GROWING A COMPANY? IS THIS YOU?
- Don't want to rely on investors, resellers, lots of employees, and high risk operations that take a long time to realize returns?
- Want to be highly profitable and sustainable with defensible competitive advantages?
- Cannot land investment because you lack experience or traction, so you need an effective plan for bootstrapping?
- In the idea stage or early startup stage and need a plan so you are not wasting time and capital?
This is a Quora question I was asked and here is my answer.
I don’t work in retail, but sell to retailers, so I can only talk from this perspective. In addition, while I predominantly sell direct-to-consumer with my products, with one of my companies, I have location-based sales that while not pure retail, is a hybrid of sorts.
My suggestions are as follows:
Passionate Market Niche
You want to focus on a tight niche of customers who are passionate about your product category. It is a lot easier to interest people who have an emotional connection to a product category.
For example, in one of my companies, we sell high quality raw dog food. Raw dog food is hard to purchase in general because it is such a small subset of the entire commercial dog food market. It must be frozen, which adds a lot of cost to transportation and storage, and there is the false stereotype that handling or feeding raw dog food is not safe due to the pathogens in raw meat. And, most vet doctors do not believe in raw, so the same customer usually has to find a different vet who does support raw, and there are not as many of them.
As a result, raw dog food is only of interest to a very small niche of dog owners who really care about the quality of the food they feed their dogs, are willing to pay for the extra cost and the added inconvenience of having to purchase it from non-traditional retailers who carry the brand and/or selection they want, have the freezer storage available at their home to keep frozen raw dog food, and go to a non-traditional vet doctor who support raw.
A lot of work, but for those that do, this means they are passionate dog owners. These kinds of customers are less concerned about cheap price and more concerned about buying the brand and products that meet their needs. This is a perfect niche for us.
You want to focus on niche markets that the large resellers will not bother with because they are about sales volume, which means mass market products, and not niche products that have too low of a sales volume for them to make money. But for a small retailer, there is plenty of volume to sell into this niche.
You want higher priced products, where you will need less traffic to make revenue and net income sales.
For example, compare your average order value (AOV) of $35 to $250. Assuming your profit margin is the same (the percent of your profit divided by your revenue), you need 7-times more traffic to make the same profit. Or, you need 7-times more sales to make the same profit.
For example, our raw dog food is a high-priced product, so we do not need a lot of customers to meet our sales goals.
Maybe you sell a lot of lower priced products, but, on average, your order value is higher than $200. That is OK. It’s when your AOV is low that it makes it harder for you to survive.
The exception is if your location is in a very high traffic area and where people are prone to shop and spend.
Small retailers may be able to outshine the larger ones by unearthing unique products from small vendors.
Again, large resellers are all about volume. They small vendors cannot meet their volume needs, so that is where you can make a niche for yourself.
Don’t use the argument…”Support me because I am small”
I do not believe the argument small retailers make to support small business by buying from us, not them, when it is a commodity product that is cheaper from the larger sellers.
That argument is falling flat on consumers who in general are always looking to save money when the same product can be purchased elsewhere for less.
You have to offer value for the customer’s money and time. If someone else offers the same value cheaper, then you are fighting a losing battle, because eventually they will switch to save money,
Increase convenience and reduce friction
There is no reason why a small retailer cannot have an online store with shipping options. It is easy and cost-effective to implement this technology for any size company.
Technology costs have continued to drop, while sophistication has continued to increase, making it relatively cheap and easy to set up a direct-to-consumer operation.
I use WordPress with the Woocommerce shopping cart for all of my businesses. These are leading technology platforms, free to install, which are well supported and used by a large number of website worldwide, so they will likely stay relevant.
Another excellent platform for small businesses is Shopify, although I much prefer Woocommerce because it integrates with WordPress and I have customized it highly to fit my needs. I do not know how much you can customize Shopify compared to Woocommerce.
One of Amazon’s biggest features, next to low prices and selection, is that it has reduced the friction to purchase with easy checkout and fast shipping.
Consumers want convenience and less friction in their lives.
It is a natural fit for a small retailer to offer online purchasing and shipping because they already have the locations in which they can maintain inventory and process shipments. And, they have an advantage in that since they operate locally, they can probably deliver faster.
Many hyperlocal options continue to emerge to allow fast delivery to consumers, whether that is doing it yourself (which is what I do for one of my businesses), hiring a delivery service or using the postal service. In the future, autonomous driving vehicles could create a significant advantage for local businesses. You want to be positioned to take advantage of that when it comes.
The technology systems I use for my entire operation are in this diagram. These systems are all robust, scalable and most are fairly easy to implement and use, with not too much cost to implement and manage.
Customer service through product knowledge
Product knowledge is an area difficult for larger resellers to leverage, but not so with small resellers. Most small resellers get into the business because of a passion and knowledge for the category, and some consumers need this kind of help.
Resellers can easily create their own content around products that they can publish on their website, distribute in emails to their customer base, through direct mail, or at their location through printed handouts.
Marketing acquisition and retention
The more you know about your individual customers, the more you can segment the marketing campaigns to them through email, direct mail and when they come to your store, you can use this knowledge to offer them specific offers or value based on their past purchases. All this takes a database of some kind, but there are so many on the market, including out-of-the-box contact management and CRM systems to start using now.
The common data to collect on customers is their transaction history. That alone helps to segment customers to create unique marketing to them. Segments can include your top 20% by lifetime spend, your frequent buyers, your one-time or low lifetime spend buyers, and everything in between.
But if you have a more customized database solution like I do, you can append demographic data purchased from third parties. I am also collecting psychographic data based on my own interactions with customers and use this data when I segment my marketing campaigns to them.
I went the route of architecting my own relational database and having a developer build it for me. I use the Knack database platform. But, this was surprisingly inexpensive to do and is very inexpensive to maintain. All of my e-commerce data, customer data (contact information, demographic data I append from external sources and psychographic data that I am collecting) and marketing campaign data gets funneled into my database. I also added an inventory management solution to manage all of my product inventory
With this data collection, there is no reason why a small reseller cannot use online marketing to target their customers, given the geographic targeting capabilities of platforms.
All the major ad platforms have made it easy for any one to advertise on their network and use their systems to create ads.
There is no reason why a small reseller cannot use custom audience marketing, email and direct mail marketing to retain their existing customers. These methods are effective and relatively inexpensive to use and operate.
List email systems, like Mailchimp, which is what I use, are easy to set up, free in some cases and offer advanced capabilities to scale.
I also use direct mail. If you ship your own packages, then direct mail is easy to add-on.
Offer an experience
Small resellers have the advantage of creating a unique store experience and selling environment that makes it interesting for consumers to visit. This includes layout, decoration, and offering events. Retail is becoming as much about buying as it is about experience. Look at some major retail chains like REI, with their demo areas for new products, climbing walls, coffee shop, etc.
We do production from our farm, so we have days in which we invite our customers to visit the farm with their families and dogs and hike our property and trails. This not only helps us sell, but provides a different experience for our customers.
I think a major hindrance to implementing the above is the thinking that the technology to implement the above is too expensive or requires special expertise.
That is no longer the case, as technology has advanced and costs to implement have dropped, making it very cost-effective for even the smallest reseller to use advanced technology systems to market and sell.
And since online has advanced in the ability to target niche markets, small resellers have more capabilities to find their ideal customer.