Hedging may sound out-rightly boogie to you when it comes to your everyday Online Buying and Selling(E-Commerce). Following the rise of E-commerce in these parts of world, consumers/shoppers/retailers are on an unending search for best and the “cheapest” options of high quality product and/or service offerings.
Just like how companies and large corporations are very much conversant with this word Hedging. It is as much important to a micro business entity to also have basic insight of the concept. How to apply it to their business as a sort of insurance for the investment as they look to its appreciation in value and volume.
The context of application of these strategies of hedging used by everyday businesses is based on the theme that they are in business to grow and make good enough profits after all deductions; mainly for the protection of investment as well as its appreciation( sustainable growth).
Let us get clarity on the concept of hedging and how it relates with your everyday online buying and selling and off the social platforms; e-commerce.
What is Hedging?
A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security.investopedia.com
Why Must you Hedge?
Hedging, whether in your portfolio, your business or anywhere else, is about decreasing or transferring risk. Hedging is a valid strategy that can help protect your portfolio, home and business from uncertainty.investopedia.com
How does this translate to growth, making profits and/or minimizing losses in the era of volatility of the global economy and the currencies trades are carried out in.
How to Hedge as a Buying and Selling Online Business
Two strategies should be top of the list for the online business involved in buying and selling or either drop shipping which seems to be in vogue now.
- Diversified Portfolio Hedging
- Spread Hedging
Diversified Portfolio Hedging
This option though quite expensive works with having to understand and know the demand for the various products and/or services you in your portfolio. Clearly to mean that a gain from one end covers the loss from another end to even out or minimize the losses.
This means that in a basket or goods and/or services, the pricing policy must be meticulously designed to ensure that you have absolute or greater monopoly over inventory underpinned by best quality and great customer service.
It is with this that you can direct your best Social Media Marketing Plans targeted at the Fast Moving products and/or services at the geography for which your pricing policy works.
With these the losses for your non performing goods and/or services in the same basket may be minimized and catered for by the high margins of the best performers in the diversified portfolio.
Spread Hedging though seen as a limited risk strategy it is not without losses though it is minimal as compared to not having it in place and make huge losses due to devaluation of traded currencies.
This option allows you the opportunity to have future contracts with your suppliers which usually works best for drop shipping. Having a deal with the supplier giving a guarantee of consistency in inventory is ideal. Minimized shipping delays and a reliable customer service is key. Making financial commitments based on a forecast of making future profits and if for worst situations such as a down spiral devaluation, your losses are largely insured to be minimal.
Supplier guarantee of sole distributorship or retail also allows you to enter into a future contract of locking the price per goods and/or services to a particular figure with a timeline. This could lead to a loss in the uncertain future though in situations where the values are closer to zeros for industry or economy wide losses. Your losses however, are minimal and if there is appreciation in profits.
This has to be solidly based on Forex forecasting or speculations to be at an advantage that with a how high or low a the volatility situation, your e-commerce will be able to minimize losses if not turn good profits.
This leaves the room to have a pricing policy ear-marked between making profits or staying afloat with minimal losses whiles managing inventory. For those dealing in physical products or a cloud based inventory management software that is synchronized with that of your portfolio of suppliers if you practice drop shipping.
Effects on Businesses
With expanded internet search and people’s ability to find products/services at their convenient prices or better offers that has free/fast shipping options or in close proximity to their locations, cracking the code gets tougher. The market for e-commerce aided by robust Social Media Marketing Plans has its fair share of cons before having to deal with the volatility of the Forex. It is best you are positioned to understand the risks and how to mitigate them.
Digital undeniably is growing a fast pace and with it payment systems with global acceptability, but the currency of one country may or may not be in a good standing with another.
A Director at Cambridge Global Payments in an interview over losses made by Netflix due to Forex. He was said “volatility is inherent is business”. Hence the need for hedging with its necessity as a way to minimize losses.
Hedging is not absolute remedy to ensure good profits and minimal losses that sets your e-commerce business on the path of sustainable growth and profitability. Embedded with right Social Media Marketing Mix as well as best practices of due diligence, there is a sure guarantee of growth and profitability sustained.
That is why we are here my dear e-commerce owner or start up.