Five Essentials That Determine Success
Recent marketplace corrections have caused dot-com and clicks-and-mortar companies to re-evaluate their online strategies. What have emerged are the five essentials for online success.
Will online work? Not all retailers should take the "me-too" approach to getting online. An online channel will not create revenue (or savings) in all cases -- and in some cases it can destroy customer value.
Online retailing is a much larger issue than simply building a cutting-edge Web site. Hefty capital investments (technology, product warehousing, distribution, fulfillment systems, etc.) and overhead commitments for staffing complicate the decision to go online. Companies that made the decision to go online lightly have done so at a tremendous expense -- and often have had to sack their initial plans and rebuild.
Here are some questions retailers are asking themselves: Will shipping costs outweigh the convenience of online shopping? Is our product extremely high-cost? Do we have a complex product? Does our product require the customer to "experience" it before buying? Can the online channel complement our retail channel -- will the same customers use it? Have we ever sold our product through direct marketing or cataloging before? Have our competitors?
You don't have to look far to find companies that have not understood the answers to these questions before going online. Computer buyers like to use the Internet to experiment with pricing for different configurations. However, many of them still require a telephone or retail experience to make a purchase. Web sites that don't provide toll-free numbers for placing an order and a capability to save a configuration for review with a telephone representative frustrate customers.
Add customers, grow customers. It is five to seven times less costly to sell an additional product to an existing customer than it is to sell the first product to a new customer. In plain English, it is more profitable to invest in learning about your customers and in developing new products for those customers than it is to invest in acquisition and branding programs. However, online retailers often focus an enormous amount of energy on customer acquisition. Acquisition has its place (especially for a new business), but customer retention and cross-selling must follow closely.
How do you manage customer relationships? Start by measuring them. You probably know how many new customers you added last year. Do you know how many you lost, grew or shrank? Can you pinpoint the top 10 percent of your customers?
Don't compete ... complement. Borrowing from the above concept, the most efficient way to build your online business is to sell it to your offline customers. Companies that have been quick to promote their online businesses through their bricks-and-mortar stores, catalogs, call centers and collateral have strengthened and expanded customer relationships.
It will be increasingly difficult for pure-play dot-coms to attain profitability. As direct marketers discovered years ago, giving customers multiple options for purchasing (mail-in, call-in, come-in and now "click-in") always results in higher sales.
QVC developed a strong online strategy early on. It used the channel primarily to service and expand existing customer relationships -- promoting the Internet to its existing customer base. As a result, its online store was profitable years ago, while others were burning through their first and second rounds of venture capital.
If you are a bricks-and-mortar retailer with a new online channel, who is your best prospect? The customer who already shops in your retail store.
Leverage the unique qualities of online. The online world is unique in its ability to observe, interact with and customize for each individual.
Imagine what you could learn if, as each customer entered your store, you had a market researcher climb into a customer's shopping cart and ride with her as she shops. That researcher could take copious notes, recording which aisles the customer visits, how long she looks at each product, which products she puts in her cart, which she replaces and which she drops just before checkout. The market researcher can even ask the customer questions to learn more about her wants and needs.
More importantly, the researcher can send his findings to a marketer in the next aisle. That person rearranges the merchandise for the specific customer to make sure she has a smooth and effective shopping experience. The process of learning, interacting, dialoguing and customizing for every individual has been made faster, cheaper and more effective by the Internet.
SmarterKids.com provides an excellent example of this. It can observe the shopping behavior of customers and gather the learning style, grade level and learning goals for your children. All of this information is combined to customize the site and to push out personalized e-mail messages. The customer sees how the information she volunteers is put to immediate use to improve the value of the site. Thus she is motivated to share additional information in the future.
Move fast ... but deliver. The Internet demands that companies move quickly to keep pace. But many companies have used this as an excuse to forgo planning processes and move straight to implementation. Many of these companies have found out the hard way that the Internet is less forgiving of mistakes than traditional business channels.
The Internet graveyard is overflowing with the bodies of companies that have spent a fortune on branding but were unable to fill orders, could not keep the site from crashing, sent out e-mails ad nauseam or otherwise failed to meet the high expectations of the online customer.
A "measure twice, cut once" philosophy will remain as important in the 21st century as it was in the 20th. The challenge will be to move through a disciplined plan-implement-learn-plan process with ever-increasing efficiency.
The bar has been raised, and customers have come to expect faster, smarter and cheaper delivery of what they want. The good news is that customers want what they have always wanted: to be treated as individuals (not like numbers), to be remembered, to be managed with intelligence no matter which channel they use, and to be recognized as valuable.
The basics of customer relationship management remain unchanged. The Internet makes it possible (and essential) to deliver to customers exactly what they want.
•Geoffrey Ables is executive vice president at Quaero LLC, Charlotte, NC. Reach him at email@example.com.