How to Survive E-Commerce Competition
By Brett Lloyd Abbott, MYM Austin Inc.
This subject seems to be coming at me from multiple directions. From individual clients to several of our industry’s buying organizations, to the fine folks in NESPA (North East Spa and Pool Association) – Builders, retailers and service companies are all expressing increased frustration with e-commerce competition.
You know the challenge, right? A homeowner needs to replace a high-dollar part like a pump or a heater. Whether it’s retail or a service call, a 2x markup or better is standard (across most industries, by the way, not just the pool industry). It makes for a nice profitable sale or service call.
The problem is that some pool owners have figured out they can bypass you, and get the part directly off the Internet for a fraction of what you would charge. Oh, sure, they still love your expertise in diagnosing the problem and installing the part, but hey, “times are tough.” Everybody’s looking for a way to save a buck.
The scariest part of this situation, in my opinion, is not the potential loss of profits on these parts. The bigger issue is that business owners are jumping to the conclusion that “If you can’t beat’em, join’em.“
Well, hold on there, big fella – This isn’t quite as easy as it sounds. Let’s take a look at the brutal facts about e-commerce competition:
It’s A Highly Competitive,
People who are shopping for a specific part or product on the Internet are almost always in a “transactional” or “commodity purchase” mindset. They’re not worried how pretty your store looks, or how intelligent is the person behind the counter. They just want to know who’s got the lowest price.
And don’t think you’re the first person to think of this idea, to open your own e-commerce store. The manufacturer, the big-box stores, the major distributors, and about a thousand of your competitors are all way ahead of you. And the big guys get the parts cheaper than you.
So sure, you might sell a part or two online, but you can forget about the 2x-markup. In fact, you may be lucky to clear 20%. Not quite so appealing now, is it?
It’s A Lot Of Work,
With A Very Low Likelihood Of Success
The second brutal fact is that the adage “If you build it, they will come” doesn’t apply here. The truth is, when it comes to eCommerce sites, “Unless you advertise it, no one will come.” So that means first you’ll have to pay big bucks to build a highly complicated and sophisticated website, shopping cart and transactional process that will allow you to sell products (at less than 20% gross margin). Then you’ve got to invest thousands of dollars per month in an attempt to drive people to your site.
This means that in order to be profitable, you’ll need to produce a tremendous volume and economy of scale. Once again, the big boys have a huge advantage over you.
As an alternative, you can buy a “ready-made” shopping cart and website system such as the “Pool Widget” from PoolCorp or a “backyard accessories” site from Outdoor E-Commerce, LLC. <BLOG UPDATE, 2013: Neither of these two e-commerce options are available anymore.> But since these parts are sold at or near list price, relatively few people are actually going to buy from your site. And when they do, you’ll have to share the gross profits with the people who created the site in the first place.
Don’t get me wrong – that doesn’t mean you shouldn’t pursue either of these turn-key options. Just don’t plan to get rich off of it.
It’s the Worst Possible Battleground
for a local Mom & Pop Shop
Perhaps the most important brutal fact to embrace is that your greatest strength as a local provider is the personal service that you can offer your customers. The big manufacturers, distributors and big-box stores can’t compete with you here.
On the Internet, your opportunity for “personal service” is all but gone, replaced by a faceless shopping cart. So why would you want to go fight there, when you have to leave your greatest strength behind?
A far wiser approach is to leverage the heck out of your advantages, and make the big boys fight you on your own turf instead. Consider these powerful services that your e-commerce competitors can’t touch:
- Personal and professional diagnosis of the problem.
- Confident identification of the correct part.
- Identification of other problems that the homeowner may not have noticed.
- Quick resolution if there’s a problem with the ordered part(s).
- Parts in stock, or same day delivery.
- A personal, ongoing relationship with the homeowner in the form of:
- Informative newsletters, specific to your area.
- Announcement of special sales and events.
- “Preferred customer” discount club
The facts are, you are perfectly poised to build a loyal, long term relationship with your customers without eCommerce. Admittedly, you may not be able to sell all the high-dollar replacement parts you did in the past. But you can still stay profitable, and the homeowner will be far better served in the long run.
2009 Brett Lloyd Abbott / MYM Austin Inc. May not be used without permission.