Feature: The Revenue Factor - maximizing I-commerce success

Not so long ago, the average company might have summed up its internet-commerce strategy like this: Let's throw some money at the Web site and hope for the best.

This isn't necessarily a strategy for success, though the ensuing low profits should keep your tax hit down. Almost invariably, the leaders in I-commerce -- and by this we mean the Amazon.coms and eBays of the world -- either lose money or show pocket-change profitability.

You already know that I-commerce costs big bucks. IDC research indicates that the average electronic-commerce budget for the next 18 months is $US2.4 million. Further, the Gartner Group claims that spending $US1 million on your Web site merely puts you on par with the competition; it takes $US5 million or more to make your site stand out from the crowd.

Simply put, building a successful I-commerce plan requires a careful analysis of how you will -- and will not -- spend your money.

The reach of I-commerce

Internet traffic is skyrocketing as the number of consumers getting on the internet roughly doubles every year. By 2003, most analysts are forecasting $US1 trillion or more in online sales worldwide. That seems a tempting prize, but looks can be deceiving.

According to Jupiter Communications, a US-based market research company, 94 per cent of I-commerce sales would have happened without the internet; in other words, the internet isn't so much opening up new markets as it is transferring money from one market to another.

In fact, only a slim 6 per cent, according to Jupiter, are genuinely new sales that, if not for I-commerce, would not have happened at all, and that level of sales is predicted to climb to only 6.5 per cent by 2003.

This raises a serious concern -- does your I-commerce site cannibalise sales from the real world? Odds are the answer is "yes". But don't let this deter you; if you are in a position to cannibalise your sales, so are your competitors. And the good news is that I-commerce still puts you in a position to steal your competitor's brick-and-mortar customers.

Also consider globalisation. Though most of today's internet users reside in the US, in another five years that won't be the case. Are your commerce plans factoring in the international market? Preparing a site to handle different languages is a massive undertaking, not to mention that your support staff must be ready to handle calls from Shanghai or accept payment in lire.

You should consider how to maximise international value for minimal cost, but remember: Everyone talks about the internet opening up a global market, but you may have to walk away from it, for now. China may be a potential market of more than one billion consumers, but unless you're serious about serving Chinese customers, globalising is not a hot idea.

Getting and keeping customers

An important metric to track is your customer-retention rate. How many customers return to make another purchase? Attracting new customers is great, but if you have a 50 per cent attrition rate, you have an uphill climb ahead of you. When spending millions to build a Web site and iron out your supply-channel wrinkles, consider integrating early with tools that measure how your customers shop.

Once you have customers, how much do you spend to support them? With an around-the-clock I-commerce site, your customers are going to want around-the-clock support. Adding 10 employees to a support staff of 100 is relatively easy, but for smaller companies, adding 10 employees to a support staff of 10 is a major undertaking. You can outsource support, but bear in mind that support is likely the most personal point of contact your customers will have with your company, and it will shape consumers' views of your enterprise.

Various research indicates that it costs about $US15 each time a person answers a support call. Self-service Web technologies can answer common support questions online and drive that figure down to $US1 per person, according to the Gartner Group. Therefore, you should seriously consider investing in Web-based customer support.

How narrow a margin?

A crucial consideration is how I-commerce sales will affect the bottom line. Almost by definition, you are competing on price; your lower-priced competition is just clicks away, so low prices on your site will draw in more customers. Consider how the internet has reshaped the automobile industry: online purchasing has eaten into the wide profit margin that dealers used to enjoy, forcing them to be more competitive lest their tactics drive customers to buy a car over the internet.

Decide what margins you can live with and appraise your competitors' prices. If you can't remain at least in the competitive ballpark, something is amiss. You might have to reconsider your I-commerce plans, or re-evaluate your business model. Also be sure to reconcile your online and real-world pricing. Companies risk straining customer relations if online pricing is significantly lower or higher than real-world pricing.

Keep in mind that, when used properly, I-commerce technologies can streamline other processes and thus cut costs. For example, an infrastructure for processing customer orders online can also be used in your supply chain. The Giga Information Group, a US-based research company, estimates that US companies saved $US15.2 billion in 1998 by using this strategy. Do you have a metric for measuring how your channel processes save money?

The outsourcing option

Taking in all aspects of I-commerce, from support to payment processing, it's tempting to want to outsource parts of it. But though 70 per cent of companies surveyed by the Gartner Group list "cost savings" as a part of the reason to outsource, research indicates that outsourcing offers many hidden costs.

According to the Gartner Group, through 2002 outsourcing will save you money only if your cost to do the same job is 150 per cent of the service provider's bid. This is due to problems inherent in outsourcing -- after all, no one knows your business as well as you do -- and poor negotiation with outsourcers.

I-commerce requires a tolerance for spending as a part of an investment for the future, but at the end of the day what we all want is profitability. Only by looking hard at obvious and not-so-obvious costs will a company's I-commerce plans translate into healthy revenue.

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More about: Gartner, Gartner Group, Giga Information Group, IDC, Jupiter, Jupiter Communications
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