How Smaller Merchants Can Take Advantage of Big Data

by   |   July 17, 2014 5:30 am   |   3 Comments

Kevin North, President and CEO, Terapeak

Kevin North, President and CEO, Terapeak

Big data has subtlety entered the e-commerce community without providing much direction to smaller merchants. While Amazon, Rakuten, Alibaba, and other giants consolidate their lead with investments in supply chains and logistics, small merchants can survive and prosper through the winds of change by using the insights derived by e-commerce data.

I recommend that smaller merchants use data to gain an advantage in three specific areas: consumer demand, sourcing, and market timing. It’s nearly impossible to compete with major retailers on price or shipping unless you can use data to improve your margins in each of these areas.

What to Sell?

As a seller, your first task is to decide what you are going to sell, and data should be central to this process. Whether you are on eBay, Amazon, or any other platform, you need to study the market for viable profit opportunities. Tools designed to analyze big data can tell you what these are.

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For example, if you look at marketplace data for merchandise related to Disney princesses (they account for millions of dollars in eBay sales), there are windows when the market is ideal. Disney’s latest hit movie, “Frozen,” featured the Disney princesses Anna and Elsa. Just after the movie appeared in theatres, sales of related merchandise grew quickly and then fell off with the post-holiday slump. However, the DVD release of “Frozen” in March caused sales to explode. The Disney princess window is short, yet other Disney characters had relatively lackluster sales volume during that same period.

So when Disney creates a blockbuster success, the princesses are great product opportunities – at least for a few months. If you are determined to sell Disney princesses all year, try Snow White, Ariel, and Cinderella.

Sourcing in a Global Marketplace

You also should be using big data tools to source and price goods effectively. The United States, still the world’s dominant e-commerce market, is hooked on imported goods. To be competitive, you’ll often need to source goods from cheaper labor markets because most Americans prioritize prices and shipping times over Made in America labels. You can’t compete with big retailers on pricing or shipping without smart sourcing. Good sellers understand that margins are made in the sourcing process. So understanding a product’s true value right from the start, using big data, is the difference between good decisions and bad decisions – i.e., an informed purchase leading to a profitable sale versus an emotional purchase leading to excess, unwanted, or non-profitable inventory.

With goods like smartphone charger cables, for example, there is a surplus of sellers and the margins are razor thin, so merchants that source most effectively can dip pricing below the average or include faster shipping at the same price. Likewise, the Disney princess dealer who sources most effectively and is therefore able to offer better pricing and shipping options will have much better odds of capturing the market.

Figure out what prices you can profitably sell at before following through with your purchase in the sourcing process, and model several different buy-and-sell scenarios using empirical data (empirical data from big data, if you can imagine that). For example, a merchant who wants to sell iPhone cases on eBay should examine selling prices, sell-through rates, listing durations, total sales, top keywords, and other key data points that can provide supply-and-demand characteristics. These numbers will tell you if you can make a profit sourcing at the price offered by the manufacturer.

Nailing the Timing

Once you know what to sell and how to source it cheaply, you should work hard to take advantage of cyclical events. The common thread among all e-commerce markets is that they change over time, often in predictable ways. You’ll gain a strong competitive advantage if you are able to understand shopping cycles and time your selling accordingly. Big data shows you when shoppers are most likely to buy particular kinds of products.

For instance, the rise of the Do It Yourself movement has brought renewed interest in cooking and cookware. Over a two-year span, the cookware category shows consistent increases in sales volume.

When you look at data for more specific items and shorter time frames (hours, days, weeks, and months), you can spot more actionable trends. It should come as no surprise, for example, that sales of woks spike after Thanksgiving, but why was there an enormous spike in wok unit volume in early August 2013? It could be that the Qixi Festival, also known as “Chinese Valentine’s Day,” fell on August 13, 2013. This year it falls on August 2. I imagine we’ll see this trend repeat itself.

I cannot stress enough how much delivery times and pricing now influence consumer preferences. If you sell online, you are being compared with dozens of other merchants. If you want to compete on shipping and pricing, you must use big data to improve merchandising, sourcing, and timing.

Everyone knows that big data is playing a large role in ecommerce. As a merchant, you must decide what data and trends are worth following. Certain patterns can give you a competitive advantage in specific markets. Pick out the trends that matter to your business, and follow them consistently.

Kevin North is the CEO and President of Terapeak, a leader in commerce market analytics, dedicated to helping online merchants grow their businesses and become more profitable.

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