A collaborative research project completed by Forbes, Huffington Post, and Marketing Signals, found 90% of all eCommerce (online only) businesses fail within the first 120 days of launch.
This statistic comes as no surprise because getting online retail right is the most complicated business channel in history. One of the reasons has to do with the concept of rules. In physical retail, you have salespeople who can be naturally charismatic and build rapport, and will sell products. On the flip-side, when it comes to online retail, every aspect of rapport building and selling is rules-based: technology is bound by rules.
This research was UK-based which makes this high rate of failure more interesting because this region has consistently had a consumer market that is the most online-savvy in the world.
Figure 1 shows the global online spending data per capita, UK remains number 1 by a large margin.
1,253 failed business owners took part in this research which found 10 reasons for failure. Without further adieu, the top 10 is summarised below...
- Poor online marketing - 37%
- Lack of online search visibility - 35%
- Little to no market for their products or services - 35%
- Running out of cash - 32%
- Price and costing issues - 29%
- Got outcompeted - 23%
- Retail giants dominating a large share of the market - 19%
- Lack customer service - 16%
- Poor team around them - 14%
- Product mistiming - 11%
The above percentages do not equal 100 because the owners were allowed to pick more than one reason.
There are three specific things that come as a surprise when reviewing the 10 reasons for failure above...
- How do these owners now have such clarity of their failures? If they knew they would still be in business.
- The rankings are in an unusual ordering.
- And most importantly, the reasons listed above are masking bigger issues not mentioned!
This is an important topic all retailers need to be aware of. The best learnings come from failure.
The purpose of this article is to address this Top 10 and translate and unmask the REAL issues.
#1. Poor Online Marketing (37%) and #2. Lack of online search visibility (35%)
The top two "excuses" comprise a large chunk of the reasons for failure. The research had these specific comments to say about online marketing and lack of visibility….
A staggering 37% said that their failure could be attributed to an inability to compete or deliver online marketing, with 35% saying a lack of online visibility was the main factor.
To be successful in online marketing requires two fundamental best practice principles working together….
- Being targeted and visible in Google for the right types of consumer buying intent
- The construction of highly relevant consumer journeys to match the buying intent - and send consumers to these regions of the site
Point #2 is known as “Customer Experience Design”: the ability to create relevant experiences so as to align the journey to the need/intent.
For example, if a retailer sells “noise-cancelling over-the-ear headphones”, they must activate the online marketing campaign to be visible when consumers search for this term. And secondly, once the consumer clicks on the Google advertisement, it sends the consumer to the part of the site designed for people who need “noise-cancelling over-the-ear headphones”.
If a retailer gets one of these things slightly wrong, it will not be successful in acquiring this consumer.
And if you think you are a retailer with a strong brand, your brand will provide you "branded organic traffic" but nothing else. New research proves consumers are more loyal to their own need than to a brand.
Intent beats identity
AND, there is a greater volume of consumer demand for their own needs compared to searches for your brand. When you can acquire new customers who never thought of your brand in the first place, you grow.
This ability to acquire customers based on intent-driven needs is known as Pull Marketing Strategy. This is the act of pulling people towards you who have needs your business can meet. And if done right, retailers can acquire new customers at scale.
#2. Lack of online search visibility (SEO):
When it comes to the second part of this excuse, Google has changed the SEO game and has amplified its rewards to those retailers who can engage with people with intent-driven needs: getting engagement right is focussing on a high standard of relevancy for intent-driven journeys.
If a retailer cannot engage, it will not benefit from free visibility in Google.
Side note: It's very difficult to gain any type of free visibility within 120 days of launching a new online business. Those who use this as an excuse will not understand how Google works.
#3. Little to no market for their products or services - 35%
When failed business owners state there is no market for their product or services, the translation of this excuse is the marketing function was flawed (see Pull Marketing above).
Even if you gave the benefit of the doubt to a failed business owner, keep in mind one thing, niche works online. Niche = a product and/or service that meets a highly specialized segment of the market. This is because when approaching online, you can target the entire planet!
IF amazing online experiences were created around a niche product, you have a winner.
A great example of this in action is a travel bag company called Nomatic.
This is a niche online-only retailer focussing on travel bags and has gone up against such juggernauts as Samsonite, Eagle Creek, Travelpro etc..
Nomatic's online experience surpasses them all with great story-telling and rich and relevant product content making it very hard to come away from the site without purchasing one of their products.
#4. Running out of cash - 32%:
If an online business has a poorly executed Pull Marketing function, it will burn cash quickly.
This is a legitimate cause for business failure but appreciate where this cash burn is coming from.
#5. Price and Costing issues - 29%
If a retail site offers poor online experiences and cannot make Pull Marketing work, the perceived issues of the business can manifest into such things as owners thinking their pricing strategy is incorrect.
Costing issues come when a business spends too much to acquire a customer. The margins cannot sustain a “high cost per customer acquisition” ("cost per acquisition" is the measurement of how much marketing dollars is needed to acquire a single customer).
And as stated earlier, a high cost to acquire is the result of poor Pull Marketing conduct.
Social = high cost
One of the more costly methods to acquire customers is when too much emphasis is put on Social strategy. This is a common trap and an unreliable method to acquire new business.
While some brands state their business was founded on a "Social strategy", what they don’t tell you is the cash burn it took to gain that momentum.
Put simply, Social tactics are fun and sexy but not as targeted as Pull Marketing.
But why is this the case?
Social targeting is based on profiling. For example, Facebook and Instagram are in the business of selling profiling data. Just because you know a person’s interest does not mean you can predict a need.
Pull Marketing is founded on being visible in Google at the precise moment a consumer defines a specific need.
Profiling would suggest the target for a Baby retailer would be to primarily target the mums but actual intent-driven research shows the larger market is in friends and surrounding families: grandparents, aunts etc...
The same misleading attempts in profiling can be found with gamers and the assumption it's mostly made up of young men.
Marketers who try to reach their audience solely on demographics risk missing more than 70% of potential mobile shoppers.
The reason Pull Marketing is successful has come as a result of the fact that every person holds a super-computer in the palm of his/her hand. As soon as a need arises, they pursue it on their terms.
And they won’t go to Facebook to pursue a need, they go to Google.
Traffic Source Research
Detailed analysis of over 1 billion consumer path sessions looked specifically at traffic sources that bring people to retail sites. The research found Social is consistently the poorest performing traffic source in both the volume of traffic coming to the site and the conversion of this traffic type.
The top performers are consistently…
1. Organic traffic
2. Email marketing traffic
3. Direct traffic
4. Paid Search
“Attribution” is the study of incoming traffic and determining if a traffic source contributes in an online sale that comes in a separate visit to the site.
Many consumers will not buy online during their first visit to a retail site. It commonly takes 2 plus visits before a consumer will purchase from an online retailer. Research proves approximately 45% of first sessions (first visits) result in an online sale, the remaining 55% of traffic requires multiple visits before he/she purchases.
This is why attribution analysis is so important. Retailers need to provide credit to those traffic sources that drove people to a site initially which resulted in a sale that occurred in a separate visit to the site. The original traffic source needs to be credited in “assisting” in the sale.
The analysis of over 1 billion attribution data sets proves Social traffic channel is by far the worst performer in comparison to all the other traffic channels (see list above).
Not only does Social traffic poorly convert people the first time they arrive on a retail site, but they are less inclined to come back and purchase at a later date.
#6. Being “Outcompeted” – 23%:
Translation: Other retailers converted more effectively than the failed business.
This notion of converting or acquiring customers is important for any new business: the focus early on in a new business life-cycle is to acquire new customers. Even though retention is a key part of longer-term business profitability, in the first 120 days the focus is to grow the customer base.
But while the business is working on acquisition it must have a view of what its retention activities need to look like.
The "retention function" is how a business can justify a “high cost to acquire” initially. If a business has confidence it can activate repeat purchasing behaviors, essentially it can spend more to acquire.
#7. Retail giant dominating a large share of the market – 19%:
The beauty of online retail is every business is on a level playing field. This notion of a “retail giant” is a convenient excuse for business failures.
Look no further than disruptive online retailers such as Warby Parker (online prescription glasses), and Casper (online bed retailer), who went up against retail juggernauts and took over that market by focusing on the delivery of customer-centric experiences and are now the market leaders.
While Amazon is also a convenient threat/excuse, with the right strategy in place they can become an online retailer's “frenemy” which and can be leveraged to drive visibility and growth.
#8. Lack of Customer Service – 16%:
This is a legitimate issue and should be much higher than 16% on the "excuse scale". One of the bigger issues is the lack of accessibility of real people who can assist in the recovery of consumers suffering from poor online experiences.
Customer support is an issue because it's perceived as a cost when it should be thought of as part of the sales and loyalty function.
Customers who experience value-enhanced service interactions are far more likely to stay — whether the barriers to switching are high or low
For those online retailers who are not sure what great online experiences should look like for their new customers, the most effective method in de-risking a business launch is improving employee accessibility and be ready to react when people need your help.
Then record/document every interaction between the consumer and your support employees and make changes to the business based on these interactions.
This is a form of data gathering and is how a retailer “listens” to its target consumer which 99% of retailers do not do.
If you can drive this type of change faster than your competitors, you have established a competitive advantage. This is why the likes of Warby Parker took the industry over so quickly. They created a nimble business structure that could rapidly pivot: and they listened.
This approach is a simplistic view of driving change based on data, where customer feedback is your most important source of data.
#9. Poor team around them 14% and #10. Product mistiming – 11%:
Defining the issue of having a “Poor Team” and “Poor timing” is the business owner blaming others and the product: “right product wrong time”. Really?
There is not much to say about these statements other than, these people need to own the failure. It’s the only way they will learn in future endeavors.
The fact that Customer Experience Design and Order Management does not make the top 10 suggests these failed businesses suffer from the "You don't know what you don't know" syndrome. These two functions are the bedrock of successful online businesses.
Many of the statements above such as "Running out of cash" and "Cost issues" also relate directly to a poor order management function.
The purpose of this research is not to make these owners look to be failures, but for others to learn from their mistakes. While some comments may appear harsh this is the business world we live in.
Whether the Pandemic is an influencer or not, every online retail business is thrust into a treacherous business environment that requires business leaders to focus on all the right things.