Lecture 1: Opportunities driven by Customer Behaviour

3.1 Opportunities driven by Customer Behaviour

Lecture 1: Opportunities driven by Customer Behaviour

3.2 Introduction

After completing this lecture, participants will be able to:

 Evaluate the advantages of selling online, as well as the reasons for which doing so is not always a good
idea;
 Evaluate VMPs in accordance with their different purposes; and
 Complete a Readiness Check for online sales.
3.3 Why Sell Online?

Why Sell Online?

3.4 Answer the question

Deciding to sell online is not an easy decision to make. Some entrepreneurs might not be comfortable using
new and unfamiliar technologies, and selling online will necessarily involve changes and adaptations in daily
tasks and daily organization. Such changes often cause uncertainty, leading many businesses to hesitate
moving online.
So, given all of this, why do you think that more and more companies are opting to go online to sell their
products?
There are many different reasons for which companies are moving online. That said, we can highlight the four
most common ones:
1. New customers:
Some businesses are looking for a way to reach new customers and get more visibility for their products or
services by increasing their online traffic.
2. New buying habits:
Some businesses are looking to take advantage of changing customer behaviour patterns, which are
becoming increasingly shaped by the Internet.
3. Opportunity to save costs:
Some new entrepreneurs are looking to test their product or service through an online platform before making
heavy initial investments in physical assets, such as a new shop location.
4. New markets:
Some businesses are looking to use an online platform as a first step to expand their presence in other
geographic markets. This allows them to see how customers in those markets react to their offering before
they attempt any offline export activities.

3.5 Online transactions are growing

Today, worldwide online transactions in so-called “virtual marketplaces” (more on these later) account for
some $25 to 28 trillion. Business-to-business (B2B) transactions from companies such as Amazon, eBay, and
Alibaba account for about $24 trillion of this total, with the remaining $4 trillion consisting of business-to-
consumer (B2C) transactions from platforms such as Amazon, eBay or Alibaba’s Taobao.
Online transaction volumes are expected to continue rising, making e-commerce a quickly growing area for
businesses.
3.6 What are the advantages of buying online?

E-commerce’s success is based on the simple fact that many customers prefer buying goods and services in
a virtual environment. The three most common reasons cited by customers for this are:

1. Comfort/Convenience - Many customers find it very comfortable and convenient to order products online
and have them delivered directly to their homes any time of their choosing. The fact that they can make their
purchases without needing to leave their home saves them time, and allows them to avoid the fuss of crowds
and the annoyance of having to wait in line.
2. Better prices - Many customers find that buying online is cheaper, since online retail shops, often located in
other countries, can have better prices than local distributors for similar products.
3. Better variety - Being able to centralize their stock, many customers find that online retailers provide better
selections of products than physical stores. What’s more, customers can easily order goods from abroad,
thus bypassing the limitations of their local markets.
Thus, e-commerce is also facilitating cross-border commerce, as SMEs located in developing countries
suddenly find that they have access to a much wider market!

3.7 Surveying the market

If you are thinking of selling online, you should take some time to survey the geographic and sectoral markets
in which you are interested, typically by using relevant market intelligence reports.
This chart compares the types of products purchased online in the six biggest European markets. A clothing
retailer, for instance, might be interested in seeing that, although the clothing industry makes up the biggest
volume of online transactions overall, Italy and Switzerland see much fewer online sales than other countries.
Might this be because neither country has a suitable online offering? If so, then this is a market opportunity.

Likewise, while the food and beverage sector show the fewest sales among all countries, the UK has nearly
double the volume of sales compared to other markets.
Could this be because of regulations constraining the online importation of fresh food in many European
countries? If so, then a prospective e-commerce entrepreneur might want to think twice about the possible
compliance costs before launching a new drink product online.

3.8 Should you really go online?

Although selling online has a number of advantages, it is important to stress that it is not necessarily a good
step for all enterprises to take. Before “taking the plunge”, it is important for companies to look at a number of
issues to see if it would make sense for them to invest the time and money necessary to create an online
presence.

Packaging
Goods that do not have resistant and durable packaging cannot be easily sold online. Products on an online
store will often travel hundreds of kilometres before reaching their purchaser.
Price of purchase
Selling online involves an investment of time and money, both of which are often in short supply for SMEs. A
certain amount of online turnover is thus necessary to justify such an investment. As such, SMEs should try to
evaluate the amount of purchases that they need in order for their online venture to be profitable. For example,
it may be worth considering only allowing bulk purchases online in order to raise the average price of an
online transaction.

Delivery speed
This is particularly important for food/drink products and other perishables. If the delivery takes too long, the
products purchased online may drop in quality, or even become inedible! What’s more, seasonal conditions
(heat, frost, etc.) could add further difficulties in maintaining the products’ quality during delivery.

3.9 Case exercise: Olive Woodart from Tunisia

Case exercise: Olive Woodart from Tunisia

A great example of a small business that has ventured online to promote its products to a wider audience is
Olive Woodart, an SME based in the city of Sfax in central Tunisia, which is an abundant source of olive
groves. Established in 2009, it began online activities in 2013 and provides craft products made from olive
wood for use in kitchens, as furniture, decorative art, or gifts.

Let’s do a little exercise:

1. Take a look at Olive Woodart’s website: <http://www.olivewoodart-tn.com/>. What do you think about its
website? Is it easily navigable and engaging? Can you make online purchases on it?

Feedback: Olive Woodart’s website features many attractive pictures of their products, which is a definite plus.
Unfortunately, it is impossible to make purchases directly from the website, and the company must be
contacted offline to place an order. This is understandable, since the technology required to create an
independent online store can be prohibitive for many SMEs.

2. Now, search for “olive wood art” and “olive wood” products on www.amazon.co.uk
<http://www.amazon.co.uk>. Can you see Olive Woodart’s products on the site? How about the products of
other manufacturers, either from Tunisia or other countries? Is there a lot of variation in the prices?

Feedback: Unfortunately, Olive Woodart’s products are nowhere to be seen. A search for “olive wood art” on
Amazon UK mostly seems to return results of Christian-themed figurines from Nazareth or Bethlehem. “Olive
wood” meanwhile, returns results that are much closer to the kinds of products manufactured by Olive
Woodart, including some by Tunisian manufacturers. Prices seem to range from £10 to £50 for the more
expensive pieces.

3. Try doing the same search on Amazon.com or on Google. Do you notice any difference in the
manufacturers that appear? Do you see any differences in the prices at which the products are sold?

Feedback: Searching for “olive wood” on Amazon.com does return different results than the British version of
the site, although variations in price remain minor. Clearly, different manufacturers are targeting different
markets using the different geographies of the Amazon marketplace.

3.10 Activity 1

This activity is not available in the offline version of this document.

3.11 Answer the question

Correct Choice

X The average purchase price might be too low to justify the investment in
time and money.

X Long delivery times could have a negative impact on the quality of the
pastries.

X The packaging might need to be upgraded to ensure that it stays intact

during long deliveries.
3.12 Activity 2

This activity is not available in the offline version of this document.

3.13 What is a VMP and How Does it Work?

What is a VMP and How Does it Work?

3.14 Target audience: B2C vs B2B

Different VMPs have different specializations. For SMEs, the most important one of these is the “B2C”
(business-to-consumers) vs. “B2B” (business-to-business) distinction.

A company that sells directly to individual customers is a “business-to-consumers” (B2C) player. Such an
company would most likely want to choose a B2C-focused VMP such as Amazon, eBay or Etsy.

On the other hand, a company that sells to other businesses is a “business-to-business” (B2B) player. Such a
company would most likely want to choose want to choose a B2B-focused VMP such as Alibaba, Tradekey or
Freelancer.

Graph
3.15 Product offerings: horizontal or vertical, public or private?

Beyond the B2B and B2C focuses, two other distinctions can be useful to help businesses identify the right
VMPs for them. These are the “horizontal” vs. “vertical” and “public” vs. “private” distinctions.
Horizontal vs. vertical
A “horizontal” or “generalist” VMP is one in which diverse products covering a wide range of different
categories are offered. Meanwhile, a “vertical” or “specialized” marketplace is one in which very specific
products (whether in terms of their category, industry or region) are offered. For instance, there may be some
vertical VMPs for automotive parts, or for electronic components.
Public vs. private
A “public” VMP allows each buyer and seller to register themselves and transact on it, without any concerted
“gatekeeping” action. A “private” VMP, meanwhile, must grant access and/or invite individual buyers or sellers
to register on it. A good example of private VMPs are some “RFP” (“Request For Proposal”) government
platforms which allow only pre-selected bidders to submit proposals.

3.16 Categorizing VMPs

This simple diagram can help you differentiate the various types of VMPs according to the categories we have
identified.

Graph (Slide Layer)

3.17 A few questions

“How could joining a B2B VMP create more offline opportunities for me?”
- Joining a B2B VMP offers a lot of visibility and opportunities to create first-time deals with new customers.
This can easily translate to future offline transactions with customers who have already dealt with you and built
trust with your business online.
“What should I do if I would like to be active on both B2B and B2C VMPs?”
- If you think that your offering could be attractive to both the B2B and B2C audiences, you should spread the
products (and potentially services) that you offer across both types of platform accordingly. Packaging is a
major element of this: B2B platforms, for example, tend to advertise products in bulk, while B2C platforms
usually allow for purchases of much smaller quantities.

“What kinds of issues should I consider when starting to advertise on a B2B VMP?”
-Both offline and online, being a B2B supplier means selling large quantities of products to large outlets. The
businesses that buy from you might purchase thousands or tens of thousands of units. In turn, your buyers
will expect a consistent supply at fixed cost, to specific locations at designated times. However, consumers
who purchase more, or in bulk, will also pay less per unit than consumers who buy fewer units. Likewise, B2B
clients might ask for more requirements or concessions such as guaranties, labelling, security certifications,
or even discounts.

3.18 Answer the question

3.19 Assessing Your Readiness to Start Selling Online

Assessing Your Readiness to Start Selling Online

3.20 Answer the question

Correct Choice

X TRUE

FALSE

Feedback:

This is true.
In fact, given how user-friendly VMPs have become, opening an account and starting to advertise your
products or services online is really a piece of cake! For example, it takes less than five minutes to set up a
basic online jewellery shop on etsy.com!

More important than the actual technical knowledge that you need to sell online, however, is actually
preparing yourself and your company to do so. In the following slides, we will begin assessing your readiness
to sell online.

Feedback when incorrect:

This is true.

In fact, given how user-friendly VMPs have become, opening an account and starting to advertise your
products or services online is really a piece of cake! For example, it takes less than five minutes to set up a
basic online jewellery shop on etsy.com!

More important than the actual technical knowledge that you need to sell online, however, is actually
preparing yourself and your company to do so. In the following slides, we will begin assessing your readiness
to sell online.

3.21 The main risks of selling online

Before you start selling online in earnest, it is important for you to understand the risks involved. Some of
these can be dramatic if not properly anticipated, and they could have strategic consequences for your
company. That said, all of these risks can be mitigated with good preparation, organizational changes, and
the correct planning.

1) Moving too fast

VMPs are very powerful and easy to use… sometimes too much so! Many SMEs, initially enamored by the
quick growth that they are able to achieve online, quickly find themselves facing financial and customer
relationship troubles due to a lack of liquidity, an inability to meet orders, and difficulties quickly investing in
new growth. Before you start selling online, take care to plan your company’s online growth and make sure
that it is logical in view of your current production capacity.

2) Making a bad first impression

You only get to make a first impression once, as they say. Unfortunately, many SMEs make silly, beginner
mistakes in their first few online transactions. While this can sometimes be largely harmless, other times, such
avoidable mistakes can have important repercussions, such as being excluded from participation in a VMP
through bad customer reviews, cancelled deals, or even becoming blacklisted by a VMP.

3) Becoming dependent on a single VMP

Investing too much in selling online on a single VMP can lead some SMEs to become dependent on the
platform for their income and growth. This can be risky, as the fortunes of VMPs fluctuate, just like those of
any other private sector entity! If your chosen VMP suddenly becomes less successful or decides to change
its strategy, your company might be negatively impacted

3.22 Four basic questions to ask yourself

Before you start selling online, you should confirm whether or not you and your company are actually ready to
do so. Even with all the enthusiasm in the world, success will be difficult to come by without asking yourself
the following four questions:

 Can your product be easily sold online?

 Are there any limitations to the markets that you can access online?
 Do you know which customers will buy your products and where they are online?
 Are you ready to perform the necessary customer care for your online clients?
We will look at each of these questions in more detail in the coming slides.

3.23 Can your product be easily sold online?

Confirming that your products are appropriate for online sales is probably the most important thing you can
do when thinking of beginning operations on a VMP. Without saleable products, you have no business!

For most companies, the main product-related pitfall that they encounter when starting to sell online involves
difficulties switching from a “traditional” selling process, in which they sell their products in bulk to resellers, to
a direct selling process, in which the products are sent immediately to their final consumers. For instance, it is
much easier to ship packaged pallets of 500 items to a single reseller abroad than sending 500 individual
items to hundreds of final clients. Depending on the product, this can require a lot of changes to a company’s
internal organization and its administrative system.

With this in mind, it is very important to consider the product you might want to sell online. Not only are you
likely to need to ship much smaller quantities more often, you will also have to consider how difficult shipping
this product might be. For example, shipping a large standing lamp with glass parts is much harder than
shipping a pair of golden handcrafted earrings. Oversized parcels generally involve supplementary costs at
every step of delivery (packaging, shipment transport, taxes, delivery at home) and might become a
nightmare it they are returned broken. Earrings, on the other hand, can be easily shipped in a very common
letter envelope using the standard postal service.
3.24 Are there any limitations to the markets that you can access online?

Another very important early question to ask yourself involves confirming whether or not the product that you
want to sell online is actually aligned with the buying power of the customers in the region that you are
targeting. For instance, if you product has high value-added, you might have the opportunity to sell it with a
good margin, even including the costs incurred through remote delivery. However, this is only valid if your
target customers can afford the price.
As with offline activities, another important issue involves the competitiveness of your product in the market.
Depending on existing local providers or other online sellers, you might not be able to compete, especially if
your online activities are going up against local players who do not have to deal with shipment costs and
other markups. An important factor to include here is import taxes, which might significantly impact your
margins.

In addition, trade regulations might limit or prohibit your products from entering certain countries. Products
such as cosmetics, drugs, food, and alcohol are common examples of strictly regulated goods. While most
VMPs will not immediately prohibit you from advertising such products for international sale on their platforms,
you are likely to run into problems such as delays/refusals at customs, and incur consequent additional costs.

Finally, some VMPs limit their interactions with certain countries or regions based on political stability,
economic uncertainty or other local issues. Lastly, the currency convertibility status in your country might also
be an issue for your clients, who will commonly have to pay with international currencies.
3.25 Do you know which customers will buy your products and where they are online?

To be successful selling online, you need to know on which VMP you should focus your activities. As such,
you need to have some information as to where your target customers are online. Although this might sound
trivial, it is actually one of the biggest pitfalls for new online businesses. Products that target an older audience,
for example, should probably be sold on different VMPs than products targeting the younger generation, often
called “digital natives”.

In the same way, if you want to cater to a foreign market, you need to understand its particular culture and
customer preferences. This is valid both on and offline. It may even be worth planning a short business trip to
physically visit this market. Some countries and regions, for example, prefer auction websites (such as eBay)
to reseller websites (such as Amazon).

3.26 Are you ready to perform the necessary customer care for your online clients?

Selling online is not only about selling. Like selling offline, it’s also about taking care of your customers.
First, you have to create content that makes your products attractive and engages your customers through
pictures, text or videos. At some point, you will also probably be asked to answer questions, provide more
information, or fix some problems with your product. Finally, you might have to manage operational tasks,
such as recording and controlling returns and refunding customers.

Such activities can be particularly difficult for companies that are used to dealing with resellers, but not with
final clients in a B2C environment. As such, before deciding to sell online, you should ensure that you have
the necessary resources to adequately care for your customers via e-mail, telephone, or through a VMP
messaging system.
Finally, even if you start small, you will still encounter adjustment issues involved with selling online, such as
providing support to customers in different languages and dealing with various cultural issues. All this needs
to be planned and discussed internally to allocate the appropriate resources and ensure that the relevant staff
members understand the new procedures that might be required, such as communication tools and language
skills.

3.27 Activity 3

This activity is not available in the offline version of this document.

3.28 Key points

 While there are good reasons to start selling online, it is not necessarily a viable path for all businesses.
 Different VMPs have different focuses. They can either be B2B or B2C, vertical or horizontal, and public or
private.
 There are several risks to selling online, such as moving too fast, making a bad first impression, or
becoming too dependent on a single VMP. Make sure you take these risks into account as you prepare to
develop your online activities.

3.29 Thank you for completing the lecture