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8 Reasons E-Commerce Companies Fail in New Markets Anders Andersen, Etaility.com

Guide: 8 Reasons E-Commerce Companies Fail in New Markets

2015-12-02 16:00

The e-commerce consultant Anders Andersen gives us his best tips in cross border e-commerce with a pure play online store.

For the last eight years, all the work that I have done has been related to taking online shops from one market into another. I have done these e-commerce market entries as a consultant, as an employee and as an advisory board member for both my own shop and for companies that I have invested in. I have done market entries for Spanish, British, Swedish, Danish and Finnish shops, both small and large. In some cases, the market entry has worked out great, but in other cases it has been a plain failure. In this post I will outline, based on my own experience, why eCommerce companies fail when entering new markets.

Why I work with cross border e-commerce:
I see cross border e-commerce as the largest business possibility in the world today. There is a lot of value in making great things available to people in other countries.

Please note: I only work with pure play eCommerce and only in Europe, which means that these experiences can not necessarily be applied to omnichannel and other more complex business models. Also, I work with the "becoming a market leader" model and not the "born global" model, which means that some of my answers might not be useful for "born global" companies.

The 8 Main Reasons

1) Wrong Team

The main reason for why online shops fail in new markets is wrong teams and wrong organization setup. What typically happens is, that companies do not hire qualified country managers or completely skip having a person responsible for the new market. This has happened with 9 out of 10 cases that I have seen. There is a great plan, a good realistic budget, a good case, but the new country manager has not been qualified enough. The issue here is that the company, that has an office in its domestic market, tries to hire somebody to work at that office to handle a foreign market. Most companies go here with the cheaper alternative and hires somebody whose only relevant skill is the language of the new market. But ask yourself, would you hire for your domestic market a CMO, who has never done keyword analysis? No, right. Then why hire somebody, who does not have the needed experience and skills to build you a new market.

My advice:​ Hire an experienced online marketer from the local country and pay the price to relocate him or her. It will be worth it.

2) Wrong Assortment

Did you know that cars in Norway, Finland and Sweden use pike tires during winter? I did not, and when I was participating in helping a Swedish tyre retailer into Denmark, I completely missed out on the fact that their competitive advantage in Sweden was their great prices and assortment on pike tires. They also had some normal European tires, but this was not their competitive advantage. The results were terrible. We live in an international world, but there are huge differences in which products sell in different markets. Most shops love their own products so much, that they just forget to ask themselves if there is any demand for them abroad.

My advice:​ Do research on the assortiment. If you reach the conclusion, that only a small part of you domestic products will sell in the new market, then either drop that market or get the right local products in your assortment for that market. Forcing people in the new market to adapt to you products does not work. Note that adding new local products will only work if your value chain or main value proposition and general competitive advantages are in something else than the products. Sadly, a lot of eCommerce companies have the major part of value creation in the purchasing process.

3) Wrong Pricing

During the eight years that I have worked with market entries, I have only once witnessed that a company has done local price adjustments well. For many years I thought that eCommerce was all about UX and Adwords, but what eCommerce really is about, is having the right product at the right price. Most companies completely fail to adjust prices in new markets as good as they do in their domestic markets. Some products they sell too cheap and others too expensive. Most of the time online shops actually just use the overall currency rate in their shop to adjust their prices in new markets. It is so wrong that it hurts me every time I see this solution.

My advice:​ Think globally and act local when it comes to pricing. Put the same resources into adjusting prices in the domestic market as in any other new market.

4) Sprint vs Marathon

A lot of companies try really hard to enter new markets. But after 12 months, they realize that their ambiguous budget did not work out. According to my experience, 100% of the budgets for the new markets have failed. Most companies then reach the conclusion, that they need to withdraw themselves from the race and leave the new market after pumping money into the market for 12 months. It happens all the time. We just don't hear about it. But some companies succeed in new markets. Why? Because they go for the long run. They don't expect a fast ROI in the new market with an unknown brand and 0% direct traffic, they don’t expect same KPIs in the new market from day one, and when they face challenges, they sit down and try to solve the issues and try again until they succeed.

My advice:​ Know that it is a marathon. If you can perform it, then it is fine to start out with a sprint, but it is costly and you will lose if you spend all your energy on the first sprint. You are doomed to face failure, but your success depends on if you have enough energy to overcome your failures in the new markets. From a strategy point of view, it is also important that the board and all other stakeholders agree and understand that the new market is a long­term investment and initially an experiment. A lot of market expansions are closed down by the board, who did not want to do a marathon.

5) Not Getting Local Roots

You can do all kinds of online marketing activities to boost the business in a new market. But what most online shops miss in their ROI hunt in new markets, is the value of getting local roots. By this is mean getting local stakeholders ​in the new market. Consider getting local suppliers, local bank agreement, local investors, local employees, local office, local press contacts, joining a local business network and supporting a local education or a local union. The hard part in doing this is to measure the effect of those actions.

My advice:​ Think globally and again, act local. If you sponsor a local football team in your home market, then do that also in each of your new markets. Most online shops totally miss the importance of stakeholders in the new markets (because we are online and don't need to be offline). A side gain of local cooperation will be a better SEO.

6) The Wrong Reasons

Why do you think online shops enter new markets? Most of them do it to grow their business or to enter a high margin market. This approach does not work. It is a narrow tunnel sight, that just makes shops focus on sales and margins instead of creating value for their customers. When you started out with your shop, you probably did it because you felt you could help out some people. You saw a need, and you wanted to serve that need. It is a 101 in business schools, that you need to be driven by a vision, not just money. I guess many of the people reading this will say that this is just soft bullshit, but it is not. If you enter a new market without a strategy and a vision only driven by sales and margins, then you will fail.

My advice:​ Do your research and select your markets carefully, based on where you see that you can make a true difference and where you can create the most value for the end consumers. You need to have the customer perspective if you want to succeed, also in your new markets. Have that together with a sound vision for each market.

7) No Competitive Advantage

When you run a business, then your success depends on your "competitive advantage" and on what you do better than anybody else. Some online shops are amazing in online marketing and others in sourcing products. The question here is, what is it that you are so good in doing in your domestic market, that you will outperform all competitors in the new market that you enter. Does your shop have the:

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● lowest labor cost?
● largest assortment?
● lowest purchasing prices?
● best big data department?
● best IT setup?
● most efficient employees?
● best product knowledge?
● most lean logistic
● best mobile experience
● most efficient marketing execution
● most focused and deepest assortment?
● best UX experience
● best customer service?
● most loyal employees?
● most efficient warehouse?

Without thinking and analysing this thoroughly, you will fail in your new markets. Often your can be best in one area in your domestic market, but in your new market your competitor will beat you. When I have worked with many different online shops, I get the impression that most shops are completely clueless about their competitive advantage. Companies tend to think that they are world champions just because they are
best in their own domestic markets, but when they go International they meet the reality.

My advice:​ Define your competitive advantage clearly in the new market.

8) To Many New Markets at Once

How can it be that Amazon, the largest online shop in the world, is only active in 15 countries? Or Zalando in only 14 countries? It is because they prioritize. They ask themselves where are they most likely to succeed and then focus on becoming a success in the market, before moving onto the next market. Therefore it also does not seem serious when I hear companies proclaim, that next year they will launch in all 28 EU member countries. You enter a new market you know nothing about and if you just give up after the first sprint, then you will fail. It is also hard for a company to learn from failures in 28 new EU markets at once.

My advice:​ Focus on one market or one small region and the issues there, and solve those before you start focusing on the next market or region.

All the Other Reasons

Freight
Most online shops charge a lot more for delivery outside their own domestic market, making the new markets less likely to succeed compared to the domestic once. M​y advice​: Subsidise your freight to new markets. If you need to finance that, then increase your domestic freights.

Returns
Almost all shops that enter new markets don't have a local return address. In reality it means that customers can not do a return. Not having return sounds like a dream for most eCommerce companies, but this will not help you build up good LTV customers. ​My advice​: Have free return or a local return address and make sure the foreign return process is LEAN.

Customer service
"But they understand english, don't they?" Yes they do, and you understand some Spanish right? But when did you accept any customer service in Spanish? ​My advice​: Get local customer service on the same level as your competitors in that market.

Not understanding the local market
Companies that enter 20 new markets at once without doing a proper market research, don't understand each market. The most important thing is to understand if there is a market for the products you want to sell. Sometimes there is not. M​y advice​: Do your market research. Best way might be to make best practice analysis of the main competitors.

Marketing
It is hard and it costs money to get your message out. It is hard in your own market, but in new markets it gets even harder to localize your marketing. ​My advice​: Use a local country manager for this.

Payments
Easy to solve, but again one of the points where companies fail. It is so simple, but most shops just don't offer all the local standard payments that the competitors have. ​My SIMPLE advice​: Get the payment solutions that your competitors have.

Final Thoughts

Think of your customers and take their perspective. Do you think your foreign customers prefer free returns, as you offer your domestic customers? Do you think they prefer to shop in their own language? Do you think they prefer products made or designed in their own country over products produced in your country? Do you think they think it is fair that you charge them more than your domestic customers? Do you think they preferred to trade with a national company over one from you company? Do you think they prefer having same delivery time as you have in your domestic market or do you think they prefer to wait some days more?

Good luck on your new market launch.

Anders Andersen

CEO of Etaility

Anders Andersen is running Etaility.com out of Stockholm and Barcelona, a Nordic e-commerce group that grow online companies. Anders expertise is in International and pure play e-commerce.

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