In the age of Amazon.com, is it still relevant for brands to have their own ecommerce website? Many entrepreneurs use Amazon, or other marketplaces as their primary and only sale channel. Others focus mostly on their own website. And a lot of businesses go with a hybrid approach and sell on multiple sales channels. So what is the right approach? And is a website still necessary?
As you know, there are many ways to sell online: customs websites, ecommerce platforms, marketplaces, social media, affiliate marketing, B2B only websites… and these channels are of course not mutually exclusive. At first, it can be confusing for newbies, and difficult to understand which sales channels to focus on. That is why it is important to understand each channel’s pros and cons, and which ones you should develop for your business. Not every channel is relevant for every business, and choices need to be made, especially for those working on a limited time/budget.
We’ve already talked about marketplaces. In this post, we will look at what it means to have our own online store. This can be achieved through several means and has a lot of advantages. However, it isn’t strictly necessary: there are also drawbacks and costs associated with the creation of a website. So let’s dive in.
Pros of having an online store
If you followed my previous posts about marketplaces, you have indirectly found out about the pros and cons of owning a merchant website. Having your own website and selling on marketplaces are two of the most popular online sales channels, so I like to oppose the two. Let’s now look at having your own store.
First of all, just like physical retail stores, online businesses have their own identity. The colors, fonts, videos, and other graphics are designed with the company’s DNA in mind. Visiting an Apple store does not feel like visiting Bestbuy. Going to Target isn’t like going to Walmart, despite both stores selling groceries and having a lot of products in common (I’m a Walmart guy, and I can assure you that dating a Target girl isn’t easy). Brands invest a lot of time and money in providing their customers with the best shopping experience in stores, but also on their websites. Some will focus on the luxury aspect, others on personalizations, and some on excitement… A discounter where people like to shop at retail stores to find great deals can try to design their website to replicate this “treasure hunt” experience their customers may enjoy. That branding experience is a lot easier to provide on the brand’s website rather than on marketplaces or other online sales channels.
This brings me to my next point, which is in my opinion the most important: control. When you have your own website, you most likely have complete control over the website and its design. You can sell whatever you want (as long as it is legal), and display the product however you’d like. Of course, your competitors’ products won’t appear on your website like they do on marketplaces. You have full control over pricing, promotions, and discounts, which isn’t always true on other channels. Finally, you also get to design your shipping policy, which is a huge part of e-commerce.
Another very important thing you want to control is your communication with your customers. While marketplaces tend to limit interactions between businesses and their customers as much as possible (so the customer stays on the marketplace and doesn’t go shop on the brand’s D2C website), there is a lot more you can do with an online website. As long as you respect your local regulations, you can get your customers to follow you on social media, send them marketing emails, and include marketing inserts in the packaging… This is very important to build a relationship with customers and keep them loyal. Customer acquisition costs can be high, so it is very important to retain existing customers.
However, once you get them to buy from you, that customer can become very profitable. Having your own website also gives you more control over your costs and profitability. I am not saying that it is necessarily more profitable, but you have more control over cost structures. For example, if you sell multiple units of an item on a marketplace, and use their fulfillment services, the platform can charge you a lot more than what you’d pay if you fulfill the item yourself, in addition to the selling fees (Marketplaces can charge you X times the fulfillment cost per unit when the customer orders X units, you don’t benefit from economies of scale). See below a very basic example to see the impact on profitability.
Having your own website also facilitates the integration of other important ecommerce components. You can easily link CRM, analytics software, set up the payment methods you need, and a lot of other apps. The importance of third-party integration varies depending on your business model. It can be highly valuable for some companies, and barely relevant for others.
Finally, data analytics is a huge aspect of a website. While marketplaces and social media let you access some basic data on your sales, they give you very little data compared to what you can get with your own website. Of course, you can get data on your sales and figure out which products are the most popular, but most importantly you can learn a lot about your customers. You can figure out who they are (demographic data: age, location, income..), and how they act (behavioral data: do they shop from mobile or laptop? Are they active on social media? How do they find out about new products?), and sometimes even about their values, personality, and lifestyle (What do they eat for breakfast?). As you know, this data is extremely valuable. It helps you adjust your marketing target and be more efficient with your marketing dollars. It gives you ideas to update your website UX/UI to generate more sales. It can help you develop new products and reach new markets. There are many opportunities that you couldn’t figure out without a website to collect the data.
Challenges of an ecommerce store
On the other hand, having an ecommerce website has several drawbacks. The first and probably most obvious is the associated costs. Designing and developing a full ecommerce website can be expensive, from a few thousand dollars for the most basic website to over a million for something a lot more advanced. In addition to development costs, an ecommerce store requires constant maintenance and updates, which can be an important recurring expense for a business. Building a well-designed and functioning ecommerce website takes some skills. Whether it is developed in-house or you go with an agency, it will be a sizable investment.
The other large expense that comes with an ecommerce website is marketing, more specifically driving traffic to the website. This is especially true for a new, digitally native brand that is just getting started. Unlike established brands and large marketplaces, a new website has little visibility on search engines, and most likely has not a large following on social media. Working on SEO and social media management can be a lengthy and costly process, which can only be profitable in the long run. An alternative to organic traffic is to pay for traffic through paid advertising. Either way, it can be initially difficult and costly to drive traffic to a website.
Another challenge is turning that traffic into a source of profit. The more traffic you get, the more sales you get. But there is another important key metric to consider: the conversion rate. According to a recent study, 89% of US customers say that they are more likely to buy products from Amazon than any other ecommerce site. And, unless you have an incredible value proposition, I’d bet that a significant portion of these customers would rather buy from a competitor on Amazon rather than your product on your website. Customers are used to buying from the largest marketplaces and brands’ websites, so they can enjoy fast and free shipping and a large selection of items. Many of them will find an item on a merchant website, then open another tab to look it up on Amazon. It is estimated that the average conversion rate for an Ecommerce website is about 3%, while it is over 15% on Amazon.com
There is also the element of trust. In 2020, online shopping scams accounted for 38% of all reported scams worldwide. No one wants to be scammed, and customers tend to be more careful than in the past.
Finally, an ecommerce website needs frequent updates, new content, and features and stays up to date when it comes to security and legal issues such as privacy.
In conclusion, coming up with an ecommerce website comes with its challenges and its price tag.
The biggest challenge is not how to create and maintain the website, but how to turn it into a source of profit and compete with large marketplaces.
Custom website vs using a platform
When planning on creating a website, you have two main options: 1 – creating the website “from scratch”, or 2 – using a platform like Shopify, Magento, or BigCommerce. Each solution has its pros and cons, and making that decision will have an important impact on your business for years.
First, a platform like Shopify is a lot more accessible to non-technical users. It does not require coding for its most basic features, and anyone can quickly create a functioning ecommerce website. That makes it a convenient solution for one-man businesses and small startups. It can get more complicated when implementing more advanced features, and when scaling the website when the business grows, but its basic features will almost always be more accessible than a custom website.
On the flip side, a custom website gives businesses a lot more flexibility. You won’t be restricted by the platform’s technical limitations and can do anything you want. This is especially helpful when trying to implement unique or uncommon features. Whereas on a platform, users can’t do much more than the platforms already offer. If you realize a year after launching your website that you need a feature that the platform can’t offer, you’ll be in a difficult situation.
While a custom website offers a lot more freedom, it comes with a cost. Building a website is generally a lot more expensive than using a dedicated platform. It requires working with a software development team, graphic designers, UX experts, project managers… And it takes a lot longer to develop. In addition to development costs, running the website is also costly. From hosting fees, security expenses, email hosting, and maintenance… you’ll be looking at a significant expense. According to WebFX, the average cost of building a site ranges from $12,000 to $150,000, and the average cost of maintaining one ranges from $400 to $60,000 per year. It is a nice advantage of platforms, they take care of a lot of things for you, which helps lower recurring expenses. They also have lots of built-in features and possibilities to integrate with third-party software, which saves time on development costs.
No matter which solution you go for, remember to plan for the future. Maybe your business is just getting started and you only get a few dozen orders per month, and the most basic Wix website can work. But what if you plan on becoming the next Amazon? If your business is doing well, you may end up getting more traffic and need more features than your website can handle. Scalability is a very important factor, and you should not only plan for the short term. Yes, a more scalable website may be more costly, but it may be necessary if you think you’ll need it a few months or years down the road.
See below a table that summarizes this section and the pros and cons of both solutions.
Having your own online store is an adventure that many ecommerce entrepreneurs take part in. This should be carefully planned, as there are several options. To make the best choices, you need a good vision for your company and business, but also a good understanding of the technical solutions available. Remember that your website is only a part of your business, and not always absolutely necessary (although I recommend it in most cases) as several other online channels exist.