4.2 Research for the Small Company

Until recently, individuals were generally cautious about going into business, deciding after much deliberation on something where their personality, know-how, contacts, ability to recruit good staff and network with others in the trade gave them a good chance of succeeding. The seeming low entry cost of ecommerce have changed these perspectives, and many are now happy to chance matters by choosing ecommerce first and some area of business later. It's for these ecommerce aspirants that this section is written, and comes with two health warnings:

1. Ecommerce is not as cheap as first appears, not if it's to have any likelihood of success: you need to do your sums carefully.
2. While ecommerce has lowered some barriers (premises, geographical access) it has also raised others (intense competition, against companies with hard-gained experience and large advertising budgets).

Researching the Market Sector: General Picture

Businesses vary enormously. Some have steady futures (law, retail); some look to be expanding (IT, leisure) while others are in long-term decline (mining, manufacturing.) To these broad trends have to be added the business cycles that affect all markets at various times, and the knock-on effect from subsidiary matters (collectables from general business confidence, travel from currency swings, terrorism) etc. You'll want to launch your business at the most favorable time, both to increase your chances of success, and to attract appropriate funding.

Finding Your Market Niche

Whatever you're selling, it will not appeal to all market sectors. Luxury cruises and cheap flights may be both part of the travel business, for example, but they're very different in capitalization, marketing and market segment. You may be moving an established business online, or have access to a narrow range of products anyway, but as much as possible you'll be supporting your choice by extensive research. Market niche is your particular area of the market, where you have a decided advantage and can see off the competition. You have to find gaps in the market sector, and devise a strategy that will allow you to exploit those gaps, maintaining your advantage when the competition moves against you. Some suggestions:

1. Use keyword research software to identify market niches, the search traffic they attract and the competition from similar sites.
2. Having identified gaps in the market (with, say, a minimum of 80 searches/day and no more than 10,000 competing sites), ask yourself:
a. Why the gaps exist: does the market know something that you don't?
b. How permanent are they: will they be closed before your site makes a serious challenge?
c. What's the long-term future of this market niche?
d. What in detail could be your advantage in this niche?
3. Look carefully at selected competitor sites. Can you improve in respect to:
a. price?
b. range of products?
c. service — more attractive site; better guarantees, returns policy, customer support?
4. Double check your advantage by:
a. Getting prices and delivery times from potential suppliers.
b. Looking at retail prices at Bizrate and similar comparison sites.
c. Making broad sales estimates.

Assessing the Competition

Assessing your market niche will have introduced you to the competition. Now you must look at competitors more carefully.
1. Make sure you've identified them all by really drilling down through the search engine lists. Some may be just starting out in business and still have very poor rankings. That will change, and you need to be prepared.
2. Identify your strongest competitors and try to understand their business as well as they do. Take their sites apart. Scour the trade and business news for information on them. Research their turnovers, capitalization, profit margins and marketing budgets. You may want to surf anonymously with Anonymizer or FastFreeSurf, etc.

Market Segmentation

Not to be confused with market niche is market segmentation. Some 80% of sales commonly come from 20% of customers, and market segmentation helps identify those better customers more precisely. You start by analyzing customers under various demographic groupings — age, gender, ethnic group, education, occupation and income to find the optimal profile.

If you were selling specialist cultural tours, for example, you could design your site to specifically appeal to an audience with these characteristics:

Age: 35-55 years old
Gender: male and female
Ethnic groups: all
Education: university
Occupation: professional
Income: $60,000 p.a. or more

Sales and growth information might of course be available only from bricks-and-mortar companies, when you'd have to obtain estimates of Internet users within such a grouping. The US Department of Commerce, for example, provides demographic information on Internet users, and indeed by geographical grouping within the USA. More detailed information is available from market research sites and services.

Industry Benchmarks

Similar companies in comparable industries tend to have similar performance benchmarks — efficiencies, call-out times, return on investment, etc. Though primarily used by consultants and management to identify areas needing improvement, {4} it's also wise to check that your planning figures fall within industry averages. You're not going to do better than the big boys, particularly when just starting out.

Marketing the Site

An amazing number of companies build their site and then think about marketing it, which is quite the wrong way of going about matters. Even if you dispense with marketing through the search engines — in many ways still the most effective approach — you must still understand what Internet shoppers are looking for, and build your site accordingly. Sooner or later you'll have to adjust to customer requirements, and delaying changes will only increase the overall workload. Before building the site, you should:

1. Establish and double check your unique selling proposition.
2. Devise a clear, stepwise and costed marketing plan.
3. Find the best keywords for each page.
4. Design the site around your keywords and marketing plan.

Marketing Plan

Before the plan is finalized, and any website built, ensure you have

1. Found out what potential customers really want through surveys, market research, auction etc. testing, and visits to competitor sites.
2. Assessed the competition, their strengths and their marketing approaches.
3. Focused on what you can do and your competitors can't: your unique selling proposition.
4. Devised clear contingency plans to counter competitor moves against you.
5. Looked at potential new markets.
6. Constructed a timetable for traffic levels, conversion rates and sales.
7. Costed each marketing phase accurately.
8. Set up contingency plans for unexpectedly high or low sales.

How will you promote the site? The specifically Internet approaches are:

1. Market through the natural search engines
2. Promote your site through search engine ads and pay-per-click search engines
3. Use affiliates. Many companies use all three methods, but it's as well to bear in mind that, while marketing through the natural search engines is the cheapest option, it now takes a long time to create a popular site, not to mention unique content. Profit margins are obviously critical in the other two approaches. Affiliate marketing is the safer approach as conversion rates are notoriously difficult to predict. Properly chosen, affiliates also add confidence to your products: visitors won't usually buy immediately from a site to which they're directed by a search engine.

Building the Site around the Marketing Plan

The mechanics are covered in web site development, (and search engine optimization if you're marketing through the search engines) but the general principles of ecommerce site building are:

1. Design should reflect your unique selling proposition, and your market position vis-à-vis the competition.
2. Appearance must be professional, inspiring trust and confidence.
3. Download should be fast, certainly not more than 10 seconds, even in congested Internet conditions.
4. Appealing: copy should immediately draw visitors in by emphasizing its potential value to them.
5. Navigation should be clear and trouble-free — not merely possible to follow, but impossible to get lost in: check with third parties before going live.
6. Testimonials should be placed strategically (and be genuine).
7. Guarantees and returns policies should be clearly stated, and adhered to.
8. Email and telephone (preferably toll-free) support should feature prominently: ensure you have the staff to answer inquiries.

Types of Internet Marketing

In terms of effectiveness, these are the best ways of promoting your site: with search engines and directories, pay-by-click and search engine ads, conventional offline advertising, newsletters and weblogs through affiliates, with emails, reciprocal links and viral marketing.

Modifying the Marketing Plan

The only sure way of marketing a product is to plan intelligently, follow the plan meticulously, assess results, and keep modifying the plan. Marketing is a continual learning process, and it's essential that your website statistics keep you fully informed on what visitors are doing. Ensure that your hosting company provides these traffic statistics on a daily and monthly basis:

1. Number of visitors.
2. Pages downloaded.
3. Time spent on the site (average and maximum).
4. Page popularity.
5. Most used trails through the site.
6. Pages used to enter and leave the site.
7. Referring sites and search engines.
8. Visitors' countries of origin.
9. Popular keywords. Even minor changes to copy and page layout may alter visitor performance and sales, which is a reason for monitoring results regularly.

Joint Ventures

Business expansions are fraught with unknowns. Why not joint venture to share and extend your skills, experience and markets? The advantages of joint venturing are:

1. Strengthened resources to beat the competition.
2. Penetration into new markets.
3. Access to existing customer base for similar but not identical products.
4. Shared operating and possibly marketing costs.

The dangers are equally obvious:

1. Unrealistic expectations of the other party.
2. One-sided nature of partnership.
3. Tangled management and decision lines.
4. Accounting complications.

Legal Aspects

Partnerships usually come adrift because matters have not been spelled out sufficiently. Joint ventures even more need to explore all aspects and hold them in a legally-binding agreement. Such matters as:

1. Overall objectives/expectations of the parties.
2. Staff, time and reporting structure
3. Minimum (and maximum) expenditures involved.
4. Duration of joint venture.
5. Procedures for extension or amicable termination.
6. Arbitration procedures if all else fails.

Standard joint-venture templates can be purchased cheaply over the Internet, and will ensure that all points are covered in discussions. Critical ventures need expert legal advice.

Finding Partners

Joint ventures are commonly most successful when parties:
1. Are not in competition but share the same target audience.
2. Have essential but complementary skills, e.g. marketing and software development.
3. Level with each other regarding expectations and commitment.

You can identify potential partners online by participating in email discussion groups, online forums and newsgroups that deal with your target audience. Then comes an introductory letter introducing yourself and the benefits to both parties. Make sure you do your homework on the company, and address the inquiry to the right person.

Scams: Checking Out a Business

Though the Internet has widened opportunities for the-less-than-honest business, it has also made the detection and reporting of fraud much easier. The usual common sense applies: be skeptical, take out references, check everything. Nothing is free in business, and if something seems too good to be true, it probably is.

Types of Fraud

By far the biggest incidence of fraud occurs in Internet auctions among customers who do not pay by credit card and/or use an escrow service. Consult the references below. Note also that the vast majority of businesses opportunities spammed to your email boxes deliver less than promised.

First Steps

How do you check up on an Internet company? As you would any other:

1. Ask for a bank reference.
2. Get written statements from major suppliers and customers.

You can also make quick checks by visiting:

Alexa

Other helpful sites are:

About the Web. Good listings and sensible advice.
Internet Fraud. Security and Exchange Commissions advice on Internet investment fraud.
OuchConsulting. Sell a $25 ebook: Selling Snake Oil at Light Speed.
PcHell. Software scams and how to fix them.
Link Scan Where and how to complain about Internet fraud.
Scambusters. Excellent advice from a business point of view and free newsletter.

Assessing a Company

To assess a company properly you will need to analyze its financial statements, which you can request from the company concerned if a sale is in prospect, or get from the public domain at:

Industry Research Desk.
Corporate Information.
Edgar Database.
Hoover's Online.
Dun and Bradstreet.

Estimating Sales

You need to attract a high volume of visitors to your site, and you need them to buy. You'll remember that means:

1. Identifying the right market sector through keyword and market research.
2. Advertising the website in that sector through:
a. Search engine placement.
b. Pay-to-click search engines.
c. Affiliate schemes.
d. Email marketing.
e. Non-reciprocal links.
f. Offline marketing.
3. Identifying the best customers: market segmentation.
4. Inducing a willingness to buy with:
a. A site that inspires trust and confidence.
b. Products can be independently checked.
c. Recommendations from third parties and affiliates.
d. Reciprocal links.
5. Maintaining the selling momentum: a trouble-free purchasing system.

Estimating Site Traffic

Site traffic can be estimated with keyword research programs. Typical conversion rates can be found by Internet searches with 'conversion rates' and 'ecommerce conversion rates'. Something around 1-2% is often quoted, but much depends on customer confidence, the pricing, brand awareness and the competition. Read the cautionary tales: Seascape e-Art and Fine Art Ceramics.

Testing the Proposition

Research can only take a company so far. Educated guesses can be made for likely traffic and conversion rates, but more is often needed, particularly when using the pay-per-click search engines for marketing, where charges soon mount up. Companies commonly test their proposition by setting up a test website with a dummy ordering system, monitoring results carefully for changes in:

1. Goods offered.
2. Presentation of goods.
3. Site layout.
4. Ad copy at the ppc search engines.
5. Keywords targeted by page copy.
6. Marketing through the larger ppc search engines, the smaller ppc search engines, price comparison search engines, eBay and other auction sites, banner ads, box adverts in trade periodicals. A tall order? It certainly takes time and money, but becomes necessary in many cases.

Next Steps

The above outlines a conventional plan for a conventional Internet business. Unfortunately, the Internet is now an extremely crowded marketplace, and while the plan will give a new business a fighting chance of success, it would be wise to analyze the plan further into business elements and business strategies.

Questions

1. Describe the research needed by a small company venturing into ecommerce.
2. What are the two key areas that ecommerce research should cover?
3. How would you get reliable figures for traffic and percentage conversion?
4. How could business models and strategies help?

Sources and Further Reading

Need the references and resources for further study? Consider our affordable (US $ 4.95)  pdf ebook. It includes extensive (3,000) references, plus text, tables and illustrations you can copy, and is formatted to provide comfortable sequential reading on screens as small as 7 inches.

 


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