E-Commerce is NOT a Technology Issue

E-Commerce is NOT a Technology Issue

Robert Gignac

Taynac & Associates

54 Crawford Rose Drive

Aurora, Ontario

L4G 4R4

(905) 841-0837

rgignac@frinc.com

The decisions that an organization makes about pursuing an E-Commerce initiative for their organization can be among the most important decisions that they will make. Even the casual student of current business practice has read more about E-Commerce in the past two years than any other activity that companies have been engaged in. Is it that important? I think so. However, if this is true - then why are so many companies not making money on the Internet? I think it is do to what the companies have chosen to focus on - Technology vs. Business Practice.

Don't get me wrong - I like technology, and technology is an important piece of the E-Commerce puzzle. But, too many companies focus purely on the technology surrounding the Internet and gloss over the fact that doing business on the Internet still requires sound business practices to be followed.

Most companies get involved in E-Commerce when someone in the organization asks the question: "Hey, shouldn't we sell our products on the web?" The answer then becomes, "How?" The "how" then usually turns into a search for the appropriate technology to carry out the task.

Let's go get some technology!

Well, what about the technology? There is no shortage of it available. HTML, XML, VRML, Java (beans or script), Active X, COM+, Visual Basic and Shockwave only scratch the surface of what is available to you. In the right situation, used properly, all of them will help you accomplish your wish of building an E-Commerce solution. You can also purchase complete E-Commerce solutions in a "shrink-wrapped" format - somebody has done the building work for you. You can also load your products and information into E-Commerce systems that you can use for "free" from various providers on the Internet. They take care of all the systems and technical issues - you just sit back and rake in the money. Right?

Money. It all comes down to the desire to make money - ok, perhaps a little bit about providing better customer service, but mostly about making money. ActivMedia estimates that Internet generated revenue could top 1.3 trillion dollars by 2002. That is significant money, and something to be interested in. So all you have to do is show up - right?

Maybe. If you do it right. If your product lends itself to "self-service" purchasing. If your customers want to buy from you on the Internet. If your customers know that you are out there. If you make it easy for the customer to do business with you.

Make it easy to do business? Yes. Just because you have a web site and a mechanism for people to order products/services from you - doesn't mean you are easy to do business with. Too many clicks, too little help, and unclear instructions are killing E-Commerce initiatives every day. It is estimated that 66% of all shopping carts that are started on the Internet are abandoned prior to completing the purchase. Why? Sure, some of them get abandoned because they simply decide, "I don't need this stuff". However, from my own experience with Internet shopping it is a frustration level with the process that makes many of us yell at our computer screens, close our browsers and go read a book (or drive to mall…)

How should we proceed?

Assuming that I haven't scared you off the concept of developing an E-Commerce initiative (or have encouraged you to look at the one you already have) where do we start? Below is a five-step process to begin to think about E-Commerce from a non-technical perspective.

1) Determine your strategy

Why are you entertaining an E-Commerce initiative? Because it's trendy? Because you're competitors are doing it? Because you read about it in a magazine? None of these reasons are wrong in and of themselves, but your E-Commerce initiative must be part of the bigger overall business picture for your organization. You can't just take a E-Commerce team and put them in a corner in isolation and expect them to come back with a solution that fits the overall strategy of the company. If somebody asks you why you are doing this, you had better have a better answer than "just because".

2) Your Customer is the Focus

For some companies a difficult question to answer is "who is your customer?" If you are manufacturing a product is your customer the end-user of the product who buys it from a store, or is it the store that you sold it to? This is important - because one of the things the Internet does for people doing business here is that it cuts out the middleman. If you are not used to dealing with "end-users" then you have to get used to dealing with them. How do you build their loyalty? How do you encourage them to buy from you if they can get your product in a store? What about your channel partners? If I owned a store that carried, sold and supported your product and now you want to sell directly to people (who just happen to be my customers…) by going around me - don't expect me to be happy about it.

3) What does the Customer need to see?

The term "customer facing process" describes what the customer sees when they do business with you on the Internet. Sometimes it is known as "look and feel". In either case it is very important. Knowing what to show them will determine in some cases what technology path you take. How do your customers access your site? If they are using dial-up connections - put animations and heavy graphics on the back burner. If the demographic skews younger - visually interesting is a requirement. If the demographic skews older - should you use a large typeface? The goal is to make sure that you design a site that appeals to the user - not the designer. Taking the order-entry screens that your internal employees use and merely "webifying" them is a sure path to failure.

4) How are you going to make money?

I heard a joke at a recent conference - "Thanks to my e-commerce site, I too make seven figures, unfortunately the first three figures are zeroes". Don't get me wrong, you can make money on the Internet, you can make money with E-Commerce. This will only occur if you plan accordingly. Some businesses lend themselves to selling products in this method, some don't. If you are spending $10 to attract a customer and the profit margin on your transaction is $2 - then you are going to have a tough time making money. If you are used to shipping products in bulk, and now you need to send in quantities of 1 or 2 - shipping costs can kill you. Rarely is it appropriate to spend $10 to ship a $2 part.

Everyone talks about clicks, hits and pass through rates when they talk about web traffic, but it is the "conversion rate" of turning visitors into customers and what it costs to do that which will determine your ability to make money. Let's assume you spent $100,000 to drive 50,000 people to your site at various conversion rates:

$100,000 / (50,000 * 2%) = $100/transaction

$100,000 / (50,000 * 4%) = $50/transaction

$100,000 / (50,000 * 8%) = $25/transaction

Current industry averages consider a "conversion rate" of 3-5% to be considered average. If average for you translates into a $50/transaction cost - then your profit margin had better be in excess off that if you are going to make any money. You cannot lose money on each transaction and make it up on volume.

5) Create customer loyalty

This is easier said than done - but extremely important. We all know that it takes more effort and expense to obtain a new customer than it does to keep our current customers happy. Many companies in the E-Commerce marketplace have done a great job at getting the customer to buy once. Once is not enough. We need to drive profitability (see point #4) and that take repetitive purchases. Loyal customers tell other people about your products and services, generating additional revenue and traffic for your site. You foster loyalty by delivering what promised, and by making it easy for customers to do business with you.

So where do we go from here?

In an environment where your competitors are only a mouse click away, the creation of loyal customers is the key to success. But why do we read so many stories about companies who have cancelled web initiatives and dot-com companies who were hot yesterday and aren't here today? I think there are some general rules that go hand in hand with the five steps above:

1) Failing to link web initiatives to existing business strategy

2) Assuming "If we build it, they will come"

3) Failing to provide proper resources to manage an E-Commerce initiative

4) Defining the E-Commerce initiative as a "technical" project, not a "business" project

5) Going Solo - there is plenty of experience and help available, get some

6) Don't forget your phone number - too many web sites do, people will want to call you

E-Commerce is not merely a technical issue, it must integrate itself within the entire business process. Companies that are being successful today know this. The difficult thing for many companies to deal with is that by the time the rules of the game are clear, your window of opportunity may be closed. So start today. Will you make some mistakes? Yes. Learn from them. Learn from your competition's mistakes. The best E-Commerce initiatives often borrow heavily from others than have been successful. In reality there are only so many way to design a "electronic shopping cart".

At the end of the day, when all is said and done, if the steps have been followed, and the right technology has been applied - your customers will be happy, your suppliers will be happy, and hey - even you will be happy.