Sep 14, 2012

Beware the back alleys of E-commerce

Spend some time surveying a variety of E-commerce sites (without spending money on them, that is…), and chances are you’ll come across some sites that offer name-brand gadgetry at incredibly good prices. Sites like these often sell items such as air-conditioning components, portable power equipment or computer hardware.

With a little bit of research you’ll discover that a number of those E-commerce sites sell in great volume and are quite profitable. For some private entrepreneurs, it’s tempting to try to jump into one of those niche markets with a deep-discount E-commerce site of their own.

Before you rush pell-mell into the discount E-tailing business, there’s one thing you have to understand: Most of the successful E-commerce sites that deeply discount name brand products are the online equivalent of a brightly lit storefront that stands at the end of a long and dark back alleyway. A large majority of them are dedicated outlets that are part of multi-channel sales strategies implemented by major brands and manufacturers.

It’s all about the relationship

Discount selling on the Internet is all about relationships. The most successful online discounters have the closest relationships with their manufacturers – and typically skip a ‘traditional’ distribution chain entirely. A number of companies specialize in building multi-channel sales networks for large manufacturers.  Many of the discounter sites are even owned or partially owned by the manufacturers themselves, typically serving as outlets for slightly aged stock or refurbished goods.

You need to be aware of these ‘channel’ relationships before you try to sell into any given market niche, because you could be setting yourself up for some very stiff competition. It means, at the very least, you need to have a relationship with your supplier in place BEFORE you spend the first nickel on your E-commerce project.

Get it in writing

Here’s a tip about that supplier relationship: Get it in writing and get it for as long a term as possible. I’ve worked with a number of clients who were certain they had a good supplier relationship to build on, only to have the whole deal pulled out from under them after they had expended considerable time and money on their project. It typically happens when a manufacturer or distributor that a client has been working with (sometimes for many years) suddenly has a ‘light bulb moment’ and decides they can make more money if they dump their online partner and do it themselves.

I’ve seen equipment suppliers decide they want to build their own discount channel and announce that they’ll no longer provide warranty support for items that they don’t sell themselves. I’ve seen large material distributors scuttle a pending deal then proceed to implement a client’s concept on their own.

It’s a major peril (and expense) for the small business person who wants to build a supply relationship. Some of  the bigger companies in the game aren’t always entirely scrupulous. The sad fact is that unless you spend the time and money to get legal details like non-disclosure agreements, warranty and supply contracts sorted out in advance, you don’t really have a ‘relationship’ at all.

Multi-channel selling and supply relationships often inhabit one of the shadier back alleys of E-commerce. Make sure you have your details in place before you start spending money on technology, or you just might find yourself getting mugged.

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