There’s More To E-Commerce Than Online Profits

More than two-thirds (69 percent) of retailers are wrongly judging the success of their Internet investments, according to Jupiter Media Metrix, because they’re relying on top-line metrics such as online sales and profits.

By taking their attention away from sales and profit numbers and examining the non-transactional benefits of their sites — including online-influenced sales and improved payroll productivity — Jupiter’s research found that brick-and-mortar companies will find that the return on investment (ROI) of their Web sites are 65 percent higher than if they only considered sales that occur online.

“Brick-and-mortar retailers should not blindly follow the lead of their pure-play competitors by adopting a laser-like focus on the profitability of their Web sites,” said Ken Cassar, senior analyst at Jupiter Media Metrix. “A typical brick-and-mortar retailer’s Web site can yield financial benefits well beyond the transactions it generates. Jupiter estimates that nearly two-thirds of the total online benefit for retailers will be in offline transactions influenced by online experience.”

But Jupiter found that brick-and-mortar retailers only pay lip service to the value that their sites have to their stores, tracking metrics that treat their sites as selling channels. According to a Jupiter Executive Survey, 46 percent of retailers cite sales as the primary metric that they base the success of their Web sites on, followed by 23 percent that are focused on profit. But once again it appears to be a case of retailers missing the mark when it comes to meeting consumers’ needs. A Jupiter Consumer Survey found that 45 percent of consumers have used a retailer’s Web sites to research a product before buying it in that same company’s store.

Online retailers shouldn’t take this as a sign that profits are back out again, as they were when the Internet bubble was inflating. Jupiter analysts did say that only Internet pure-play retailers should focus solely on driving profits from their Web sites. Multichannel retailers must remember that not every visitor comes to their site to make a purchase. According to the Jupiter ROI model, a brick-and-mortar retailer with a fairly successful transactional Web site is likely to extract nearly two-thirds of its total Web benefit from the non-transactional capabilities of its site. In this model, the site’s ROI is 65 percent higher when the non-transactional benefits are included than when they are ignored.

Offline retailers who wish to make their online operations a successful part of their business will find it important to integrate online and offline systems. According to a Jupiter Executive Survey, only 31 percent of retailers already provide visibility of store inventory on their Web sites, and another 23 percent expect to offer this capability within the next 24 months. But Jupiter analysts advise that while systems integration is inevitable, the costs can be high enough that many brick-and-mortar retailers should delay aggressive integration efforts until after their in-store systems have been brought up-to-date with software that was built to Web-based standards — something that will happen in due course for nearly all large retailers.

“Brick-and-mortar retailers cannot ignore the impact that their Web sites have on store purchasing because it is difficult to quantify,” Cassar said. “The retailer that spends its limited Web resources shoring up the transactional elements of its site at the expense of the elements that would send a customer with purchase-intent into its stores may ultimately lose offline market share to smart competitors.”

All of this talk about integration and appealing to consumers who make offline purchases is really about taking steps toward removing the “e” from e-commerce and recognizing the online channel as part of commerce as it exists in the 21st century. According to research from The NPD Group, Inc., 92 percent of consumers with Internet access use the Internet to shop and/or purchase online.

Eighty-four percent of occasional buyers (those who say they have made an online purchase only one time or less in the past six months) surveyed by NPD describe their usual use of the Internet for shopping as “I usually shop online and go offline to purchase.” NPD’s research also found that consumers who currently shop at mass merchandisers said they will likely remain more loyal to traditional store locations for future purchases, while others who have traditionally shopped through catalogs say they are turning to the Web to make more purchases.

Sorting out which consumers buy online and buy offline after shopping online is complicated business. Different consumers have different trust levels with the Internet and will only buy certain products or spend a limited amount of money over the Internet. Further complicating the process are teenagers, who while very comfortable using the Internet, often do not have a credit card to close online transactions. According to Jupiter Media Metrix, 89 percent of teens (ages 13 to 17) have never made an online purchase, but 29 percent research products on the Internet before buying them at stores.

How traditional offline retailers judge the ROI of their online initiatives was also the subject of the CyberAtlas Newsletter on August 21, 2001. If you don’t subscribe, sign up. If you want to read that newsletter, click here.

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