How Could EKMPowershop Stop Their Decline?

By Simon  |  27 Sep 2016 09:00:00

It's really interesting watching the path of companies that operate on the Internet. Many of them gain customers quickly, reach a peak and then begin the long wedge of doom (WOD), which can take many years. Others plateau when their system is still very popular, but their market is saturated.

EKM Powershop seems to have had a more dramatic decline which is worrying for anyone using or thinking of using their system. Interest in their system is now back to the levels seen in 2006.

You can see this graph for yourself using Google Trends at https://www.google.co.uk/trends/explore?q=ekmpowershop

(Please note that whilst we are a competitor, we have great respect for companies such as EKM, who have provided ecommerce services to many merchants over the years. However we are interested that even when you have been successful as EKM, it seems that money and staff may not be enough to prevent the WOD!)

But the question is - Why has this happened and what can EKM - or any business - do to prevent this.

In a subscription based business, the entire business depends on the principle of 'Churn'. This is the number of people leaving each month, compared to the number of new customers signing up. Most customers will have an average lifetime where they stay with the subscription service. On average this is 3-5 years. With a system like EKM, you also have to balance this against the fact that most small businesses fail within 5 years, and small businesses are the target market for such a system.

Stage One

For the first 3-5 years, very few customers will leave, meaning that the provider builds a big merchant base quite quickly depending on the competition and the marketing activity. It's after the 3-5 year mark that things get more interesting as earlier customers start to drop off. This is the second stage of any subscription based system.

Stage Two

At stage two, some of the earlier merchants will be leaving the system which will start to bring the overall customer base down. However this must be offset by increased marketing activity. EKM managed this stage by being involved with the 'StartUp Britain' campaign in 2011, which was a government effort to get more people starting small businesses online. This was a great move as it propelled them upwards as can be seen in the graph above. The problem is that this sort of marketing exposure is difficult to replicate without spending a huge amount of money on national brand advertising. EKM used the additional revenue achieved from this to attempt to offer their services to other countries - notably France. This was not hugely successful but a worthwhile exercise but did not bring the same success as the UK offering.

Stage Three

At stage three a company such as EKM has a problem. Many merchants who are still using the system from the first few years who have not already left will now be leaving. Although many businesses fail within 5 years, successful businesses are sold, or change their ecommerce provider (Not neccessarily a good idea), retire, or leave for other reasons. In adition at this point EKM is now also losing failing businesses from stage two. There is also the issue of increased competition, most notably from US & CAN systems such as Shopify. Shopify - which is venture capitalist funded, unlike EKM, IPO'd in 2015 with a valuation of $1.3Bn. Raising millions of dollars in cash. This is a big problem, as Shopify can spend as much money as it likes on marketing which it continues to do. This stage marks the peak of the mountain.

Stage Four

By stage four the only opportunity for recovery is a huge marketing campaign which relies on a lot of the resources obtained during stages one and two. The initial aim must be to try and stabilise the customer base. EKM has also taken an additional step of raising prices for some merchants. This is a risky move as is may simply hasten the exodus, however if there is not enough money available for a big marketing campaign then it may be the only option. Alternatively it may be simply to build up a big pot of money for when the company is no longer viable.

What They Could Do

A key problem is brand bordom. Many merchants selling online will have already tried EKM and will have an opinion of it. EKM could create a new system under a different brand, although the cost of marketing a new brand in an already crowded marketplace is very expensive.

They could work out who their highest value clients are and concentrate more on them. It may be that they can make the same amount of money from less customers. Essentially retargeting their company at the higher end of the market.

Alternatively - they still have a big userbase - they could reduce their staff to a skeleton staff with the minimum number of people, stop marketing completely and simply bank the subscriptions until the company becomes unviable. The directors would potentially walk away with a lot of money and enjoy a lengthy retirement!

Note that all the above is based on my opinion and how it seems to me.

What would you do?

Simon