Part 3 - E-Commerce In Latin America: How To Test Market Demand

Banana Republic or land of opportunity? You decide.

Banana Republic or land of opportunity? You decide.

 

Hello again!

 

You guessed it: another instalment in the E-Commerce series. Although this is Part 3, it really should be Part 1. After all, before you attempt to start any business, you should first make sure people want what you’re offering.

 

Fortunately, the Internet has made it easy to do this. Many of you may already be familiar with the idea of testing the demand of a product you aren’t selling yet by driving traffic to a sales page to gauge interest and telling any customers that want to buy your product that you’re ‘sold out’. Based on how many inquiries you get, you’ll have an idea if it’s a viable product or not.

 

This is a commonly-used strategy for hopeful entrepreneurs in the United States, Europe, Australia etc., but hasn’t quite caught on in LATAM. Good news is, it also works with consumers down here. However, the platforms you advertise on and the type of products that would be good to test for a local market are going to be different.

 

I’m going to walk you through the best, most cost-efficient way to test demand in Latin America for your product.

 

Let’s get it going!

 

 

 

What product should you sell? 

I talked a bit about this in Part 1, but I didn’t say too much. I’ll go into more detail now.

The list of products you can sell online in Latin America is going to be much, much smaller than if you were targeting the American market. This has to do with a number or things, but mainly it comes down to these factors

 

1.     A smaller demographic of online shoppers. 

Basically you’ll have to target reasonable affluent people between ages 20-40 – no one else shops online.

 

2.     Shipping.

Shipping is unreliable in every single Latin American country. Larger/heavier products are simply too expensive to ship and will have a greater likelihood of going “missing.” The product you sell must be on the small and lightweight end of things. Ideally, it will fit into a padded envelope or small box. Also, some countries have strict import restrictions, and some countries have high manufacturing costs. Ideally, the country you’re selling in will have low manufacturing costs and few import restrictions. Or, at least, one or the other. If you’re in a country with high manufacturing costs and many import restrictions (Argentina), things will be considerably more difficult for you.

 

3.     Returns.

Due to shipping costs and inefficiencies, you’ll want to sell an item that either can’t be returned (for hygienic reasons for example, like bathing suits) or an item that isn’t likely to be returned.

 

4.     Accessibility.

You’ll need to pick a product that people want, but is not easy to find, or a product that people want that you can sell much cheaper. Trust is lower in these countries and people are much less willing to buy something from an unknown online vendor than they are in the United States, Europe etc.

**If you have experience with marketing, another option is to aim to create a strong brand. Although it may take longer and more money, if you manage to build a trustworthy entity with brand recognition, it will allow you to sell your product at a more expensive price.

 

5.     Culture.

People have less hobbies down here (ask any girl what she likes to do for fun and 95% of them will say “go to the movies.” While in the United States you can carve out a niche selling Sleeve Clips or Dick-Shaped Gummy Candies, in Latin America your options will be limited by a less rabid consumer culture.

 

The fact that there are much fewer products you can sell in a Latin America country can be a good or a bad thing depending on how you see it. I tend to see it as a good thing. When your options are limited by external factors, you’ll have a much better chance of quickly finding something viable rather than spending all your time musing over what product to sell and never actually getting to the next stage.

 

Initial research can often be as simple as making a list of things that correspond to the above criteria and start Googling “Donde Comprar (an item) en (your city). If there is something that people want and can’t find, or can only find for a hugely inflated price, you may have an idea that could work.

 

 

How To Test Demand

So, you’ve got a product that you think might work in your local market. But before you start investing your hard-earned cash into building a business around it, you want to be sure.

Here’s what you should do.

 

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Step 1

Go to MercadoLibre (basically LATAM’s version of eBay) and see if people are selling the same product you’re selling. If you find your product it’s a good sign – it indicates there may be demand.

 

Step 2

Create your own MercadoLibre listing for the product you want to sell (make sure it’s high-quality and better than anyone else selling the same product as you). This is simply to see if there is interest in what you are selling. If you get interested buyers, tell them that you have sold out. This will tell you that there is demand, indicating you can move forward with your idea.

 

Step 3 (optional)

If you can get your hands on the product you plan to sell, buy a few units. It doesn’t have to be your exact product.

Let’s use shaving brushes as an example.

Say you noticed that shaving brushes are expensive in Colombia. You think you can get and/or manufacture much cooler-looking shaving brushes at a lower cost. At this point, just pick up any old shaving brushes from a store. Put up new MercadoLibre ads at the price you think you would be able to sell the brushes for, not the actual price that you paid for your brushes (yes, you’ll take a slight loss when you sell them). When someone wants to buy a brush, arrange to meet them in a public place to sell it to them.

 

The point of this is to learn as much as you can about your demographic without spending much money (only the difference in the cost/sale of the brushes). Talk to the guy about how hard they are to find, where people usually buy them, if barbers have them etc. Take note of the ages, appearances and interests of the people who want to buy your shit. This will give you a good idea of who to target your ads at later on.

 

I say this is optional for two reasons:

1.     Depending on the product you want to sell, this might not be worth it. If it’s hard to find or if it’s very expensive in the country and will have to take a huge loss selling it at a discount, it’s not worth going to all the trouble simply to find out a bit more about your target demographic.

2.     You might be able to figure out your target demographic without doing this based on your product’s popularity in the United States. For instance, if you’re selling Anime paraphernalia, it’s probably going to be the same people buying that shit in any country.

 

Step 4

Check if there are any other online stores selling your product. Since E-Commerce is in its infancy down here, there is a pretty good chance there won’t be, or if there are, they will be of dismal quality.

Set up a landing page to your product on the Internet (through WordPress, Shopify, whatever you want) that allows bank transfer payments (PayU LATAM is one option for this), as well as a Facebook Page. Drive traffic through Facebook Ads. See if people buy your product (or at least add it to their shopping carts if they are confused about how to buy).

The point of this is to see if people are willing to purchase something online off a site they aren’t familiar with. If you notice some sales or a lot of abandoned carts, it’s a good sign to start moving forward.

 

Step 5

If the response was good, start building your online store (assuming you’ve got the sourcing of your product all figured out). Make it professional looking with a nice logo. Complete with idiot-proof descriptions about how to buy online and about how secure their information will be with you. Have a live chat feature because people will have a lot of questions. If you answer them promptly and confidently, your conversion rate will be much higher.

All of these steps shouldn’t cost you much more than a couple hundred dollars.

A very cost-effective way to see if your idea will be profitable.

 

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Conclusion

You might be thinking “But Vance, can’t I just skip all the MercadoLibre type bullshit and just test demand with Facebook Ads?

 

You could, but that would mean that you’d have to pay to set up your landing page, logo, advertising etc. before having any idea if anyone wants your product. The point of the MercadoLibre business is to test demand in a simple way that will cost you nothing.

 

But if you’re confident you have a good idea and have the money to spend right out of the gate and don’t want to bother with meeting people in Starbucks to extract info and sell them your product, I see no reason you can’t skip directly to the advertising part.

 

And that’s about it! Hopefully this helps those of you on a tight budget who are looking to get into the E-Commerce game in Latin America to make some extra money.

 

As always, please feel free to post any questions, comments, advice etc. in the comments below.

 

Until next time,

Vance

Part One: How To Start An E-Commerce Business In Latin America

Part Two: How To Market Your E-Commerce Business In Latin America

 

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