The 5 Growth Vectors That Optimize E-Commerce Acquisitions for Powerhouse Profitability, Part 1
Those who dabble in real estate may be tempted to buy perfectly beautiful homes in the most expensive of neighborhoods. These investments would certainly be secure, and they would most likely turn a profit when it came time to liquidate. However, the return on investment would be minimal, as these properties probably had high valuations with little room for growth when initially purchased. If you buy a “fixer-upper” for short money, on the other hand, you can make a much higher percentage ROI. With a little paint, landscaping, and new carpets, the property value will soar — and so will the ROI.
The same philosophy holds true in the world of e-commerce aggregators. These companies — some of them valued at over $1 billion — buy emerging online stores that trade primarily on Amazon.com, but also sell on Shopify, eBay, and other markets. The temptation for many aggregators is to look for acquisitions that are already highly successful in their niches. The smart aggregators, though, buy fixer-uppers. In other words, they acquire online stores that have excellent products but are actually underperforming. Why? Because the initial investment is lower and the ROI can be many multiples higher.
With real estate, you can turn a run-down house into a sound investment with a little sweat equity. But what does it take to optimize an acquisition in the e-commerce industry? There are five growth vectors that can be examined to turn an underperforming prospect into a powerhouse of profitability. Here are the first two growth vectors to consider (I'll share Nos. 3-5 in part two of this series):
Growth Vector No. 1: Maximizing the Product Listing
Once an aggregator acquires an online shop, the first thing to focus on is the “low-hanging fruit” — i.e., the product listing itself. Successful aggregators look at the content, the copy, and the images associated with the new product to identify ways to make them grab the customer’s attention. The next step is to do a study of search engine optimization to make sure that consumers can find the product once it’s updated, ensuring that it's easily searchable and ranked as highly as possible. Yet another way to improve performance is to increase external traffic, which can be accomplished by redirecting traffic from social media content, influencer marketing, and paid Google, Facebook and Instagram advertising.
Growth Vector No. 2: Taking the Product Off Amazon
The next step — which is one that not every aggregator takes — toward full optimization is to take the product to off-Amazon marketplaces to increase its footprint. Many brands offered by online stores were initially developed on Amazon. Typically, very little is done to extend sales beyond Amazon, which opens up a tremendous opportunity for an aggregator. Products sold on Amazon, for example, can also be sold on Walmart, Shopify, or eBay. Almost nothing else is needed. The same listings, the same fulfillment infrastructure, and similar paid advertising techniques can be used. The only difference is that with a larger footprint, products now have a much larger audience and, as a result, much higher sales. Some of these off-Amazon platforms also provide some essential data that Amazon conceals.
After a product’s footprint has been broadened to include Shopify and other marketplaces, the next step is to take it to geographic markets outside the United States. For example, while Canada is a relatively small market, it's dependable and it's easy to adapt materials for products marketed there. Aggregators should also consider Amazon and off-Amazon marketplaces in Europe, Australia, Asia, South America, and the Middle East. The biggest challenges are translating content into local languages, and maybe most importantly, being aware of cultural differences that might make product content offensive to a local market.
Investors in real estate know very well that it can take many phases to transform an undesirable fixer-upper into a gleaming gem that offers maximum ROI. In the world of the e-commerce aggregator, maximizing the product listing and taking the product off Amazon are just the first two steps in optimizing the success of a brand. Other strategies include increasing the effectiveness of paid advertising, creating an optimum website culture, and expanding the product line. These important growth vectors will be addressed in part two of this article.
Related story: A Customer Acquisition Strategy for a Digital-First World