Sizing the prize: Using a top-down approach - Step 2

LinkedIn Twitter Facebook

 

Chris Jones

Author: Chris Jones, Independent Multichannel Retail Consultant

 

Introduction

 

In a previous article (see ‘Sizing the prize: using a top-down approach - step 1’), we considered how to estimate the size of an eCommerce category in a country into which you might consider launching a localised website, based on only fairly easily available high level data, such as overall eCommerce penetration and overall retail category size; this can typically be found for example in the eCommerce Worldwide passports or government statistics.

 

Having found the size of the category however, you also need to be able to estimate your potential share of it. One way of doing so is to compare your share of the UK home market and then consider what might make that vary when applied to another country. The objective of this article is to suggest a model for doing this.

 

How to use such a model

 

Before plunging into the details, it’s probably worth briefly considering the purpose of consultants’ models such as this one. The first thing to say is that they are exactly that – models. The data-points in it, in this case weighting-factors, are proposals based on broad general experience that may or may not be valid in your specific case. Their purpose is not to define a magic formula, but rather to suggest a structure for slicing up the problem into chunks which are easy to think about, and then to provoke debate and thought processes which may be helpful in leading your team to a credible answer.

 

With that caveat in mind, let’s take a look at the model, and remember that if you don’t agree with any of the suggested weighting-factors, then change them!

 

Step 2 – the fair share model

 

Step 2.1 Step 2.1 is easy: you need to know your current, or anticipated, market share in your home country (which I will assume is the UK).

 

The next set of steps considers how this might vary in another country. In order to do so, we’ll use a simple model, based on the acronym P.R.I.C.E – Price, Range, Information, Convenience, Experience (for more information on P.R.I.C.E. see The Multichannel Retail Handbook 2016 Edition ISBN 978-1-326-47257-3).

 

Step 2.2 is therefore to consider your price positioning in the target country relative to your positioning in the UK. Compared to the local competition, will you be relatively more or less expensive than you are back home? If you’ll be more expensive, set a price weighting-factor of 40%; if less expensive, set the weighting-factor to 125%; if more-or-less the same to 100%.

 

Step 2.3 is then to consider your range. For your proposed product assortment, is there more or less local competition than there is back home? Is there, for example, a local category-killer (such as Zalando for shoes in Germany)? If you’ll face more competition, set a range weighting-factor to 50%; if less competition 150%; if about the same, 100%.

 

Step 2.4: we’ll hijack the information factor in the model to consider the uniqueness of your offer. Is your brand so desirable over there that there’s really no competition? Or are you selling such unique products that there isn’t much local competition anyway? If you’re selling generic products already available from local players, set an information / uniqueness weighting-factor of 25%; if you have something even more uniquely special than it is at home, set a factor of 125%; if you have something unique, such as sole distribution rights to a brand but which is in fact exactly the same USP as back home, then default to 100%.

 

Step 2.5 is to consider whether your proposition at home is based on partly convenience – for example very fast delivery times, click & collect, or premium delivery services – and ask whether you can replicate that abroad? Typically the answer is “no you can’t”. Take a look at likely local competitors and see what they are achieving in this area. If you can still beat them, set a convenience weighting-factor of 125%; if you can beat them, but only by charging a lot more than the local benchmark for delivery, then set a factor of 90%; if you’re going to be worse in some way, set a factor of 60%.

 

Step 2.6 is to consider the experience you intend to offer. The most important factor by far is whether or not you intend to localise your site. If you will fully localise, set a factor of 100%; if you’ll translate it but not otherwise localise it, set a factor of 75%; if you’re just going to use your existing site, then set a factor of 35%.

 

Step 2.7 is just arithmetic: you simply multiply your UK-market share by all these different weighting factors in turn.

 

So, for example, if you have a 30% market share in the UK, will be more expensive in the target country, face similar competition, don’t have anything very unique to sell, will be slower to deliver than the locals, but propose to translate your site, then your ‘fair share’ in the target country would be:

 

30% (UK share) * 40% (price) * 100% (range) * 25% (information / uniqueness) * 60% (convenience) * 75% (experience) = 1.35%

 

Step 2.8 is a brief pause to consider demographics. In many countries, eCommerce is more concentrated among the urban young than it is in the UK, where there are plenty of rural silver-surfers. Demographic information about eCommerce is often hard to find, but demographic information about internet use is typically much more accessible, and will be a reasonable proxy. If you’re selling clothing to rural pensioners, you might need to adjust your share down a bit, for example.

 

Step 2.9 is of course to apply that market share to the overall size of the category online in your target country, which we estimated in Step 1. The result is your total ‘fair share’ of sales in your target country.

 

Step 2.10 is to consider phasing. You won’t reach that market share overnight. How fast you can get there obviously depends on marketing spend in particular. As a default planning assumption, assuming marketing spend at a higher percentage of sales than at home but not ginormous, try a year 1 through year 5 assumption of 10%:20%:40%:70%:100% of the potential fair share you calculated in the previous step.

 

Step 2.11 is to re-validate all those weighting factors and other data assumptions and decide if they make sense in your particular context!

 

LinkedIn Twitter Facebook

Royal Mail Sponsor

Register today for unlimited article views, and unique insights

Register Now

5 tips for breaking into online retail in France

5 tips for breaking into online retail in France

France boasts being the 5th largest eCommerce market in the world and with an expectation to exceed €80 billion turnover in 2017, for those looking to enter this thriving online market here are five tips that could help you to break into the French online retail space.
Interview with Melanie Smallwood, International Buying Director at Global Fashion Group

Interview with Melanie Smallwood, International Buying Director at Global Fashion Group

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Melanie Smallwood, International Buying Director at Global Fashion Group, to learn from her experience and knowledge in cross-border trading around the world.
Interview with Gregor McMillan, Business Development, China at The Hut Group

Interview with Gregor McMillan, Business Development, China at The Hut Group

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Gregor McMillan, Business Development, China at The Hut Group, to learn from his experience and knowledge in cross-border trading into China.
Interview with Michael Truluck, CEO at La Redoute

Interview with Michael Truluck, CEO at La Redoute

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Michael Truluck, CEO at La Redoute, to learn from his experience and knowledge in cross-border trading.
The latest view on eCommerce in Germany

The latest view on eCommerce in Germany

There are many benefits to entering the German eCommerce market - it’s the 3rd largest online market in Europe and has a very high internet penetration rate, but what other staistics do you need to know before entering this lucrative country?
How to use colour in cross-border online retail

How to use colour in cross-border online retail

Did you know colour can be an important driver of eCommerce sales? Research suggests 85% of buyers make their purchasing decision based on colour so getting it wrong could be a fundamental disaster for any online business. So what is the right colour to use?
Interview with Richard Longhurst, Co-Founder and Director at Lovehoney

Interview with Richard Longhurst, Co-Founder and Director at Lovehoney

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Richard Longhurst, Co-Founder and Director at Lovehoney, to learn from his experience and knowledge in cross-border trading.
Building an eCommerce fraud prevention strategy for Germany

Building an eCommerce fraud prevention strategy for Germany

Being the world’s fifth largest eCommerce market, Germany has become an exceptionally popular destination for online merchants looking to sell their goods and services. However, retailers should still be aware of the high levels of fraud to do with their number one payment method. Therefore, what do you need to know about building an eCommerce fraud prevention strategy for Germany?
Interview with Kai Li, Vice President of International at Revolve

Interview with Kai Li, Vice President of International at Revolve

eCommerce Worldwide Cross-Border Summit 2017 - Ahead of our annual event on 24th May, we interview Kai Li, Vice President of International at Revolve Clothing, to learn from his experience and knowledge in cross-border trading.
How does device usage differ in France, Germany, and the UK?

How does device usage differ in France, Germany, and the UK?

It is well known that the use of smartphones and tablets has grown rapidly but which device dominates the traffic and at what time of day across France, Germany and UK? And how does device usage differ between these Countries?

Contact Us

eCommerce Worldwide
2 Ching Court
49-53 Monmouth St
London
WC2H 9EY

Tel: 0203 696 0980
2016© eCommerce Worldwide

Keep In Touch

powered by Affino

About eCommerce Worldwide

eCommerce Worldwide provides online retailers with all the information, and resources, they need to develop cross-border strategies for entering new markets around the world
Read More