising skills to a retail store manager who understands the brand.”
Most marketers recognize the importance of their brand and the importance of managing it appropriately. Before venturing overseas, however, you may need to revisit your existing brand management principles and processes. As in any geographic expansion by a merchant, new or transferred staff, suppliers, and other business partners need to have a consistent understanding of their treatment of the brand. The internal branding plan is crucial to ensuring that call center staff and Web merchants alike know how they can affect the brand, positively or negatively. And the same time, it’s also important to reinforce the positive behavior.
You’ll need to conduct an internal assessment of your company’s strengths and shortcomings regarding international expansion. Shortcomings in operational skills can often be overcome through outsourcing arrangements, and in international e-commerce, outsourcing is an often-used tactic to get the job done. But you cannot outsource the management of your brand, so know how capable you are of overseeing the task internationally, and include any necessary adjustments in your business assessment.
Your plan for international expansion via your e-commerce channel is one that could prove to be a critical turning point for your company. Conversely, you may conclude that the timing or risk-reward equation is not right. But if you are ready for the challenge, develop a plan and timeline that allows you to properly investigate the opportunity and what it will take to achieve your goals. Don’t shortchange yourself and end of giving up too quickly on a big opportunity merely because the early and easy returns are not there. You are, after all, pioneering one of the next waves of growth in retailing.
Jim Okamura is a senior partner managing the Chicago office of J.C. Williams Group, a consultancy specializing in multichannel retailing, strategic planning, branding, and research.
For more on this topic, check out the free on-demand Webinar, “Increasing Your Multichannel Business by Marketing to Overseas Buyers and Multilingual Americans,” at http://multichannelmerchant.com/events/webinars/increase-multichannel-business/