Putting E-Xmas 2.0 in Perspective

Something big happened during the latest e-holiday season – e-Xmas 2.0.

Twenty million people, three times

as many as last year, shopped online. The number of orders and the value per order increased as well. Overall spending was up, as was the percentage of holiday

purchases made online. All this activ-

ity yielded scads of traffic, new challenges for customer service and real-time

communication, and credit-card fraud 10 times greater than at retail, according to Meridien Research, Newton, MA.

Now it’s time to sort out the reality from the hype. Keep in mind that all this big stuff still equals less than 3 percent of all retail sales in the United States. Remember that the context for e-Xmas 2.0 was a robust economy where retail sales increased 5 percent against the backdrop of a bull market. Then consider the following areas for inquiry and contemplation.

Branding. Branding was a vague notion at the outset for some dot-coms – one used principally to justify a media shopping spree with other peoples’ money. For classic marketers, a brand is a promise between sellers and buyers, which is fulfilled through the goods and services offered. Brand strength or brand equity, in theory, gives marketers the opportunity to sell more with less advertising and artificial stimulation.

During e-Xmas 2.0, we saw all manner of messaging masquerading as branding. Yet the early returns in site traffic and name recall suggest that the ad frenzy had little impact on entrenched leaders such as Amazon.com or eBay.

When all the sock puppets are retired and catchy jingles fade away, will you remember which dot-com was which? Christmas is all about toys, yet I’m not sure Toysmart.com’s TV tactics or e-Toys’ memorable jingle will yield a sustain-

able brand in March or a competitive advantage among shoppers looking for birthday presents.

I guess some dot-coms did pre-awareness studies by asking random samples of online consumers in mid-October: “Did you ever hear of fuzzyidea.com?” They returned in December with a similar round of questions. These players will soon tout 500 percent increases in brand awareness hoping that the next greater fool will write them a big check.

Others will promote huge increases in site traffic as evidence that their brands have taken root in the hearts and minds of Netizens. But these are arguments only a venture capitalist would buy. Establishing a brand on the Web is no different than anywhere else. It takes strategy, time and sustained investment, coupled with sustained performance.

Counting. We have been counting clicks, hits, unique visitors and page views for the past few years. The smart money has figured out that it’s time to count sales and conversion ratios. Next comes a benchmark for cost per lead and cost per sale and an insistence on targeted cost-efficient acquisitions.

Much of the volume on the Web was brought in through promotion, discounting, free shipping and other well-known retail techniques that erode margins and drive operating costs upward in the hopes of repeat business and the ever-elusive, high-value lifetime customer.

On the other hand, retailers know that promotionally driven customers tend to be less loyal, buy less and respond only to subsequent offers. The number of customers brought in on a deal and converted to non-promotional prices is always low.

Maybe people shopping online suspend their shopping skills because they are so enthralled to be in cyberspace. Or maybe many dot-com merchants gave away the store to get established and hope to tap the venture well again. Sooner or later somebody will want to see some black ink. And the only way to find it will be to take a ruthless look at what worked and what didn’t in terms of driving response at reasonable costs and converting to high-margin sales in significant enough numbers to justify the expense. When this finally gets done, look for a new kind of counting, one that measures shakeouts, consolidations and bankruptcies.

Loyalty and repeat business. Points, cash, frequent-flier miles, discounts and every combination of these and other rewards are being used to achieve stickiness. Sooner or later, consumers will remind themselves that the number of points necessary to redeem a really great prize far exceeds the cost of winning those points. Most of us learn this rule early in life. We forget it frequently, usually in moments of excitement. But we return to it over and over again when we realize it will cost $100 to win enough coupons to get a $5 stuffed animal.

Loyalty programs require attention, focus and technology. I bought 26 books from Amazon.com in 1999. I got no thank-you notes, no special offers, no lovey-dovey e-mail and no subsequent recommendations, even though the last four books were about codes. Either they are so sophisticated that they know how much I’ll spend without acknowledgment or recognition before switching to the competition. Or, maybe I fell between the cracks as their database guys were busy building out new product sections.

In contrast, Kozmo.com and Urban Fetch.com are fighting for my soul. Each has sent me food,T-shirts, special offers and unsolicited gift certificates. Each has become an e-mail pen pal.

There is no magic to building repeat business. Segment your customer base, decide who is worth providing incentives and who is not, artfully monitor contacts and purchases, devise a reward hierarchy and execute it flawlessly. It is much harder to do than it sounds.

E-Xmas 2.0 put a lot of new players in business. The trick now will be to build and sustain those businesses without the hype, and with smarter money backing the players who have the management, skills and focus to succeed.

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