NEWSLETTER
Perfect
Wealth Formula
Despite
merchant optimism and the encouraging growth in the number of consumers
shopping online, one fact remains about the retail market on the World
Wide Web: Few merchants, if any, are making money online today.
That
situation is not likely to change for some time, say even merchants
that claim to be doing a booming business on the Web also knows as the
money making formula. "There are two big costs associated with doing
business online: engineering costs and editorial costs," says Phil Brown,
Founder of Watch-Dog-Reports.Com. Though Web sales have been growing
at about 50 percent per month, while brick-and-mortar sales remain flat,
Phil says the engineering costs associated with running a constantly
evolving commerce site and producing the high-quality editorial content
that Web users demand far exceed the costs associated with doing business
offline.
"Occupancy
costs at our stores are -- relative to book sales -- lower than all
the engineering costs," says Phil, who says the 30 percent profit margin
Computer Literacy earns on books puts it in a better position to turn
a profit than the mass-market online booksellers, such as Amazon. com
Inc., that are building their brand names through price wars that leave
them with slim margins. "We don't expect to make a profit on the Web
yet, but that's where all the action is. The number of new consumers
coming online is very encouraging".
It's
that promise -- and the chance to build a loyal customer base while
carving out a market niche before the Web gets crowded with other specialty
merchandisers -- that makes Phil and other merchants willing to wait
out the market.
How
big the consumer market will be remains a matter for debate. In its
1998 Online Shopping Report, Jupiter Communications LLC (www.jup.com)
estimates there are about 16 million online shoppers today, with that
number expected to reach 45.2 million by the year 2001 and more than
61 million in 2002. Forrester Research Inc. (www.forrester.com) predicts
a similar market size; it estimates there will be about 15 million online
shoppers in 1998, growing to 43 million shoppers in the next three yearn
because of more and more folks are looking to join a home based business.
How
big the consumer market will be remains a matter for debate. In its
1998 Online Shopping Report, Jupiter Communications LLC (www.jup.com)
estimates there are about 16 million online shoppers today, with that
number expected to reach 45.2 million by the year 2001 and more than
61 million in 2002. Forrester Research Inc. (www.forrester.com) predicts
a similar market size;, it estimates there will be about 15 million
online shoppers in 1998, growing to 43 million shoppers in the next
three yearn because of the money making formula.
Though
online consumer shopping will be relatively small compared with the
amount estimated for business-to-business transactions--IDC pegs such
online transactions as totaling $22 billion in 1998, rising to $338
billion by the year 2002 -- merchants acknowledge that a multibillion-dollar
marketplace is not something to ignore. Paul
Graham,
president of Viaweb Inc., runs an online hosting service that lets Web
merchants design and create their stores remotely using point-and-click
Web software Viaweb (www.viaweb.com) designed. The company hosts more
than 800 stores today. "By the end of 1998, it will no longer be optional
for a retailer or catalog company to sell online. Consumers will expect
to be able to buy from any well-known company online" Graham says. "The
rule of thumb is, if your store in the physical world could survive
next to a Wal-Mart, you can survive on the Web. We say pick a niche
-- that's how you succeed. On the Web, everyone is right next to one
another, so you're either going to be the dominant thing in your niche
-- the Amazon.com of flight simulator software -- or you're going to
be fighting a price war, and then you're nothing," he says.
But
having a store is no longer enough, according to Lauren Freeman, president
of the E-tailing Group, a Chicago-based market research firm (www.e-tailing.com).
Her company just completed a "Mother's Day Shopping" survey of the Web,
shopping at 50 high-profile Web merchants and then documenting the experience.
The
E-tailing Group found that merchants leave much to be desired in the
area of customer service, with only 66 percent of those surveyed allowing
customers to confirm orders in real-time and 21-percent allowing Web
customers to check the status of orders online. "If a customer has a
bad experience at your store, they're not going back," says Freeman.
On
the Web, you can make money while you sleep, but only if you understand
the paradoxes of online marketing. It's not about selling; it's about
relationships. It's not mass-marketing; it's custom products. It's not
push; it's pull. If you still think that the marketing mix is the four
P's--product, price, place, and promotion--replace them with the Web's
four A's--Any way the customer wants Any product, Anytime and Anywhere.
The
Web's capacity for two-way communication and group information sharing--electronic
networking--is the key to online marketing. Whatever your objective--sales,
public relations, customer service, customer data collection--you must
maximize interactivity. Use e-mail for customer service, discussion
groups for research, and database tracking for customized marketing.
Use the Web to collaborate with members in developing products and services
of real value and to market them effectively.
Developers
of the most financially successful Web sites understand three paradoxes.
Paradox
1: The more you give away, the more you sell. If you provide useful
information at no charge, you will pull Web visitors toward additional
for-fee services. Make your Web site an information tool. Present a
directory of industry publishers, a list of hot Web sites, or a clearinghouse
of useful statistics. Include a list of your association's products,
and make it easy to learn more about them and to order. Concentrate
on developing editorial--not advertising--and you will sell more.
Paradox
2: You can build personal relationships electronically. The Web is relationship
technology, not a medium for infomercials. Through the Web you can create
customers for life. Build personal relationships with individual members
by gathering data on their preferences, interests, and purchases.And
remember: Don't smoke in church.
Once
collected, don't reveal personal information or preferences without
a member's permission. Protect privacy at all costs. Ask permission
to send promotional e-mail. Don't betray your members' trust for short-term
revenues.
Make
your site interactive. Provide a feedback loop on every page. Link publication
abstracts to resource lists and order forms. Link information updates
to listings of upcoming seminars on the topic. Link information about
meetings to registration forms. Nurture discussion areas. Let the conversations
grow, and harvest insights. Fertilize as required, reseeding with new
ideas.
Make
your site a "collaboratory." Use the Web for new product development.
Post ideas for comment; distill content from discussion groups; then
edit, review, and publish.
"Mass
customerize" information and events. For example, use the Web to let
participants help shape agendas for upcoming meetings and to tell instructors
what they'd like to learn.
Paradox
3: Time is money. People will pay for timely information. Identify fast-changing
information critical to the industry or profession that your association
represents. Turn this information into a for-fee product, such as a
news service with daily updates. Make visitors want to come back every
day. While doing so:
Promote
your brand name to tempt membership prospects to join your association.
Post information in areas accessible only by members, but give others
a sample of what they are missing. Continually link your brand name
to valuable information.
Keep
your Web page design simple for fast and easy access. Tell users how
much time a download will require, and make graphics optional. Also
tell them how to create a "bookmark" to quickly revisit favorite areas.
Use
your Web site to improve customer service and cut costs. Rather than
looking at the Web as a way to make money, think about how you can save
money--and time--while delivering better service. Let members track
orders or membership renewal dates, register for events, and change
addresses-all online.
