E-shop war

Earlier this year, Temu entered our market. Chinese marketplace with cheap goods of all kinds.

1. The advertising space, to which ordinary Czech e-shops outsource their marketing communications, is flooded with advertising on Tema. For e-shop operators, the reach of campaigns has been significantly reduced.
2. Virtually every commodity you can think of suddenly has a significantly cheaper alternative. And people are buying it.

What are we gonna get, I'm in it too. I was recently buying a wi-fi hygrometer. Google offered it to me for $549. TEMU has the same one for 206 CZK. I bought it eventually in Shein. Due to the delivery time.

I'm among your creditworthy customers. At the same time, I do not need to pay double for the same product. It's not that I can't afford it. It just doesn't make sense to me. Moreover, if the purchase is not acute, then I will even wait.

I predict Temu and other marketplaces will flood our market. Even if that's not the case today.

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The land of small e-shops

The Czech Republic has about 50,000 e-shops. Among technical solutions, Shoptet dominates. We have had marketplaces here for years — Heureka, Allegro,... We even have a Czech version of the German Amazon. At the same time, we are a specific market.

👉 In China, about 80% of purchases go through the marketplace.

👉 In the EU & USA it is roughly 50% to 50%.

👉 In the Czech Republic, 30% of purchases go through the marketplace.

Think of the figures only as a rough idea, they vary by category of goods. The trend is clear globally. Marketplaces are growing. China is ahead of the rest of the world in this.

Big retailers will keep their e-shops and the pressure will subside for some time. The situation of a small seller is more challenging. Let us define a small e-shop with a turnover of up to CZK 1 billion per year. The big seller has over $20bn. High schools are somewhere in between.

1. The price of paid advertising is rising sharply thanks to Tem and other marketplaces.
2. Effectiveness SEO Decreases because of AI.
3. Falling Attendancet. Cheap and expensive.
4. Most of what e-shops sell has cheap chinese alternative. Maybe 10x cheaper.
5. Meet Builds market position and does not generate profit. This is pretty standard expansion practice for Chinese companies, according to my information.
6. Temu connects the manufacturer and the customer directly. There are a lot of middlemen out there. So It will also be cheaper in of the futureEven if not as much as today.

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CX as the holy grail?

We discussed with Lukáš Pítra on LinkedIn whether CX (customer experience) is the holy grail that will save small e-shops. Actually, I don't think so.

Let's say we invest in the development of CX. How will it help us?

1. Increase in acquisition -- more people don't come to a small e-shop because of CX. In order for this to happen, we'd have to be known for great CX. Alza tries to do this with delivery to Alzabox by the next morning. For a small e-shop, CX is like an acquisition tool of fantasy.
2. Increase in Activation and Revenue — yes, we may want a higher number of orders. We'll do the research. We will adjust the e-shop for the customer. We will supplement the changes with pressure tactics. We make the most of the (sometimes declining) attendance. Today, this is 80% of House of Řezč's e-commerce projects.
3. Strengthening Retention -- it depends. E-shop is naturally acquisition or retention. You can define it differently. For us, retention e-shops are those where 60% of customers buy again within a year at the latest. Retention e-shop can certainly improve CX and marketing communication... so that retention takes place with us and not with competitors. This does not make sense for acquisition e-shops, there it is enough not to throw sticks under people's feet too much.
4. Increase in referrals -- rather not. Hand on heart. How many times have you talked to your friends about a great experience on the e-shop? How many times about great products? 1:100? Making a CX so great that people will talk about it is pretty damn hard. People talk a lot more about bad experiences... and you don't build referrals on the fact that they won't talk about you.

What else do you need to know about CX?

1. Most purchases are not important to people. They just want buy quickly at a reasonable price. Like me and the hygrometer.
2. Most CX improvements on a small e-shop are not innovations. It's a top-up of the debt we have to the customer experience. We throw sticks under their feet. Others don't do it as much anymore. We're behind.
3. Not throwing sticks under people's feet is CX at degree zero. Going higher is expensive because you need to iterate and get feedback.
4. Big players can afford to invest a lot more energy in CX than a small e-shop. It is likely that the current form of marketplaces will radically improve. Not because of small e-shops. Because of the competitive struggle between marketplaces. Namely, they will fight here Temu, Shein and Amazon. When Amazon notices us.

“What happens to you after I destroy you. “
‍— Liu Tch'xin, The Three Bodies Problem

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The situation of a small e-shop

Let's take a look at the simplified strategic situation of a regular e-shop in our country.

Possible strategies

1 ️We focus attention on the customer. A strategy suitable for retention e-shops with a long-term competitive advantage. Perhaps we are an exclusive distributor of a well-known brand. Or the manufacturer. How does the strategy work? We will sharpen our position in the market for customers. Customer research, activation and branding. We then build a data warehouse and strengthen CX. The investment is in the millions to tens of millions. Without the long-term benefit, it doesn't make sense to do that. We will discuss this strategy in our next newsletter. (Sign up here!)

2 ️We sell the current e-shop. We've been overselling goods from China for ten years. The numbers are OK. But the situation has changed. We're going to sell our business to someone who doesn't already know. Quick. Here the greatest enemy is our inertia. We need to map out our situation and talk about it.

3 ️We will focus on the marketplace. Can't we beat them? We'll join them. Marketplaces are growing, increasing the available attendance. We're going to start putting energy into standing out in relevant marketplaces. We strengthen the presentation of products. We pay for visible positions. At the same time, we will guard costs because the marketplace will take some of the margin.

4 ️We will cancel the e-shop. Business in marketplaces can at one point be more interesting than selling separately. We will cancel the e-shop and move only to the marketplace. A leased solution with little traffic can be a much worse business than a well-optimized position in the marketplace. This is common in foreign countries. We will need to manage product feeds efficiently.

5 ️Let's start with alternative methods of sale. Like video selling on social media. In some fields, this may make more sense than running an e-shop.

... and of course there are a lot more of those options. In the future, it may be normal in the Czech Republic not to have an e-shop and still sell.

The situation can develop in a variety of ways based on (non) the actions of the individual actors. And their orientation in the situation. Do you discuss your future in the company like this? About the future of your industry? It can help Strategic thinking.

“Stress comes from ignoring things you shouldn't be ignoring. “
-- Jeff Bezos

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Reading for the weekend

NPS, the good parts

Speaking of CX, let's talk about the most well-known and least useful CX metric. NPS. This time positively.