I have dealt with eCommerce for 12 years. During that time, I’ve witnessed the bankruptcy of several large and smaller eStores. What was usually the reason?
Owners choose actions with the highest ROI
Measuring the ROI of each action indicates a serious approach to business. Why would it portend problems? It’s important to measure ROI and plan well in a long perspective. I remember one of the shops that consistently eliminated all unprofitable (in the short term) sources of acquiring new customers. Without a strategic marketing vision, the company has completely lost its idea of attracting new customers. The customer base gradually decreased due to churn and after several years the store was in trouble.
No successive investments in technology
The creators of Basecamp declare that their application is rewritten every four years. They do it to preserve the freshness of technology and discontinue the technological debt. I know a store owner who has talked about rewriting to a new engine for 10 years but he hasn’t done it yet. The longer you wait the more difficult the migration process is, but maintaining the current technology is even riskier. Components are no longer updated, it’s increasingly difficult to obtain resources for developing old technologies. Staying on the market level is a must, whether you like it or not. Ignoring this change will make conducting business safely in 2-3 years impossible. Of course, the old technology can work, but if you’re stuck with it, over time you will lose security, flexibility and the possibility of using ready-made modules, plugins etc.
Another aspect is investing in new trends that can make you a dark horse and differentiate your business from the competitors. For example Progressive Web Apps – as an alternative to native apps. This trend is constantly growing and PWA bring positive business results.
New categories destroy the perception
One of the larger stores I worked on kept on introducing new product categories. The idea was correct and based on the new categories being a method to increase the margin. Unfortunately, from a simple online bookstore, the store has become a bizarre mix of books, tires and pet food. Customers felt increasingly alienated. They didn’t buy other categories as they didn’t correspond in any way with what they liked the bookstore for. The idea of a marketplace is tempting, but extending the offer has to go in line with retaining the brand consistency and honesty of communication with customers.
No customer loyalty
Customer acquisition is almost always unprofitable in the short term. It’s the returning customers that generate profits. I knew an online store that acquired a lot of new customers. Each of these customers generated a loss with their first purchase. The e-store owners believed that they will start earning after a second or third purchase. Unfortunately, they failed to get customer loyalty. If they built their business more slowly, they would see that the forecasted revenue from loyal customers is missing. Unfortunately, they spent their whole budget too quickly, attracting hundreds of thousands of customers, each of which generated a loss, and the whole business failed despite its initial rapid increase. Monitoring loyalty and building loyalty programs are crucial to aggressive marketing campaigns.