The myths of ecommerce

Last weekend I met up with an old friend who runs his own business – a manufacturing business in the FMCG sector.

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We mused about a number of things, not least that the reality of life is not always recognised in the marketing textbook.

First, the move from the traditional to a digital world. There is an assumption that an online sale is preferable as it is less costly for the retailer. For someone who launched their business in the digital age – Amazon, for example – that might be true. But most businesses were developed in older times so their processes support a retail network and their logistics, distribution and payment systems are for real stores. Many have therefore bolted an online offering onto an offline set-up, making the cost incremental – whether that is for building an online billing system or shop window, or simply an attractive website – at least on a per transaction basis. Yet we have built a perception among customers that an online purchase must be cheaper, so retailers have little choice but to sell it cheaper and hence transact at a lower margin.

Is this sustainable? A solution is to get rid of some underlying fixed costs – stores, clunky IT systems, retail staff – but these all work well and underpin brand trust for customers buying in a digital world.

The second point he made was on the role of market research. He is a successful businessman who understands his market – what his customers want and how much they are willing to pay. But does he use market research to do this? Does he run focus groups or crowdsourcing sessions with customers to understand how his product stacks up versus a competitor’s? Or whether a new variation will sell? No, he does not have the time or money for that. He uses his experience and his (not insubstantial) gut feeling.

While he reassures retailers, his bank manager and his employees that everything is fully researched, the truth is he knows best. As an old boss of mine once said, “The role of market research is to teach you what I already know.”

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