This post is by Carsten Brassel, UK Country Manager for plentymarkets – an all-in-one ecommerce solution from Germany that combines stock management, online stores and multi-channel sales.
The Internet has turned our world into a global village. We can chat with friends in real-time despite living thousands of miles apart. And we can purchase items from online stores on the other side of the planet.
In our globalized world, expanding your business to another country comes with both big challenges and big rewards. When done correctly, international expansion allows you to tap into a new base of customers and take your company’s image abroad.
We recommend Germany for sellers who are interested in reaching out to a new international audience. Germany is not only the most populous country in the European Union, but is also Europe’s largest economy and the world’s fifth largest economy in terms of purchasing power parity.
The German ecommerce market is booming. In fact, Germany is the second largest ecommerce market in Europe. By setting up shop in Germany, you can tap into this lucrative economy.
Of course, the hardest part of a journey is often the first few steps. When getting started in a new country, there are always a few cultural differences that you should be aware of. Here at plentymarkets, doing business in Germany is our area of expertise. We’ve been helping sellers grow on the German market for over 10 years and have learned quite a few tricks of the trade since we first got started in 2001.
As an all-in-one ecommerce solution “made in Germany”, plentymarkets has good insight into the German market. The software combines a comprehensive stock management system with a versatile shop system, effortless multichannel sales and a wide range of interfaces to German marketplaces. 3,500 customers are already using plentymarkets to sell their products in 4,000 online stores in Germany and around the world.
We have learned a lot about German and international marketplaces over the years and have learned which products work best on each platform.
The German Ecommerce Customer
Every good salesman knows that the ability to understand one’s audience often makes or breaks a sale. When taking your business abroad, it is important to spend some time getting to know your new customers and learning what makes them tick.
Before you get started in Germany, it will be worth your while to learn about the German culture and customs. As an English-speaker, a good place to start is by getting acquainted with the German language. The former West German chancellor Willy Brandt is famously quoted as once saying:
If I am selling to you, I speak your language. If I am buying, dann müssen Sie Deutsch sprechen.
The second half of his statement translates to, “then you must speak German”. This clever saying highlights the fact that language is a crucial factor when selling to German customers. Buyers naturally feel more at home when reading product descriptions and information in their own native language.
If buyers are presented with a wide range of offers to choose from, then they will naturally favor sellers who not only provide the right item at the right price, but also in the language that they are most comfortable with. As the German ecommerce market is quite developed, buyers can afford to be picky when it comes to language. This makes it essential for sellers to invest in good localization and provide their item texts and services in German.
Smart business owners know that it is wise to invest in customer service and seek out employees who bring the right skills to the job. German customers want to know who they are doing business with and be sure that they are getting a good deal with a serious merchant. Germans won’t hesitate to call or send an email to make sure that they are dealing with a legitimate business.
As such, you should provide German-speaking support for your customers abroad. At the very least, you should be able to provide German email support to give potential customers the peace of mind that they are making the right choice when buying from your company. We recommend working with service providers when setting up international customer support. They provide customer service and spare you the hassle of hiring extra staff.
In Germany, competition is tight and customers won’t hesitate to look elsewhere if they have a bad first impression of a business. As such, it is not only wise to provide item information and services in German, but also to offer customers the cutting-edge design that they expect to see in legitimate online stores. Customers expect to see high-quality product photos that let them zoom in and look at specific features up close. Since customers can’t physically pick up an item and try it out in an online store, they expect to find detailed and accurate product descriptions as well as read reviews that were submitted by other buyers.
It is also important to remember that nowadays an ever increasing percentage of customers view your online store on their smartphones and tablets. Don’t let illegible item descriptions or non-compatible functions drive away potential customers who access your store on hand-held devices. In Germany, m-commerce is booming. Get your store ready by implementing responsive design or by teaming up with a web design specialist who can polish any last rough edges on your website.
Popular German Online Marketplaces
Amazon and eBay are two of the most popular marketplaces around the world. Germany is no exception to this rule. Sellers who are serious about doing business in Germany should ensure that their items are well represented on these marketplaces. If your business is already established on Amazon and eBay, then you may be interested in expanding your reach beyond these two powerhouses.
In this case, you should consider listing on hood.de, Hitmeister, Yatego and Zalando. Most marketplaces offer a free trial period or a beginner level account that you should use to see which marketplaces are the most profitable for you. Of course, not every marketplace will be suitable for every product line. Research various German marketplaces and decide which ones best match your product line and your target audience.
Since marketplaces are quite popular in Germany, customers naturally want to compare prices on several different platforms as well. Germany meets this need with a wide range of lucrative price comparison portals, such as idealo.de, billiger.de and guenstiger.de. By listing items on German marketplaces and price comparison portals, you will be able to tap into a new source of customers and create visibility for your store while your company gets settled abroad.
We wanted to find out how heavily the different sales channels are used by plentymarkets customers. As such, we analyzed the various online markets that were used by 3,500 plentymarkets customers during the first quarter of 2015.
The analysis of online markets shows the percentage of customers that use each market. For example, approximately 40% of plentymarkets users generated revenue with Amazon (non-FBA) during the last three months. The bars show how much revenue was generated on each market when compared to the total revenue generated by all plentymarkets sellers who use the market. For example, Amazon (non-FBA) is approximately 32.4%.
While experts recommend selling items on several different platforms, some sellers may view this advice as easier said than done. Minor changes to product information need to be carried out manually on dozens of different platforms. When items are sold on one platform, stock information needs to be updated on the others. Otherwise sellers run the risk of overselling an item.
Rather than wasting time manually updating the same information on every platform, we recommend implementing a software solution which allows sellers to manage all of their product and stock information in one central database. Sellers save time and money by controlling all of their sales activities with only one software solution.
In plentymarkets, the central database notifies all of the sales channels whenever the stock changes. This prevents sellers from accidentally overselling an item. Stock information is always up-to-date thanks to the automatic data synchronization. This allows sellers to react quickly when the stock runs low and an item needs to be reordered. This way, the desired products will always be available for potential customers.
Even if you use a software program to manage your stock information centrally and automatically, it is still a good idea to calculate a stock buffer between 10% and 30% since markets do not report sales in real time, but rather with a slight time delay. Make sure never to transfer 100% of your stock to a market. Especially if you work with markets that turnover merchandise very quickly.
Payment, Delivery and Returns
While listing items on international markets is a good start, it is only half the battle. Customers will not complete a purchase if they are not satisfied with the payment and delivery options that are provided. In some countries, it is typical to pay for online purchases with credit cards and debit cards. But when in Rome, do as the Romans do.
Debit cards work differently in Germany than they do in countries such as the UK. German buyers are also typically quite skeptical of entering their credit card information online. This is why the most popular payment methods in Germany are PayPal, payment in advance (bank transfer) and payment on invoice. If you want your products to sell in Germany, then you should offer these payment methods as well. At minimum, you should allow customers to pay with a bank transfer.
The new SEPA regulations make it easier than ever for buyers to transfer money between European bank accounts at no extra cost. But be aware that bank transfers can take up to three days in Germany if the seller and buyer use different banks. When offering payment on invoice, it makes sense to use one of the many different providers who specialise in this service such as Klarna. Their job is to ensure that you get your money and that your buyers gets their goods. This is particularly something to consider if your target group is over the age of 55.
Once an item has been paid for, it needs to be shipped. German customers expect their packages to be shipped quickly and the estimated delivery times to be accurate. Although many clichés about German punctuality are exaggerated, German buyers do expect their online purchases to be delivered in a timely manner. Quick and reliable deliveries are key to providing exceptional customer service. Ideally, the package should be shipped with a reliable parcel service on the same day that the order was received.
As is the case in many countries around the world, Amazon has quickly become the most popular marketplace in Germany. When combining Amazon with the German parcel service DHL, even Amazon Super Saver Delivery becomes a very quick delivery method. Most of the orders are dispatched the same day if they are placed before noon. With DHL, parcels then only take one day to be delivered to the buyer’s address.
In Germany, this quick service is not only expected on Amazon, but it is customary for nearly all online purchases. As such, it is not uncommon for German buyers to be disappointed with a purchase if the delivery does not live up to their expectations.
We also analyzed our customers to find out which percentage of orders were offered to customers with free shipping on each market. In the diagram below, we can see that Zalando and Plus always offer customers free shipping. Gimahhot is an outlier in this diagram. Free shipping is offered for most of the orders. The other orders are likely large appliances. The value for Otto is also quite high. This is because furniture is mainly sold on this platform. Amazon FBA occasionally charged for shipping despite Prime. This is likely because customers selected express services that are not free of charge. It is possible to see how much was charged for shipping on such orders.
Of course, an item that has been shipped may also be returned. Germans are famous for returning purchases that they made online, especially when it comes to buying clothing and accessories. They are often overly cautious when making online purchases and want to be assured that they will easily be able to return an item if they are not satisfied. Although it is no longer required by law, Germans still typically expect returns over 40€ to be free of charge.
Since returns are quite customary in Germany, it is in your own best interest to have a local return address. This not only reassures potential customers, but also helps you keep your return costs under control. In Germany, you’ll find providers who specialize in this kind of service. Using a service provider relieves you of the cost and hassle of setting up a warehouse in Germany or of risking expensive international returns.
Another good alternative is to use Amazon’s multichannel FBA service, which allows you to use Amazon’s warehouses in Germany. While shipping locally allows you to avoid expensive international returns, it also requires you to move part of your inventory to Germany upfront. Moving inventory can be a big step, so it may not be something that every seller feels ready to do until business is running smoothly in Germany.
German Taxes and Pricing
While taxes are usually no-one’s favorite subject, they are an equally important consideration when launching your company in a new country. VAT rates and thresholds vary from one country to another, and filing returns can become a major challenge if you are unfamiliar with a country’s customs and language.
Germany currently has a standard VAT rate of 19%. This is lower than in some other countries. For example, the standard 20% VAT in the UK. At times when the exchange rate is not in your favor, this 1% VAT can help UK sellers earn a slightly larger profit margin on their products.
Furthermore, the VAT threshold in Germany is currently €100,000. If the goods that you sold to Germany exceeded this amount in the current or previous year, then you will have to file VAT returns in Germany. This means that you will need a German speaking accountant or a service provider who specializes in these matters.
Depending on your own home country, you may also have to spend some time considering currencies and the local prices of different goods. Item prices can vary greatly from one country to another. Factors such as buying power, supply and demand all determine the prices of goods and services around the world. In Germany, some of your items may typically be sold at much higher or lower prices than you are used to in your own country.
You may find that a particular item sells for a much higher price and is quite profitable when sold abroad. On the other hand, the market may already be flooded with another item, causing fierce competition and low profit margins. It may not be worthwhile to sell such items from abroad unless you have a good supply chain and a very good purchase price. Researching the price of various items on the German market is an essential part of the preparation that should be done before you begin selling your items abroad.
Once you have decided which products will be the most profitable in Germany, it’s time to start listing items. For example, if you are located in the UK, then you won’t want to list items with their prices still in pounds, but automatic conversion rates are notorious for turning nice, even prices into mysterious strings of numbers. Should you leave the prices as they are? Should you offer different prices in Germany? Depending on the circumstances, you may need to spend some time considering currency rates before you begin selling in the Eurozone.
In Germany, it is not considered to be a faux pas if you have strange-looking item prices on marketplaces where competition is tight and every cent matters. However, it is a different situation in the online store. Here you should make sure that you always have nice, even prices, as this evokes a higher level of professionalism.
Another important consideration is the cost-factor in currency conversion. You certainly don’t want to waste part of your profit margin on currency conversion, so you should choose a partner who can help you lower these costs, e.g. by avoiding the commission that Amazon takes for every reconversion into your currency.
Lastly, be aware that every country has different requirements for the legal information that needs to be included on websites or in email signatures. For example, websites published in Germany are required to include an “Impressum”. This is a legal statement that indicates the author and owner of the site’s content. We recommend that you have a legal advisor check your company’s documents and website to ensure that you comply with the legal regulations in Germany.
Taking the Leap
Initially, expanding your business to another country may seem like a task of Herculean proportions. But by following the advice presented in this article, your business will be ready to dive into the German market and to reap the rewards of one of the world’s largest economies.
Spend time in advance preparing for your debut on the German market. This initial research will help you avoid typical beginner mistakes and will put you at an advantage when you expand to a new market. By becoming familiar with the country’s language and customs, you will have a better understanding of your target audience and will know what your customers expect from a legitimate business.
Spend time in advance researching your new potential customers to understand what motivates their shopping habits and which marketplaces they prefer. Then invest in the language services, payment providers, shipping methods and product presentation that will make these customers feel at home in your store. Likewise, team up with a German-speaking accountant or service that can help you navigate the legalities in a new country.
Lastly, implement a software solution that allows you to centrally manage your product and stock information, and then synchronizes this data with all of the different platforms that you sell on.
Now it’s your turn to take on the challenges and benefit from the new opportunities that come with global expansion.