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Episode 9: Selling on the Internet

Air Date: June 25, 1998

 

It is a warm spring day in Toronto, when we catch up with Serena DeParis and Tom Vassos walking outside on their lunch break, taking advantage of the nice weather. As they stroll down the busy city street past the storefronts of Toronto's fashion district, Tom remarks how the entire shopping experience can be replicated on the Internet. Serena, whose favorite pastime is hanging out at the local mall, is skeptical of Tom's statement. To her, the joy of shopping comes from exploring the different stores, being able to touch and see the products, and just being surrounded by the exciting sights and sounds of a busy mall. While Tom admits that shopping on the Internet has nowhere near the same experiential qualities of physically being in a store, he adds that there are some clever web merchants who are trying to come as close as possible to the real thing.

 

The Online Shopping Experience

Serena DeParis

After returning to the Toronto Fashion Incubator, Tom plugs in his laptop computer and begins touring an online clothing store with Serena. Serena spies a leather dress she likes, and after she clicks on it, she begins to see the possibilities for selling her own clothing lines on the web. Like any good retailer, the online clothing store suggests accessories to go with the dress, such as a purse and shoes, which can be ordered at the same time. Furthermore, the online retailer provides information on the sizes and colours available, including how many of the selected item the store has in stock at that moment. And in an attempt to reduce the number of incorrect orders resulting from improper sizing, instructions are provided on proper fitting, with diagrams showing the customer how to take their own measurements. Some other online retailers, such as L.L. Bean (www.llbean.com), even show high-resolution images of fabric 'swatches', in an attempt to mimic the real world shopping experience as closely as possible.

 

The Virtual Shopping Cart

It has been said that the greatest innovation in the past one hundred years of retailing has been the shopping cart. Prior to the invention of the shopping cart, retail businesses were labour-intensive, with armies of store clerks that scurried about picking every customer's order (much like the ordering system of the now defunct Consumers Distributing chain). With the invention of the shopping cart, the concept of self-selection took hold, and customers took over the order-picking process. This, in turn, allowed the size and capacity of stores to increase without the need for proportional increases in staffing levels. Likewise, the introduction of shopping cart software revolutionized the shopping experience on the Internet. Shopping cart applications allow a customer to add and drop various items into a 'virtual basket' as they browse through an online retailer, keeping a running total for their purchases. Prior to such an innovation, you had to pick and purchase each item separately. With the ability to collect purchases, the online shopping experience becomes less frustrating, and the ability to jump from 'department' to 'department' in a virtual store becomes truly possible (or even from store to store in an online shopping mall for that matter). This maximizes on convenience for the consumer and further enhances the level of real world emulation in online shopping. For the retailer, this translates into a higher average sale per customer.

 

Virtual Shopping Malls

 

The next stop for Tom and Serena is a virtual shopping mall, where a number of different online retailers have gathered together to peddle their wares, such as clothing, record, and electronics stores. While this shopping mall is not the type of place where Serena would hang around, there are still several noteworthy aspects about the experience. By aligning under the banner of a virtual shopping mall, such as Prodigy's Shopping Mall (shopnet.prodigy.com/mall), each online retailer has enhanced credibility in the eyes of its prospective customers. In the real world, many consumers see a distinction between a shoe store in the middle of nowhere, one located in a strip mall, and one located in a colossal shopping mall. Likewise, there is an aura of prestige and credibility for the online retailer, as compared to a lone web site that you have never heard of-- especially if the virtual shopping mall is 'anchored' by some very well-known retailers, such as a major department store. Furthermore, virtual shopping malls tend to centralize all payment processes for all their retailers, such that they do not have to create the complex applications on their own web sites to handle payment operations, such as credit card authorizations. This is a boon for the less technically-savvy retailer, who may have limited programming and financial resources.

 

PCFlowers: A Model for Successful Internet Retailing

While it is doubtful that shopping on the Internet will ever completely replace shopping at the mall, there are many businesses on the web that are successfully selling their wares online. One such example is PC Flowers and Gifts (www.pcflowers.com) that was founded in 1989 as an electronic alternative to floral wire services for users of interactive networks (such as Compuserve and Prodigy). Back in those days, PC Flowers and Gifts ranked as the 800th largest FTD florist. Today, because of some savvy Internet marketing, it is currently ranked second on the FTD network in terms of sales. What factors contributed to the success of PC Flowers and Gifts, and can they be replicated on your own commercial web site?

First of all, customers must be able to find the web site easily. In order to increase the chances of a customer finding a firm's site without too much difficulty, the domain name, or web address, should be intuitive. The domain name, www.pcflowers.com, follows logically from the name of the company. Using the most popular search engines, the site consistently showed up at the top in the list of responses, not only under the www.pcflowers.com domain name, but also as part of other subscriber networks, such as Voyager and Pathfinder.

As we mentioned in the episode on creating a winning web site, a successful web site must capture Internet Mindshare, or in other words, capture the attention of an Internet user and place the web site at the top of mind for a specific purpose. For example, an Internet news service might capture Internet Mindshare for users because of its extensive links to major newspapers around the world, making it the number one choice when the users want to read the news. PC Flowers uses an outbound marketing strategy to do this via a free reminder service. When a request is made by a customer, an e-mail is sent to the customer just before the designated occasion, along with some information about the products of PC Flowers, thereby stimulating possible sales and possibly capturing customer loyalty. Furthermore, PC Flowers also has extensive information relevant to the consumer purchase decision process, such as the meanings of certain flowers, anniversary etiquette, gift suggestions, as well as price comparisons with PC Flowers' competitors.

Opposite of an outbound marketing strategy is the inbound marketing strategy. A successful inbound marketing strategy will increase the odds of potential consumers finding the web site. To achieve this, a company should list the web site with as many search engines as possible or perhaps form strategic alliances with a larger network, such as a meta-site (an on-line shopping mall, for example) or with a computer network, such as Compuserve or America On Line. As mentioned earlier, PCFlowers started off as a service for Prodigy subscribers, providing it access to 1.6 million potential customers, and now it is one of the most financially successful services on Prodigy.

One stumbling block for on-line vendors is the reluctance of the potential consumer to do business with a company that they can't 'see'. To be successful, the firm must provide reassurances to surmount this obstacle. One means of building a reputation on the Internet is through the quality of the product that is sold. PC Flowers uses FTD, an internationally recognized floral network, as a supplier, thereby easing the mind of the consumer about the quality of the product being purchased. PC Flowers also offers a satisfaction guarantee on all its products. Further establishing the credibility of PC Flowers as a company, the web site also provides information on the history of the firm and the accolades it has received to reinforce the legitimacy of the firm. Finally, PC Flowers formed strategic alliances with other companies, which allowed it to provide name-branded products (such as for corporate gifts). A very smart move considering the relatively high proportion of business users on the Internet.

Turning to the nuts and bolts of the web site itself, the layout of each web page is consistent, with navigation bars and buttons for hypertext links well-marked. The site is also well-organized, making it very easy to navigate and find specific information quickly. The use of graphics is extensive, which only makes sense given the importance of aesthetics in the product being sold and hence the importance of the potential customer being able to 'see' the product. However, to cut down on download time, the graphics on the menu screens have been deliberately kept small and large graphic files are reserved for the web pages with specific information on a specific product. On the screens with specific or supplementary information, an option providing an ordering opportunity is always close by.

The PC Flowers web site is also fully interactive, with PC Flowers asking customers for feedback on both its product and the web site itself. The interaction is e-mail based. When an e-mail question was sent to their customer service department, the response was timely, by the next business day.

There are many other examples of companies that are retailing successfully on the Internet, such as Amazon.com, the world's largest book store, and Reel.com, the world's largest video store. But if you look closely, they each use many of the same basic Internet marketing principles outlined here-- principles that you can use in your own online store.

But Wait...

Before you take the full plunge into on-line commerce, there are several issues to think about: does your product fit the Internet, how secure is the Internet, and how are your customers going to pay?

 

Is Your Product Fit for Selling on the Internet?

Not all products and services can be successfully sold on the Internet. For example, it would be very difficult to sell a single forty-nine cent ballpoint pen over the Internet, since the shipping and freight charges would probably add at least another five dollars to the price. Certain types of products and services are a perfect match for the Internet, while others are not. In order to determine what products and services are best suited for selling over the Internet, Tom Vassos has put together the Internet e-commerce Assistant tool (also known as the Bullseye Model), which can help predict the likelihood of successful Internet selling for a particular product or service (you can use it online at http://advisor.internet.ibm.com).

The Internet Bullseye Marketing Model comprises of two parts, one part examining the attributes of the product/service and how conducive they are to Internet selling, and the other examining the characteristics of the target market.

 

Product/Service Attributes

 

Higher Score (a perfect '10')

Lower Score (down to 'zero')

No need to see product prior to purchase (no need to 'try it on')

Need to see product prior to purchase

Simple to understand, configure, and order

Not simple to understand, configure, and order

Intellectual property (such as a book or a movie that can be digitized and downloaded)

Large physical product (such as a lawnmower, which may be expensive to ship)

High-tech product

Low-tech product

Computer-related product (since all Internet users are computer users!)

Not a computer-related product

Commodity product (the customer knows exactly what they are buying, such as a branded product)

Not a commodity product

Unique new invention

Not a unique new invention

Global relevance/appeal (perfectly suited for the global reach of the Internet)

No global relevance/appeal

Highly targeted niche offering

Not a highly targeted niche offering

Spoilage/obsolescence is not a factor

Spoilage/obsolescence is a factor (ordering fresh fruits by the Internet may not be such a great idea...)

Total Bullseye Product Marketing Score

Maximum Score = 100

 

Target Market Attributes

The majority of Internet users have a similar demographic profile:

and so the target market attributes of the Internet Bullseye Marketing Model builds on this.

 

Higher Score (a perfect '10')

Lower Score (down to 'zero')

Technology early adopters

Not technology early adopters

Computer users

Non-computer users

Above average income and education levels

No income and education levels

Males and females use product

Targeting female users in Asia

Males and females buy product

Targeting female buyers in Asia

Target market easy to identify and reach

Target market not easy to identify and reach

Company able to distribute and sell product globally

Company only able to distribute and sell product locally

Physical product with mid-range price, or intellectual property with low price

Physical product in either very low or very high price categories, or intellectual property with high price

Company can use traditional publicity and advertising (such as newspaper or television ads)

Company gains no leverage from traditional publicity and advertising

Total Bullseye Target Market Score

Maximum Score = 100

 

For example, let's use the Internet Bullseye Marketing Model on four different products: an online book about the Internet, an airline ticket, blue jeans, and a pizza from a local pizzeria. The scores come out as follows:

 

Rank

Product

Bullseye Score

1

Online book about the Internet

71%

2

Airline ticket

43%

3

Blue jeans

34%

4

Pizza

27%

 

The online book comes in with the highest score, and it is not surprising, since it is essentially intellectual property that the customer can download into their own computer. Furthermore, it is a computer-related offering which would fit well with the Internet community. On the other hand, a pizza has many obstacles to being a popular Internet product. Because it is a physical product that gets cold very quickly, the risk of spoilage is very high. Furthermore, the pizzeria from which it comes from has a limited delivery area, so sales outside of its hometown are out of the question. Furthermore, the ordering process for the pizza may be complex, due to the plethora of choices available in terms of toppings (though the complexity could be reduced by offering only pizzas with set toppings, such as your 'cheese and pepperoni', 'vegetarian', and 'deluxe'). The final nail in the coffin would be if the pizzeria was located in a town where very few of its residents have Internet access.

Part of the Serena DeParis Collection

If we look at Serena's or Crystal's fashions with the Internet Bullseye Marketing Model, we find that their offerings receive low scores. However, this does not mean that Internet selling is completely out of the question for these two designers. The results from the Internet Bullseye Marketing Model can also be used to identify weaknesses in the product offering or target market, and measures can be put in place to work around the problem areas. For example, we mentioned earlier how L.L. Bean shows high-resolution cloth samples to its potential customers, allowing the customer to 'feel the product' to some degree. And while Serena or Crystal may not be able to send their fashions over a telephone line, they can use their web sites to direct potential customers to a fashion retailer that sells them. Another obstacle for the two fashion designers is the high proportion of male Internet users relative to female ones. Since their designs predominantly appeal to female consumers, they could improve their chances of success by encouraging male Internet users to consider their offerings as 'gifts', or offer 'his and hers' fashion packages.

 

Internet Security

According to a recent study, electronic commerce is expected to account for anywhere from $300 billion to $1 trillion dollars of commercial transactions by the year 2010. One of the reasons for the disparity in these projections is the estimate of the impact of security concerns over buying and selling online. In a recent survey conducted by Global Concepts Inc. Research, on behalf of the major credit card companies, 91% of those polled had intended to make purchases on the Internet in the near future, with 62% planning on using credit cards to pay for those purchases. However, the same survey found that the top concern of those planning to do online transactions was the possibility of credit card fraud. Given the occasional news stories of hackers successfully stealing credit card numbers or hacking their way into corporate servers, not only must the online retailer be concerned with Internet security, but also with consumers' perceptions of Internet security.

These days, most browsers support 32-bit encryption, which scrambles any sensitive information being sent across the Internet for all to see. This way, even if the information was 'captured' by an unethical hacker, the information would be unintelligible without the 'encryption key'. Most browsers will tell you if the information you are sending is encrypted, either by a text message or an icon (for example, the Netscape browser pops up an icon of a 'key'). And though it has been reported that the encryption system on the Netscape browser was 'cracked' with 100 linked computers within a span of eight days, using Netscape to transmit your credit card number is probably still safer than using your credit card in a crowded restaurant (where anyone can copy down your number onto a piece of paper). Over time, the consumer acceptance of using credit cards over the Internet should increase, much like how credit card payments for telephone orders have now become the norm.

However, Internet transmission is not the only source of fraud. Hackers may be able to work their way into a company's server to steal or manipulate data-- a famous case involved a hacker breaking into Netcom and copying 20,000 customers' credit card numbers. This is where 'airwalling' and 'firewalling' come into play. An airwall involves placing a physical barrier ('air') between the Internet connection and the server where you keep sensitive information, whereas a firewall is a password system that permits only authorized access to your sensitive files. The net result of both measures is that the possibility of unauthorized external access to your databases is reduced. Another possible source of fraud is through buyer misrepresentation, which can take the form of either the buyer issuing a fraudulent payment, such as a falsified or stolen credit card number, or the buyer posing as someone else, and making unauthorized purchases under their name. With the possibility of fraud so high in online commerce, what is an Internet retailer to do?

 

SET

One payment solution that is gaining strong acceptance on the Internet is SET, which stands for Secure Electronic Transactions (www.visa.com and www.mastercard.com). This payment system, a security protocol for the express purpose of safely communicating credit card numbers over the Internet, was designed cooperatively between MasterCard, Visa, GTE, IBM, Microsoft, Netscape, SAIC, Terisa, and Verisign. Under SET protocol, the online retailer presents to the customer a digital certificate proving that they are an authorized SET merchant. The customer then encrypts a digital payment slip with the dollar amount and the credit card number, which is then sent to the merchant and authorized. What results is essentially a four-way transaction between the retailer, the customer, the retailer's bank, and the credit card issuer. This way, the online retailer does not have to store credit card numbers (and thus never actually 'sees' the customer's credit card number), as the authorization is carried out in real-time with the credit card issuer. SET uses enhanced security features, and because of its use of an existing real world payment system, the SET system shows a great deal of potential as a common currency for the Internet, and even plays a role in other proposed electronic payment systems. The reasons for SET's potential popularity are many:

In the early days of SET, the cost for an online retailer to implement this payment system was very expensive, since its complex security features demanded the use of dedicated servers. However, since then, intermediaries have begun providing credit card authorization services on behalf of online retailers. These intermediaries charge a small fee for every transaction, and are more suited for small businesses which may not have the resources for a server dedicated to SET.

Summary

From the displaying of goods to the processing of payments, the online shopping experience has come a long way in mimicing the real world shopping experience. By ensuring that your products are a good fit for Internet selling (or being made to fit), building credibility for your online retail outlet, and using a convenient and secure method of payment, you too can reap the benefits of the burgeoning world of Internet commerce.

 

Hot Links

 

Want to learn more about the topics covered this week? Then check out these great web sites and resources:

 

Examples of Successful Online Retailers

 

LL Bean

http://www.llbean.com

An online sporting and outerwear store

Amazon

http://www.amazon.com

The world's largest bookstore, with an e-mail reminder service, book reviews, and more

Reel.com

http://www.reel.com

The world's largest video store, offering both rental and sales

PC Flowers and Gifts

http://www.pcflowers.com

An excellent model of online retailing

 
Virtual Shopping Malls

 

Prodigy's Shopping Mall

http://shopnet.prodigy.com/mall

ESD's Virtual Shopping Mall

http://mall.esdmm.nl

 

Internet Payment Systems

 

Electronic Payment Systems for selling entertainment events on the Web

http://www-scf.usc.edu/~backe

Overview of Internet Payment Systems

http://jujubee.cob.ohio-state.edu/~scheer/eps.htm

 

Cast

 

Mark Schneider		CTV - Host of "Digital Desktop"
Tom Vassos		IBM e-business Advisor and Host of "This New SoHo"
Susan Langdon		Executive Director, Toronto Fashion Incubator
Serena DeParis		Fashion Designer
Anthony Leong		Man on the Street

  

Production Credits

 

Al Stevens		Camera
Anthony Leong		Senior Web Editor


All episode summaries and supplemental information written by Anthony Leong, with material and assistance from Tom Vassos, his book Strategic Internet Marketing, and Mark Schneider.


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