Become an expert of e-commerce delegation
It’s time for you to know everithing about e-commerce delegation.
We often meet E-commerce entrepreneurs and the observation is usually the same. After having launched themselves in online sales, they notice that their income does not take off and that their efforts & investments had not produced the expected return. They see the “limits” of their skills and measure the impact on their business.
On the web, competition is very tough, and customers are demanding. Like many other entrepreneurs, they quickly realize that E-commerce is a job for specialists. Which must be put in the hands of specialists… This is why the concept of E-commerce delegation has appeared in recent years. You will realize that this economic model is promising. But it is important to choose the right specialists. We will see the advantages and disadvantages of this model.
Presentation of the E-commerce delegation
What is E-commerce delegation?
The idea? That a brand “subcontracts” its E-commerce to a team of experts, who share the risk and are remunerated on a % of the revenue generated by the site. In this context, one must imagine that the web service provider is a commercial agent – or even a franchisee – for the brand, whose sales territory is the Internet.
E-commerce delegation companies often take charge of the entire activity: graphic and technical creation of the site, e-merchandising, e-marketing, logistics, customer service, payment service, and back-office management.
You will find a more complete definition of what e-commerce delegation is in this article.
What led to the creation of the E-commerce delegation?
The web is becoming more and more professional, which is undeniable.
The ease of creating one’s own e-commerce shop has pushed entrepreneurs to “try it” themselves. For the smart ones, they will have called on the computer scientist brother-in-law, or the “all-powerful” freelancer to create their first shop at the lowest possible cost.
But as the saying goes: “you can’t afford the cheap stuff“…
And very often, the adventure that was initially a good deal turns into a time-consuming ordeal or a machine to bring in… 0€! And finally, just like when you open your physical shop on the corner, putting a shop online is only the beginning of the adventure… Not the end in itself.
Many expenses are incurred without being supervised by professionals in each part of E-commerce. Adwords are a perfect example: a real lever of profitability in some cases, it can quickly become a cost sink!
E-commerce delegation to ensure you are in the hands of specialists
Basically, e-commerce is a very specific distribution channel. That can only be properly exploited with the perfect mastery of 4 major skills:
- Technology: creation, hosting and management of a website, databases and back office.
- Online marketing: the science of attracting significant qualified traffic to a website in the least expensive way possible.
- Fulfillment: logistics, customer service, returns management, etc.
- Commerce: the art of selling, the art of merchandising, the art of knowing how to talk to and understand consumers. And we would add the art of sourcing & buying a product offer that makes a difference.
However, we have to recognize that many “traditional” retailers do not have significant experience in e-commerce. Therefore, the challenge is to “save time” by entrusting their project directly to experts with solid E-business skills. Therefore, it is as much a learning effect and saving for the brand. As delegating what it knows how to do less well than its competitors. The ultimate objective is obviously to reduce the risk of undertaking business on the net. And to continue to focus on the core business.
The impact of E-commerce delegation on the relationship between the brand & the web service provider
E-commerce delegation: a way of reversing the roles of the customer and the web service provider
With this type of economic model, the roles are reversed: it is up to the E-merchant to seduce an E-commerce delegation provider! Indeed, it is up to the brand to seduce the service provider, as it would seduce any reseller. You have to show them the potential of your market, the strength of your brand, the difference of your offer, the solidity of your business processes… It is up to the one who wants to “transfer the risk” to convince!
Because it is not profitable or too costly to promote a beginner or a young merchant whose brand is not already well known or is poorly positioned on its web market. The same applies if the market is not attractive. There is no hope of making Internet users believe that the sky is the limit! In these cases, it will be difficult to go through the E-commerce delegation.
E-commerce delegation: a legally more complex model
E-commerce is already a highly regulated world: specific regulations for distance selling, LCEN regulations, the consumer code, the commercial code, the Chatel law, etc. You can’t do just anything!
And as for the relationship between the brand and the service provider. With the remuneration being paid solely on a variable basis, we can imagine that some e-commerce delegation stories end badly. In addition to the traditional unpaid bills, delays, disputes, etc… There are also disagreements about figures, tagging of tools, payment frequencies, limitations on property & brand rights, etc. This is why a “hyper-edged” contract is more than necessary.
The contract must formalize the relationship & interactions between the service provider & the brand. This is an additional safeguard. Particularly when the graphic design of the site is produced, or in terms of merchandising / decisions on the product catalog. Or even the logistical aspects, the establishment of the GTCs, etc. It is also preferable to include in the E-commerce delegation contract the timetable for the marketing actions and CRM policies that will be used.
In short, without further detail on the subject, it is clear that legal security is a key factor to be taken into account in any delegated E-commerce project. A visit to a qualified lawyer is highly recommended.
The disadvantages of E-commerce delegation for the brand
What the brand is handing over in delegation: its E-commerce learning, its multi-channel strategy
But before “passing on” the risk to a team you don’t necessarily know, have you thought about the strategic implications of your E-commerce?
If so, you will certainly have come to the conclusion that your company will not be able to do without the Internet tomorrow. That it has become a tactical AND strategic lever. And what do we recommend when it comes to strategic knowledge? Having the know-how in-house.
By going through a third party to develop your e-commerce, you accept not to learn, and to remain “dependent” on someone else. Brands seduced by delegation must be aware of this.
To go through the E-commerce delegation is also to consider the “Internet” as another sales territory. This way of thinking reflects the state of mind of brand managers. Indeed, others will consider the web not as a “new territory“, but rather as a new “customer service“: multi-channel delivery, deferred payment, support & customer account, loyalty tool, traffic generation lever in the shop, additional sales channel independent of any geographical & temporal constraints…
The E-commerce delegation is tailored to a certain type of E-merchant: the big, well-known ones!
Delegation allows you to share the risks, to benefit from expertise… Yes, but here’s the thing: the E-commerce delegation system is not “cut out” for small merchants. This is a fact.
Historically, when we look at the references of the leaders in the delegation, we notice that they all have big brands in their references. This is not insignificant. The service provider needs to rely on solid assets, otherwise, he will have to bear the financial burden of a flop. And the brand of the company it represents is one of them.
While this is true in the majority of cases, but there are exceptions. And not wanting to go into e-commerce delegation because you consider yourself “too small” can be a mistake. Here again, it is a question of choosing the right specialist.
The disadvantages of E-commerce delegation for the web service provider
E-commerce delegation: a profitable long-term project for the provider (maybe?)
This is not so much because providers do not like small merchants. It is because it is extremely complicated for them to make a profit. Which in any case, will only happen after several years of operation. Hence the systematically multi-year contracts. And the trap with the big brands is that the operating costs are enormous: teams, call centers, logistics, advertising, etc. In short, the service provider had better have a lot of cash to get started!
On the other hand, small merchants do not generate enough cash flow to support an entrepreneur, a team of specialists, and ongoing operations. This is structural. For the service provider who wants to do E-commerce delegation with small E-merchants, he has to become an “industrial factory” of websites -produced at the lowest costs on the market. These are “tailored” to reach a certain threshold of business volume…
The service provider then builds its margins on the volume of subscribers to the service. This is no longer “active” delegation, but more “passive“. This is why it is essential to find out about the service provider. In order to benefit from a “good” e-commerce delegation.
The key success factor for the service provider? The pooling of a scarce asset, on which he can make economies of scale
As a consequence of what has been said above, it is difficult to create much-added value in e-commerce delegation. No one is a magician: even if the work is well done, the cyber money does not flow as soon as a website is put online. It is necessary for the service provider to accumulate several delegation contracts. The real “profit” of delegation lies in the pooling of resources between different delegation contracts.
To ensure a truly “powerful & efficient” delegation, skills are not enough: you also need working “power”.
- For example, you need proprietary technology that allows you to succeed faster or better than your competitors…
- or a powerful logistical infrastructure – like Amazon – which has been amortised but which can be shared with other merchants…
- either customer service resources that e-merchants could not afford on their own…
- or a customer asset – such as Vente Privée – that facilitates access to online shoppers
But sourcing good projects, building loyalty & paying for human skills, developing technology and assets useful for e-commerce takes time and money. What does this mean? The capital intensity of E-commerce delegation is very high for the provider, and many will have no chance to reach the critical threshold that will allow them to survive, and become profitable.
Find all the advantages and disadvantages of e-commerce delegation in this article.
E-commerce delegation is an attractive model:
For the client: because it transfers the risk to a third-party company, and for the service provider: no need to “sell” because you only earn what you generate.
Nevertheless, it can become a “killer” model for all parties. Legally complex, subject to “ultra-compressed” margins, E-commerce delegation can quickly turn into a lose-lose nightmare.
By sharing profits that are sometimes well below expectations, the brand no longer generates enough cash to develop new products, and the service provider will find it difficult to reach a break-even point that is becoming increasingly remote if the merchant is not a “big merchant”.
In the end, the brand sacrifices its margins & its own learning to limit risks that are magnified with the delegation system.
On the provider side, to succeed in E-commerce delegation, it is not enough to master E-business: you need a strong, rare asset that you can rely on. This can be a technology that allows you to succeed faster and stronger than an isolated e-merchant, or a solid logistical infrastructure, or recognized experts in each key factor of e-business success…
Do not hesitate to reach out! We can discuss your business model and identify your needs.