In 2000 I was involved in the music industry. I witnessed first hand the “rabbit in the headlights” strategy of all the major labels, panicking faced with the 10% yearly drop in sales of physical products, such as CDs, while digital was not making any money. They drained CD production departments of all their brainpower and focused 100% of resources on developing digital distribution.
The output 14 years later is that for all the R&D done, all the channels developed and all the money spent, very limited results have been achieved. The most successful products – Spotify or iTunes – were not developed by the industry itself despite throwing its energy into it.
Now it is the turn of all European retailers. Bricks and mortar seem so old fashioned. Surely the solution is to offer the most innovative e commerce, no?
So all conscientious retailers are developing their solution. There are currently as many options as there are retailers, from building your own e-distribution from the shop or the DC, to outsourcing, either to an established or a new logistics professional. The scope of the services varies too, from maintaining an e-platform, to order management, returns, or any combination of the above. Many of these combinations will prove unsuccessful.
But the real question is: what will be the dominant model that will be successful in 5 to 10 years time? And obviously the underlying adjacent questions are: am I taking my business toward success, I am investing money in the right solutions or am I wasting a huge amount of investment?
We have worked with a large number of retailers that have simply invested millions for a third party to develop a full technological solution and distribution capability. In substance, they are paying to develop a competitor who will then be able to offer their services to other retailers. Nevertheless,this is nearly the best outcome. Most are facing the “Concorde effect”, where development is proving ineffective but they have little choice but to continue pouring more money in, in the faint hope of transforming it into a successful e-commerce platform.
What is the miracle solution? Unfortunately there are none, there is simply a very clear environment that requires absolutely new methods of approaching this strategic decision.
1. Stop and think
So far, you were fully in control of your business. With several decades of experience, you were the best equipped to generate innovation in a known context and speed was key to success. Now with this new paradigm, your references are not sufficient, so stop and think. You don’t necessarily want to be the first one to find a solution: the winner will be the first one to spot the right solution and then pour all his money into catching up.
2. Think long term
I know this is the most difficult challenge for any CEO, but here your next year budget is going to do no good for your e-commerce strategy. 5 years is a strict minimum. Where do you want to be in 2020?
3. Ask yourself why
Many CEOs we meet say things like “I asked Bob to build an e-ccomerce platform because I want to be the number one in e-commerce. I want X% of my sales coming from e-commerce.” Yes, great, you have a vision. But why is your organisation the best place to deliver this, what is your USP today and what will it be tomorrow? Sorry to break this bad news but just being there will not be enough to survive.
Ok, now you have stopped, you are thinking why and what you want to be, not investing 10% of your budget in market research. Who has been developing the most successful platform, and who could you piggy back?
Take an example (ok very simplistic), Amazon is a good benchmark, how does what you are doing currently compare to Amazon? If you had the choice, would you not ask Amazon to run your e-commerce simply with different branding?
This is so central but so often not part of the discussion. What are you doing for your consumers? How many retailers are offering the same brand to a more and more savvy internet consumer? Why would they buy onyour platform? Put the consumer back in the centre of your strategy.
Most of the time, people seek quality at the right price in the right place (nothing new under the sun here). On the Internet, they are also looking for some thrill but they want to minimize the risk and hope to get extra value. They are also facing the same uncertainty your are facing: am I at the best place to acquire this good?
There is no magic wand here. But one thing is certain: this is certainly the most important decision your business is currently taking. So don’t run around like a headless chicken, make the choice that stands out for the right reasons and that your current clients and future clients will approve of.