Two companies that immediately come to mind when I think of companies in the eCommerce space are Amazon and eBay. Justifiably, these companies are one of the earliest companies that tried to disrupt the eCommerce industry. In the past few years, there has been a significant rise in the number of startups attempting to disrupt the eCommerce industry as well as an increase in the amount of funds invested in these startups. Examples of these startups are Warby Parker, Casper and the company I worked at this Summer – Madison Reed.
Commerce models at that point of time were based primarily on flash sales and social commerce. These companies needed to raise a lot of money and had high burn rates and because of this phenomenon were rather unsustainable. Some of these companies survived and are currently thriving – like Amazon or Zalora.
The growth model of today’s eCommerce companies seems rather different from that of eCommerece companies when they started back in the late 90s/early 2000s. These new models prove to be much more sustainable in the short term and the company’s growth is driven largely by the technological advances in the mobile industry and the increased usage and reach of social media. With existing analytics tools today it is becoming increasingly easier to acquire customers at a lower cost and also alter strategies to ensure the most efficient method of increasing the conversion rate on websites.
With the increase in the demand for analytics tools and social media advertising, the cost of marketing is getting driven further down thus making it cheaper for companies to access and communicate with their customers effectively. Even then, conversion rates for multiple eCommerece startups still hover around 5%. Therefore, there is an increasing need/trend for startups to develop disruptive models and strategies to grow. After a brief insight into how Madison Reed went through the process of choosing their own model, I realized there are some common strategies used across multiple companies:
There is much skepticism on whether this strategy would be effective in eCommerce startups but in the past few years, there are some startups that have been able to execute this strategy fairly well. Companies such as Dollar Shave Club and Birchbox follow this strategy and Madison Reed has this strategy as an option when a user wants to purchase a product from their website. This model allows for recurring payments from users which helps to drive a strong revenue model.
Direct to Consumer
Warby Parker is one of the few companies that follow this model where the reduction in the number of necessities gives them the power to push savings to the customer. Another company that follows a similar model is Casper
Peer to Peer eCommerce
This sub-industry has long been governed by eBay and Craigslist – the tool that all of us probably used at some point of time in our lives. With advances in technology, particularly those that allow for people to be connected via different mediums, have allowed for this strategy to thrive. It is becoming easier for people to sell/exchange/buy things from one another by hosting it online.
This space of eCommerce had been relatively untapped until the startup Rent the Runway decided to disrupt the eCommerce industry by adopting the rental strategy. Since then some other companies such as Black Tux (tuxedo rentals online) and Eleven James (luxury watch rentals for men) have emerged.
Clearly, there have been multiple emerging startups with different strategies and often a combination of strategies to establish and build their brand. Madison Reed strives to do that today by mainly adopting the Subscription and Direct to Consumer strategies to establish themselves as the superior hair care brand. There has been a recent rise in the number of investments in eCommerce startups and I hope to see this industry flourish to explore how companies have carefully made use of these strategies or even come up with their own unique strategy to disrupt this industry further.