What Makes E-Commerce WorkI have long been troubled by the overblown expectations for e-commerce, the wonderful new sales model that was going to replace retail and turn Wall Street on its head.
By now you know -- it did not happen. Why? There are two angles to consider, the buyer and the product line.
First, the buyer. The inescapable fact is that only a minority of shoppers are willing to buy "remotely." Most feel comfortable at retail. No matter how compelling the offer, the technology or the convenience -- they will not do it.
This was made clear to me in my early days in direct marketing. My job was to acquire members for the special-interest book clubs at Book-of-the-Month Club. Our primary channels were direct mail and print advertising, plus a smattering of other media like package inserts and outbound telemarketing.
My objective was to find sailors, or businesspeople, or young moms or crafters -- people whose interests matched the clubs I was promoting. But I quickly found that I also needed to attract mail-order buyers -- aka remote shoppers -- people willing to send in a check, to order over the phone, to take an action without being in my "store."
The evidence? For the crafts club, for example, a list of women's apparel catalog buyers often performed better than a compiled file of people with a specific interest in crafts. The mail-order propensity was as powerful a driver as the interest affinity. No matter how avid a buyer's interest in crafts, she also had to be willing to buy remote. If not, she wasn't going to join the club.
The same held true for all my clubs. There is a certain type of buyer who is comfortable with remote shopping, and that comfort level was a minimum requirement to attract new club members.
There is another type of buyer, one who needs the retail experience. These buyers want to see, to feel, to touch the product before they buy. They want the immediate gratification of taking it home, then and there. They may even enjoy going to a store with other people and being part of that social experience. Whatever the reason, retail is their preference, and we will not bust them out of it.
So when e-commerce came along, my expectation was that a similar dynamic would drive its development as a sales channel. My guess was that the e-commerce buyer and the mail-order buyer are the same person.
Recently, I came across some compelling support for that supposition, based on a chat with Harry Egler, the divisional vice president for customer relationship management at Eddie Bauer. Eddie Bauer operates in all three channels, catalog, e-commerce and retail, and knows its customers well. Harry told me that the overlap between Net buyers and catalog buyers is very high -- less than 15 percent of the customers who buy direct from Eddie Bauer buy solely from the Internet. And the overlap between retail buyers and catalog buyers is relatively low. Furthermore, while 90 percent of catalog buyers shop retail, only 10 percent of retail buyers also use the catalog.
This means two things for those in e-commerce. First, you need to consider remote shopping propensity as you attract buyers. And you need to do everything you can to make the remote shopping experience appealing to retail buyers who might be on the edge of considering an alternative channel. Make it secure, friendly and social, and offer easy returns. Second, you need to get off the notion that e-commerce is going to blow away retail. It is not. You may be able to grab some share, but that share mainly will come from cannibalizing other remote shopping channels. Probably the best you can hope for is an incremental expansion of the remote buying universe, people who do not buy from catalogs but for whom the Internet has appeal.
Beyond the buyer, the other key consideration in e-commerce is the product line. How could we ever have thought that furniture would work on the Web? Or pet food? Drugstore items? Toys? All you have to do is look at the catalog industry. There are good reasons why mail order has settled on certain product categories over the years. Apparel, hard-to-find niche products, computers -- these are the products that work in this channel. The margins are good enough; the weight/price ratios suit postal delivery; the items are common enough, or unique enough, to explain in words and pictures.
Every rule has an exception. Amazon comes to mind. Jeff Bezos, founder/CEO of Amazon, carefully selected books for his foray into e-commerce because he recognized the value that electronic search and unlimited inventory could bring to that category. And he clearly has expanded the universe of book buyers well beyond people with mail-order propensity, taking share from retail and converting millions to happy mail-order buyers.
But I wonder: Amazon's still not making money. There are no single-shot mail-order book catalogs out there, for a reason. The margins are not strong enough, and neither are customers willing to pay the actual shipping costs of heavy, but relatively inexpensive, books. It is still unclear whether Bezos will be able to use the Internet to break the rules of mail-order selling. But I'm rooting for him.