Prescriptions For An E-Commerce Hangover

January was filled with the frenzied reporting of glowing statistics of last year’s e-commerce performance, especially the impressive results of the online buying during the 1998 holiday season.

I admit it. I am guilty of getting caught up in the moment of this wildly exciting new sales vehicle. I have read dozens of glowing reports by industry analysts, pundits, consultants, e-commerce software providers and others. Each time I read a press release reporting triple digit growth, I pump my forearm and shout, “Woo, Woo, Woo!”

Here’s a sampling of some titles I’ve read recently:

  • Survey Says Online Shopping a Hit (Visa USA)
  • Retailer Online Storefronts Increase By More Than 300% over 1997 (Ernst & Young)
  • It Was an E-Commerce Holiday. Results of New InfoBeads Study Shows 32 Million US Adults Shopped the Web For The December Holidays (InfoBeads)

The Day After

But now, it’s the day after the party. Merchants aren’t feeling quite so giddy. And more than a few are nursing enormous hangovers from lost shipments, no inventory, and credit card screw-ups.

What’s worse, some popular web sites came to a screeching halt even before the holiday blush had faded. If this really were a party, they’d be the ones who passed out on the bed in the spare room before midnight.

The official reviews of e-commerce success in 1998 are mixed. A recent Jupiter Communications survey of online shoppers indicates that online retailers should “resist the temptation to focus exclusively on growing market share and focus their efforts on customer service and retention.”

Shoppers biggest beefs included: 1) problems with merchandise availability, 2) the additional costs of shipping and handling, and 3) slow site performance.

Hair Of The Dog

This year will be the year that online retailers put more focus on tightening up processes — basically, everything that happens behind the web browser. So here are a few pointers for online retailers:

  • Forecasting/predictive modeling. Mail-order companies have gotten forecasting down to a science in order to achieve 95 to 99 percent order shipment results. Forecasting and predictive modeling will help you plan for the ” peaks and valleys” of your web buying. It helps you ensure that your web servers can handle bursts of traffic. Forecasting can help you plan your staffing requirements for your high and low seasons.
  • Customer service. With a customer-centric system, you can provide customers with useful services like order confirmation, order tracking, and an easy way to locate a human being. A primary reason the web is so attractive to retailers is that it saves them money by automating many customer services and lowering people costs. But if your web-based customer service system isn’t easy, or isn’t well-integrated with your call center, then you won’t achieve the cost savings you are looking for.
  • Security/privacy. I am sure you hear more than your fair share about this issue, but it is the biggest reason people don’t buy online. How about a safe shopping guarantee?
  • Inventory control. Amazon.com had to send out many emails to customers telling them that their shipments wouldn’t arrive in time for Christmas. In fact, I got an email saying that one of my gifts would never arrive because of problems with a supplier.

Confessions Of An E-Commerce Entrepreneur

In addition to the above, listen to the advice of Maxwell Sroge, well-known catalog industry consultant. His words apply aptly to online retailing as well.

  • Fulfill 92 to 96 percent of orders within 2 or 3 days. Inform customer if an item isn’t available and suggest a substitute, or place a back order.
  • Achieve a 2 percent return rate on average unless the online retailer sells apparel, which has higher return rates.
  • With traditional catalogers, 20 percent of sales are generated by the telephone representative, which is known as cross-selling or up-selling.

Big Picture

And of equal importance, if your business started out on the Internet, and your growth doesn’t model the industry average of 300 percent, then here are a couple things to focus on this year:

  • Brand building. People trust brands. They will gravitate first to brand names they know versus a company they have never heard word one about. Focus on advertising messages that build your brand image. There is a heavy concentration of online revenue going to a small subset of well-branded web sites. These popular web sites have invested quite heavily in promoting their brand. Other suggestions: Carry well-known brands or form partnerships with well-known brands/companies.
  • Traditional marketing methods. Some of the pioneers in online retailing have crossed over to non-electronic methods to attract more customers. This is particularly true because the online market is not yet large enough for online retailers to meet their revenue needs. Who in 1998 did not receive catalogs and mailers from online retailers?

Traditionally Speaking

Traditional mail order and retail companies have the advantage of their brand awareness and good “offline” reputation. But traditional retailers still need to embrace the web as a different medium, instead of treating it as simply another marketing and sales avenue. I still see many traditional retailers trying to impose existing marketing and selling models onto the web. For 1999, you should consider this suggestion:

  • Improving web site functionality and performance. My four years of online shopping experience has led me to the conclusion that companies who were conceived on the web have web sites that perform better and offer better usability than sites developed by traditional retailers. These web-based retailers were lucky enough to build a system that was optimized for the web.

The challenge for the traditional retailer is to tie together many different systems in reality, it’s about as easy as herding cats. I suggest learning from the e-commerce entrepreneurs and from your own customers by involving them in the design of your web site.

Finally, Maxwell Sroge offers advice that all retailers should heed: “No catalog makes money on the first order of a new customer. Catalogers become profitable from repeat orders from the same customer.”

Sroge adds, “The fundamentals of good business is taking good care of customers.”

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