E-Commerce Strategy

Prof. Dr. Christian Stummeyer

E-Commerce Strategy

0 Introduction

1 The Basics of E-Commerce September 7th, 2022

2 How to grow an E-Commerce Business September 28th, 2022

3 How to start an E-Commerce Business using existing Marketplaces November 9th, 2022

4 New Trends and Technologies in E-Commerce November 23rd, 2022

2 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Strategy

0 Introduction

1 The Basics of E-Commerce September 7th, 2022

2 How to grow an E-Commerce Business September 28th, 2022

3 How to start an E-Commerce Business using existing Marketplaces November 9th, 2022

4 New Trends and Technologies in E-Commerce November 23rd, 2022

3 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 Where my home is …
(11.000 km away from Jakarta)

4 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

5 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 München Ingolstadt
Audi Bilder

6 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 München Ingolstadt
Audi Bilder

7 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 München Ingolstadt
Audi Bilder

8 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 München Ingolstadt
Audi Bilder

9 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

10 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 München Ingolstadt
Audi Bilder

11 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

12 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 München Ingolstadt
Audi Bilder

13 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

14 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
Introduction: Prof. Dr. Christian Stummeyer

Experienced business consultant ...

business graduate, doctorate in Business Informatics
5 years at The Boston Consulting Group in Dusseldorf
… with international corporation experience, ...
4 years at Siemens Corporation in Munich
international projects i.a. in New York, Dallas, London
… entrepreneur in e-commerce, ...
co-founder of VON WILMOWSKY
5 years experience as executive partner
… digital-strategist, …
with emphasis on digital strategy, processes, change
2.5 years experience as MD of UDG Consulting
… and professor for digital commerce
since 2016 chair of “Business Informatics and Digital
Commerce” at the TH Ingolstadt

15 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

What social phenomenon is being investigated in this study?

Prof. Dr. Christian Stummeyer – E-Commerce Strategy

Even the topic of dating is digitally dominated in 2020
Study: How heterosexual couples have met - longitudinal analysis 1940 to 2020

Source: Rosenfeld, M. J.: Disintermediating your friends (2020)

Prof. Dr. Christian Stummeyer – E-Commerce Strategy
Die Welt ist mehrheitlich „digital“ ...
Einführung: Digitalisierung der Gesellschaft

18 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Strategy

0 Introduction

1 The Basics of E-Commerce September 7th, 2022

1.1 The E-Commerce business model

1.2 Customer focus and target groups

1.3 Key Performance Indicators (KPI) in E-Commerce and the Drivers Tree

2 How to grow an E-Commerce Business September 28th, 2022

3 How to start an E-Commerce Business using existing Marketplaces November 9th, 2022

4 New Trends and Technologies in E-Commerce November 23rd, 2022

19 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Strategy

0 Introduction

1 The Basics of E-Commerce September 7th, 2022

1.1 The E-Commerce business model

1.2 Customer focus and target groups

1.3 Key Performance Indicators (KPI) in E-Commerce and the Drivers Tree

2 How to grow an E-Commerce Business September 28th, 2022

3 How to start an E-Commerce Business using existing Marketplaces November 9th, 2022

4 New Trends and Technologies in E-Commerce November 23rd, 2022

20 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 What does E-Commerce mean?

21 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

A Definition on E-Commerce

The buying and selling of goods or

services using digital channels
often on a large scale
and often involving the transportation
from place to place.
22 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 The E-Commerce markets in Germany
and Indosnesia are growing …

23 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Sales in Germany will be at approx. 90 bn. Euro in 2022
B2C-E-Commerce sales in Germany from 1999 to 2022 in bn. Euro

100

90

80

70

60

50

40

30

20

10

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

Source: HDE (HDE calculation for 1999 to 2021), for 2022 own estimation, Statista

24 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Sales in Indonesia
E-Commerce Sales in Indonesia in billion US-Dollar 2017 to 2025

Source: Statista 2022 (https://www.statista.com/outlook/dmo/ecommerce/indonesia#revenue)

25 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 What are reasons for this growth in E-
Commerce?

27 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

28 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
29 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 Which product categories have a high
E-Commerce share (category
penetration)?

Why?
30 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
E-Commerce Sales in Indonesia

Source: Statista 2022 (https://www.statista.com/outlook/dmo/ecommerce/indonesia#revenue)

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33 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
34 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 In which ways can a company do E-
Commerce?

36 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 ▪ E-Commerce Pure Player
▪ One channel in Multi-Channel
(often offline channel dominating)
▪ Channel in Cross-/Omni-Channel
37 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
38 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 What are the key challenges, if a brick
& mortar company starts E-
Commerce?

39 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Strategy

0 Introduction

1 The Basics of E-Commerce September 7th, 2022

1.1 The E-Commerce business model

1.2 Customer focus and target groups

1.3 Key Performance Indicators (KPI) in E-Commerce and the Drivers Tree

2 How to grow an E-Commerce Business September 28th, 2022

3 How to start an E-Commerce Business using existing Marketplaces November 9th, 2022

4 New Trends and Technologies in E-Commerce November 23rd, 2022

40 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

41 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
42 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
 See also: https://www.amazon.jobs/en/principles

43 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 Sinus Milieu International – Emerging Markets
https://www.sinus-institut.de/sinus-milieus/sinus-milieus-international

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To which Milieu do the photos belong?

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47 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
48 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
Buzz Group

Now pick a Sinus millieu and identify a

E-Commerce offering that has a good
fit to this millieu.

50 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 No matter what you are selling in
E-Commerce:
You need to know your target group!

51 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

E-Commerce Strategy

0 Introduction

1 The Basics of E-Commerce September 7th, 2022

1.1 The E-Commerce business model

1.2 Customer focus and target groups

1.3 Key Performance Indicators (KPI) in E-Commerce and the Drivers Tree

2 How to grow an E-Commerce Business September 28th, 2022

3 How to start an E-Commerce Business using existing Marketplaces November 9th, 2022

4 New Trends and Technologies in E-Commerce November 23rd, 2022

52 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 And now some theory on KPIs in
E-Commerce.

53 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

The KPI Drivers Tree Shows the Interdependencies in E-Commerce

Shopping Cart Size

[Currency]
Order Intake
[Currency] × Visits

Revenue / Sales
[Currency] − Orders ×
Cancellations Conversion Rate
Gross Profit
[Currency] − [Currency]
Cancellations ratio

Returns
Returns ratio
[Currency]

Contribution Margin I
[Currency] − Costs of Sales(1) Costs of Sales
[Curreny] Ratio

Variable Costs Marketing Costs Marketing Costs

[Currency] + [Currency] Ratio

Payment Costs Payment Costs

[Currency] Ratio

Logistics Costs Logistics Costs

[Currnecy] Ratio
(1) Including costs for supply of goods
Source: Stummeyer, C. [Ökonomische Analyse, 2020] in Stummeyer, C., Köber, B. [Amazon, 2020], p. 51-55
54 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
The KPI Drivers Tree Shows the Interdependencies in E-Commerce

Shopping Cart Size

100 USD
Order Intake
360.000 USD × Visits
120.000
Revenue / Sales Orders
324.000 USD − 3.600 ×
Conversion Rate
Gross Profit Cancellations Cancellations ratio 3%
129.600 USD − 7.200 USD 2%

Returns Returns ratio

28.800 USD 8%

Contribution Margin I
71.280 USD − Costs of Sales(1) Costs of Sales
194.400 USD 60%

Variable Costs Marketing Costs Marketing Costs

58.320 USD + 32.400 USD 10%

Payment Costs Payment Costs

6.480 USD 2%

Logistics Costs Logistics Costs

19.440 USD 6%
(1) Including costs for supply of goods
Source: Stummeyer, C. [Ökonomische Analyse, 2020] in Stummeyer, C., Köber, B. [Amazon, 2020], p. 51-55
55 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
The KPI Drivers Tree Shows the Interdependencies in E-Commerce

Shopping Cart Size

Rp 1.000.000
Order Intake
Rp 3.600.000.000 × Visits
120.000
Revenue / Sales Orders
Rp 3.240.000.000 − 3.600 ×
Conversion Rate
Gross Profit Cancellations Cancellations ratio 3%
Rp 1.296.000.000 − Rp 72.000.000 2%

Returns Returns ratio

Rp 288.000.000 8%

Contribution Margin I
Rp 712.800.000 − Costs of Sales(1) Costs of Sales
Rp 1.944.000.000 60%

Variable Costs Marketing Costs Marketing Costs

Rp 583.200.000 + Rp 324.000.000 10%

Payment Costs Payment Costs

Rp 64.800.000 2%

Logistics Costs Logistics Costs

194.400.000 6%
(1) Including costs for supply of goods
Source: Stummeyer, C. [Ökonomische Analyse, 2020] in Stummeyer, C., Köber, B. [Amazon, 2020], p. 51-55
56 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
Definitions of the E-Commerce key figures (1/4)

Visits: Visits describe the number of visits in an online store. Visits are to be distinguished from the
number of visitors. A visitor can also make several visits in a defined period. Visits are also referred to as
traffic.
Conversion rate: The conversion rate is one of the most important key figures in e-commerce.
It describes the probability with which a visit leads to an order. In practice, other conversion rates can also
be defined for the achievement of other goals, e.g. for newsletter registrations that have taken place or
downloads of an information brochure.
Orders: By multiplying the visits with the conversion rate, the number of orders in a defined period is
calculated.
Shopping cart: The shopping cart indicates the average value (net, excluding sales tax) of an order. The
amount naturally depends on the product category and the positioning of the e-commerce offering.

57 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

Definitions of the E-Commerce key figures (2/4)

Order intake: Order intake result from multiplying the number of orders by the average shopping cart.
The value is given before cancellations and returns, but always as a net value excluding sales tax.
Cancellations: Value of orders placed by customers but not delivered by the retailer. The reasons for
cancellation can be on the customer side (e.g. cancellation due to incorrect order) or on the retailer side
(e.g. no stock or no payment received from the customer in the case of advance payment). In case of
cancellation, the goods do not leave the seller's warehouse.
Returns: Value of orders that were shipped and returned by the customer. There are many reasons for
returns, e.g. clothing size not suitable, different quality expectation or an selection order by the customer.
The level of the return rate depends heavily on the product category and can regularly be as high as 50%
for clothing and shoes. For technical products or books, for example, the rate is usually much lower.

58 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

Definitions of the E-Commerce key figures (3/4)

Revenue: Revenue (or Sales) in e-commerce is calculated by subtracting the value of cancellations and
returns from incoming orders. This figure is also always stated as net sales excluding sales tax.
Cost of sales: The cost of sales represents the total of all products sold in the analysis period, valued at
cost price including the cost of goods purchased.
Gross profit: Sales in the defined period subtracted by the corresponding cost of sales.
Variable costs: Variable costs in e-commerce are costs that can be directly allocated to orders and
sales. In particular, they include advertising costs, payment costs, and logistics costs incurred to generate
and deliver orders.
Marketing costs: Costs of advertising, in e-commerce in particular the costs of bringing visits, i.e. traffic,
to the online store.

59 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

Definitions of the E-Commerce key figures (4/4)

Payment costs: Costs of payment transactions, e.g., fees for credit card payments or Paypal.
Logistics costs: All costs incurred in storing the products sold, picking them for shipment, and shipping
them to the customer (e.g., also costs for packaging materials and costs for shipping service providers) as
well as the costs of returns (e.g., return shipping costs, handling).
Contribution margin I: The contribution margin I corresponds to the gross profit in the defined analysis
period subtracted by the variable costs.
However, contribution margin I is only the first indicator for estimating the economic success of e-
commerce activities. As part of a holistic view, other costs attributable to e-commerce (e.g., costs for
developing and operating the online store, customer service for e-commerce customers) and
corresponding shares of the company's overheads must always be taken into account.

60 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

 What are the levers to increase the
revenue of an online shop?

61 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

Levers to increase the revenue

Shopping Cart Size

[Currency]
Order Intake
[Curreny] × Visits
Revenue / Sales Orders
− ×
[Currency]

Cancellations Conversion Rate

Cancellations ratio
[Currency]

Returns
Returns ratio
[Currency]

62 Prof. Dr. Christian Stummeyer – E-Commerce Strategy

Drivers Tree Exercise

An E-Commerce shop sells only power tools. In 2021, the company recorded 1.500.000 visits to its
website and received 45.000 orders, generating a net order value of 5.400.000 USD. The company was
unable to fulfill orders worth 162.000 USD because the ordered goods were not available. In addition,
5.400 orders were returned because the customers did not like the goods. For the sake of simplicity,
assume that only one power tool was ordered with each order.

Please calculate:
a. Average shopping cart size
b. Conversion rate
c. Cancellation rate
d. Returns rate
e. Revenue
63 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
The KPI Drivers Tree Shows the Interdependencies in E-Commerce

Shopping Cart Size

Order Intake
× Visits

Revenue / Sales Orders

− ×
Conversion Rate
Gross Profit Cancellations Cancellations ratio
−

Returns Returns ratio

Contribution Margin I
− Costs of Sales(1) Costs of Sales

Variable Costs Marketing Costs Marketing Costs

+

Payment Costs Payment Costs

Logistics Costs Logistics Costs

(1) Including costs for supply of goods

Source: Stummeyer, C. [Ökonomische Analyse, 2020] in Stummeyer, C., Köber, B. [Amazon, 2020], p. 51-55
64 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
Drivers Tree Exercise

An E-Commerce shop sells only power tools. In 2021, the company recorded 1.500.000 visits to its
website and received 45.000 orders, generating a net order value of Rp 5.400.000.000. The company
was unable to fulfill orders worth Rp 162.000.000 because the ordered goods were not available. In
addition, 5.400 orders were returned because the customers did not like the goods. For the sake of
simplicity, assume that only one power tool was ordered with each order.

Please calculate:
a. Average shopping cart size
b. Conversion rate
c. Cancellation rate
d. Returns rate
e. Revenue
65 Prof. Dr. Christian Stummeyer – E-Commerce Strategy
Summary of today’s lecture

E-Commerce is growing, in Indonesia and worldwide for many reasons.

There are different ways to sell online: As E-Commerce Pure Player, offering a digital
channel in multi-channel or in cross-/omni channel scenarios

A clear customer focus is key for success.

No matter what you are selling: You always need to know your target group.

Measuring the success of E-Commerce by KPI is important.

The Drivers Tree is a proven structure to measure the E-Commerce business.

66 Prof. Dr. Christian Stummeyer – E-Commerce Strategy