FROM BRICK AND MORTAR TO CLICK AND MORTAR:
MAKING THE TRANSITION FROM CONVENTIONAL BUSINESS
TO ELECTRONIC COMMERCE
FROM BRICK AND MORTAR TO CLICK AND MORTAR:
MAKING THE TRANSITION FROM CONVENTIONAL BUSINESS TO E-COMMERCE
TABLE OF CONTENTS
Making the Transition from Conventional Business to E-Commerce 4
Problem Definition 5
Research Design 6
Sources of Data 7
Research Results 7
The Question is Not Whether or When to Enter E-commerce; It’s How to Enter E-Commerce. 7
E-commerce Benefits 11
Lessons Learned 12
A Proposed Model for Developing an E-Commerce Strategy 14
The key rule of E-commerce. 17
Steps for building an E-commerce strategy. 18
Typical stages of E-commerce development. 25
Steps for establishing a small business website. 26
Selling Power ® Enters E-Commerce 28
A Javier Romero Design Group Web Implementation Plan 33
Selling Power analysis. 35
JRDG analysis. 35
Research Limitations 36
The scenario created for this project called for the research team to simulate membership on the staff of a small, “brick and mortar” firm. A Chief Executive Officer (CEO) heads the firm, and she is the primary decision maker for the firm. The CEO is inclined to pursue a venture into E-commerce, but neither she nor her staff members have experience or knowledge in this area. To help her make some decisions, the CEO asks three staff members to form a team to research E-commerce and make a recommendation on whether she should pursue E-commerce opportunities.
The objective of this research is to provide the CEO with a reasonable recommendation to either pursue some form of E-commerce or to remain with her current brick and mortar model. Because there are constraints with respect to cost/benefit analyses, there are two research questions to be answered: (a) Should the CEO venture into E-commerce, and (b) if she should, what should she do to initiate her E-commerce venture?
The research revealed that E-commerce is expanding quickly, and the potential benefits from participating are enormous. It also indicated that businesses that are reluctant to participate in E-commerce risk falling behind their competitors or becoming non-competitive in their existing market. For those that do wish to enter into E-commerce, the task should not be taken lightly. An organization requires a visionary leader, perseverance, a significant investment, the ability to establish partnerships with successful firms, and full participation from the entire organization. They must also recognize that E-commerce focuses on serving the customer, not pushing their products.
Successful E-commerce entrepreneurs become successful by developing strategic plans. At a minimum, a strategic plan should address methods for accomplishing the following five steps: (a) make it easy for your customers to conduct business, (b) focus on your true end-customer, (c) design customer-facing business processes, (d) use technology to enable your company to be profitable, and (e) promote customer loyalty. If a website is to be incorporated into the organization’s E-commerce plan, it must take five basic steps in order to complete the mechanics of establishing a viable website: (a) find an Internet service provider (ISP), (b) register a domain name, (c) develop the website, (d) manage the website, and (e) measure the website’s effectiveness. Additionally, many businesses progress through several evolutionary stages before reaching their full potential: (a) supplying company and product information, (b) providing customer support and enabling interaction with the customer, (c) supporting electronic transactions, (d) personalizing interaction with customers, and finally (e) fostering community among customers.
The research team reviewed a small, regional company’s experience with E-Commerce and a sample E-commerce proposal from a professional website development firm. The team found that the regional company initially failed when it attempted to enter into E-commerce without a strategic plan or professional expertise. However, the company’s fortunes changed after seeking help from a reputable professional and developing a strategic plan. In comparing the elements of the professional web development firm proposal with the textbook recommended model, the researchers found that they were substantially similar.
After reviewing all the collected data, the researchers made the following conclusions: (a) The CEO should pursue an E-commerce initiative, (b) the CEO’s first step should be to initiate a pre-investment study to estimate and assess the expected costs, benefits, etc. associated with establishing and maintaining an E-commerce presence, (c) the CEO should contract with a reputable E-commerce developer to build a strategic plan and establish the E-commerce vehicle, and (d) the CEO should develop a strategic plan before venturing into E-commerce.
From Brick and Mortar to Click and Mortar:
Making the Transition from Conventional Business to E-Commerce
This research project was prompted by the requirement for the researchers to complete a research project as part of the Applications of Business Research course, BSA 515. Per the guidance provided by the course instructor, the researchers chose to research an area of interest. The area of interest chosen for research was electronic commerce (E-commerce). However, none of research team members had any previous knowledge or experience with E-commerce. Accordingly, the team decided to build a research scenario to allow them to conduct their research from “scratch.”
For the purpose of this project, the team assumed the role of staff members in a hypothetical firm. This firm is a small regional company headed by a CEO who is also the company’s founder and owner. The company has a staff of approximately 150 people, and it produces and markets several consumer products. Currently, the firm conducts business in a conventional “brick and mortar” model. That is, the firm uses a tradition store, housed in building, where customers drive to the store’s premises to purchase goods. The firm employs traditional marketing methods (newspaper, television, and radio), and its only electronic transaction capability is a limited telephone ordering capability.
The CEO, who is the primary decision maker for the firm, is forward thinking, and she would like to expand her market. She perceives that E-commerce would be a good way to accomplish this goal, but she knows next to nothing about E-commerce. The firm’s staff members do not have any experience or working knowledge of E-commerce, so the CEO has no internal resources to provide immediate advice or recommendations on how she should proceed. She is inclined to believe that she should migrate to a “click and mortar” model (a traditional business model expanded to take advantage of electronic business technologies; “click” refers to the click of a computer mouse) to expand her business, but she is unsure. The CEO decides that she wants to investigate E-commerce, and she wants to determine whether E-commerce is a wise choice for her firm. Accordingly, she assigns three members of her staff to research E-commerce and provide recommendations.
The research team used the following steps to define the problem: (a) ascertain the decision maker’s objectives, (b) understand the problem’s background, (c) identify and isolate the problem(s), (d) identify relevant variables, if any, and (e) state the research questions.
The decision maker has three objectives: (a) to expand her knowledge of E-commerce, (b) to find out how to implement an E-commerce model for her firm, and (c) to decide whether to migrate to a “click and mortar” model. The following background factors are pertinent to the problem: (a) There is a perceived need to enter into E-commerce, (b) the CEO has minimal E-commerce knowledge or understanding, and (c) no experience or knowledge base on E-commerce exists within the firm.
The actual problem to be solved is two-fold. The CEO doesn’t know whether E-commerce is a good vehicle for her organization, and she does not know how to commence an E-commerce initiative. With respect to the relevant variables, the following variables would have an impact on the problem: (a) the estimated cost of establishing the E-commerce vehicle, (b) the estimated cost of maintaining the vehicle, and (c) the estimated return on investment (ROI). Unfortunately, the hypothetical nature of the firm in question prohibited the research team from performing a realistic cost/benefit analysis to use in making recommendations. This will impact on the research questions.
The objective of this research is to provide the CEO with a reasonable recommendation to either pursue some form of E-commerce or to remain with her current brick and mortar model. Considering the constraints with respect to cost/benefit analyses, there are two research questions to be answered: (a) Should the CEO venture into E-commerce, and (b) if she should, what should she do to initiate her E-commerce venture?
The hypothesis for this research project supports the following proposition: E-commerce is not a fad, E-commerce is not only the wave of the future, but it is here to stay, and businesses will have to invest in E-commerce to remain competitive. Accordingly, barring pre-investment study results contrary to global trends, the hypothetical business owner in this project should pursue an E-commerce initiative because its benefits will far outweigh its costs.
Due to the constraining factors affecting this project, particularly time constraints, the research design is very basic. The researchers decided to conduct the research by following these steps: (a) collect secondary data on E-commerce to develop a knowledge of its evolution, trends, expected benefits, and textbook recommended designs, (b) collect data from at least one company that has ventured into E-commerce and document its experience, (c) obtain and study a typical E-commerce development recommendation from a professional E-commerce developer, (d) compare the company’s experience and the developer’s proposal to the “textbook solution” to determine whether they are significantly different or substantially the same, and (e) make a recommendation based on the research findings.
Sources of Data
The research project depended primarily on secondary data sources. The researchers studied textbooks, on-line journal articles, traditional journal articles, case studies, and abstracts. The researchers also studied a web implementation plan acquired from a professional website developer who specializes in E-commerce development. The only primary data obtained by the researchers consisted of interviews conducted with a web development specialist and with a local company that has recently ventured into the world of E-commerce.
The Question is Not Whether or When to Enter E-commerce; It’s How to Enter E-Commerce.
Business people who are pondering whether to venture into E-commerce should focus on the more important question, “How can I start a effective E-commerce business?” The phenomenal growth in business conducted over the Internet and by other electronic means indicates E-commerce’s great potential. Analyses conducted by numerous researchers verify the growth already experienced, and they also point to a continued explosion of E-business that is not likely to subside. Although they do not provide identical estimates, the following examples all indicate continued E-commerce expansion:
1. “Between 1995 and 1997, according to a Price Waterhouse study, annual venture capital funding for on-line business went from $134 million to $1.88 billion.” (Siebel and House, 1999, p. 4)
2. A recent (pre-1998) U.S. Department of Commerce study entitled The Emerging Digital Economy estimated 100 million Web users worldwide, and it projects 1 billion web users worldwide for the year 2005. (Siebel and House, 1999, p. 3)
3. A 1999 estimate of web site growth stated, “New commercial sites are being added to the World Wide Web at the rate of 5,000 a month. That’s one new place of business every nine minutes.” (Siebel and House, 1999, p. 4)
4. Find/SVP, Inc. estimates that the number of regular Web users in the United States jumped from 8.4 million in 1996 to 28 million in 1998. Their projection for Web users in the year 2000 exceeded 200 million. (Siebel and House, 1999, p. 3)
5. The market opportunity for business to business (B2B) e-commerce is immense and already exceeds the business to consumer (B2C) e-market by a considerable margin. Figure 1 illustrates this point. As Figure 2 displays, the Gartner Group, Inc. projects the worldwide market for B2B e-commerce to grow from $403 Billion in 2000 to more than $7 trillion by 2004.” (see Appendix).
6. The E-commerce implementation plan (Appendix) made available by The Javier Romero Design Group (JRDG) provided the estimated E-commerce growth projection information JRDG supplied to one of its clients. Figure 3 below shows estimates for the portion of the worldwide business to business (B2B) E-commerce that will be conducted via e-marketplaces. E*Offering, a subsidiary of E*Trade ®, estimates that e-markets generated about $22 billion in year 2000 revenue on a worldwide basis. According to Forrester Research, the United States B2B E-commerce market should reach $2.7 trillion by 2004, or almost one-quarter of the United States projected Gross Domestic product (GDP) for 2004. For businesses that enter into E-commerce wisely, this signals potential wealth that should be tapped into. (see Appendix).
If the examples above are true indicators, one must conclude that E-commerce is here to stay, and it will continue to grow as more and more consumers and businesses take advantage of E-commerce opportunities. With the increasing number of people who have access to the web, it will become almost a necessity to present your company on the web, and in other E-commerce vehicles, to stay competitive. (Wilson, 1997) We should assume an increasing percentage of our customers and clients would expect us to employ E-commerce as a routine method of doing business. This expectation is fueled by the advances in computer, network and Internet technology combining to enable “virtuality,” or the ability to conduct business transactions on a global level, in a real time format, without being constrained by physical location. As these advances continue, physical distance becomes irrelevant and completing a transaction is so compressed that, for practical purposes, “waiting time” is eliminated. (Siebel and House, 1999, p. 8)
Despite imperatives, there are distinct benefits associated with E-commerce. The following points and examples provide insight into some of the benefits:
1. At a minimum, a website can provide the public with basic business information about our company, such as the hours of operation, information and other important details that the consumer needs to know. (net101.com)
2. The Internet provides a way of advertising our products and services, as well as a way of receiving information about what other people can offer our company. (Wilson, 1997)
3. The web provides a vehicle that allows the business to communicate with the customer. Furthermore, it is a way for the customer to provide opinions on possible new products, and for the company to view these opinions without the large expense of surveying through traditional methods. Businesses can also determine the types of products that will be successful by analyzing the type of people who use their website and the products they order.
4. Many companies find that their e-commerce sites actually drive traffic to their stores. At Sears.com, customers can make side-by-side product comparisons before clicking to buy tools or appliances. Many visitors use the site to gather information before heading to the Sears, Roebuck & Co. at their local mall. Because customers walk into the stores knowing what they want, salespeople can sell the drills, refrigerators and washing machines faster. (Stuart, 2000)
5. In other cases, stores drive traffic to websites. That is the idea behind nearly 200 Gateway Country brick-and-mortar stores, which let customers test-drive Gateway computers in the store before ordering them on-line from the San Diego-based company. (Stuart, 2000)
6. Reduced Asset Intensity. Asset intensity refers to the amount of assets you hold, including inventory. Consequently, it directly relates to how many dollars you have to have in place to run a business. If you can reduce both on-hand inventory and plant property by using a website as your storefront, you can reduce the amount of money required to run your business. (Siebel and House, 1999, p. 128)
7. In general, if a company is successfully selling products before venturing into E-commerce, the Internet will only increase sales. The site would merely be an additional channel for selling products. (Stuart, 2000)
The indicators are clear. Those who do not venture into E-commerce will risk being left behind, and they may loose their ability to compete in their established markets. Therefore, it’s not a question of whether or when to enter into E-commerce. Participating in E-commerce appears to be an imperative. The most important question facing those who are not yet participating is how to get started in E-commerce.
The Internet has been in existence for a number of years, but significant levels of civilian use have been limited to less than a full decade. Still, these first few years have yielded some valuable lessons for E-commerce newcomers’ benefit. Siebel and House (1999) identified 9 lessons worth listing:
1. “Zapping,” the warp speed version of “just browsing,” the electronic counterpart of every retailer’s pet peeve, is a Web norm. (Siebel and House, 1999, p. 67) Your Internet site will probably be just like your brick and mortar store. Some customers will come to see what you have to offer, and some will compare your products against your competitors. Many will not purchase your products or services.
2. Choose the most effective method of advertising for your business. Your on-line choices are Search Engines (big directories), Hub Sites (small, focused directories), and Gateway Ads (advertising on other organizations’ sites). Limiting yourself to on-line advertising might not yield the best results, so do not rule out conventional advertising. (Siebel and House, 1999, p. 67-83)
3. Be seen at the “front door” or entry portal for popular sites. This is best accomplished by partnering with winners (e.g., AOL). (Siebel and House, 1999, p. 74)
4. Give more than “Brochureware.” Brochureware is a term describing sites that only provide information about your organization, similar to the paper brochures one might pick up at a lobby display. Visitors must “get something for visiting your site. (e.g., free information, interactive entertainment or ads, recipes, etc.). If your site does little more than provide brochure information, people will not repeat their visit.
5. Your website must be convenient and easy for customers to use. If it is not, they will become frustrated, and they will not return.
6. Close the loop. “The most attractive web site in the world cannot manage its own traffic.” Therefore, you must have the process and resources in place to ensure the site is truly interactive. (Siebel and House, 1999, p. 84) Otherwise, visitors will not return.
7. Don’t go it alone. Form strategic alliances with successful E-commerce players. (Siebel and House, 1999, chap. 3) It’s difficult for a new start-up site to draw attention. One of the best ways to draw attention is to ally with an already successful and popular E-business.
8. Improve as you go. You must make continual improvements to your website. (Siebel and House, 1999, p. 88) If you do not, your customers will grow bored of it.
9. “Before you spend the resources for even an elementary website, define exactly what you expect that presence to accomplish for your company.” (Siebel and House, 1999, p. 90) This is probably the most valuable lesson of all. Those who fail at E-commerce generally do so because they entered into it without a well-developed plan. As with conventional business, poor planning often results in failure.
The lessons listed above are valuable, indeed, and they are definitely applicable to any strategy for establishing an E-commerce presence.
A Proposed Model for Developing an E-Commerce Strategy
Before discussing the steps necessary to implement an E-commerce strategy, some description of E-commerce is required. Generally speaking, E-commerce or electronic commerce encompasses all electronic means of conducting business transactions, and numerous technologies are available. Current E-business technologies include the World Wide Web (WWW), integrated voice response (IVR) systems, kiosks, e-mail, hand held digital appliances, cell phones, “smart” call centers, smart cards, and others. (Seybold & Marshak, 1998, p. 33-38) The technologies are numerous, and a fully integrated E-commerce strategy would employ a combination of the available technologies. However, this research report most often makes reference to Internet/WWW capabilities because most new initiates to E-commerce envision websites as their primary technology for electronic business. (Downes & Mui, 1998)
Electronic commerce over the Internet may be either complementary to traditional business or represent a whole new line of business. Electronic commerce can be defined loosely as “doing business electronically.” Electronic commerce includes electronic trading of physical goods and intangibles such as information. This encompasses all the trading steps such as on-line marketing, ordering, payment, and support for delivery. Electronic commerce includes the electronic provision of services, such as after-sales support or on-line legal advice. Finally, it also includes electronic support for collaboration between companies, such as collaborative design. (Timmers, 1998)
Several business models have evolved in the e-commerce world. A business model is the method of doing business by which a company can sustain itself – that is, generate revenue, and each model has several sub-designs with which they are more narrowly defined. There are a couple of models our prospective decision-maker may choose. One possible model for consideration is the Brokerage Model. Brokers are market makers who bring buyers and sellers together and facilitate transactions. The transactions can be in business to business (B2B), business to consumer (B2C) or consumer to consumer (C2C) markets. A broker makes its money by charging a fee for each transaction it enables. One sub-design of the Brokerage model is the Virtual Mall. This is a site that hosts many on-line merchants. The mall typically charges setup, monthly listing, and/or per transaction fees.
A more logical model, because it resembles a conventional business model, for our company is the Merchant Model. Merchant model users are classic wholesalers and retailers of goods and services (increasingly referred to as “e-tailers”). Sales may be made based on list prices or through auction. In some cases, the goods and services may be unique to the web and not have a traditional “brick-and-mortar” storefront. The best Merchant Model sub-design for our use is the “Surf-and-Turf” design. This is a traditional brick-and-mortar establishment with a web storefront. Under this concept, a business stakes out a place on the web through a website, or establishes its “turf”. Then, the business registers this site with various search engines such as Yahoo, AltaVista, or HotBot. When potential customers “surf” the web, they are guided to the registered website, or turf, where they can conduct transactions directly with the business.
It is not necessary to select an E-commerce business model before developing a business strategy. More to the point, business people who are about to enter into E-commerce should not begin developing their business strategies with a preconceived notion of the model they will use. Rather, the appropriate model should be dictated by the research and analysis conducted while developing a strategy.
Several sources (Downes & Mui, 1998; Geist, 1999; Gibbons-Paul, 1999; Rappa, 2000; Siebel & House, 1999; Seybold & Marshak, 1998; Stuart, 2000; Tapscott, Ticoll & Lowry, 2000; Timmers, 1998) provided blueprints for developing strategic plans for E-commerce. Although they varied slightly, they were very similar in their recommendations for plan development. Seybold and Marshak (1998) provided the most comprehensive treatment, and their recommendations were the easiest to understand. Therefore, the model recommended herein was derived significantly from the Seybold and Marshak model and supplemented by some of the variations identified in the other sources.
Entering into E-commerce should not be taken lightly. As it is with any other business venture, there is risk involved. Seybold and Marshak (1998, p. XVI) identified several prerequisites to optimize the likelihood for success. An organization about to embark on a voyage into E-commerce should meet the following prerequisites:
1. Visionary leader. The organization must have a leader who can envision the opportunities available through E-commerce and be willing to act on them.
2. Perseverance. The organization must have the perseverance to follow its E-commerce transition through to fruition.
3. Significant investment. The organization must be willing to invest the time, effort, finances, and other resources to ensure the venture’s success. If the organization does not have sufficient capital to support the venture, it must find sufficient capital backing from outside sources. (Siebel and House, 1999, p. 122)
4. Partnership. The organization must establish a solid partnership between business pragmatists and the information technology (IT) professionals who will enable the E-commerce effort. The organization should also be prepared to form strategic alliances with other, already successful E-commerce businesses. (Siebel and House, 1999, p. 122)
5. Team effort. The organizational leadership must acquire consensus on the need and wisdom of entering E-commerce among the organization’s members, and the leadership must ensure participation by the entire organizational membership in the E-commerce effort. Without both, the E-commerce effort will be viewed as an individual’s or a small group’s program, not the organization’s program.
If the organization can meet all of these prerequisites, it is ready to embark on its E-commerce adventure.
The key rule of E-commerce.
“No matter how high tech you get, it’s still about the customers. Technology drives E-business, but it’s not about technology. It’s about using technology to empower yourselves and your customers.” (Siebel and House, 1999, p. 126) The key word in this quote is customers. Customers should be the focus of every E-commerce venture, not products, services, or technology. We must give the customers what they want or need. Otherwise, customers will find someplace else to shop. We are “moving from a world in which Henry Ford could offer his Model T customers “any color, so long as it’s black,” to one in which customers everywhere are demanding it “their way.” (Siebel and House, 1999, p. 188) Those who fail to grasp this fact routinely fail because they put their emphasis on their products and services or on “bells and whistles” rather than placing it on their clients or customers.
Steps for building an E-commerce strategy.
Seybold and Marshak (1998) studied more than forty companies that were successful in implementing E-commerce strategies, and they identified five key strategy-building steps that were common to all forty companies. Although they are not cited in the exact language or in the same sequence, these steps are also common to the other research sources. The following five steps should form the core of any strategic plan for E-commerce: (a) make it easy for your customers to conduct business, (b) focus on your true end-customer, (c) design customer-facing business processes, (d) use technology to enable your company to be profitable, and (e) promote customer loyalty. (Seybold & Marshak, 1998, p. 6)
As noted above, customers should be the focus of E-commerce efforts. Their experiences with making transactions with your business should be free of frustration; better yet, they should be enjoyable. If their experience is hassle free, they will be inclined to conduct more business with you. If it is not, the customer will become frustrated, and he will either give up or seek an easier alternative. Anyone who has attempted to purchase an item over the Internet from a website where “you can’t get there from here” can verify what this is all about. Accordingly, making it easy for customers to conduct business with you is an imperative.
There are several things you should do to enable frustration free interaction with your customers:
1. First of all, do not skimp on your IT investment! Cutting corners in IT development may save some money up front, but this savings is often short lived because it comes at the expense of easy use. Ensure that you IT budget is sufficient and invest at least 50 percent of your IT dollars in making it easier for your customers to do business with you. (Seybold & Marshak, 1998, p. 10)
2. Whatever system you employ, it should not waste the customers’ time. Customers will expect your system to save them time. If it is slow, unresponsive, or time consuming to maneuver through multiple layers or links, they will lose patience and go elsewhere. (Seybold & Marshak, 1998, p. 11)
3. Remember who your customers are as individuals. If your company compiles data on your customers, you should cross-reference your databases to ensure you know who your customers are. Many people have experienced the situation where they receive a membership solicitation from a credit card company when they already are a member. This immediately signals a lack of knowledge on the company’s part, and many people find this oversight either insulting or annoying. (Seybold & Marshak, 1998, p. 12-14)
4. Make it easy for customers to order and procure services. Make all the information the customer needs to place an order available in whatever venue or device they are using (phone, computer, Kiosk, etc.), and be sure to provide the means for customers to complete transactions without having to change venue. For example, if a customer starts a transaction through your website, they should be able to complete the entire transaction through the website. Having to conduct product or service research on-line and then having to place the order by phone is both inconvenient and irritating. You should force customers to interact with secondary information or ordering sources as a last resort only. It’s wiser to let them complete transactions themselves, and provide help or personal interaction only when it’s asked for. (Seybold & Marshak, 1998, p. 15)
5. Provide service that exceeds customers’ expectations. This can be accomplished by providing personal attention to each customer, by providing proactive services (order status tracking, etc.), and by customizing products and services to meet individual customer’s needs or expectations. (Seybold & Marshak, 1998, p. 16-17; Siebel & House, 1999, p. 183)
In focusing on your end-customer, the objective is to identify exactly who your customers are, then adapt your products and services to meet their needs. We are interested in the people who actually use our products or services, not in middlemen, such as retailers or brokers, who appear to be the customer. In E-commerce, we can identify our end-customers in several ways. You can identify them by setting up vehicles for direct feedback from your customers. You can use the latest technologies to collect customer data (smart cards, customer ID cards, product ID codes, etc.), develop a data warehouse to build individual customer profiles, and provide incentives for customers to identify themselves to you. Alternatively, you can make arrangements with your middlemen (retailers, brokers) to provide you with their data files of individual customer information. (Seybold & Marshak, 1998, p. 19-31) Once you have identified your customers, you can begin cataloguing their preferences, likes and dislikes, and you can begin tailoring your products and services to meet their individual needs.
The “customer-facing” term refers to the processes and technologies with which your customers interact. Some of the customer-facing technologies a business may use are the Internet, integrated voice response (IVR) systems, kiosks, e-mail, hand-held digital appliances, cell phones, “smart” call centers, smart cards, etc. (Seybold & Marshak, 1998, p. 33) These are the means by which customers can conduct E-commerce transactions, and the processes supporting them should be designed with the customer in mind. Stated differently, businesses must design the processes customers will use to conduct E-commerce transactions from a customer prospective. In other words, your business processes must support the customers’ needs, not merely your business’ needs. Many of the technologies noted above can provide customers with the ability to initiate and complete transactions on their own. They should be allowed to do so. When customers can complete most transactions using technology, middlemen (brokers, agents, retailers) should perform only functions that cannot be completed with technology. This implies that brokers, agents and retailers should only perform functions the customer really values but cannot do on his own. To employ technologies to their full capabilities, we should use them to identify where the holes in our processes are (i.e. which ones do not satisfy customer’s needs) and prompt change. To accomplish this, we must also develop a system that provides a method for storing and accessing customer information. With the appropriate customer information and feedback data, we can continually refine our processes to satisfy customer needs. (Seybold & Marshak, 1998, p. 34-38)
There are a number of ways to use technology to enable your company to be profitable. The following list is not all-inclusive, but it covers some important recommendations for enabling profitability through technology:
1. Always think beyond current technology and enable for E-commerce of the future. (Seybold & Marshak, 1998, p. 39) This is a philosophy driven by the rapid rate of technological change over the past decade. For example, the average amount of time for computer technology to double microprocessor speed has been eighteen months. (Siebel and House, 1999, p. 7) Although this rate of change may not last indefinitely, it does draw attention to the fact that the computer technology we are using today may be outdated in less than two years. With this in mind, we must make our plans with an eye on the future. Building a strategy with today’s technology in mind will cause us to fall behind our competitors and our customers’ expectations.
2. Integrate your website with your organization’s back-end (existing) support systems. Stated in a different way, do not ignore the tools you already have at hand. If you have existing databases and support systems, do not leave them as stand-alone systems. Instead, connect your website to these systems and use the available data. (Seybold & Marshak, 1998, p. 39)
3. As noted above under the design of customer-facing business processes, use and integrate other technologies such as Touch-Tone telephones, hand-held devices, kiosks, etc. (Seybold & Marshak, 1998, p. 39) Many business owners maintain a narrow view, and they do not look for resources beyond their website. To reap the full potential of E-commerce opportunities, consider all of the E-commerce options available, and integrate all of the technologies that can contribute to your profits.
4. Build bridges to consolidate customer information across all product lines and functional departments. (Seybold & Marshak, 1998, p. 40) Many businesses are organized into different functional departments or along different product lines, and these individual entities often maintain separate customer and product databases. While it is not an intended side effect, this often leads to fragmented or duplicate information on customers, rather than a cohesive, centralized customer database. This could result in a product line department being aware of a customer’s preferences on marketing vehicles, but the marketing department having no idea about the customer’s preferences. Remembering that the customer should be our focus, it makes sense to build bridges among stove piped systems. The logical follow-on to this is to integrate information across all software applications. Taking both steps will effectively build a data warehouse that would facilitate an increased capability to address customers’ needs and wants. 5. When either migrating from an old data system or building a new one, ensure that you include the essential architectural building blocks in the system. At a minimum, the system must include the following elements: (a) customer profiles, (b) the organization’s explicit and implicit rules for conducting business, (c) the organization’s significant business events and (d) the appropriate business objects (e.g., customer, account, product, order, purchase, etc.) for programmers to design the system. (Seybold & Marshak, 1998, p. 41-51)
6. In addition to adopting a philosophy of future thinking, noted above, be sure to stay abreast of the developing technologies that appear to be here for the long haul. They may become industry standards, and they should be evaluated for inclusion in your strategy. Some examples of hot technologies that appear to have continued future potential are smart cards, digital certificates, extensible mark-up language (XML), and JAVA programming language. (Seybold & Marshak, 1998, p. 44-46)
In order to promote customer loyalty, it is important to assess the current situation and then make a plan for the future. This entails measuring customer loyalty, identifying the customers who provide the most profitability, targeting the customers who provide the most profitability, and ensuring our business model is customer-focused. (Seybold & Marshak, 1998, p. 52-62)
There are five basic elements required to make a current assessment of customer loyalty: (a) the cost of acquiring new customers, (b) the cost of retaining customers, (c) the revenue generated by customers, (d) customer profitability and (e) the most prevalent reasons for customer defections. (Seybold & Marshak, 1998, p. 52-62) Of course, this requires some existing ability to produce the customer date necessary to compute these elements. The accuracy and value of the assessment diminish commensurate with data limitations in this area. Companies using conventional, standard financial accounting systems may not be able to extract much customer data because these systems are designed for external reporting, not management use. (Seybold & Marshak, 1998, p. 57) Companies with limited capability in this area should seriously consider migrating to activity-based costing systems that can give them customer and activity data.
The objectives of making the measurements identified above are to isolate the costs associated with acquiring and retaining customers, the revenues generated by customers, the customers who generate the most profit, the types of customers who don’t come back, and their reasons for not coming back. This would provide a baseline from which to measure future changes in each area. Ideally, we would be able to break customers into revenue and profitability quartiles and identify the characteristics common to members of each quartile. Armed with this information, we would use the characteristics of members in the highest profitability quartile to target marketing, and product and service efforts on the types of customers who will generate the most profit. If done properly, we would optimize profitability by placing emphasis on the customers who generate profit and by reducing emphasis on those who generate little profit. In essence, this would foster greater loyalty from existing, loyal customers and from new customers with typical loyalty characteristics. (Seybold & Marshak, 1998, p. 56-60)
The final point regarding customer loyalty leads back to key rule of E-commerce. That is, all efforts should be focused on the customer. This concept of focusing on the customer is not new; Total Quality Management (TQM) business philosophy has espoused customer focus for years. Still, many companies are product-centered. In a product-centered model, “the customer is the anonymous target of marketing campaigns, and the financial systems are designed to evaluate product market share, product costs, and product contribution to profits.” (Seybold & Marshak, 1998, p. 60) Unfortunately, product-centered models lack validity in E-commerce because “revenue and profits come from customers, not products.” (Seybold & Marshak, 1998, p. 61) In order to optimize profits in an E-commerce setting, a shift must be made to a customer-centered model. A customer-centered model focuses on the customer and provides an ability to identify individual customers, to catalogue their characteristics, preferences, and needs, and to develop or modify products and services to meet the customers’ expectations. In E-commerce, having the ability to meet customer’s expectations is essential. The conventional brick and mortar store scenario may allow a business to stick with a product-centered model; the effort a customer may have to exert to leave and shop elsewhere might compel her to make a transaction not completely to her liking. E-commerce, however, requires little effort. With a couple of mouse clicks, the customer can easily shop someplace else on the globe!
Typical stages of E-commerce development.
Most organizations venturing into E-commerce for the first time cannot begin conducting e-business with a fully developed website. They normally start out with a limited capability and then grow into a model with greater capabilities. Seybold and Marshak (1998, p. 46-50) noted a general pattern where many company’s progress through five stages of E-commerce development:
1. Supplying company and product information. Most sites initially start out by simply providing marketing information, information, and company background information. This information is often referred to a “brochureware.” While this type of site does little to bring customers back, it establishes a presence on the Internet and provides the business with expanded visibility.
2. Providing customer support and enabling interactions. In order to entice customers to return to its site, a business must provide more than information to its customers. Therefore, the site must quickly expand to acquire a customer support capability. This is the most beneficial capability a business can acquire because it provides customers with the something they truly want. That is the ability to help themselves!
3. Supporting electronic transactions. The next logical growth step is to enable customers to purchase goods and services over the Internet in a secure environment. If the website is properly designed, progressing to this capability should begin providing a significant return on investment.
4. Personalizing interaction with customers. Once the site has a transactional capability is acquired, the wise organization will begin collecting customer information (customer preference profiles, purchase profiles, etc.) This information is then used by the business to personalize its interaction with the customer. The ability to personalize interaction becomes the “glue that binds” a customer to the business, and prompts the customer to return because of the personal attention he or she receives. In Internet parlance, this is when the site becomes “sticky.”
5. Fostering community. Once the business establishes a level of trust and a one-on-one relationship with the customer, the business can use the site to foster community among its customers. Through the website, the business encourages customers to interact with each other through technologies such as chat rooms, customer on-line help forums, etc. Customers can offer each other tips and help, swap stories, etc. This form of interaction is the ultimate level of “sticky” because the customers will return to the site to both conduct transactions and to interact with each other.
Steps for establishing a small business website.
Siebel and House (1999, p. 242-261) identify five basic steps that small business must take in order to complete the mechanics of establishing a viable website:
1. Find an Internet service provider (ISP). Finding an ISP is relatively easy; the telephone book is full to them. Finding a good and reliable ISP requires more work. Ask for referrals before ing potential ISP candidates. Once several candidates with reputations for service and reliability are found, eliminate candidates who do not provide sufficient bandwidth, system redundancy, security measures, and service (twenty-four hour per day, seven day per week service, also called 24/7 service, is a must). The key thing to remember is that failure to consistently maintain Internet service equates to a failure to maintain customers.
2. Register a domain name. The businesses domain name must be registered in two places. The name must be registered with InterNIC (rs.internic.net/reg), and it must be registered with a search engine (e.g., Yahoo!). Registration with both entities is imperative because they have a symbiotic relationship, and the website will not function without registering with both.
3. Develop the website. It behooves a business to ensure that it contracts with a website developer who has proven expertise in technical website development and in E-commerce design and marketing. As with ISPs, there are countless website developers, but there are a limited numbers of developers who will have expertise in all areas necessary to design a successful E-commerce website.
4. Manage the website. This is a follow-on to website development. The key point to remember is that there’s more to having a website than simply establishing it on the Internet. Once the website is launched, it should be maintained and improved to meet customers’ likes and needs. Just as inconsistent Internet connectivity will drive customers away, failure to adapt the website and keep it fresh will cause customers to look elsewhere.
5. Measure the website’s effectiveness. Measures of effectiveness are necessary to determine whether the benefits derived from the site justify the costs associated with establishing and maintaining the site. These measures of effectiveness should be conceptualized before website development begins, and a method for analyzing measures of effectiveness should be incorporated into the web development plan and in the website itself. This will ensure the measures are in place to analyze return on investment when the site is established.
Selling Power ® Enters E-Commerce
Having identified the key elements for building a successful E-commerce model, the second part of this research project shall be addressed. As stated in the research design, the researchers sought out a local company that recently ventured into the E-commerce realm. Upon finding a company to study, the group documented the company’s experiences to-date in order to evaluate whether the company’s actions incorporated the key strategy elements identified above. The name of the company is Selling Power, and the approximate beginning date for its E-commerce adventure was 1998. The following narrative on Selling Power’s E-commerce experience was compiled from personal interviews conducted between December 1 and December 29, 2000 with Ms. Irini Chaney of Selling Power and Mr. Aaron Schindler of the Javier Romero Design Group (JRDG).
Selling Power is a publishing company; it produces a magazine, numerous books, audio programs and other products for sales professionals. This private company has been in existence since 1980. The circulation for the magazine is approximately 200,000 and includes an international subscriber database. Currently, the company employs about 50 people who are located throughout the United States.
Selling Power’s original E-commerce goals were modest. In 1998, the company decided to incorporate a website into the company’s business model to enable customers to access additional information about sales. The website consisted of several pages of information dealing with past articles from the magazine. This approach did not prove successful because the information was difficult to retrieve, and it offered subscribers nothing in addition to the traditionally published products they already received. Selling Power hired several web-page developers to improve the website, and while each offered a new perspective, the website still was not an asset to the company.
In September of 2000, the Selling Power decided to hire a web contractor with E-commerce experience to analyze the website and assess whether the website could eventually benefit the company or whether the company should focus on another E-commerce venue. Concurrently, the company was experiencing a decline in the number of paid subscriptions, as well as a decline in product sales. These declines seemed to indicate that Selling Power’s average consumers were losing interested in purchasing hard copy subscriptions.
The contractor, Mr. Schindler, had some definitive ideas about the website and the focus that Selling Power should adopt for the future. He felt that the company would definitely benefit from improving the website, and he was subsequently hired to develop a long-term implementation plan. The first step in the planning process was to establish the corporate goals. Mr. Schindler worked with the Selling Power leadership to develop the following nine goals for Selling Power: (a) empower the company to take advantage of the internet to expand its global reach within the sales industry, (b) increase revenues for the company, (c) increase sales training opportunities for subscribers of the magazine as well as other visitors to the website, (d) attract high volume website hits to increase exposure to the magazine and to the products of Selling Power, (e) provide resources for sales professionals, (f) provide a business-to-business (B2B) marketplace – a directory for buyers and sellers within the sales industry, (g) provide on-line career channels for sales professionals, (h) attract and retain customers via the Internet and (i) reduce the costs of maintaining the website.
The next step in the planning process was to conduct an on-line market overview for the sales industry. Approximately 56 percent of all companies will sell their products over the Internet by the end of 2001, according to a survey of Chief Financial Officers, conducted by Duke University. (A. Schindler, personal communication, December 2000) Based on this and other projection data provided by the contractor, Selling Power was motivated to continue pursuit of the project. This motivation was prompted by their recognition that they would risk being “left behind” their competition by not participating and by the following advantages to participation. Two of the advantages of a website market are the relatively low costs and the opportunities for global reach. There is also the opportunity for new growth by using the Internet. In addition to selling products over the web, training sessions, conferences, seminars and research opportunities could also be added. Most importantly, Selling Power could be accessible to an unlimited audience with a quality website.
The company also had to identify its major competitors and analyze the Internet opportunities their competition was offering. The primary competitor is Sales and Marketing Magazine ®. While they maintain a website, their main focus appears to be informational rather than product sales. Selling Power viewed this as an advantageous situation because its primary competitor offered little more than brocureware. Consequently, selling Power decided to offer sales professionals a different portal with more options.
Selling Power’s website implementation plan has been evolving in a continuous and ongoing process. At the outset, the contractor provided a basic website development plan to “launch” the improved website as quickly as possible. However, he is continuing his research to identify areas for improvement and features that could be added to the website. He conducted interviews with company personnel, observed customer service to gain an understanding the overall process of selling the company’s products, held conferences with financial managers to determine available spending money for the project, and observed traffic on the current website. All of these actions have been part of the continuous processes to make the website perform at its optimal level.
The contractor also advised Selling Power that the following characteristics are necessary to make its website “great”: (a) must provide value for the consumer, (b) must be user friendly, (c) must be well organized, (d) must be “sticky” (the term “sticky” refers to making the customer want to return to the website), (e) must be professional, (f) must be global, (g) must be informational, (h) must be educational, (i) must be resourceful, (j) must be secure and (k) must be reliable.
In adhering to the contractor’s recommendations, Selling Power has identified specific areas for improvement to its website.
The current site offers the opportunity to purchase products on-line, but the credit card information is not secure. The user enters the credit card information and then it is transferred via email to the customer service department, allowing the opportunity for this information to be transferred into the wrong hands. Selling power recognizes that customers will be reluctant to provide credit card information to an un-secure website. The company is working on establishing a relationship with its current credit card processing center so that all credit card orders can be approved on-line in a secure environment.
There are also problems with the purchase of magazine subscriptions. There are two areas of concern. First, it appears that many sales people prefer to read information on-line, versus a hard copy of the magazine. Currently, the magazine provides access to the entire website archive, with minimal or no fee. The web contractor suggested that Selling Power provide access to some articles with no charge, but the issues that contain articles with special information, such as the Selling Power 500 (similar to the Forbes 500), should only provide enticing tidbits. This will produce more revenue because people will be willing to purchase these articles on-line in order to have the information.
The ability to actually purchase the magazine on-line is also an area that needs improvement. Currently, any visitor to the website can purchase a subscription to the magazine, with three trial issues, and then cancel with no payment. This falsely increases the amount of accounts receivable revenue because a majority of the subscribers cancel upon receiving the invoice. The contractor suggested that Selling Power change its on-line payment process for subscriptions.
Implementing a website with all of the envisioned capabilities at Selling Power is an ongoing process that will take approximately eighteen months to complete (the projected completion date is March 2002). The contractor has presented many ideas that might improve traffic and increase sales on the website. However, not all of the proposals will work for the company. It will take time to introduce different ideas and monitor the response from the customers. To-date, Selling Power has had success in making the following improvements to its website:
1. The company has implemented the on-line credit card processing. The customer can no longer order a product without paying first. By eliminating the pay later feature, the number of subscriptions has been slightly reduced, but the value of receiving paid subscription orders is a positive step for the company.
2. Selling Power now offers product specials to increase sales. Sales have greatly increased because of this option. It also encourages customers to return to the site on a regular basis to purchase products. This has definitely been a positive enhancement to the website.
3. Contests offering thought provoking challenges to people within the sales profession, with a chance to win money, seems to have increased traffic on the site. These visitors are not necessarily buying products but they are reading the information provided and it has the potential to attract subscribers in the future.
Currently, Selling Power is working on enhancing the website by making navigation easier. More color has been added to the site and more links have been added, but more work is still needed in this area. The company is also creating an on-line career channel as another enticement to attract visitors. This is a new area for Selling Power, and will take several months to develop.
Overall, the corporate website for Selling Power has improved, and the results have been very positive. Sales have increased from approximately $6,500 per month to approximately $12,000 per month. The traffic to the site grows every week. The company is receiving positive feedback from its customers. There will still be a period of trial and error, but the company realizes that, while not every proposal will benefit the company, the money invested in this contractor will be far less than the benefits it will receive. Creating a corporate website definitely appears to have been the right decision for Selling Power.
A Javier Romero Design Group Web Implementation Plan
The Appendix contains an actual website implementation plan proposed by JRDG. The plan is extremely lengthy (160 pages) and detailed. It was also prepared specifically for an organization titled the Strategic Research Institute (SRI), a conference and information company. The plan addresses SRI’s needs, and it is not generic in nature. Still, the research team believed that it is a good example of an experienced web developer’s development proposal.
The research team studied the JRDG plan to ascertain whether it incorporated the textbook steps cited above. The purpose of making this comparison was to determine whether real world website developers actually practice the methodology described in the researched text sources. An exact procedural match was not anticipated, so the team searched for substantial similarities to, and significant differences from, the methodology cited above. Because of the SRI specific nature of the proposal, the reader is forced to interpret some of the material and make inferences regarding similarities and differences.
Embedded in the plan (see Appendix) are proposed steps for incorporating the following characteristics into the SRI website: (a) value for the customer and SRI, (b) user friendliness, (c) ease of use, (d) site organization, (e) making the site “sticky,” (f) leadership, (g) professional appearance, (h) global capabilities, (i) value as an informational source, (j) value as an educational source, (k) resourcefulness, (l) E-commerce capabilities, (m) security and (n) reliability. The plan also proposes detailed methodology for incorporating the following capabilities: (a) the ability to access and retrieve company, product and service information, (b) customer support for conference and information management, (c) the ability to interact with customers, and (d) the ability to conduct transactions for products and services electronically. The plan does not appear to address methods (i.e. data warehousing) for personalizing interaction with customers or for developing a community among customers. It is not clear whether the latter characteristics have been omitted intentionally or not.
Selling Power analysis.
In comparing Selling Power’s experience in with the textbook steps described above, the research team made the following findings:
1. Selling Power does not appear to have conducted any significant research before initiating its movement into the E-commerce arena.
2. Initially, the company did not develop a strategic plan for entering into the E-commerce arena. Only after experiencing initial failure did Selling Power seek professional help in developing its plan.
3. Selling Power had little success with the first few contractors hired to help develop its E-commerce site. The research team assumes that these contractors had experience as website developers but little or no experience in E-commerce.
4. Based on the interview results provided during research, it appears that the strategic plan, developed by the contractor and Selling Power, did incorporate the majority of the steps and elements required for a successful venture into E-commerce.
5. Selling Power’s plan appears to provide a competitive edge over its key competitor.
6. Although Selling Power’s transition into E-commerce is still ongoing, initial indications are positive, and the website progress so far has yielded significant success.
7. Developing and executing a strategic plan for E-commerce appears to be the key factor in the E-commerce success that Selling Power is currently enjoying.
In comparing JRDG’s SRI proposal with textbook steps described above, the research team found that the steps and elements included in the proposal are substantially similar to the textbook solution. However, the plan does not appear to address methods for personalizing interaction with customers or methods for developing a community among customers. It is not clear why these two stages were omitted. Possibly, the strategic plan did not require either capability. This might be the case if SRI’s customers are not enticed by personalized interaction or community activities (e.g., corporate entities). It might also be that SRI is not prepared to manage these capability levels.
The research group encountered several limitations during the course of researching and writing this paper. Time, limited resources, and the necessity to rely on secondary data were the most significant of these limitations. This was to be an in-depth analysis on a subject of the group’s choosing. But with only a few weeks to research, develop an approach, construct and write the paper, time became a major, limiting factor. In order to develop a viable strategy and construct a more developed research paper, more time is need for the planning and research process.
Two factors caused resources to become a limitation. First, E-commerce is still a relatively new business methodology. Thus, even secondary data is limited to those companies who were around at the onset and survived the initial E-commerce boom. The other limiting resource factor was the lack of reasonable facilities and vehicles for conducting research. The Simpson Library at Mary Washington College is an excellent resource library, but due the holidays and semester break, the facility was closed. The Marine Corps Research Center and the Central Rappahannock Regional Library also had limited operating hours during December 2000 and January 2001. On-line resources were a great help, but unless one was a subscriber to most publications found, one could only obtain summary information at best.
Due to lack of time, the group was forced to rely primarily on secondary information. In order to develop, validate, distribute, gather and analyze survey information, more than a few weeks are needed. Even simple interviews were difficult to arrange due to both holiday schedules and the need to de-conflict the calendars of both the interviewee and the interviewer. Hence, secondary data became our primary resource for data gathering. Finally, we found that we could not depend on inter-library loan services to collect secondary data source documents. We attempted to retrieve texts that were not available in local libraries through inter-library loan, but the process is extremely slow. Although we requested products through inter-library loan at the beginning of the course, four weeks have passed, and the texts are still not available for review. In other words, none of the requested materials arrived before the project submission date.
Based on the knowledge acquired in researching E-commerce and in comparing real life experience and document data to textbook recommendations, the research team made the following conclusions:
1. The CEO should pursue an E-commerce initiative because the researchers expect its benefits will far outweigh its costs. This conclusion is based on E-commerce trends and Selling Power’s experience.
2. The CEO’s first step should be to initiate a pre-investment study to estimate assess the expected costs, benefits, etc. associated with establishing and maintaining an E-commerce presence. This conclusion is based on the limitations of this research project; its scope did not cover cost/benefit analyses.
3. If the pre-investment study indicates feasibility, the CEO should contract with a reputable E-commerce developer to build a strategic plan and establish the E-commerce vehicle. This conclusion is based on Selling Power’s lack of success without adequate professional help.
4. The CEO should develop a strategic plan before venturing into E-commerce. This conclusion is based on the need to build a plan to adequately address the numerous pieces required to put an E-commerce “puzzle” together.
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