e-ditorials - Issue #4: e-commerce Part 1

The e-commerce Plan

Even in this "down" economy, people are purchasing online, whether it be for the best price, better product availability or convenience.

Current Stats

• 42 % of U.S. households could log on to the Web in 2000. 40 % of adults used the Internet to shop or pay bills. (Census Bureau)
• Online Spending was 5.3 billion in June 2001. 71% increase from 2000 (PC WORLD)
• It is projected that 46 million Americans will buy $16 billion worth of goods annually by this year, and $54 billion by 2002. (International Data Corporation)
• By 2004 annual e-commerce spending in the U.S. may reach $3.2 trillion. (Forrester Research)

Anticipate success.

Rule #1: plan for success.

In 1999, Toy R Us, a major toy retailer, was ready for the upcoming holiday season. They had developed a new commerce-enabled web site and they guaranteed delivery by Christmas. Customers were thrilled with the new convenience and the company was flooded with orders. Unfortunately, when customers received the packages, they were poorly wrapped or contained the wrong product. Most regrettably, some orders did not arrive in time for the holiday.

What happened? Toy R Us had not planned for the volume of orders. This one incident caused the company to not only lose customer loyalty but lawsuits were filed by unhappy customers and the Federal Trade Commission fined Toy R Us $350,000 for violating mail and telephone order rules.

It doesn't matter if you are a large company or a small company, or whether you have a huge budget or a small one. To avoid problems, you must anticipate success. You must also be informed about what e-commerce can do for your company and how to prepare your e-business plan.

e-business Vs. e-commerce

Some people use the terms e-business and e-commerce equally, but there is a difference.

To purists, E-commerce refers only to online financial transactions of a product or service. The channels of e-commerce can be:

• Business to Business (B2B) - e.g. Dell & Cisco
• Business to Consumer (B2C) - e.g. Dell, Amazon.com & Charles Schwab
• Consumer to consumer or C2C - e.g. eBay

E-business encompasses online exchanges of information but not necessarily online financial transactions. Examples include:

• A financial institution allows its customers to examine their banking accounts via a passcode protected web site. Money is not necessarily exchanged.
• A truck manufacturer distributes product inventory to their retailers through web site based requests. They also sell t-shirts and hats and pens with the company logo to their retailers. Money is not necessarily exchanged at the time of the order, but it is logged and billed at a later time.

Why e-business?

• Improved customer service
• Improved brand recognition
• Improved marketplace presence
• Increased efficiency of supply chains
• Reduction of Paper
• More efficient internal business processes

Why e-commerce?

Marketing studies show that you will lose 60 - 80% of your potential orders if your website is NOT set up to handle credit card orders. Here are some advantages:

• 24x7 availability to purchase a product or service.
• Ability for a regional company to do business nationally and/or internationally
• More sales channels creates more convenience for the customer
• Price of product or service can be higher because of convenience & support with online shopping

e-commerce Concerns

Businesses are often reluctant to enter the market for a number of concerns:

• Security
• Conceivably high or uncertain implementation costs
• Lack of information on the ROI within their industry
• Fear of tax, legal, and privacy issues
• Unsure customers will buy their product on the Internet
• Afraid consumers will be shopping solely on price

One area of e-commerce that is often overlooked is that some consumers will see an Internet ad or web site, and then purchase by phone, fax or in person. Did you know that offline spending generated by online shopping reached nearly $5.5 billion in 2000? How will you know what your web site is doing for your bottom line? You will need to put an e-commerce plan in place.

The e-commerce Plan

Venturing into e-business requires as much thought about business strategy as it does about Internet technology.

Plan for Success

• Growth Plan. Do you want your business to grow? If so, how much?
• Employees. Will you hire employees? Do they need to be trained before the orders come in?
• Consumer Reach. Do you want to do business locally, nationally and/or internationally?
• Fulfillment. If you sell a product, what is your fulfillment plan?
• Shipping. Remember web is world wide. Are you prepared to ship your product internationally? Are you prepared for the holiday crunch? If not, clearly state your terms.
• Customer Support. Plan for customer satisfaction. Remember the Internet is 24x7. Will you have phone support, online support or both? Perhaps your online support will be 24x7, with FAQ and phone support from 9am to 5pm Eastern Standard Time.
• Return On Investment Plan. Can you make a profit fulfilling orders in-house or should you outsource part of your operation? Borders Book Stores looked at how much its web site sales were adding to the company's bottom line. They realized that they were not profitable; so, the company recently outsourced its online bookselling operation to Amazon.com.
• Other. There may be more items on your list that you need to think about, but remember the same rules of a well thought out business plan apply to the E-commerce Plan.

Plan for Return on Investment

Let's look at the plan for return on investment in more detail. Planning for Web Site Return On Investment (ROI) is very different from examining traditional ROI models. Bricks-and-mortar retailers often find it challenging to calculate their web sites' impact on in-store sales. Many responded quickly to Internet competition or to placate investors and they spent money on e-commerce web sites and staff without regard for a plan to track their investment.

Think about:

• Customer surveys. By conducting customer surveys, Sears discovered that 10% of appliance sales were influenced by product information on their web site.
• Create different product codes for online and catalog items. For example add the letter I at the end of each order number for Internet products. When phone or fax orders are placed using the Internet product number, you will know those orders came from research the consumer conducted on the web site.

An effective ROI strategy will help your company determine how to invest in either upgrades or staff for the web site. The same strategies can be adapted to selling a service. Be informed, be creative and be prepared. And remember the most important strategy to a winning e-commerce web site is to anticipate success.

Read the 2nd article in this series: How to Start Selling Online

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