We have talked before about e-commerce business models, as well as about emerging business models, but we have left by the side a very significant concept which applies almost transversally to almost any kind of e-commerce. This concept is closely related to the kind of product sold in your online store, as well as with the maturity stage of your business. Even though it is very well explained in the excellent book ”Lean Analytics: Use Data to Build a Better Startup Faster”, which we recommend, we thought we would devote a post to it. What kind of e-commerce are you?
According to Kevin Hillstrom, from Mine That Data, there are several e-commerce models depending on your relationship with your customers:
Acquisition model: if less than 40% of buyers last year will buy again this year, your business should focus on customer acquisition. In this mode, customer loyalty programmes will not be profitable, and so all efforts should focus on acquisition. According to Kevin, 70% of e-commerce businesses fall into this category when they are in a mature stage. Online stores that sell materials for complex hobbies, such as diving or mountain climbing, usually fall in this category, as most customers buy material once but finally abandon the hobby due to a lack of time or experience. If you are in this situation, you’d better focus your effort on getting your buyers to bring new customers, instead of trying to make them buy again in the future.
Hybrid model: if between 40 and 60% of last-year buyers will buy again this year, you have a hybrid model. In this case, you should focus 50% of your effort on acquisition and 50% on increasing purchase frequency. Zappos, with an average of between 2 and 2.5 purchases per year, falls clearly in this category.
Loyalty model: if more than 60% of last-year buyers will buy again this year, you should focus on your customer loyalty strategy. This is the case of Amazon, and only 10% of e-commerce businesses enter this stage once they are mature.
Being clear about what your e-commerce model is will enable you to adequately guide your marketing strategy on all levels. From the type of actions to product pricing, through what to focus on. There was much talk recently at eComm&Beers about the fact that the key factor in sectors such as the food sector is recurrence, and money is not really made until the third purchase. If your e-commerce is in acquisition mode, you cannot afford this, and your margins should be enough to make a minimum profit from the very first purchase, discounting all costs, including the customer acquisition cost.