June 1, 2006
By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

E-commerce Best Practices Make Perfect

Commerce is as old as human want--and e-commerce is growing up. At the very least, it's reached puberty; most people date it to 1994, when secure transactions became a reality. Like any growing thing, different rules apply to e-commerce at each stage of its life; just as you wouldn't put your teenager in diapers, you wouldn't run your online store the way it was done a decade ago, right? At its inception e-commerce was its own best practice, something that existing businesses added to their offerings because it was new and hot. It was a business best practice to have e-commerce of some kind. Today, however, what was once bolted onto a vendor's business model is a business model of its own, with its own do's and don'ts. Every business is unique, but some wisdom applies to a majority. Read on for the facts. Get Personal Sometimes, the Internet seems like a huge, impersonal space. This is absolutely not the case when dealing with e-commerce. Cookies, member profiles, and wish lists are just some of the tools vendors can use to identify individuals and their preferences. Amazon.com, one of the great successes of e-commerce, was also one of the first to innovate in this way. "Personalization is very important, as we've seen with Amazon's collaborative filtering--other customers who bought X were also interested in Y," says Sucharita Mulpuru, a senior analyst at Forrester Research. Today, it's generally accepted that a vendor that doesn't do this is missing a tremendous opportunity to understand and serve its customers. Geoff Galat, vice president of marketing and product strategy for TeaLeaf Technology, has watched e-commerce develop. "E-commerce has been mainstream for a decade, and there's been a definite evolution of e-commerce from 1996 to 2006. Companies have had to transition from 'We have a site because our competitor does,' to having the sort of store that customers would want, to becoming a vital part of the business." For many companies, Galat says, the e-commerce channel is a superstore, always open and never crowded, garnering more revenue than any one physical location--or even any group of them. In addition, that superstore can stock a much wider inventory than would be practical for a local shop. "AutoZone is a great example of this. Certain parts are available only regionally and hard to stock everywhere." It makes little sense for a franchise in a farming community to stock aftermarket Ferrari parts, likewise a suburban store carrying tractor equipment. TeaLeaf's customer Crutchfield, a home electronics catalog, is well known for its consultative phone agents, who suggest which products would best serve a customer's needs or would work well with another product. TeaLeaf helped the company develop an online presence that does the same thing, much like Amazon or Barnes & Noble do with book recommendations. Still, Galat says, there has to be human interaction available at least as a backup. "Web self-service requires service. Would you open a store without a manager?" Ideally, the personal touch should start before shoppers ever get to your site. James Wong, CEO of Avidian Technologies, knows that customers don't come if they can't find you. "Do the right sort of marketing: Be found when people are looking for you or something like you," Wong suggests. "Yahoo bought Overture and created Yahoo Search Marketing, and that sort of thing is huge now. Relevancy is important. TV/radio advertising is a blanket--the Web must be more refined. "Our biggest blunder early on was that we didn't take enough advantage of search engine optimization. We focused on search terms, not organic search," Wong says. He mentions aQuantive Atlas (formerly NetConversions) as one suite of tools that helps. Atlas and similar products like ClickTracks provide insight into all aspects of Web traffic, even tracking what page areas users hover their mouse pointers over but don't click. And once you've got them, you need to keep them. "Loyalty programs are big, an extremely successful and important way of locking in your best customers," Mulpuru says. Again, the ability to gather data helps keep track of customer activity, so vendors can offer rewards instead of waiting for customers to claim them. They can also reach out to customers who may have lapsed, keeping the relationship alive. Mulpuru says that one of the biggest mistakes in customer retention is to compete on price, giving away money and coupons. "With e-commerce, you compete on convenience, selection, then price. Where I get frustrated is the shopping comparison engines--Dealio, Pricegrabber, et cetera. Their business model is to drive margins lower, which can't work long term. I'd rather see more companies like Gifts.com--comparative shopping to find the best or most tasteful gift." Cash or charge?

Look at your computer and you'll see a number of gadgets; chances are, a cash register isn't among them. In the prehistory of e-commerce, deals made online through email or other means still required a check or money order to be sent through paper mail. Secure e-commerce brought credit cards into play, but enabling consumers to pay for goods immediately has remained an imperfect part of the process. The latest trends in payment acceptance focus on debit, not credit. After all, many users don't have credit cards, and many more prefer not to use them online. Online payment services like PayPal draw from existing bank accounts. Prepaid gift cards are another means of putting money into a more appropriate form for the Web. "Alternative payments, like PayPal, MODASolutions, even bill-me-later or gift cards, are adding more flexibility to sites by giving shoppers more options," Mulpuru says. "We created SECURE E-bill so people could shop online and pay through an online banking account," says Marwan Forzley, president and CEO of MODASolutions. "This gives options to the security conscious, the debit card crowd and small businesses, and to people who don't have a credit card." MODASolutions and services like it help merchants close the sale online. "It really annoys merchants when customers are driven from the home page to the product page to the checkout, but then cancel because of a lack of payment options," Forzley says. "Consumers trust their banks. They're comfortable paying through an online bank account." One of the fastest growing groups of e-consumers is the young. MODASolutions and PayPal are in an excellent position to enable kids to enter the world of commerce, without great risk. "The e-bill is forwarded to the parents, who okay the transaction and pay from their account--it can be set up to pay from the kid's account, too," Forzley says. "This way, the kid drives the sale, but transactions are supervised, and you reduce disputed charges." On the other side, payment options have opened the market up for smaller companies, which can't always afford to have a credit payment option, to compete with major retailers. The little guys typically use drop shipments, leveraging the producers' inventories and the postal system to deliver the goods, literally and figuratively. "Drop shipping has helped those companies that have done it well," Mulpuru says. "With drop shipments you don't have to carry the inventory yourself, so you have a broader selection of products to offer and can do so at competitive rates." Galat sees the development of cross-channel immediacy as an important adjunct to the online superstore, with Circuit City's 24-minute guarantee one of the more visible examples. In programs like this, the consumer can order and pay for merchandise online, then head straight to the store to pick it up--presumably hassle-free. With most brick-and-mortar retailers' Web sites including a store locator, the potential convenience and speed is astounding. Analytics and business rules Jackson Wilson, CTO of Proficient Systems, has built a business on making other e-commerce businesses smarter. While pleased at the growth of business intelligence and a more scientific approach to online selling, he acknowledges it's not enough. "Analytics isn't the same thing as reports, though the terms are often used interchangeably. Analytics is methodology and science. Reports are just output," Wilson says. "One of the worst things we see is the assumption that Tool X will provide Y performance. It's not the tool that improves performance; it's the integration with your business." It took some trial and error to turn Proficient into a winning value proposition. "We used to spend a lot of time with our clients guessing at what our reporting really meant and using it to create business rules," Wilson says. "We've learned better since those early days. For example, a client with a content-rich Web site would see some users were spending five minutes on one page of the site, and decide that they needed to target individuals like that. The fact is, that person likely isn't even reading the page; they may have multiple browser windows open, or left the desk to get coffee, but they're not absorbed in the content." Businesses must learn to recognize what is truly valuable in online prospects--for example, surfing multiple pages on related topics and products. It's not enough to establish a rule, since the customer of today may not be the customer of tomorrow. "The old methods and probabilities are still highly valuable, and so are business rules, but both must be flexible," Wilson cautions. "Predict, model, and adapt: Profile your most profitable visitors, use them to predict others, and keep fine-tuning the estimate." Help! Maintain your Web site: It may seem like common sense, but maintenance is especially crucial with an e-commerce portal, a complex bit of integration that must function smoothly to bring in money. Companies like TeaLeaf Technology provide applications to track online store problems as they develop, so they can be dealt with immediately. The immediacy of cross-channel sales can just as easily work against the retailer. According to Galat, nine out of 10 people have experienced problems with online transactions. "Of those, 34 percent with a problem would immediately switch to a competitor's site or just go offline. It makes me want to register www.somebodyelse.com as an e-commerce site." The definition of a problem is not what some Web masters might expect, either; easy transactions with no failures and good feedback when issues arise are what the public wants, not speed. "Of that 34 percent, only 3 percent would switch due to slow performance." Those figures, from a Harris Interactive poll sponsored by TeaLeaf, show how incredibly important it is to keep the Web store working. "Today, even the most sophisticated companies are forced to depend on their customers to report online failures versus proactively identifying issues impacting their customers. This can lead to unidentified problems that negatively impact business results," says Rebecca Ward, chairman and CEO of TeaLeaf. "A single common Web application problem such as an endless loop or business logic issue, for instance, could cost an e-business thousands if not millions of dollars lost, especially when hundreds, thousands, or millions of users are trying to transact, such as during a holiday shopping rush." Keeping the store working is important, but no system can guarantee 100 percent success. When a customer encounters a problem, the e-commerce engine must have some sort of backup plan. Analytics allows online vendors to detect when customers are having difficulty, and this allows the system to respond appropriately. At least, that's the best practice. "There should be more proactive helping, with rules-based triggers," Mulpuru says. "If the customer is stuck in the shopping cart for a while, or is receiving lots of error messages, the system should pop up a do-you-need-help? dialogue. Cart abandonment rates are still very high." Live help is what people want when serious problems crop up, and the Internet provides the means. While chat windows were popular in the first wave, integrated VoIP is replacing them in many cases. "Click to callback is gaining momentum. Chat is nice, but customers prefer in-person experiences. Click doesn't force you into IVR hell," Mulpuru says. Macy's, Amazon.com, and Gerber are some of the better known early adopters of this technology. Is e-commerce going anywhere? If you're reading this article, you probably remember the mid-to-late 1990s and the dotcom boom. Back then, anybody with an idea for online business could play trick-or-treat with venture capital firms, holding out a bag and getting a stack of money tossed in. Obviously those days are over, and the market has corrected to a more reasonable level of growth. In short, e-commerce is a mature channel. This should not be taken as advice to look elsewhere for investment opportunities, though. Maturity is a good thing. "E-commerce is not really stagnated. We've perfected a lot of things, like on-site search. With analytics such as from Omniture and WebSideStory, the whole process can become more sophisticated," Mulpuru says. Metrics and analysis are taking much of the guesswork out of seeing where e-commerce is going. "There's a lot more A-B testing of e-commerce programs, but also a lot more multivariable testing--there's much more scientific data than in the past." Forzley agrees: "E-commerce growth is slowing down a bit. We've figured out how to sell online, now we're refining the process and integrating the other channels. The fuel to the next step is alternative payments. Growth areas include youth [12 to 18] and young adults [18 to 25]." Broadband Internet service has opened up the ultimate in immediacy for software sales, and it's taken some vendors by surprise. Wong says: "When we started four years ago, we ordered thousands of boxes to package our $80 customer management product, assuming that about 80 percent of customers would buy online, and 80 percent of those would want a box." While they expected 64 percent (80 percent of 80 percent) of overall customers to buy boxes, the shock came immediately when only 28 percent did--72 percent downloaded the software. Despite the waste of money and cardboard, Wong finds that result encouraging. "Even when people buy a $5,000 or $10,000 product, they're comfortable giving a credit card and getting the bits and bytes. It just requires trust." Brick and mortar doesn't create demand, Wong says, it fulfills it. "It's best to let our customers buy on the Web. In two or three years when we're better known, we can be in Best Buy or CompUSA." E-commerce Best Practice DO's: DO think about your e-business as a business, and apply the same discipline. DO use customer data to give each individual a personalized shopping experience. DO provide as many payment options as your customers need. DO make your transaction process easy and smooth from home page to checkout. Failed transactions are money in your competition's pocket. DO be prepared to change your business rules and processes to meet emerging trends. DO integrate online and offline channels, taking advantage of the best features of each. DON'Ts: DON'T treat online customers as second-class citizens. They're not your warning system or guinea pigs. DON'T rely on new technology as a panacea. Tools don't improve performance by themselves; wise use of them does. DON'T compete on price alone. Convenience and selection often have greater value than a coupon. DON'T rely on automation and self-service exclusively. Sometimes, customers are people who need people. DON'T wait for customers to find you. Market wisely with targeted ads, search engine optimization, and search term placement. --M.L. CROSSING THE CHANNEL One thing the experts agree on is that e-business is most powerful when viewed as part of the entire effort. Some of their key comments: "E-commerce is capable of being a stand-alone business model, but it isn't a stand-alone business. It should support and be supported by the rest of the organization, a true multichannel effort." --Jackson Wilson "Personalization is very important, as we've seen with Amazon's collaborative filtering--other customers who bought X were also interested in Y." --Sucharita Mulpuru "We've figured out how to sell online, now we're refining the process and integrating the other channels. The fuel to the next step is alternative payments." --Marwan Forzley Contact Senior Editor Marshall Lager at mlager@destinationCRM.com