“I think many technology investments need to be viewed as enhancing the customer experience with your company, and hopefully that drives increased retention. The side benefit could be lower transaction costs, but that's not what drove our decision.”
-- Greg Poole, right, whose Catepillar dealership in Raleigh maintains an extensive web site

E-tailing 
Made Easy

How to tell if you should test
Internet sales, and how much
the experience might cost you

By Kevin Brafford

The traditional barometers that determine the degree of a business's success — time and money — are getting a positive hit from a nontraditional avenue called online retailing, or e-tailing.

Want to save time? Consumers do, and are proving it by shopping online and avoiding traffic jams and long checkout lines. Want to save money? Consumers do, and are proving it by taking advantage of special discounts available to Internet customers who are willing to wait for their purchase to be delivered.

The online purchasing population in the United States had grown to 68 million at the end of last year, according to research compiled by the Boston Consulting Group (BCG). Last year's holiday season alone saw a 67 percent increase in sales over the 1999 holiday season.

Is e-tailing a good fit for your company? That depends on your product, says David Lippard, the owner of Applied Communications of Clayton, a consulting and services company. “Anything that has to be heavily customized is difficult to sell,” he says. “And certain types of fragile and perishable items just aren't going to do very well.”

Nor generally will jewelry, according to Patrick Vaughn, the president and CEO of MoonBuzz, a Charlotte business that takes merchandise and sells it online on behalf of a producing company. “It's hard to get comfortable spending a lot of money on something you can't see and put in your hands,” he says.

Greg Poole likes that customers can go to www.gregorypoole.com and buy parts for their construction equipment without having to fend with the traffic near the State Fairgrounds in Raleigh to get to his store, one of eight he owns in North and South Carolina. “Parts sell the best because most people have a parts number and they need little, if any, advice or face-to-face interaction,” he says.

That's one of the advantages of selling or buying online. The company peddling its wares doesn't need a top salesman to close the deal, while the consumer doesn't have to listen to a sales pitch.

And there is practically nothing that can't be bought online. From automobiles to sweet potatoes, online shopping is but a few clicks away. It's a trend rather than a fad, according to Vaughn. “Just like the Internet, e-commerce is here to stay,” he says. “Companies just have to find their niche to be successful.”

Have a Vision and a Plan

As with any profitable business venture, vision and planning are keys in determining if your company's products are marketable online.

“You can do a lot of pre-planning `what-ifs' with a simple pad of paper and a pencil,” says Lippard. “Beyond that, you need to know what components are necessary to set up and make your online business worth the expense.”

Here are the basic elements and estimated costs of starting an online business:

Establishing a domain name. This gives you an official address on the Internet, and is a necessary first step regardless of your e-commerce aspirations. “It's a convenient point of contact at the very least,” says Lippard, “the near-equivalent these days of being in the phone book. You now have a storefront for people to come to.” Approximate cost: $35 annually — cheaper if you pay for future years up front to a maximum of 10;

Building a site. Once you have a web address you now need to build a site that conveys information on your company and products. How fancy do you want your site to be? “Of all of the startup costs, this is the hardest one to put a finger on,” says Lippard. “You do want people to find your site attractive and manageable.” Approximate cost: $450 to $5,000.

Hosting your site. Most companies contract with an Internet service provider — an ISP — to host and maintain their web sites. The monthly hosting charge will vary depending on the size, in megabits, of your site and other special services the ISP may provide, such as e-mail and connectivity. Approximate cost: $34.50 and up per month for a site with e-commerce capability.

Shopping cart. Most web sites are one-way — information flows from the site to the user. E-commerce requires a two-way flow of information so users can select the products or services they want to purchase from your site. Such shopping cart features can be programmed when the site is first developed, although it won't necessarily save you money. Shopping carts nowadays typically must operate on a secure server — “a must for success,” says Lippard. Approximate cost: $250 for a shopping cart of about 50 to 60 items.

Merchant account. It's why you need a secure server, so customers can make purchases without fear of credit card fraud. Processor fees, too, are a recurring monthly charge — about $25, regardless of the number of transactions. “It's an absolute necessity,” says Lippard. “If you can't accept credit cards for payment, it's a kiss of death.” Approximate cost: About $25 monthly, plus 2.25 percent to 2.5 percent per transaction for Visa or MasterCard. American Express is slightly more and Discover falls in-between.

A third-party processor. This is the company that completes the customer's credit card transaction, saving the e-tailer the painstaking work of verifying a card's validity. Third-party processing agreements, where the grunt work is automated, are vital for companies doing a high-volume business; otherwise, manual processing is a “free” option. Approximate cost: About $38 per month, less if you pay for multiple months in advance.

All of the above costs should be factored in when determining the price you'll have to charge for your product to be profitable. Shipping and handling costs — yours and the customer's — also should be included.

Finally, given the unlimited reach of the World Wide Web, are you prepared to handle international sales? Shipping charges to foreign countries vary greatly, and some countries also impose stiff regulations governing the shipping of some items, including foreign duty taxes.

“That's just another point to emphasize,” says Lippard, “that to be successful, you have to do a lot of homework up front.”

Expect to Improve

There will be still be plenty of room for improvement once your e-tailing site is up and running. Just as a grocery store tinkers with where the soft drinks should be displayed, online retailers must be flexible in working to maximize the experience of their shoppers.

The BCG's research, which surveyed 2,876 U.S. Internet purchasers, shows that online consumers are more demanding than ever. In short, the pioneer days of the Internet are considered over.

“Don't just assume that if you build it, they will come,” says Vaughn. “If you're going to prosper selling online, you have to make sure you can drive traffic to your site and keep those customers coming back.”

Consumer satisfaction can't be overstated. It starts with having a merchant account for ease of shopping and extends to offering a return policy in easy-to-read type. And accompanying the return policy should be a phone number and e-mail address where shoppers can connect with a live body.

“Face it,” says Lippard. “You can go into any store in North Carolina and have a bad buying experience. You work out of it by talking to a manager. If you're buying from a web site that doesn't provide an easy-to-find phone number, you're going to get frustrated if something goes wrong — and you're not going to shop there again. E-mail's great, but I want to talk to a person sometimes.”

That's especially important because problems invariably do arise. Sometimes there will be an error in processing and sometimes there will be an error in shipping. The BCG's data indicate that 11 percent of consumers last year reported ordering and paying for goods but never receiving them, almost double the rate of the previous year. Not surprisingly, 41 percent of consumers who experienced what they termed a “purchasing failure” quit shopping at the site that had disappointed them.

Consider that a notable difference from the brick-and-mortar world, where convenience stills rules. A drug store that botches a prescription once or even twice gets another chance because it's only a block away. Not so on the web, where alternatives are only a click away. “You're just not as likely to get a second chance,” says Vaughn.

Naturally, consumer satisfaction has the greatest effect on the bottom line. BCG's research shows the least-satisfied customers spent, on average, $428 online during a 12-month span. The most-satisfied customers, meanwhile, spent $673. “Sound business principles still rule,” Lippard says.

Get Help from Above

That was the foundation that Poole used in getting his company's web site established. He had assistance from Caterpillar — as good as its gets among brand-name recognition in construction equipment — in getting his web site profitable as an e-tailer.

“The dealer storefront is a collaboration between Caterpillar and its dealers,” Poole says. “The strategy behind the storefront is one of a seamless interface and experience for the customer, and it continues to evolve.”

As with all brick-and-mortar companies, e-tailing supports retailing for Poole. “I think many technology investments need to be viewed as enhancing the customer experience with your company, and hopefully that drives increased retention,” he says. “The side benefit could be lower transaction costs, but that's not what drove our decision.”

Stadler Country Hams Inc. in Elon College has been profitable as a one-item manufacturer for more than 50 years. “We can sell you a ham, and we can sell it to you in different varieties, but that's all we can sell you,” says Shane Stadler, the company's vice president.

The company developed www.stadlerham.com, several years ago as an informational site and to keep up with the Joneses. Then Stadler was approached by a Greensboro businessman, Ron Day, who was setting up a direct-sale site for several North Carolina products.

“Other companies have enough different products to sustain year-round sales,” says Stadler, “but we don't. Country hams had been mainly a Christmas-time thing.”

Day offered to link his site to www.stadlerham.com, allowing purchasing power for customers who otherwise had to be content with ordering a hard-copy catalog.

While sales are slow — “we're an impulse item,” Stadler says — the benefits are evident. “We went into it knowing we weren't going to make much money from it, that it was an advertising situation,” he says. “That said, we have found it to be useful for Southerners who live out of the South and are craving a country ham.”

Ironically, Poole got his first online sale from a willing customer who had walked into his store looking to buy the conventional way. “He walked in and said he was interested in buying a Skidsteer loader (ranging from $20,000 to $40,000),” Poole says. “We had just completed the configurator and were excited for someone to try it out. We asked if he had a computer and access to the Internet. He said he did and would be happy to give it a try.

“In this day of `bricks and clicks,' this customer experienced both.”

Make Customers Feel Safe

Poole's customer also felt safe in his new shopping environment, another ingredient necessary for success, according to Lippard, who says that if you're buying online, the No. 1 concern is security.

Web sites where products are being sold will indicate before a credit card number is taken if the site isn't secure. A secure server ensures that when information leaves your screen, it is being encrypted.

“I remember being ready to buy a chair for my office,” Lippard says. “I went to a guy's storefront and found as I was going through the process that he didn't have a secure site. So I stopped right there.

“That's really all you have to be aware of.”

That said, many consumers still fear that they're vulnerable to identity theft by computer hackers. Experts, however, say a more realistic threat is thieves rifling through trash bins in search of credit card receipts or pickpockets stealing a wallet.

“The dumpster diver is the person you should be worried about,” says Charles Langley, a consumer advocate with the San Diego-based Utility Consumers Action Network. “The computer hacker just isn't as likely to cause a problem.”

Langley says that unlike everyday transactions, typing a credit card number into a secure page on a web site doesn't leave a paper trail. “Buying something over the Internet is a lot safer in general than handing your credit card to a waiter in a restaurant,” he says. “You just don't know what they're going to do with a carbon copy or a receipt.”

The greatest threat where the Internet is concerned comes when thieves shop online with stolen credit card numbers, simply because it's easier to quickly rack up substantial charges, thus possibly affecting the victim's credit rating. The good news is that this victim generally is responsible for only a nominal portion of the illegal charges, depending on the credit card issuer.

The real victim in these instances is the e-tailer who must absorb the financial hit. Such losses from typical brick-and-mortar retail business transactions generally are covered by the card issuer. That's not the case for the e-tailer, and data from the National Fraud Center shows that losses from credit card fraud are 10 times greater over the Internet than in a typical retail storefront business.

E-tailers should take comfort that Internet credit card fraud is diminishing as more stringent safeguard measures are put into place. Poole, for one, says he has never lost a sale to credit card fraud.

Lippard says everything about successful e-tailing points to careful planning and realistic expectations. “There is so much emphasis on the Internet that companies have to be careful not to get ahead of themselves,” he says. “ It's not something that's going away anytime soon.”

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