A lot of behind-the-scenes work goes into an e-commerce sale. You need to find a product, get a sample, order and prep merchandising, list and market it online, then management fulfillment and customer service.
It’s easy to think that driving sales comes from marketing and merchandising, versus optimizing and improving your backend processes. This is a mistake. It is crucial to invest in marketing, but at the end of the day good operations management is great marketing.
Tweetable quote: At the end of the day, good business practices is great marketing.
Bad Operations Management in Action
"If you make a customer unhappy on the Internet, they can each tell 6,000 friends" - Jeff Bezos
Bad operations management can be found anywhere, from poorly executed strategy to no strategy at all. Anything from limited budgets to lack of resources can make your operations management inflexible, which means it won’t be agile enough to meet the needs of your scaling business.
Suppose you need additional warehouse space, your order volume exceeds the ability of your employees to handle pick and pack, or your current systems can no longer scale up to meet your needs. What happens to your ability to fulfil, provide customer service, or keep items in stock?
When your growth exceeds your infrastructure, your operations suffer. This in turn creates slower fulfilment and less quality control. And, when orders consistently arrive late, damaged, broken, wrong, or worse yet, aren't even available to be shipped, your customers will let you know with increasingly negative reviews. This will impact sales, marketing, and your ability to convert.
In one study, it was shown that low product quality and slow shipping account for about 21% of all customer complaints. Anywhere from 3-10% (depending on the company) of complaints related to the store not having a product in stock when ordered.
For example, Vivo Masks documented an instance where a product was out-of-stock, which prevented them from fulfilling immediately. The company quickly informed the customer of the discrepancy, and after a long wait period, were forced to refund the full cost of the product after shipping it. In the end, they still had an angry customer on their hands.
FNB, an IT devices seller in South Africa was losing customers because of poor operations. FNB was experiencing negative customer complaints for nearly 1 in 3 orders due to slow fulfilment and slower customer service.
These kinds of discrepancies hurt sales on any platform, but if you're selling on Amazon or eBay, could result in having your account banned.
What is Good Operations Management?
Bad operations management is bad business, but what is good operations? The first step is to invest in infrastructure necessary to quickly scale up and down to meet demand.
- Investing in communication between teams to ensure seamless order processing
- Improving order processing with automation and multi-channel data
- Preventing stock-outs with better and/or cross channel inventory management
- Providing on-time deliveries that meet or exceed customer expectations
- Going above and beyond for packaging to prevent damage and breaks
- Handling customer service, including solving problems, and handling returns quickly
- Investing in software and hardware to create better infrastructure
- Integrating tools like third-party logistics and FBA to provide faster shipping and delivery if you can't manage it yourself
All of this will improve how you do business, boost shipping speed, prevent you from selling items that are sold out, improve customer service, and reduce negative reviews and customer complaints across the board.
But how does that affect your bottom line? Quite simply, it improves customer reviews, enabling you to make sales based on reputation marketing alone.
We introduced FNB earlier as a bad example. However, they took positive action after identifying their problems and reduced average customer service response time to 4-24 hours. They also ensured their products were shipped quickly, so 80% of customers received their order in as little as 3 days. As a result, FNB complaints fell from 1 in 3 to just 0.1 in 6 months. The company saw an increased rise in positive customer perception, reduced customer escalations, and better reviews.
Case Study: Amazon
Amazon is perhaps the biggest case study that proves the concept of good operations = good marketing. Before 2007, the website suffered from poor reviews and controversies over slow shipping, especially from associated merchants. This cost the company sales, limited growth, and drove many consumers to brick and mortar stores.
In 2008, Jeff Bezos began to revamp Amazon's internal structure, increasing warehouses, working to reduce product costs to lower costs for consumers, and introducing automation to improve order processing and delivery.
Amazon has remained in the top 100 in the American Customer Satisfaction Index for nearly every year since then. Most people know that Amazon is the largest e-commerce retailer in the United States, and it’s thanks to their quality reputation and reviews.
How does good business drive sales?
EConsultancy compiled stats showing that 90% of customers read and trust online reviews, 4 out of 5 customers have reversed purchase decisions due to bad reviews, and 55% of people in a survey trusted opinions from people they considered to be like themselves over those of companies or professional reviewers.
Social proof is the most important factor driving modern e-commerce. This includes positive reviews, personal referrals, and good online reputation. If the customer believes that they are likely to have a good experience because other people have a good experience, they are significantly more likely to make a purchase.
Worth of mouth marketing has always played a large part in making sales, but today, electronic communication means that a satisfied customer can share their experience with hundreds or even thousands of people. Building positive user experience creates a buzz around products and companies, starting from reviews and extending to positive interactions on social media, shared products, and word-of-mouth recommendations.
This pays off by boosting sales. In one study, companies with good reviews saw a 32-52% sale increase on Amazon products. For Amazon sellers, providing positive buyer experiences improves your account, enables Amazon to feature your product, and makes you more discoverable. Elsewhere, it creates a positive buzz across the Internet, which will drive customers your way.
Investing in Quality and Reliability
Providing a quality experience to customers is an investment, and it should be one you prioritize. A business model that is focused on growth at the expensive of all else will eventually fail.
Perhaps the most prominent case of operations failing to meet customer demand is Boo.com. The website skyrocketed to fame in the late 90s, earning more than $125 million in venture capital. Then, they lost money and failed to deliver an adequate experience to customers. What were they doing wrong? By investing money into PR and marketing rather than providing quality services, Boo forced buyers to go elsewhere looking for a positive experience.
Online shoppers are looking for the same (or better) quality and reliability than they would expect from a brick and mortar store. Because they cannot inspect a product, take it home with them the same day, or (in the case of clothing) try it on – you need to provide a brand reputation and image that will assuage fears and ensure that the customer will have a good experience.
And, if you can provide that quality and a reliable experience, your customers will tell their friends, creating valuable marketing results that money can't buy - social proof.
About the Author
Crucial Vacuum and Skubana Founder Chad Rubin grew his e-commerce business to an 8-figure business in 7 years. He is a Top 250 Amazon Seller, and co-founded Skubana as an all-in-one ERP system and operations platform designed for high volume sellers to run and automate their business. It integrates with most e-commerce marketplaces, 3PLs, and warehouses, provides profitability and multi-channel inventory management, and compiles all your marketplaces on a single convenient dashboard. Learn more at email@example.com or sign up for a 14-day trial.
Follow Chad on Twitter, Facebook, or Instagram @ecommrenegade or connect with Linkedin.com/in/ecommercerenegade.