There should be no doubt about the impact of the Internet.
It is huge and overall very positive. Consumer cataloging today represents about 4 percent of retail sales, but by 2005, remote shopping in the form of cataloging and e-commerce will command between 15 percent and 20 percent of retail sales.
The six major outcomes of e-commerce include: a dramatic increase in remote shopping, new service levels, improved targeting, new marketing tactics, consolidation and heightened awareness or oversight by governments.
I discussed the first three outcomes in the previous column, and a brief recap follows:
Increase in remote shopping. The greatest impact on cataloging from the Internet is that it is legitimizing remote shopping as cataloging never has. The attention paid to e-commerce by the media, the investment community and the average person on the street dwarfs anything else that has happened in consumer shopping during this same time period.
What’s great for direct marketers and catalogers, in particular, is that this is helping popularize remote shopping for everyone, something that cataloging had not achieved on its own.
New service levels. Few new services were provided to customers by catalogers in the recent past. Now e-tailers are providing services that catalogers can only dream about. The ability to provide almost instantaneous updates to the customer through e-mail is just one way that the Internet allows a company to provide better service.
Improved targeting. The consumer data capture – primarily through consumers’ willingness to provide it – by e-commerce players is greater than anything in retailing.
No other form of retailing ever asked for and received so much data from its customers. This will allow for much better targeting of offers in the future when more testing can be done of techniques with this knowledge.
Three Other Impacts on Catalogs
Catalogers are now confronted with new marketing tactics, consolidation and government oversight. Probably the greatest single marketing tactic is free or greatly reduced shipping and handling costs for the consumer. Is there any doubt that the typical consumer hates shipping and handling charges?
Every study points this out, but to date, the catalog industry has ignored it and continued to charge shipping and handling charges that are above their actual costs – in fact, they make money on it. With e-tailers giving it away, this will create a situation where catalogers will have to either match it or lose sales. The challenge will be to find out how to do this.
However, this is only one of the marketing tactics being developed. For years, catalogers have played with providing a reminder service to its customers. This tactic will become a reality with the e-tailers. Another is the ability to use viral marketing. For years, catalogers have tried this with friend-get-a-friend programs. But they tended to be very limited and were never pushed. Now e-tailers are using this technique – and very effectively – as they can even reward the provider of the names.
Industry consolidation. The best e-tailing model is built on the catalog model, just using a different media channel. This has been discussed within cataloging as a strength, but few have acted upon it. This now appears to be changing, but not necessarily by catalogers. Rather, the change will come in the form of dot-coms buying up catalogers.
The first reason for this is the cataloger has in place the infrastructure needed by the dot-coms to run its business. Second, the cataloger allows the dot-com to capture sales from those that are still reluctant to put their credit card out on the Net – especially with more and more horror stories about Internet security appearing in daily headlines.
The consolidation will likely begin in earnest later this year. The buyers will be the dot-coms as they have the money, in either cash or stock, to buy.
Increased government oversight. This will come in many ways, but not the least will be on privacy. Our industry has been able for some time to keep government and regulators at bay by promising self-regulation. This worked partially because cataloging is a small portion of all retail sales and didn’t make waves. With the explosion of remote shopping, the increased information being gathered and the unscrupulous use/manipulation of this data, there will be increased clamoring for tighter regulations. Add to that the international scope of e-tailing, which will bring it under the scrutiny and laws of many countries.
While it is almost heresy within cataloging to mention it, another impact of the Internet will be some form of universal taxation in the United States for remote shopping. When the Supreme Court affirmed in Quill vs. South Dakota that a company has to have nexus to be taxed, it also said that Congress, under its authority to regulate interstate commerce, could write law(s) that allow for collection of taxes without nexus. It is doubtful that the ban on taxation of remote shopping sales, currently the moratorium on Internet sales, will last. There is no way that local and state governments can afford to lose taxes on 10 percent to 15 percent of the sales to consumers in their jurisdiction.
The arguments to date on taxing remote shopping have centered on “leveling the playing field” with local retailers, which doesn’t excite many legislators. However, when local and state governments start pointing out that the level of service in their communities is going down due to lack of funds, the attitudes in Congress, I suspect, will change. This is not a level playing field argument but one about reducing basic government services.
In conclusion, the best thing that has happened to cataloging in the past 20 years has been the development of e-commerce. Among catalogers, there will be winners and losers. However, this happens every time there is a shift in consumer shopping patterns. The difference here is that the shift is more dramatic and likely to cause more disruption than we have seen in the past 20 years.