Weighing a Move to E- Commerce

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If you are a manufacturer considering whether to sell online, one factor to consider is how well your products lend themselves to e-commerce.

If we look at the grocery Web businesses by Priceline or Webvan, it seems virtually anything can be sold over the Web. But these business models rely on the Internet only to convey consumer orders to a local bricks-and-mortar facility. When a product must be shipped from a remote distribution facility, certain limitations come into play that separate the "e" from the "non-e."

The first consideration is whether the product can be shipped. United Parcel Service, the leading small-package shipper, has size and weight limitations. If your product is larger or heavier than these limits, you may need to ship via less-than-truckload commercial carriers, which do not specialize in consumer-friendly residential delivery. Your customer must be home to sign for the shipment, and the cost is so high that most consumers won't want to pay. Moreover, tracking systems for lost orders with LTL carriers are not well-aligned with today's consumer-service standards.

If your product is reasonably shippable, you must consider its retail value. An efficient small-order packer may spend $1 to $3 to pick and pack an item for shipment. Most freight costs will be $3 to $7, depending on the item's weight. For the 30 percent of Web shoppers who prefer to complete their orders by phone, the cost of the phone call, including the cost of calls where consumers don't order, can reach $3.

To support these costs the item's retail price needs to be at least $15, unless the consumer is likely to order more than one. Very small and lightweight items that can ship via the U.S. Postal Service's Parcel Post or Priority Mail can be an exception to this rule, but don't look to sell the 99 cent items.

Another consideration is what I call the degree of commoditization. You may love your company's brand of paper towels, but is the consumer going to shop on the Web for this type of product? Most products for which similar, substitutable brands are readily available offline will not sell well over the Web because the consumer can pick up these items during regular trips to a bricks-and-mortar store. Conversely, when your product has unique features and high consumer involvement, you may have high Web channel sales potential.

Finally, the degree of traditional retail availability is a big factor. If you have accessory products or refills that can be hard to find at retail, the Web is the perfect universal source for consumers to obtain them.

Even when you think you have met the above conditions, there is one very important calculation to make: Will the cost of an Internet direct-selling operation be justified by your online sales volume? To sell over the Internet requires sophisticated software, call center support, rapid turnaround order shipping, efficient returns processing and much more. Don't do it if you can't do it well. It will cost you money while turning off your consumers to your brand.

If you have the right products and infrastructure, selling Web-direct may present a new revenue opportunity for your business. However, if you're not prepared for big investments, or if only a portion of your line is e-friendly, you're probably better off partnering with an e-tailer to meet online consumer demand for your products.

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