E-Commerce Coming on Strong

In catalog strategy circles, few topics this decade have generated as much controversy and disparity of projections as e-commerce revenues. Recently, our research department conducted a study on e-commerce as it affects cataloging at the request of Gruppo, Levey and Capell Inc. Here are a few of the highlights:

Growth in presence and capabilities. Although much has been written of the synergies of e-commerce and cataloging, it appears to finally be happening. Major forecasting services issue weekly press releases documenting the expansion, and growth of the number of catalog marketers with a presence on the Web has been dramatic. In the past year alone, this number has grown from less than half (49 percent) to a current 71 percent, with the projection being 82 percent by the end of this calendar year. Of those with Web sites, 73 percent are fully transactional, while only 10 percent of the entire universe of e-commerce has this capability.

Additionally, catalogers are taking a more sophisticated approach to e-commerce. Sixty-nine percent now offer their entire catalogs online. And 18 percent offer items on their Web sites that aren’t available in their paper catalogs. A substantial 84 percent report redesigning their Web sites at least once since their initial launch, and almost half (47 percent) have reformatted three or more times. As important is catalogers of all sizes are keeping their Web sites fresh and seasonally correct.

Serving customers is still top priority. Respondents were asked why they maintained a Web presence, with the top four answers being: to better serve our customers (95 percent), to keep pace with our competitors (92 percent), to reinforce brand awareness (85 percent) and to become a major profit center (82 percent). That serving customers finished most mentioned is not at all surprising in a service-oriented business. Nor is the second most mentioned reason — to keep pace with our competitors.

Many catalogers’ initial foray into e-commerce was a defensive move as few saw e-commerce as a major revenue stream. Yet the perception that dollars generated from online sales would never be more than a minute fraction of overall revenues has changed, as 82 percent now look to their Web sites to be major profit centers. More than two-thirds (68 percent) are currently reporting profits from the interactive division or expect profitability by the end of fiscal ’98. Catalogers’ anticipation of e-revenues in 2001 is extremely bullish, with 61 percent of the respondents saying e-commerce will represent at least 10 percent of their gross sales.

Interest from the investment community. This increased volume and profitability hasn’t gone unnoticed by the investment community. As part of the study, a sampling of venture capital firms who have closely monitored e-commerce companies were asked to rank-order seven sectors of the economy that deal with e-commerce. Financial institutions and catalog/direct marketing firms finished 1-2 as generating the most investor interest.

Interestingly, while awareness of the growth of e-commerce in cataloging is drawing the watchful eye of the investment community, many in cataloging are still unaware of this increased scrutiny. Only 48 percent of respondents indicated that a key reason for maintaining a Web site was “to increase investor interest.”

Budgets and staffing show substantial increases. Budgeting for interactive divisions has risen, with 31 percent now reporting their interactive budgets exceeding $100,000 a year. Further evidence of this maturation is the number of staff devoted exclusively to e-commerce. In fiscal ’96, catalogers reported a median number of employees devoted to interactive marketing as 0.5, which made this a half-time position. Just one year later, that number had risen to 3.4 employees, with consumer catalogers represented by a 4.9 median for fiscal ’97.

The study also highlights how e-commerce practitioners are using this new technology for better ways to identify and serve their customer bases. Seventy-nine percent are either collecting demographic and/or psychographic information or plan to in the very near future — data that can be used in constructing targeted sales models. Twenty-seven percent is currently employing real-time interactive upselling technology.

Importance of e-mail. A major finding is the growing use of e-mail as a key marketing communicator. Two of every five study participants already conduct e-mail marketing, with an equal number set to begin use in the near future. Interestingly, consumer catalogers are more apt to employ e-mail campaigns than those in the business-to-business sector.

Even with the glut of spam that many online receive with increasing regularity, the study cites a more positive consumer perception of e-mail over telemarketing, stating that while 87 percent reported being bothered by telemarketing, only 34 percent reported a negative reaction to e-mail.

A perception among participants is that many consumers are still not fully comfortable with online ordering, fearing that typing in their credit card numbers will somehow allow them to fall into the wrong hands. Although 76 percent of the study participants use a secure-socket order environment, many cited the need to educate the public that online ordering in a secure environment is at least as safe as ordering over the telephone, if not even more so.

Historically, I have always been a cautious proponent of the use of e-commerce by catalogers, urging its continued development but warning that huge profits from this channel may take some time to realize. Yet the findings from the Gruppo white paper offer numerous signals that e-commerce is becoming a major revenue source for catalogers.

How exponentially fast it will grow will be affected by conversion to high-speed modems, larger capacity home phone lines, more sophisticated search engines, catalogers’ continued commitment of dollars and personnel and an increasing number of online households going beyond using the Web just as a source for information.

Even with these five indeterminents, the new millennium will see e-commerce adding a significant contribution to bottom-line profits.

Bill Dean is president of W.A. Dean & Associates, San Francisco, a catalog consulting, publishing and research firm.

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