“I’m the only person I know that’s lost a quarter of a billion dollars in one year. It’s very character building,” – Steve Jobs
People who are considering getting involved in ecommerce by starting their own online store approach me regularly for information. The question that they invariably ask is, “What product can I successfully sell online?”
It’s probably the hardest question of them all. The truth is that the online marketplace is crowded with existing vendors, big and small, and almost everything that a person might want to purchase can already be found online at a good price and under reasonable terms.
Too often I hear a prospective online retailer suggesting that they want to set up a store based on selling a line of products on which they have a personal interest, but which is already widely available online from established major retailers. Way too often I hear people talking in particular about their desire to sell mainstream consumer electronics — products that are already easy to find online, in stock, at good prices at stores such as Amazon, eBay, Best Buy, Apple, Staples, and so on.
I have some rather specific ideas about what projects might be worth pursuing however, as an online seller myself. I’m going to hold those cards close to the vest. Instead, in this post I’ll offer general thoughts about the selling landscape that I often share with aspiring ecommerce merchants.
Selling on Price
An online seller who retails general merchandise that is available in traditional retail environments and at established existing web stores faces the most difficult challenge in ecommerce. Buyers already have a selection of sources for such products and can often enough find what they want by driving to a store less than a few miles from their home to get same-day satisfaction.
A new retailer entering a market with products that fit that description is simply looking to gain market share in an area where customer interest and awareness of the products is growing. Generally speaking, the fact that the product is already widely available means that grabbing the interest of a section of that market requires being able to offer the same products found elsewhere but at a lower price.
Because Minimum Advertised Pricing (MAP) rules are enforced by wholesalers and manufacturers in many product categories — insuring that the same product can be purchased from any retailer at the same minimum price — even the price trick can be hard to pull-off.
Retailers who have ultimately done well in this area avoid competition with Amazon, eBay, and Walmart by selling in categories that are (a) hard to break into, particularly without an existing brick-and-mortar store, industry knowledge, and a specialized license, and (b) in areas that those mega-retailers have consciously avoided.
As examples, consider Cigars International and Thompson Cigar in the area of boutique hand-rolled cigars, or Cheaper Than Dirt, which controls the majority of online business in low-cost ammunition, firearms, and gun parts. Both tobacco products and tactical firearms, ammo, and accessories are product lines that fall outside of much of the mainstream big online general product retailers and to that degree at least are less competitive than, say, Apple computer products, which are saturated and MAP driven.
Because MAP rules are lax-to-none in these more specialized markets, and because the diminished overhead of running a web store model is favorable compared to the costs of traditional retail in these areas, online sellers generally can offer products online at that lower price point that entices bargain buyers.
But the barriers to entry are still formidable. Specialized licensing, supplier connections, the existence of a traditional retail footprint, and substantial funding are needed to get started in these areas. Despite the fact that you’re not going to be in competition with mega retailers in these sorts of categories, the fact is that much of these specialized retail categories are still oversaturated and have existing dominant players with more established brands.
If you’re an owner of an established and successful brick-and-mortar business in a niche area of the traditional economy and are looking to expand your sales by migrating online, then this entire approach might make some kind of sense. But for everyone else it’s really the most difficult path to take. It is also the path I hear the most about as people cast around looking for an opportunity in ecommerce.
Selling Unique Products
This is probably the Holy Grail of online retail – the ability to sell a unique product that is unavailable elsewhere. Outside of selling artistic, handmade, and one-of-a-kind products that require care and time to manufacture, it is also the most difficult outcome to achieve.
Online vendors that sell a unique product in volume often see their retail platform as a separate business and identify themselves as an online retailer as an afterthought to their identity as a creative inventor and as a niche contract manufacturer.
Almost without exception, any general class of consumer product you can find at a big store or online from Amazon is sold to those retailers by established wholesale houses located throughout the world, and any wholesaler who will sell to you, and sell to Amazon will happily sell to other retailers, too, and on the same prices and terms, or better.
That’s why online retailers who sell genuinely unique items that are unavailable from other sources are almost always the contract manufacturer and importer of such items, as well. Having either secured either a patent or an exclusive license, they have typically outsourced their manufacturing in most cases to suppliers in China, India, South Korea, Mexico, or another foreign-based low-cost source of supply.
If you’ve never been involved in this process you might be surprised to discover that it is actually relatively easy to have products manufactured overseas on a contract basis. Nevertheless there are substantial risks and an initial investment involved in the process, and quality control can be uneven. Buyers often have little recourse to recover their investments if a prospective supplier either fails to ship the order or ships unsalable merchandise.
Nevertheless, by acting as your own manufacturer, you can avoid the wholesaler and the associated costs, and open the door to a genuinely successful online business that has the capacity to grow and develop.
But it is important to keep in mind that there is a reason that successful online merchants operating in this venue see themselves as creative dynamos first and foremost, and why places like Kickstarter and Shark Tank are filled with product concepts of this nature. If you think your gifts are in the area of merchandizing and branding and not in inventing and manufacturing, then you’re going to have an uphill climb before you. You likely cannot wake up in the morning and decide that today you’re going to channel Edison and Tesla and sit down and invent a genuinely novel product that addresses a genuine human need. It overwhelmingly doesn’t work that way.
Selling Unique Brands
Selling unique products has the special challenge of requiring a genuine creative insight to see a hole in the existing marketplace. But selling a unique brand of a product is easier. In this case, it isn’t so much that the seller is promoting a genuinely unique product or problem solution. Instead, it’s promoting the seller’s brand of a more general class of products that are themselves more widely available on the Internet and elsewhere.
Online nutraceutical retailers in most cases fall in this category. The products that they sell are boutique branded bottles and boxes of formulated products that are easy to source at low cost from any of a range of manufacturer-distributors. Suppliers will work closely with retailers to develop a brand, custom label products, and sell them by the case with very low minimum order quantity requirements making the barriers to entry easy to overcome for the most part.
Among the most popular products in this class of products is fish oil. Dozens of online sellers are retailing fish oil capsules and liquids with and without additive ingredients – and the majority of those retailers are getting their products custom branded from just a handful of established manufacturers that deal in an extensive range of similar products and branding options. Those suppliers, in turn, are easy to find on the Internet (or, in Nutraceuticals World Buyers’ Guide).
This entire approach and family of products is discussed extensively in Timothy Ferriss’ best-selling book, The 4-Hour Workweek: Escape 9-5, Live Anywhere and Join the New Rich. I recommend this book highly and it is full of helpful information. But the one area that he tiptoes through quite quickly is the genuine difficulty of creating a brand or a “winning” product that meets the requirements that he sets out in his formula.
Custom branded products can be found in categories that go well beyond supplements. But in all cases (as Ferriss points out in his book), the rewards will largely accrue to the successful marketer who is ready to commit the time and money it takes to build a brand and to approach the business of marketing with a scientific and data-driven mindset.
Selling Embarrassing Products
Within the category of custom branded products is a special subcategory worthy of mention – embarrassing products. By far the most popular category of “nutraceutical” or “supplement” products is the vast array of “male enhancement” products available on the web. These are all essentially herbal blend pills, or simply sugar pills, which are purchased from suppliers in custom branded bottles at a cost of under $1.00 per unit in sufficient quantity and sold to the public for $30 to $100 per unit, depending on the audacity of the seller and the gullibility of the buyer.
Very few men would walk in a store and purchase such a product over the counter, which is why it is such a hot category in online retail. But it is hardly alone in the category of such products. Adult diapers, condoms, wart remover, sex toys, drug paraphernalia (particularly grow lights), enema bags … the list goes on. And in all of these cases the web is a perfect venue for retailing these sorts of items.
Shopinprivate.com has built an entire website and deep product catalog around selling and shipping such products, and it is a brilliant concept. And of course there are a number of very large online retailers that specialize exclusively in sex toys, lingerie, and pornography. This area has the added advantage, too, that many of the largest traditional retailers avoid this space.
It’s tempting to pursue a project in this area, as web-savvy shoppers looking for a product in one of these categories will almost certainly go to the Internet to make their purchases. But it is a crowded and saturated marketplace for the most part. There is very little room left for new retailers — although wholesale suppliers are plentiful and costs and barriers to entry are low.
Selling Surprising Products
Barkbox.com, Birchbox.com, Bespokepost.com, and Wantable.com are all monthly subscription programs that, among other things, sell the element of surprise to the consumer. For a fixed and predictable monthly price these companies deliver a box of goodies to your door. Although often enough the products themselves are, in fact, available from other retailers, what makes the program work is the fact that you very likely didn’t know that the products existed before you opened the box.
Stichfix.com and Bombfell.com put an even more firm twist on the idea of connecting consumers with surprising finds by adding an extra element of personalization to the experience: not every box going out to every consumer contains the same surprising products.
Although this might feel like the old book-of-the-month club concept, when done well it is an example of how a boutique-level commitment to Internet retail can still produce meaningful results by connecting surprising products with a defined audience you can reach using traditional, online, and social marketing effectively.
There are of course still problems – starting with the fact that finding surprising products is itself hard (or the product wouldn’t be surprising), and sourcing products of that kind of niche nature is tough, too.
Nevertheless, taken to an extreme level, you will find that ThinkGeek.com has built its entire business around just this sort of approach: connecting a passionate audience and offering it surprising and relatable products at impulse-inducing pricing.
Companies like Cafepress.com, Zazzle.com, Xpressmats.com, Customink.com, Thingsremembered.com, and Personalizationmall.com set themselves apart by doing what companies like Amazon and Walmart have so far demonstrated a reluctance to do; namely, personalize products through screen printing, embroidery, engraving, and so on.
From bowling trophies to wedding party gifts to corporate branding to vanity car accessories, there is a huge demand for personalized products and the web is one of the first places that people go to look for such products.
The barrier to entry in this case is formidable: the cost of the machinery necessary to produce customization at a level of quality and detail that consumers will pay for it.
And those challenges extend to web design as well. Offering customization requires the ability to show customers how the customization looks and an interface that allows them to enter the details of what they want and, ideally, to see it before they commit to the purchase.
For example, Things Remembered is a well engineered website that makes it easy to personalize products before you purchase them. That sort of technology isn’t built into any of the standard webstore platforms you’re likely to use — such as Magento, Volusion, 3dCart, or Bigcommerce. There are third-party providers of plug-ins to some of these carts that can do the job, but there are added costs involved in setting that up and maintaining it.
It isn’t easy to identify a winning webstore concept. In fact, it’s probably the hardest part of the entire business of getting involved in ecommerce on a limited budget. The vast majority of the ideas that I hear about are simply not very good, are unworkable technically, require too much in terms of resources or connections, are in deeply saturated areas of the market, or are directed at such a small segment of the buying public that they don’t scale up to become interesting businesses on their own.
Reblogged from Practical ecommerce site, you gotta give credit….