The National Retail Federation says that overall retail sales jumped 5.7 percent in last year. In the e-tail channel, Forrester Research and Jupiter Communications, and a number of other firms report increases of 300 percent to $10 billion or more during the holiday season, and $20 billion overall for 1999.
And projections for online retailing in 2000 — and the foreseeable future — are just as rosy. But while we've just experienced perhaps the most exciting period of American retailing in history, online retailing is not as easy as it looks.
We're in the early stages of this phenomenon and companies come and go every day. Market forces govern the Internet just like any other channel. So while we're still recovering from our New Year/Century/Millennium hangovers, here are a few lessons to think about for the coming season.
Lesson #1: Customer service is to e-tailing what location is to real estate.
Internet firms race for revenue, but itís becoming more and more apparent that customer service (including fulfillment, returns management and related essentials like scalable infrastructure) is the key to long-term success.
True, Wall Street currently evaluates Internet-related firms based on revenues, not profits. But how much longer will that last? How much longer will online shoppers tolerate unfulfilled orders, unavailable merchandise and unanswered questions? And, what will be the implications for the customer as e-tailers begin to focus on the bottom-line? Online winners in 2000 will be the ones who strengthen ñ and scale ñ their operating models.
Lesson #2: Online retailing can be another channel in a successful retailing strategy.
We're seeing wonderful examples of bricks-and-mortar retailers going online to expand their customer base. You don't have to look past the largest of them all, Wal-Mart, to know e-tailing is an important part of their overall strategy.
Weíre also seeing examples of pure-play e-tailers, such as Gateway, opening land-based stores to expand their customer base. They report that a substantial amount of their sales come through this channel as customers shop online, but buy in store. And now there are formal alliances between large online marketers such as AOL and established retailers such as Best Buy.
The fact is, these companies realize their customers are more than one-dimensional. They donít stare at their computers all day and they donít just hang out at malls either. So theyíre going where their customers are: everywhere. The most successful retailers in 2000 will execute on this strategy better than others, and explore new synergies that truly meet customer needs.
Lesson #3: There is not an endless stream of online buyers who will spend an endless amount of money.
Notwithstanding the customer service issues, online retailing has not come anywhere near its potential as a life-changing proposition for business owners and shoppers alike. The possibilities for custom shopping experiences are staggering.
But though there are millions of new online buyers who joined the ranks over the holidays, will they continue to fuel the gargantuan spending predictions?
An interesting new study from the Wharton School of Business raises the concern that the current online retail projections are vastly overstated. They say that these projections are based on a linear model, one that assumes all online shoppers ñ experienced and novices alike, and ones who arenít even online yet ñ will continue to spend exactly the same amount in the coming years as they do today.
The Wharton Forum on Electronic Commerce's Virtual Test Market study postulates that we should revise our industry estimates for many reasons, including the finding that per person spending may actually be declining. Also, the study discovered an apparent slowing of new buyers as well as concerns about privacy and trust.
Iíd suggest that the most powerful evidence may be from marketing 101: the product life-cycle. Itís proven time and again that the first consumers to try a new product (or in this case, channel) do not reflect the behavior of the majority of the market that follows.
Therefore, we canít lose sight of the fact that we live in a finite market and those that win customers early ñ and do what it takes to keep them ñ will have the best chance at long-term survival.
Lesson #4: He who leverages the Internet best will win.
Each dot-com has a golden opportunity to truly set themselves apart from their competition. How? By mastering the power of the Internet to manage their customer relationships.
The Internet is the best medium that combines customer interaction with customer data. It integrates sight, sound, and best of all, customization. Many Web sites have amazing visual and audio features. But e-tailers who capture data on preferences and behavior and translate it into repeat business will win. Given the limitations of the market using customer data and optimizing customer relationships is paramount in 2000.
None of these lessons is particularly earth-shattering. Fundamental marketing principles always rule the day. Understanding consumer needs, developing products to meet those needs, and executing effective and efficient pricing, distribution and promotional strategies is the same
whether youíre selling shoes or bird feed.
It's applying those principles to such a new world as the Internet that will separate the haves from the have nots.