Brands are increasingly at the mercy of global tech giants like Amazon, Google and Facebook (Instagram) to access customers. The sales that occur on these large platforms tend to be less profitable compared to purchases made directly through a brand's website. This is, in part, due to commissions and marketing costs that contribute to the cost of a sale and impact merchant margins. What can brands do to mitigate this? They can consider engaging in cross-border e-commerce by selling directly to global consumers and becoming self-sustaining in the long term.
Global e-commerce is growing fast as customers become more comfortable making product purchases online. According to a recent study conducted by Flow experts across 11 global markets, 67% of apparel shoppers have made a cross-border purchase over the last year. The amount spent on e-commerce by consumers is impressive. According to Website Builder Expert, the world's largest e-commerce spend per capita in 2018 were seen in the following 10 markets:
World's Biggest Online Spenders: 2018 Research, by Website Builder Expert
In this blog post, we will examine why cross-border e-commerce is an attractive proposition and why brands should consider this global direct-to-consumer approach as part of their long-term growth strategy.
We have previously written about the signs when an e-commerce businesses should consider cross-border e-commerce as part of their business strategy. It comes as no surprise that cross-border e-commerce should be seen as a separate business with its own budget and resource allocation focused on new opportunities to gain market share and sales. Before businesses consider offering cross-border customers a service, it is vitally important that brands and businesses do extensive research into the market they intend to enter. Market entry research, international site traffic analysis, product-market fit, understanding local consumer behaviors and many other factors play into the decision of which markets a brand should enter first. But if we take a step back, a brand first needs to ask why they should consider selling direct-to-consumer when engaging in international e-commerce.
The opportunity is clear: cross-border e-commerce is accelerating faster than domestic e-commerce. According to a report from DHL, this rapid growth will continue as the cross-border e-commerce market is expected to grow by roughly 25% annually until 2020 – nearly twice the growth rate of domestic e-commerce. In 2020, it is expected to account for about US$900bn GMV, translating into a roughly 22% share of the global e-commerce market.
When assessing how to tap into this global opportunity, below are a few points to consider when evaluating a marketplace strategy versus selling directly to your global consumer.
1. Cross-border e-commerce can provide brands with pricing and brand control
Currently, when brands partner with marketplaces such as Amazon, Alibaba or Catch, there is little long-term certainty that commission rates, listing costs and pricing guidelines will be honored. The opportunity to negotiate favorable terms for brands is challenging and usually dependent on how desperate the marketplace is to add that brand to their selection. Brands can mitigate this by adding cross-border e-commerce to their offering, where the won't have to worry about third-party marketplace costs.
Additionally, by selling direct, merchants can remain in complete control of how the customer experiences their brand. Brand dilution won't be a factor if your products are only seen on your website and not alongside other sellers, especially important if your product is in a commodity category such as electronics, mobile phones and other electronics. The brand can set and control the pricing they offer customers without concerns about third-party sellers or others offering customers lower pricing. Many fashion and luxury brands find that maintaining brand integrity can be difficult on marketplaces where they have no control over brands and products displayed adjacent to their listings within categories and onsite searches. By selling direct-to-consumer, brands can maintain control of how their products are displayed and are curated for their shoppers, in addition to crafting a brand appropriate end-to-end experience that enforces an authentic connection to the customer.
2. Lower marketing costs in the long-term
Once a sale has occurred and customers have opted into receiving marketing communications, brands are able to market to these customers via email newsletters and other channels to build stronger relationships. It is vital to keep in mind that your communication can only be done after the customer has opted in otherwise GDPR regulations for customers in Europe will lead to fines and unhappy customers.
By being able to market to customers directly, the customer acquisition costs (CAC) for brands can be better controlled. In general, marketplaces will share a limited amount of data on shopping behaviors and acquisition channels with brands. Therefore, a brand might not have visibility into the full picture of how much the demand for their products differs across channels like social or paid media. Without proper insights into acquisition channels, optimizing the marketing budget across different locales to drive traffic to marketplace listings can quickly become impossible to fully understand and manage. Consequently, marketing costs can spiral out of control making the endeavor not worth the effort.
By marketing directly to customers, brands can analyze acquisition costs carefully and build out attribution models to understand the winning combination of marketing channels and spend in each international market. In addition to lowering overall customer acquisition cost (CAC), cultivating a buyer base directly can allow brands to increase the overall lifetime value (LTV) of their customers by strategically retargeting and segmenting repeat buyers, creating brand loyalty programs, and launching other customer retention programs. Being able to access the customer directly provides brands with the opportunity to know their customers, understand their shopping behaviors, and create meaningful relationships without relying solely on paid marketing efforts through marketplace platforms.
3. Market entry is determined by the brand and not by a third-party
By using software that enables direct-to-consumer cross-border e-commerce, brands are able to access new markets at their own pace. Every e-commerce market has its own unique characteristics, whether that be around currency display, payment options, tax and duty implications, logistics and returns. While a marketplace may facilitate some of these factors to help brands expand internationally, the manner in which a marketplace works with the brand will always be at the service of generating revenue, rather than serving the brand's best interest.
It is possible for brands to access global online shoppers and sell products to them directly by engaging in cross border e-commerce. But many retailers and online brands don't know where to start. While it can be daunting to go it alone, the right solution provider will partner with your brand to ensure that every part of the buyer journey is localized and seamless so that your customers feel they are shopping on a domestic site. Also, the best solution will allow your brand the flexibility and control to properly manage costs and optimize margins so that you can get the most out of your cross border business. To learn more about how to get started, download our International E-Commerce Kit today, or contact us to speak with a Flow Commerce expert.