Groupon says its focus is on the bottom line, rather than top-line growth.
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She recently cut a deal to be a featured merchant through December on Coolsavings.com; in exchange she pays $20 for every sale. Stratton pays affiliates 15% of all sales that come through their web sites. She uses California-based Commission Junction, an affiliate network, to attract and monitor affiliate sales. Commission Junction receives 5% of whatever commission the affiliates receive. Rockingtoy also has an affiliate recruiter who works for a commission. Affiliate-generated sales account for 15% or less of her overall sales; most of her activity comes from search engines. “It’s all about tapping into something that has a critical mass,” Frankle says. “Affiliate programs can tap into the viral nature of the Internet.”
For Hilo Hattie reaching the critical mass began as an experiment in 1996 when the brick-and-mortar retailer joined two other companies-a bank and a technology company-in an online mall. “It was more of a background, wait-and-see project, not a strategic move,” Hause says. The retailer limited its web site marketing to being listed on search engines and running some print ads in local publications, “but we noticed a lot of activity.” That activity made a web presence part of Hilo Hattie’s long-term strategy in 1999. The goal is to have 10% of the sales coming from the Internet within a couple years.
Although the site is a priority, the company is still spending cautiously on marketing. The company is doing a great deal of multi-channel marketing in its mailers and in its stores, Hause says. It is using its email list to market to customers, and still using search engines. And like Rockingtoy, Hilo Hattie is going after affiliates. It recently entered an agreement with Ardsley, N.Y.-based affiliate promotions company EcomWorks and is looking to link up to such sites as Iwon.com, Coolsavings.com and women.com. “We were looking for an affordable way to get the word out, and the affiliate program gets that done,” he says.
The problem with selling to a small market is that it is small. To augment sales, many niche retailers find refuge in business-to-business customers. Supplying the big guys or making other b2b sales makes sense for niche players because it increases their distribution base, says Frankle. “That’s a way that they are recognizing value from what they’ve created,” she says.
For Alibris, b2b is its main focus. Alibris President and CEO Martin Manley says retail sales account for only 0.5% of its overall sales. “Retail customers that use our web site are insiders, the tip of the market,” he says. It would not make good business sense to try to raise the $100 million it would take to create brand awareness, he adds.
However, Alibris did have a brand-awareness campaign in 2000 (with ads appearing in The New Yorker, the most recent being a full-page ad in the December issue). But Manley says those ads are directed at both retail and b2b customers. Alibris had advertised in as many as 15 consumer publications; now it runs only in The New Yorker. Alibris sees itself first as a supplier, Manley says, adding that Amazon and Barnes & Noble are its biggest customers-not competitors. “We cheer Amazon and Barnes & Noble on and hope they do well,” he says. To get at that market, Alibris uses a b2b development group to attract and manage b2b accounts.
Taking care of business
At Rockingtoy.com, b2b accounts for about 33% of its business. For Stratton’s business, there are two busy seasons: Christmas for retail and spring for wholesale. Craft stores and antique shops are her best b2b customers, usually owned by women over 30 years old. They tend to like the products because they are pretty, Stratton says.
Stratton joined Wholesalecountrycrafts.com, a lead generator for wholesale merchants. She pays $125 a year to join the wholesale mall and gets as many as 10 inquiries a day from interested buyers. Like Alibris, Stratton says her items are so specialized she does not see herself as competing with large toy manufacturers.
U.S.Wings and Hilo Hattie both serve b2b-25% of Wings business and only a marginal amount for Hilo Hattie. Both say they don’t worry about competing against large apparel companies. Both say they are tops in their niche. But b2b has been away for Wings to diversify, Hack says. These companies are buying hundreds at a time to give away as incentives or gifts, he adds. Wings sells its jackets in bulk (12 or more) at a 25% discount.
Hilo Hattie does some discount by volume business or group sales, often to people hosting Hawaiian theme parties, Hause says. But that is a small part of the company’s business. “There’s a ton of people out there who sell Hawaiian shirts,” Hause says. “We don’t stack ourselves up against (large apparel retailers). We do this year-round while others are seasonal. We want to be the dominant player in our category.”
For niche retailers, being dominant in their category has a whole different meaning than for the category killers. But, it represents no less a successful web business.