It’s Back to the Basics For Holiday Season

It is an understatement to say that e-tailers’ fulfillment and customer service performance will be under a microscope this holiday season. Last year’s well-publicized gaffes and the importance of holiday sales for marginal pure-play e-tailers combine to make this a make-or-break quarter for many sites.

Despite the recent proliferation of third-party providers and consulting firm support of electronic customer relationship management, supply-chain management and enterprise resource planning, there are no easy, silver bullet solutions to customer satisfaction and on-time delivery. Success this holiday, as at any time, comes down to basics:

• Competitively promise and overdeliver. This is a twist on the old “underpromise and overdeliver” adage, updated to reflect the reality of competitive pressures.

• Execution, execution, execution. Blocking and tackling against a good plan will yield better results than poor execution against a perfect plan.

The Internet has raised the stakes for customer service and delighting the customer. There is an expectation of immediate gratification in terms of access to information and answers to questions. Customers expect delivery options that will fit their budgetary and timing needs. They want the comfort of knowing there is a smooth, painless way to return purchases, should the need arise. E-tailers have a variety of tools to deliver on these expectations for this holiday and beyond.

Often forgotten in the hype of new CRM technologies is having the site serve as the first, and potentially best, customer service line of defense.

Even in a world of T1 and DSL lines, sites should be designed to load quickly. While shopping is often done at work with availability of fast Internet access, there are still many potential customers shopping at home with 28.8K modems. Don’t forget about them. Navigation should be straightforward. Ensure that the number of clicks required to purchase is kept at a minimum. Site uptime is an e-tailer’s lifeblood. If you are down, not only are you not selling, but you also are turning off some customers forever.

Successful e-tailers provide tools on the site to allow customers to answer their own questions. Buying guides, customer product reviews, search engines, fit/sizing charts and expert advice all serve this purpose.

A large proportion of online customers abandon their shopping carts before or during checkout. The checkout process should be streamlined and clear about add-on charges such as shipping or gift-wrapping.

Handling Customer Concerns:

The most widely used modes of obtaining and responding to online customers’ concerns are phone and e-mail. There are three components to success with phone and e-mail:

• Awareness. A company’s toll-free number should be easy to find. Hiding it four clicks into a help tab, as the 15th item on a frequently asked questions section, defeats the purpose. Highlight it on the home page, product pages and, most definitely, during checkout.

• Responsiveness. The days of customers willing to wait five minutes on hold listening to bad music are over. Customer service managers preparing for the holiday spike need to ensure that they are staffed to respond to calls in an average of 20 seconds, and not to exceed one minute. The same applies to e-mail. Although responding to e-mail may be a slightly more deferrable activity, a maximum response time of 24 hours is crucial.

• Training. Having a visible toll-free number and answering it quickly is wasted effort if the customer service representatives are not qualified. They should be fully trained to respond to product questions, and they need access to real-time order status to address order issues. Clear and expeditious escalation guidelines should be established to prevent further exasperating an already frustrated customer.

Live help is an interactive, online, e-mail-like conversation between a customer and a rep. Its use among e-tailers has been growing dramatically in recent months. The initial impetus was to assist shoppers who have only one phone line and needed to ask questions and get answers without having to log off. It also satisfies the instant gratification needs of some customers.

Potential benefits for e-tailers are decreased shopping cart abandonment and a great real-time cross-sell opportunity. A downside issue is that as opposed to traditional e-mail, live help requires incremental, dedicated staffing.

Although this is still a fairly new technology and has the associated implementation risks, there are a lot of firms providing this service on an application service provider basis. It is key to decide upfront how integrated this service should be with the rest of an existing e-CRM solution. If an e-tailer has not already implemented a live help technology integration by now, it’s probably too late to do so for this holiday shopping season.

Outsourcing and Returns:

Outsourcing of customer service support functions is a contentious issue. There are e-tailers that adamantly believe that the customer service experience is mission critical and cannot be put in the hands of a third party. The opposite side of this coin is that capacity to support seasonal spikes is equally critical, but prohibitively expensive to build internally. Most likely a well-managed blend of internal and outsourced customer service support is optimal. Success here depends on the following:

• Segmentation. Before initiating any research into potential partners, an e-tailer must decide which, if any, customer service functions must not be outsourced. For example, follow-up on fraud check or credit card rejections may be too sensitive to outsource.

• Partner selection. The quality of the process by which a company selects a partner will directly impact the quality of the end result. There are a growing number of companies offering third-party customer service support, and “caveat emptor” should be a watchword.

• Training. A quality partner will insist on extensive training of its support staff. Training should be a significant part of the cost of outsourcing, which is often misunderstood to always be a cheaper solution than building internal capacity.

• Reporting/follow-up. Proper preparation is important, but without meaningful, bidirectional feedback and measurement, the relationship will deteriorate rapidly.

The returns process for e-tailers has received a lot of attention of late. It has been identified as one of the critical success factors for this holiday season. To be successful, e-tailers must deliver in two areas:

• Policy. An e-tailer must clearly communicate its return policy throughout the buying process. It should be prominently stated on the site, customer representatives should reinforce the policy in their customer interactions, and it should be communicated in the documentation accompanying a customer delivery (i.e., invoice or packing slip).

• Execution. A return that satisfies the policy should be easy for the customer to execute. For this holiday season, there are several firms providing support for customers to initiate returns online at e-tailers’ sites. It can include the printing of mailing labels for multiple freight carrier options. In addition to ease of use, this approach has the added benefit of getting the customer back to the site, with the potential of making an incremental sale.

The Supply Chain:

The disaster stories from the holiday 1999 season resulted in a major focus on fulfillment and supply-chain issues for 2000. Despite these examples, there are e-tailers that had very successful holiday seasons in 1999 and are preparing themselves commendably for a repeat performance in 2000. Successful fulfillment performance is made up of three components:

• Product availability. Needless to say, but sometimes forgotten in the hullabaloo about backlogged warehouses, the first step in getting an order delivered to a customer is the product itself. Forecast accuracy and volatility are no less issues for 2000 than they were in 1999, despite one year of experience under the belts of many e-tailers. Merchants already have made the majority of their product and buying decisions in support of this holiday.

• Distribution and fulfillment. As with customer service support, there is a dichotomy of opinion on the major decision point with distribution — build and run your own warehouses, vs. third-party support or a distributed, “virtual” network of drop-ship warehouses. The right answer, despite strong opinions on both sides, is that “it depends.”

• The fallacy that ownership equals control. A major assumption behind the argument that in order to be successful for this holiday and beyond, e-tailers must own their distribution, is that it is necessary for control. In a third-party situation, an e-tailer has the advantage of being in a customer-supplier relationship with its warehouse, which is not always the case with an owned warehouse where internal dynamics can exist.

• Organizational focus. A significant factor in the decision to own vs. outsource is where an e-tailer is in its development cycle. Early on, an e-tailer should focus on the critical success factors — the customer, the site and product. Tapping experienced third-party partners to provide distribution capacity and expertise prevents the nascent e-tailer from losing focus. Over time, as sales reach critical mass and key merchandising, marketing and creative functions mature, organizational focus on developing internal distribution expertise is more viable.

• Managing the peaks. Owning warehouses allows an e-tailer to control how much capacity it has available to cover demand spikes. The downside is that it becomes exposed to the fixed costs and assets associated with “upside” capacity that may not be used during the holidays and is likely to become “excess” capacity as it moves into 2001.

Third-party logistics partners provide e-tailers with an opportunity to share risks and costs across multiple companies (and potentially multiple industries) while still maintaining contractually built-in upside capacity. It also keeps warehouse and distribution assets off the balance sheet, focusing attention on inventory, the critical asset for any retailer to be managing.

The “virtual” warehouse network, consisting of multiple partners drop-shipping for an e-tailer, is another tool in the arsenal. This approach further spreads the volatility, and therefore the risk of mismanaging upside peaks.

• Virtual network. A drop-ship virtual distribution network can be extremely effective if well-managed and a total disaster if mismanaged. Success is a result of partner selection, system integration, and expectation and performance management.

The first step is selection of partners that provide mutual benefit; a one-sided relationship will eventually strain and break apart. Real-time, scalable, systematic integration of orders and inventory between the e-tailer and the fulfillment partner’s back-end systems is crucial. Without accurate inventories, the e-tailer will be selling product that the partner no longer has in stock and will not be selling products that have come back in stock. Without timely order status updates, the e-tailer will not know when the product has shipped and can be billed. Finally, both sides need to have a clear understanding and frequent communication of the critical metrics. Should performance drop below expectations, swift and decisive action needs to be taken.

There are conflicting pressures facing e-tailers this holiday in regard to shipping product to their customers. The desire to offer incredible, free delivery services in order to maximize the customer experience and respond to competitive pressure is balanced by the reality that the profit impact of giving away costly services is not sustainable.

While many e-tailers will undoubtedly offer free or upgraded freight options to their customers this holiday season, there will be a trend toward obtaining some value for the service (e.g., minimum order dollar levels).

Shipping options available to e-tailers include:

• Same day/last mile service. While a familiar service in metropolitan areas for grocery items, there is a growing trend toward providing this option in many categories. The value of this option depends on the product. It requires disseminating product in many physical locations, increasing inventory risk.

• Holiday guarantee. Guaranteeing delivery by Christmas Day based on if-ordered-by dates. As several e-tailers learned last year, it is imperative to underpromise and overdeliver on this one.

• White glove delivery and installation. For larger items (e.g., treadmills) or items requiring installation (e.g., basketball systems), e-tailers can provide white glove service that can include room-of-choice drop-off, installation and training, and box take-away.

The bottom line is that there are many options available to e-tailers as they work to maximize their customers’ experiences. The extent to which they are successful depends most significantly on how well implementation is planned and executed.

As they prepare for this holiday season, it is imperative that companies do not try to do too much, but rather focus on a few key things and do them well. If they succeed at that, they will look pretty good under any microscope.

• Bob Roche is vice president of operations at Fogdog Sports, Redwood City, CA, a sporting goods e-tailer. Reach him at [email protected]

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