International expansion is challenging, with numerous features to considering including shipping and logistics, product returns, payment methods, pricing, customer service, CRM, and SEO. Each feature has multiple variations ranging from simple to very complex and expensive.

Gaining in-depth demographic insights of your target market

To navigate this complexity, it’s crucial to gain in-depth demographic insights of your target market. For instance, understanding the preferences, behaviours, and income levels of potential customers helps in tailoring your products and services to meet local demands effectively. By analysing demographic data, businesses can prioritise high-demand markets and avoid costly investments in low-potential regions.

But how do you know which markets are right for you?

Testing your market to know where your product stands

To determine the right markets for expansion, start with an iterative, data-driven, phased approach. Initially, implement simple, low-cost features to cover wide markets. Then, based on market feedback such as traffic and sales, narrow down to a dozen markets showing potential. In the final phase of international expansion, the holy grail of international expansion, focus on a handful of strategic markets, deploying the most complex and expensive features.

These markets should account for more than two thirds of your international sales, if not more. The key decision criteria for choosing strategic markets are retention rates, product-market fit, and strategic depth.

Outside the macro factors, such as the economic outlook or growth rate of the middle-class population, there is a set of factors that are unique to you, and these factors can be accurately measured by the data you collected from previous phases. For example, you can precisely pinpoint your customers’ household income level, which allows you to understand the potential size of your addressable market in a foreign market.

This phase-based method helps in identifying where your product stands in different markets, allowing you to allocate resources efficiently. Testing markets helps in understanding consumer preferences, the competitive landscape, and potential barriers, enabling you to refine your strategies for better market penetration.

Retention: How REVOLVE derives the majority of revenue from repeat customers

Retention is a critical factor in the success of international expansion; it is the secret sauce to long-lasting compound growth. A high retention rate can significantly boost revenue, as evidenced by REVOLVE’s strategy. REVOLVE does not yet offer loyalty programs in international markets, yet still derives most of its international revenue from repeat customers.

This success is attributed to unique product positioning and exceptional customer experiences. REVOLVE and FWRD offers 1,200 brands, many of which are exclusive in international markets, and provides free returns to more than 80% of its international customers through seven regional return centres. Such strategies enhance customer loyalty and repeat purchases, demonstrating the importance of retention in sustaining growth.

Best practices for fulfilment and returns management

I recommend a tiered service level structure for global fulfillment. Basic coverage for markets that have not demonstrated strong demand, localized experiences in markets with high potential, and native experiences in your strategic markets.

REVOLVE offers global express service for all international markets; we offer local returns with full refunds in our strategic markets like a local business would do. Local returns allow us to refund customers faster; full refunds, which include duty and taxes, reduce the risks for our customers when trying on new brands. REVOLVE conducts complex duty drawback programs in 39 countries to support local returns and full refunds and an active duty-free entry program with US customs for returned merchandise.

I understand everyone is different, our products are different, and average order values differ by seller; global express and native return services are not for everyone. So, what is the rule of thumb when choosing your own service level?

Earlier, we discussed the importance of customer retention. REVOLVE’s experience has consistently proven that better service levels improve retention rates.  As a result, you should start with the best service level you can afford to test out the market and give it a fair chance.

The metrics you use for decision making should be CLV (Customer Lifetime Value) based instead of per order based. When entering a new market, your initial goal should be to focus on revenue maximisation instead of profit maximisation. You can always trim down service levels if a market should prove to be less relevant, yet starting with poor service may never reveal the true potential of a given market.

Kai Li is senior vice president at REVOLVE and keynote speaker at Online Retailer Conference in Sydney on 24 July focusing on ‘Cross-border E-commerce: The Playbook for Going Global’ with more information available here.