Your product choice is fundamental to your business, so it is essential to think about it carefully. It will directly affect the following:
- Profitability. Product sectors are different in terms of margins, returns, logistics and customer requirements.
- Branding. Your brand should complement the products you sell. For inspiration, research your competitors and the brands they sell.
- Marketing. The sales channels you choose and your marketing budgets are dependent on your target audience, which is decided by your product offering.
- Operations. The products you choose and how you deliver them will decide the infrastructure needed.
When researching products, you should consider the following factors:
- Product sourcing. Is the product easy to obtain? Each sourcing model has its advantages and disadvantages.
- Niche or general store. Will you focus on a specific niche or launch a larger store with a broader range of products?
- Catalogue Size. How many products should you hold? This might range from less than 10 to thousands depending on your business model.
- Product demand. Is there a demand for the product?
- Deliverability and warehousing. Is your product easily shippable? Bulky items such as furniture are difficult to store and ship. Breakable items are asking for trouble.
- Returns. Returns are a big problem in eCommerce and vary by sector in terms of volume and how easy they are to resell.
- Profitability. Once you have considered all the costs involved in selling a product, e.g., product cost, marketing, payment fees, tax and delivery, will you make enough money?
There are several ways to source and deliver your products:
- Self-made products. If you are good with your hands, you could make the products yourself. This is the model utilised by craftspeople selling on sites like Etsy.
- Branded products. Off the shelf products bought from suppliers.
- Own Label products. Developing a product can be lucrative but is also time-consuming and risky.
- White label products. A shortcut to developing a product is to buy an off the shelf product from an overseas manufacturer and put your branding on it. This is known as white labelling.
- Dropship. Drop shipping is where the manufacturer delivers directly to the end customer.
When launching an eCommerce business, a fundamental decision is whether to sell other people’s products or develop a brand – or a combination of the two. Both have their advantages and disadvantages.
Branded products are products made by product manufacturers, which they sell wholesale. These companies will typically sell wholesale to retailers, who will then sell these to consumers. Increasingly brands are selling directly, but most major brands still depend on their retailers.
Pros: These are products bought off-the-shelf, so they are easy to source. If the brand is well known, your business will pick up on the demand they generate through their marketing activities. Many products are available from ‘wholesalers’ who will sell a range of product which can be bought together, allowing small qualities of any individual product to be bought.
Cons: For any barcoded product, it is unlikely you will be the only seller unless you have managed to enter an exclusive arrangement with the manufacturer. Margins are therefore likely to be low as sellers compete for business on price.
Own Label Products
Designing products from scratch is not as hard as it used to be. Factories in China manufacture in small batches, and product design and packaging expertise is available from professional services marketplaces such as Upwork at low cost.
Pros: Margins will be much higher for your own branded products as you will be the only seller. This additional margin can be taken or spent on advertising to build the brand.
Cons: You will be responsible for the manufacture of these products and the product certifications needed. Typically, the manufacture will take place in the far east, which adds complications.
Minimum order volume will be much higher than for branded products, typically several hundred units at a time. As items are shipped from overseas, the lead time to delivery will also be weeks or months. Finally, as the brand will be new, you will need to build up brand recognition from scratch.
White labelled products are a halfway house between developing a brand and buying products off the shelf. Through product sourcing sites such as Alibaba, it is possible to source an unimaginably vast range of ready-made products from Chinese factories. These products are unbranded and but can have a brand added to differentiate them. Depending on the purchase volume, they can be altered to differentiate them further. These are known as ‘white labelled’ or ‘private labelled’ products.
Pros: Offering own branded products without the hassle of designing them from scratch.
Cons: White labelled products will not be as differentiated as products design from scratch, and several sellers may sell the same product under a different brand.
Drop Shipping is where the supplier ships a product directly to the customer without the retailer touching it.
Drop shipping is very appealing as the retailer takes no inventory risk. Drop shipping is, in many ways, the holy grail of eCommerce. There is a lot written about it online as the path to riches, but it is fraught with difficulties:
- Control of delivery experience. If you are drop shipping items, your delivery experience will only be as good as your supplier. Consequently, the quality of delivery varies considerably.
- Delivery times. For items drop shipped from overseas, the delivery period is several weeks.
- Quality of data. Many suppliers will offer drop shipping, but only a few will be any good at it. Typically, a supplier will only update their stock levels once a week, and so the retailer will often make sales they cannot fulfil.
- Returns. Drop shipping retailers usually cannot escape from physical products as the returns will generally go directly to the retailer. Over time returns will build up.
- Shipping costs. Drop shipper will typically charge a shipping cost that is higher than a retailer could do it themselves. For example, in the UK, a Royal Mail parcel costs £3 to ship, while drop shippers may charge £4-5.
- Low quality. Major brands and suppliers do not typically dropship. Consequently, products available for drop ship tend to be low quality and unbranded.
- Low margins. As drop shippers will offer their service to anyone, the margins are low.
If you can make drop shipping work, great! However, it usually does not work as smoothly as advertised. Bear in mind that the margin for error on channels like Amazon is < 1%, i.e., if your order defect rate is > 1%, your account can be closed. If your dropship partner only delivers 95% of products on time, you are asking for trouble.
Holding stock ties up capital and requires storage space and staff to fulfil. However, you are entirely in control of the delivery experience.
Niche or General?
Should you sell a small range of products to a specific audience or cast your net wider and open a store that caters for a wider vertical? Online competition is fierce, and whilst it is possible to succeed as a general store, it is difficult to compete with big players like Amazon.
Although niche markets contain a much smaller number of customers, these shoppers tend to be much more involved with the product and loyal to sellers. For this reason, they can be easier to connect with through retention marketing channels like email and social media.
Size of Catalogue
There is no correct answer as to the best size of the catalogue. Some retailers will only sell a few products, whilst Amazon will have tens of millions. Having an extensive catalogue is a quick and straightforward way to increase sales. However, the more extensive the catalogue, the larger the headache to manage it.
- Time-consuming. Lots of products generally means lots of suppliers and lots of deliveries.
- Catalogue management. An extensive catalogue needs to be kept up to date as product details change over time.
- More storage. More inventory requires more storage space.
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