As ecommerce leaders and professionals, it is our responsibility to occasionally look at the landscape of the ecommerce industry as well as our specific space within ecommerce and explore potential threats and opportunities.
I did this recently at a local coffee shop, when I was browsing the Internet and noticed merchants selling very inexpensive items with free shipping. I was intrigued. I purchased a few items and waited about four weeks until they arrived. Everything I received was good quality and incredibly inexpensive.
The items were shipped from China.
I began wondering, “How can the seller do this and what could be the impact on my company?”
In this article I will address how Chinese vendors accomplish this. I will not pass judgment of right or wrong. But I will explain what to watch for and what we, as U.S.-based online merchants, can do to deal with this potential threat.
How Can Chinese Merchants Ship Free to U.S.?
First, how can Chinese merchants can deliver an item to the U.S. where the item’s total cost is less than what postage would be for the same item shipped inside the U.S.? This is caused by an international law calling for fees between international postage carriers to be low. The agreement between the USPS and China Post was taken to a higher level in 2010 when the USPS, hoping to ride the ecommerce boom, agreed to not only charge extremely low rates, but to also provide tracking and delivery confirmation services. This made it possible for Chinese merchants to sell into the U.S. market with a major advantage.
This service is called “ePacket.” It allows Chinese ecommerce vendors to ship lightweight items for a much lower price than First Class mail, and it includes tracking information and delivery confirmation. This opened the doors to direct competition between Chinese and U.S. merchants, especially Chinese merchants that sell low-cost, Chinese-made items.
The greatest impact I’ve seen has been on the Ebay and Amazon marketplaces. Also, AliExpress, an ecommerce website owned by Alibaba Group, is becoming a big marketplace in its own right, where Chinese merchants can sell directly to U.S. consumers. U.S.-based merchants must consider this a threat. If Chinese manufactures and retailers can sell directly and compete with U.S.-based ecommerce merchants, some of us may see a loss of market share.
How Can U.S. Merchants Mitigate Threat?
So, how do U.S.-based merchants mitigate this issue, to protect our market share? I’ll start with a generic answer that can be applied to many product lines. Then, I’ll discuss what we’ve implemented at my company, overstockArt.com.
Every U.S.-based ecommerce merchant can deal with this threat in the following manner.
- Conduct a SWOT analysis. Work with your team to conduct a full Strengths, Weaknesses, Opportunities, and Threats analysis. This will uncover additional threats and also the way to deal with these threats. A SWOT analysis should be done often, as it’s an opportunity to open your mind to both outside and inside factors.
- Look at your company from a shopper’s point of view. Why are customers choosing your company? What are customers after? What are the benefits of your products? Consider the difference between order winners and order qualifiers. (“Order winners” are the main reasons for customers to purchase a product or service. Order winners distinguish the product or service of a company from its competitors. “Order qualifiers” are the factors that make the product or service eligible by the customers to purchase.)
- Analyze the weaknesses of the Chinese vendors. What are some things that Chinese vendors can’t do or can’t do as well as your company? A vendor from China may be able to cheaply ship a product into the U.S., to your customer’s home. But it can’t get it there very fast. It usually takes about four weeks. Also, the entire time the customer is waiting, she has to wonder, “Is this item actually coming? If not will I get my money back? Will I have to fight for it?” The delay causes fear and anxiety to the consumer, in other words.
When we did our 2015 SWOT analysis for overstockArt, we discussed the potential threat from China-based merchants. In our case, there are factors that could mitigate this problem. First is the customer experience. Consumers in the U.S. have lots of stuff. They often do not need additional stuff. Instead, they often seek experiences. They enjoy being catered to by quality customer service representatives.
When buying from most Chinese retailers, there is no person that U.S. consumers can speak with. Even if they could speak to someone, the result will not likely be the kind of experience that shoppers receive from our team. Also, in our case, the Chinese vendors are unable to ship the framed art to customers in the U.S. They can only ship unframed art for free, which makes their offer not as attractive to shoppers, who now have to find a way to frame their art.
Furthermore, there is a question of quality. Our art is hand painted. Can Chinese merchants offer comparable quality? The customers must also ask, “How will they be able to return a product?” Last, but not least, our customers (like most U.S. consumers) want their orders delivered quickly. In today’s shipping environment — dominated by Amazon Prime — customers are not willing to wait very long.
All of those factors above will keep the threat from becoming significant, at least in the near term. The approach for overstockArt could be used to address any threat. I highlighted this example since it is likely affecting many U.S. ecommerce merchants and may impact many more in the future.
I would love to hear how other merchants are planning to handle this threat.