Practical Manual for Overseas E-commerce

In recent years, it has become increasingly popular for consumer brands to go overseas. Another core reason is that the infrastructure in various aspects such as website construction, logistics, and payment has become increasingly mature, and people's perception of going overseas has also changed - the overseas market is actually not as difficult as imagined.

If you still want to cold-start a new e-commerce overseas project today, you need to be more strategic. We conducted research and interviews with some industry insiders, including the NoxInfluencer team, and talked to them about how e-commerce can go overseas, how many steps are required, what the difficulties are, how to consider ROI at different stages... We believe their experience can provide some reference for everyone. Below, Enjoy:

1 Three key factors for e-commerce going global from 0 to 1

In the early days of an e-commerce company going global, there are three key factors: product selection, website building, and traffic marketing.

During the product selection stage, looking at today's more successful brands, they all either bet on a category of consumer upgrades or a category with high gross margins . The five best-performing categories today: 3C, electric toothbrushes, wigs, glasses, and e-cigarettes, conform to this logic.

The success of product selection depends mainly on the understanding of the local market. Many Chinese companies employ foreign employees. In addition, the universality of the product category is also a very important point. Why is Anker power bank more successful? The cornerstone is that everyone needs a power bank. But for some more vertical categories, such as wigs or maternal and child products, more precise results will be needed in the follow-up, and the delivery model will be completely different.

Average order value is another important indicator in product selection. If you cut too high a point, the ROI may be comfortable at the beginning, but the bottleneck will be very obvious in the later stage. As more and more people enter the overseas market, many countries have accumulated experience data. For example, in Southeast Asia, 20-40 yuan is a comfort zone; but in the European and American markets, it must be more than 100 yuan. If the average order value is too low, the logistics costs alone will wipe out all profits.

Many manufacturers do not want to invest too much in the initial product selection, so they will adopt a "no inventory mode". That is, before actually placing an order, they will put the design draft online to see the click rate of consumers. If it is very popular, they will then calculate the potential sales scale, marketing budget and inventory preparation. However, some of these bad behaviors are being cleaned up by the Amazon platform.

Due to China's strong supply chain capabilities, it is actually not easy to create a gap in product selection, because anyone can find a manufacturer willing to OEM.

By the second stage of website building, it is now very mature. If you go to the European and American markets, you must go to Amazon; if you go to Southeast Asia, the first choices are Shopee and Lazada. If you still have energy, you can also build an independent website.

The so-called independent site is a shopping website built by the brand itself. The habits of overseas consumers are different from those in China. China's e-commerce platforms are almost limited to a few companies such as Alibaba, JD.com, Pinduoduo, etc., and they have an absolute advantage. However, overseas consumers have different shopping behaviors. They will still go to the brand’s own independent website to shop, so it is possible for brands to build their own sites.

Nowadays, the process of building an independent website has become very mature, and Shopify meets this demand very well. It is very convenient to build a website with Shopify. It is a plug-in operation and has a complete ecosystem, including ERP, various data statistics and data analysis tools, such as statistics on repurchase rates, etc. It is very rich. After building the website, you can just direct traffic.

Therefore, in the website building phase, you only need a good material designer to execute it quickly. In this field, because it is relatively mature, it is not easy to create a big gap.

The biggest potential for widening the gap lies in the third link of traffic marketing. You need to have a good enough insight into local user needs and have good enough advertisers to select the best strategy and refine operations through various data analyses. We will analyze this aspect in detail in the following sections.

2. Excellent gross profit margin is everything

For e-commerce startups going overseas, the key to standing out is not GMV but gross profit margin. If the gross profit margin does not meet the standard, no matter how big the scale is, it will be useless.

In general, the gross profit margin needs to reach 50% to cross the break-even line. If you want to make a profit, it will most likely need to exceed 70%. Of course, the gross profit margin discussed here excludes logistics costs.

During the product selection stage, it is important to do the math clearly. You need to conduct small-scale tests to try to calculate the gross profit margin and ROI. Of course, there are many complex formulas involved, including user operations, logistics costs, tax points, etc., which are different in different countries.

As the scale increases, the gross profit margin will most likely decline to a certain extent in the later stage because more marketing costs will need to be invested. When initially acquiring 100 customers, for example, the average customer acquisition cost is 1 yuan, but when it reaches 1,000 customers, it is not 1,000 yuan, but may become 2 yuan per person. When it reaches 5,000 customers, it may become 10 yuan per person. The marketing cost is rising with the scale.

Of course, on the other hand, as the scale increases, the scale effect on the production side will bring about some cost reductions, and these funds can be reinvested in marketing to achieve a dynamic balance.

The gross profit margin in the early stage is very important, as it leaves room for the future. If it cannot reach 50% in the early stage, it will be even more difficult to make a profit after scaling up.

Therefore, whether it is the stage of sales scale from 0 to 100 million or from 100 million to 1 billion, marketing expenses basically need to be invested one-third of revenue. This is the result of comprehensive consideration of many brands.

So how do you make a profit? The answer lies in repurchase. Many brands going overseas are actually "running at break-even", which means that the previous series of operations are not actually profitable, but just break even with the revenue. They rely on repeat purchases brought about by building the brand, that is, natural traffic, to obtain the final profit. Therefore, the repurchase rate must reach at least 10% to prove that it has been successful.

3 Three waves of dividends from overseas traffic

The two industries with huge demand for overseas digital advertising are mainly e-commerce and APP (including games). This process can be roughly divided into three stages.

The first stage is the one represented by Cheetah Mobile, which mainly relies on the traffic bonus from Facebook and Google. Those who understand overseas advertising well enough will have the advantage.

There was a short period of time, that is, from 2015 to 2016, when many APP tool developers began to carry out refined operations and in-depth localization, but games still relied on buying volume dividends.

The second stage, represented by Shein, is when e-commerce companies began to actively expand overseas. This is the stage of actively going overseas. E-commerce companies are unlikely to buy traffic directly from Facebook on a large scale because it is too expensive. E-commerce companies mainly rely on two types of traffic. One is the in-site traffic from e-commerce platforms such as Amazon and Shopee. At that time, there was still a lot of in-site traffic. As long as the products were good and occupied some blank categories, they could rely on their first-mover advantage to occupy the keywords of this category. For example, Anker was the first to succeed in making power banks, and many people joined in later. Slowly, the traffic on the site was divided up, and the competition became increasingly fierce.

In the later stage of the second phase, in order to obtain on-site traffic, more and more people began to engage in such practices as inflating orders and ratings to make products rank higher. Everyone was studying Amazon's recommendation mechanism, ranking mechanism, and traffic diversion mechanism.

The second type relies on the traffic from independent sites. Since Shopify makes building a website very convenient, and overseas consumers also have the behavior of shopping on independent sites, there was a large group of people building independent sites at the time, and then buying traffic through Facebook and Google.

Of course, as traffic from Facebook and Google becomes more and more expensive, this method becomes increasingly difficult, and eventually we reach the third stage - self-media traffic.

The self-media traffic mentioned here mainly refers to the traffic pool gathered through content, and the main force is "Internet celebrities". In China, APP traffic is also migrating to self-media. Douyin, Xiaohongshu, and Bilibili are gaining more and more attention. About three years later, the same trend has emerged overseas. More and more people rely on Internet celebrities to consume content, and businesses have also begun to pay attention to Internet celebrities as a distribution channel.

Amazon’s large-scale account blocking actions this year have also prompted overseas brands to shift towards marketing and weaken programmatic delivery. Since the end of April this year, Amazon has banned many top and mid-level Chinese export merchants, most of which are 3C products, for violating platform rules, mainly due to fake orders.

Amazon's ranking system and algorithm tools need to generate more orders in order to get more traffic. In order to generate more orders, more positive reviews are needed, which will account for more than 50% of the factors in obtaining more traffic. Therefore, no matter whether it is a new product or an old product, sellers need to improve the rate of positive reviews. However, Amazon also prohibits sellers from posting fake reviews, and sellers cannot contact consumers privately, especially asking consumers to give positive reviews.

In April, many big sellers from China with annual sales of RMB 4 billion to 5 billion had their accounts blocked. In June and July, more and more accounts were blocked, and these sellers did not appeal to get their accounts back, and the situation began to become serious.

Apart from the factor of Sino-US relations, another underlying reason is that there are more and more homogeneous products, which makes it difficult for high-quality products to stand out. In many mid- and low-end price segments, there is actually not much differentiation between products, so there is a lot of vicious competition for traffic, which consumes the total traffic of the platform. For a period of time, Amazon does not recommend the best products, but the ones that seem to have the most comments and the most clicks.

Based on this change, overseas brands can no longer rely entirely on programmatic delivery to obtain traffic in the future. There were almost no marketing links on Amazon before, but now they must make a shift.

4 How to use self-media traffic for promotion?

As we mentioned above, overseas self-media (Internet celebrity) traffic is still in its bonus period, and it is very important to make good use of them.

Of course, before the analysis, it must be emphasized that after the promotion to a certain scale through the traffic of Internet celebrities, it must be coordinated with refined operations, that is, a private domain model. Now this trend has appeared in e-commerce going overseas, but it has not yet developed to the level of refinement in China.

The internet celebrity structure is a pyramid. Assuming there are 1 million KOCs at the bottom, then there are only 1,000 top internet celebrities at the top. This is a process of survival of the fittest. The larger the denominator, the stronger the overall traffic aggregation effect, and the thicker the pyramid becomes. The epidemic has actually thickened the traffic end of Internet celebrities.

The penetration rate of domestic self-media traffic has exceeded 50%. The time each of us spends watching self-media such as Douyin and official accounts has far exceeded the time spent in APP applications. But there is a certain time difference in different overseas countries, but of course the overall growth is very fast. Most overseas brands have rarely promoted through internet celebrities, which requires a lot of data analysis tools, such as identifying which internet celebrities have zombie fans, whether the internet celebrities' fans match the products, etc.

How to find influencers with similar product tone and how to judge video quality, interaction rate, and sales ability are crucial and will directly determine ROI. Manually searching on various platforms is an arduous and cost-ineffective task. There are some SAAS services on the market, such as NoxInfluencer, which can help analyze the profile of influencers, video quality, sales ability, etc., and can efficiently assist these tasks.

From the perspective of distribution channels, the most effective channels for influencer promotion right now are YouTube, Instagram, and TikTok, of course, followed by Twitter, Snapchat, and so on. Because YouTube is a medium-length video platform, it has the strongest fan stickiness among all platforms and brings the highest conversion rate.

TikTok's user stickiness has not yet reached the level of YouTube today, but TikTok has a very powerful traffic pool. The disadvantage of short videos is that the life cycle of internet celebrities is not that long. Many people become popular through funny tags, but their ability to continuously produce content is not that strong, which leads to low fan stickiness. This is similar to the pattern of domestic Douyin, Bilibili, and Weibo.

As for Facebook and Google, these two are giants that cannot be avoided when APP goes overseas. Facebook is the first choice for advertisers who are looking for quick, flat results. Google will be slower to grow, but its final size is not bad, so it can be used as an option for mid- to long-term customer acquisition.

Instagram’s traffic and advertising are all included in Facebook, and it is not monetized as a separate platform. But it is not sold in a bundle as an option, but the advertising backend is Facebook's advertising backend.

Twitter and Snapchat have their own advertising systems, which are a bit like Toutiao or Tencent Guangdiantong, and have their own advertising backend and algorithm systems. These platforms are not strictly divided into good and bad. We need to open up the corresponding markets based on their respective user tags. Generally speaking, the traffic quality and effectiveness of Twitter and Snapchat are an order of magnitude weaker than the previous platforms, and are particularly unsuitable for e-commerce.

In order to launch these platforms well, the team needs at least two operators, as well as experienced creative designers and advertising optimizers. Of course, these two positions are also the most sought-after talents in the market.

In addition, after the promotion through influencers reaches a certain scale, refined operations are needed. Influencers are also easy to interact with the C-end. For example, hard advertising can be adjusted to continuous product activities, such as discounts, new product reservations, product feedback mobile phones, participatory purchases, etc., and repeat purchases can be driven through these refined operations.

Overall, the count starts in 2014, when 2 billion people worldwide had access to the internet. But by the end of 2020, this number has become 3.4 billion, and half of the world's population can be reached, of which China accounts for 900 million to 1 billion. The overseas market is very broad.

A new overseas brand should do a good job of product selection in the 0-0.1 stage, calculate the gross profit margin and other accounts, and then build a website and put marketing into use. It can quickly build volume and create a hit product through the in-site traffic of e-commerce platforms such as Amazon/Shopee, independent websites, etc., as well as the traffic of Internet celebrities such as YouTube and Instagram.

There are many operational details involved in making good use of on-site traffic, including what keywords to choose, when to deliver the traffic, etc. When it comes to the next stage (100 million to 1 billion), many brands will encounter a ceiling because the traffic on the site starts to get crowded. At this time, they will need the cooperation of off-site traffic such as Facebook, YouTube, and Twitter, and they will also need more sophisticated delivery planning. Among the three key factors for e-commerce going overseas, product selection and website building cannot go wrong too much. The difference between success and failure lies in the traffic marketing link. It is especially important to maintain a keen sense of the market.

Author: Jingwei Venture Capital Home Page

Source: Matrix Partners China