Europe beckons

Online retailing has unquestionably increased the ability of consumers to access a variety of products, compare prices and save time on shopping. The online shopping experience has also spurred consumers' curiosity about foreign companies' offerings and made them more willing to direct their spending across national boundaries.

Online retailers, both large and small, have viable options for entering into international expansion mode, particularly with respect to European markets.

Attractive European markets

Many online retailers have already seen this opportunity and are targeting potential customers outside their own country. However, the incentive to do so has been less for US-based online shops than for their European counterparts.

Among other reasons, this is due to sheer size. American online shops have immediate access to a very large home market that is quite uniform in terms of languages and preferences. With diminishing growth prospects in the US, however, the opportunity to expand abroad should be increasingly appealing.

Europe offers the best possible site for such expansion. A large consumer base, well-developed information and communication technology infrastructure, and high average income are the basic indicators of great opportunity.

Some 33% of European consumers purchased a product or service online in the last 12 months.

In the most developed countries - and most interesting for American online shops - the number is much higher: over 50% in the Netherlands, the UK, Germany and the main Nordic countries.

Motives for international expansion

Each business and online shop might have different motives for considering expansion into foreign territory. However, they often fall into one of the following categories:
• Enlarge customer base
• Spread risk
• Increase revenue
• Strengthen or exploit brand value
• Take advantage of weak dollar

Although the US has a large Internet population, 79% of all Web users are now outside the US. Many have broadband connections and are comfortable doing business at secure Websites outside their own countries. Given the weakness of the US dollar, they are highly motivated to shop at American e-commerce outlets. These international customers are a huge untapped market for US merchants.

Also, there is a distinct preference for American products among many consumers in Europe's largest online consumer nations; they often go through great trouble to purchase products from US online retailers and would naturally increase their spending if the transaction barriers were lowered.

Where to enter?

For most expanding companies, choosing a focus area within Europe will be necessary. One of the main challenges is the fragmentation of consumer habits and shopping cultures from one European country to another. This differentiation may extend to the percentage of consumers shopping online, and it might be one of the reasons Europe's online retail market, as a whole, has lagged so far behind the US market in terms of size.

A few countries do stand out in terms of consumer potential and development of online shopping. Specifically, there is a cluster of Northwestern European countries that are a step ahead of the rest.

The Nordic countries, the UK, the Netherlands and Germany are mature markets in terms of online shopping, and they have the highest penetration of online shoppers among consumers.

As the following graph shows, the Nordic countries comprise a fast-growing market. So far, this region hasn't enjoyed much attention from American e-tailers, but that could change in light of an annual compound annual growth rate of 20% and a total market size of €18bn, combined with high IT literacy and robust gross domestic products.

Market size and the absence of a language barrier make the UK attractive for American online shops. The Netherlands is another interesting candidate with its population of experienced online shoppers and a growing market that is expected to reach €12bn euros in 2011. A tradition of international and long-distance trade is the basis for this growth. Music and books, travel and tourism, and consumer electronics remain the strongest product categories.

After the Nordic countries, the Netherlands has the highest penetration of Internet users in Europe.

Finding the countries where consumers are most likely to embrace particular products requires some insight and analysis. Generally speaking, some product categories are - at the moment - proving more successful. These include branded apparel and accessories, shoes, pet items, games and housewares.

Products that weigh less sell better than heavier wares.

Main factors to consider

Needless to say, entering a new market poses new challenges, invites new discussions and requires new prioritising. A common belief is that entering new markets is reserved for large and resourceful online retailers. However, the low investment requirement and cost structure of the online retailing business model argue against that belief.

Following are some of the main factors to consider when targeting specific European markets:

1. Share risk abroad

This is a central point for entering foreign markets, and it is why international expansion is available to all sizes of online retailers. Up-front investment might be the biggest obstacle. This can, however, be minimised by contracting partners who can handle the logistics and local marketing. Finding the balance between putting resources into the foreign launch and staying focused on home market customers is key.

It can be expensive to set up your business in Europe, especially with current high salaries and low unemployment. Finding a local partner to translate your website and take care of continuous updates will lower your initial investment and keep your risk down, should you prove not to be successful in a specific market.

Deals with such partners can be based on an hourly fee or revenue-sharing model.

Another important balance to find is what constitutes an acceptable cost per click.

Marketing efforts must be focused enough to reach the right consumers. Again, local help can significantly decrease the risk of not reaching those consumers, especially when entering markets where English is not the first language.

There is an abundance of local partners who are able to customise Adwords and other e-marketing campaigns.

Prices differ somewhat for search engine optimisation and search engine marketing services, but good partners will be able to provide deep knowledge of any product area.

Most European consumers in developed markets are comfortable with English, but translating websites and e-marketing campaigns will dramatically increase conversion rates. The most important positive consequence is increased trust among European consumers, who still largely prefer to shop online in their own languages.

2. Share risk at home

Many of the practical barriers to selling internationally can be overcome by sourcing services from an American partner. Again, it's an issue of setting up a good international launch without removing focus from your core customers at home.

International shipping can become very costly and time-consuming for retailers.

Cost quoting, international payment processing, currency conversion, fraud screening, export and import compliance, handling returns and erasing language barriers are some of the main challenges.

Getting a partner to handle these issues can save time and energy that could be better directed elsewhere. It will lower initial investment requirements by removing start-up fees for lawyers, shipping companies and credit card processors.

Often, a deal can be structured so the partner takes a percentage of the revenue for each product item shipped.

3. Know your customer and competitors

The two will often be interlinked. Looking beyond your own borders means approaching new groups of customers and dealing with new competitors. By looking at your successful competitors, you will also get an idea of what's working in terms of reaching your target customer group. For each local market you enter, researching your competitors can be lessened by developing a contact to a local e-marketer or online shop. Buying the information in the form of a simple market report also comes relatively cheap for the value provided, and often the market report company will be able to facilitate local contacts.

In the beginning, put a questionnaire at the end of a purchase.

Many customers are actually willing to give you feedback on their reasons for buying, and you can put this knowledge to use going forward.

Finding an established local partner in terms of another online retailer selling a complementary product to the same target customer group can enhance your reputation and increase the number of visitors to your website. You will be able to exchange customers by linking to each other and putting your names in each other's newsletters.

4. Keep it simple

This point is directed mainly at small and mid-sized enterprises.

Regardless of how you choose to organise your European market entry, selecting a few markets to focus on first will bring you important advantages. You will be able to test your organisation and logistical setup. You will gain initial customer experience and subsequent consumer insight. If the financial results do not match your ambitions, you will have less work to do in terms of making adjustments.

As always, some markets will be more attractive than others, based on factors such as size, growth and competitive landscape. Take into account what impact your entry will have in a market with one or two large competitors as opposed to a market with many small competitors.

Stick to online marketing and avoid costly offline advertising costs. Picking a country with a developed online shopping culture will reinforce this strategy, because its consumers spend more time online in general - and more time searching for products.