Internet Retailer Chicago '08.

Another great conference. What makes IR special is that they bring a journalistic/unbiased look at the state of retailing online. They do their homework. And, somehow they convince some great practitioners of Internet Retailing to give sessions on what they find interesting going on in the space.

I was fortunate to go the full 3-days, and those of you who haven't gone yet......go. It is an excellent source of information, tips, tricks and good ole' plain business 101 advice (which is often the best). I happened to go to a session talk by Jack Kiefer of BabyAge.com. Kiefer is clearly a person who has "been there and done that". He clearly straddles the line of technologist to business steward. His session was a valuable lesson in, "this Internet thing takes persistence" and whether your the next Zappos, JC Penny's or just a home business making jewelry....get ready for some big peaks and valleys online. His business, while clearly ramping at a great, successful rate, has proven this with its share of tech hits and misses, lawsuits and general website transformation (go on the waybackmachine and see how they looked in '04). What made his presentation/session so great that he was candid, frank and cut straight to the take-aways. I found many presenters just like him at the conference.

I always hear so many of those in businesses think that having an Internet site is, "Just putting some pictures up online." Now, there is a point to this.....it isn't rock science....and like most business is pretty straight forward, good ole' common sense about serving a customer base.....but what makes Internet Retailing difficult is the plain truth that there is no "one fits all" formula to a successful site. There is no silver bullet technologies. No business requirement writing or 100-page RFP can be fool proof (and even if it were.....they'll lie to you to get the sale). Business is just as much about luck as it is discipline. You need both, along with a grind it out persistence. You need to know what business your in and you need to know why your customers choose (need) you....online.

So the next time your site goes down on a 501, your DBA says you have a memory leak, your warehouse manager says packing slips aren't printing, or all of a sudden all those scene7 images hosted on akami's network lag your overall load time to 5 seconds.....remember, these things happen to everyone. Your online "store" is not bullet proof. And just when things are running smooth get ready for the next iteration when your CEO wants to do business international in 5 currencies or your art director wants to use a flex driven outfit builder....or your SEO expert says your ajax navigation is crapping out your rankings (BTW, if your business is dependent on being found online via keywords besides your brand name.....don't be flashy, be text-y).....people don't visit sites that they haven't heard about because they look super cool and sexy (craigslist).

What I'm reading......

I remember a time at the University of Washington, that their school of journalism was hosting Kurt Vonnegut.

Vonnegut, being an outspoken humanist (is there a humanist that isn't outspoken in this western society of ours?)..... went on a brilliant lecture (ok, rant at times) that technology was changing our human relationships and the way we thought about each other. Think video games....think second life.....think the cell phone and text messaging. The medium is the message....etc. Vonnegut had a great story of how he used the type writer on his novels, then had to go to the post office to mail them to his editor, then had to meet face-to-face with his editor, so on and so on. That when he went to the post office, he knew the lady behind the desk, that he always stopped by the cafe or grocery store on the way there and met the usual suspects. That his job put him in contact (face-to-face) with people who then he formed "relationships" (note, relationships is used loosely here, but important nevertheless).

Well, what do I, the ever fan on technology. Good read......good like Peopleware.

Technopoly: The Surrender of Culture to Technology

WEB 2.0.....oh the joy.

Quick update. If anything, web 2.0 (man, do I hate that phrase) proves one thing. It takes a lot of personal time that would otherwise be used creating personal relationships, spending time with family, having a hobby or two, or actually working a job. A give a hardy applause to those who can manage to have a continuous blog on subject matter they love and still keep connected to the "off-line" world......

Goggle's Peter Norvig's (http://www.norvig.com/) parody PowerPoint on Abraham Lincoln's Gettysburg address.

http://www.norvig.com/Gettysburg/index.htm

Who loves PowerPoint? Talking Headers Front Man: David Bryne.

Goes on to explain that the constraints of PowerPoint force a user to be more creative and that bad PowerPoints are the users fault...not the programs.


http://www.berkeley.edu/news/media/releases/2005/03/08_byrne.shtml

Shop.org's Blog:

Two Marketing professor's at Wharton talk about user generated content's value. Note, one co-founded Bizrate.....and admonishes that this might be the same "hype" that happened during the dot com boom/bust of late 90's - 2000.

http://blog.shop.org/2007/02/11/word-of-mouth-wisdom-4-the-wharton-school-marketing/

Tim Berners-Lee article on a great forum site Ars Technica who sees 2.0 as "that's what 1.0 was about....making connections/relationships....http://arstechnica.com/news.ars/post/20060901-7650.html

Barry Schwartz gives a good presentation (video) on his "Paradox of Choice". A counter point to Chris Anderson's Long Tail. Here he questions, Is too much choice a good thing??

E-Commerce Design

There's a litany of sites out there that play one or the other side of the "design" fence when it comes to E-Commerce sites.

On one side, there's the BRAND-ing sites that feel, in order to be a Brand oriented/protected online presence, there e-commerce functionality needs to take a back-seat. For instance, these site (e.g. guess.com, ae.com, abercrombie.com) feel to be a BRAND you must have a big homepage spot, limited navigation (usually a dhtml drop-down menu) and very limited shots of products (usually either nature shots or model shots wearing little clothes). On this side of the fence, these companies feel branding is more important than sales...however, I feel they are actually hurting their brand, by not giving their current customer base (and new visitors) the controls and E-Commerce site standard usability tenents that they've come to expect.

On the other side of the fense, is the E-Commerce "IN YOUR FACE". These are sites that are typically commodity based...so this approach makes sense. Eg. Costo.com, Target.com, Zappos.com, Buy.com, etc.).

A good middle ground, who's sites are brand oriented, but adhere to the latest usability best practices are those sites that mix imagery with clear and fully functional navigation. Eg. Neiman Marcus, Lucy.com, Endless.com, Banana Republic, etc.

The middle brand is proving the best in my opinion because it gives visitors a good brand experience/essense while also not frustrating them....giving full shopping functionality that monetizes the brand rather than worrying about brand impression.

Found this great post from Create Passionate Users.

I've found (by working with dozens of different "hats" in Ecommerce) that picture methapors are an excellent way to not only make a point.....but to hit the hammer down on it...to inspire change.

Create Passionate Users does an excellent job with this on their blog posts. This one deals just with how we treat customers before and after. This "tool" should be done as a full audit on your online operations:

Advertising
Call into sales....call into customer service.
New visitor to a site, repeat user on a site (one sees new content/the other sees old content).
Before and after an order....
During and after a return.....


Try it on all your touch points.

What I'm Reading......

What attracted me to Gilbert's Stumbling on Happiness was the praise from the Blink author and Freaknomics author.

The read is decent....concentrating on the thesis that what separates men from others is their ability to think about the future. The book explores your fore-brain development and how it works (or "fools") you into envisioning a future that is very unlikely to happen.

The book is good for exposing how you (and your brain) assumes...wrongly. However, it doesn't draw a line to business (expect that we know discruptive technologies usually lead to change that could not have been envisioned).

What I'm Reading

I just started reading Charles Handy's The Elephant and Flea.

This is turning out to be a great, relaxing and very informative read. Handy, who's books Age of Paradox (Empty Raincoat) and Hungry Spirit are some favorites of mine, continues his candid and often self-reflecting writing style that brings macro and micro business concepts together to share a little common sense about life.

While there is nothing "Amazing" about this current read, it is a good addition to your reading schedule if you are looking for commentary on our current and possible future business environments through a lens of a great business teacher throughout this past century. Paraphrased examples of his commonsense, "that which counts most, can't be counted" and "with the rapid development of communication, you now longer call a place (someone's work, someone's home, etc) you call a person (whether their in the restroom or on vacation)."

Telsa Man Out of Time

What I'm reading.

I just finished up a biography on Tesla. The father of radio, alternating current, xrays, etc. Pure to the title, Telsa was a man out of time from the beginning to the end of his life. At the beginning, his concepts were so advanced and influenced so many, that he didn't receive credit (or money) for his inventions/theories. Others, like Edison (who valued an invention by the $$ potential it had) rolled not only in the money, but in the fame.

At the end of his life, as quantum physics and engineers pushed out the notion of general inventors, Telsa was a man who was running our of time, energy and money....who couldn't then deliver on even more fantastic theories.

Zappos keeps chuggin'.

I previously posted about Zappos being ahead of the curve.

Internet Retailer has just reported that Zappos remains a pure play ahead or pushing the curve by offering subdomain hosted sites for footwear manufacturers, now is setting customer expectations of free OVERNIGHT shipping and is adding new categories such as eyewear and outdoor equipment.

Others should watch this company closely (especially in apparel) for lessons.

Full story here.

Don't miss the small mention of their custom built inventory system too.

Business Blogs and Forums

This is a continuation of a post from a couple of days ago (blogging for business)


In an attempt to post more often, this previous post was very incomplete, especially in my admonishing of forums (in particular Gdiapers as an example).


This was very apparent when I received a fantastic comment by the Gdiapers CEO Jason Graham-Nye (see below for his Comment). I stand corrected as this forum is not run by Gdiapers….though if you find it from organic search results, I’m not too sure people pick up on that.


Let me start off by first addressing Gdiapers:


I believe Gdiapers is a top-notch company with a very important product and I am routing for them. I know that I, myself, have probably told a dozen personal friends to use their product w/ their newborns. And, I’m not your average WOM promoter.


I also think the company’s website and messaging is extremely well-designed. I think Jason is doing the right thing because he feels its right…..however, I think Gdiapers is the exception here and businesses in general have to ask fundamentally, how can/is this forum affecting the perception of my Brand with potential customers.



-------------------------------
Comment:
“My name is Jason Graham-Nye and I am the CEO of gDiapers. I take a different view of our Online User Group.

Firstly the fact that a customer started it and moderates it and that there are nearly 700 members in the 8 months it has been around speaks volumes about the brand. If the brand was out of control, we wouldn't have the members we have or the sales we have.
I believe it is critical that customers act as moderators. It offers authenticity and allows customers to be forthright about their views of the product. And that is what a smart company needs. If your brand and product gets bagged on your own forum then there is a problem that needs addressing. If the forum is tightly controlled by the company and negative comments are deleted, you end up doing your business a huge disservice.
What is useful is for the company to come in from time to time to add comments to a string that may clarify a point or correct a factaul error. Otherwise, get out of the way and let your customers help you develop better products and be a better company. This is the heart and soul of 2.0.

If the company is perceived to be all over the Boards, customers withdraw and the forum withers.

I have no problem with customers using our product in conjunction with others. The diaper decision is a complex one. I take my hat off to anyone who chooses to use gDiapers even partially. And for those who tried it and it didn't work out - while we'd love them to come back, that's fine too. Whatever floats your boat. There is nothing to be gained by diving on to a Board and deleting negative comments or comments from customers who no longer use the product.

The group offers the richest insight imaginable about our customers. Otherwise, we'd be flying blind.
They are family and they are growing. “
--------------------------




The above comment brings up excellent points. From my wife who attended the natural parents convention in L.A., let me set the diaper wearing “potential customer” stage with on observation from this “naturally concerned” convention:


She was amazed how many BMW’s, Mercedes, etc attended the convention and how many parents strolled around with $1600 bugaboos and wearing clothing from Ann Taylor.


With that said…..here are some take-away’s I see from Jason’s comment. One note, the forum in question is not run by Gdiapers….but they regularly participate.


1) Yes, 700 members is a very strong statistic. And, giving a platform to customers to act as moderators is what forums are all about. This forum may work well for loyal, extreme customers.


a. However, if one is starting a business or is a small business, one has to ask, do you have enough time to monitor this forum, explaining your shipping policy (who forum members thought were excessive), etc and so forth….which leaves a history trail of pages. Is there a better vechicle that you can set up to gather and address this form of feedback?

b. An alternate view would be to garner this feedback through surveys and inclusive focus groups. This might give the company an even stronger and focused dialog to address issues and their remedies. A great book is the Ultimate Question, by Reichweld.

2) I agree, you don’t want to hide bagging of your own product. You want to address it in a forth-right manner. However, should you be giving a forum (I may be mistaken hear, but the forum use to be linked from the Gdiapers website and does show up in a lot of search results), to then TAX new “potential customers: to wade through the “bagging”. Remember the 90-9-1 rule (by Jakob Nielson’s group).

a. This forum may be working for that 1% to 9% who is actively participating but how about the 90% that are being influenced? This is where my concern about loosing control of your “branding” comes from. Even though….I must say that I was a bit out of bounds…..nevertheless, how many customers have been giving up trying Gdiapers, because of their exposure to the forum.

b. Also, having “bagging” about your brand…..I think this puts the company in the defensive and leaves a history of people complaining about flushing, modifying the Gdiapers to use cloth, etc. Keep in mind, when newbies read a forum, they might just read what’s wrong and “click off” the Gdiapers bandwagon. You are asking a lot of potential customers to read the whole history of these posts. For one, I have had friends that never would have considered shipping to be excessive and the cost of getting refills, however, due to their exposure to the forum (they’re bugaboo users), they have become turned off (even though they can obviously afford the shipping;))

3) I looked at the forum of late and I’m reading about ear infections, Gdiapers being discontinued in WholeFoods, and the markup on Formula for Nestles. There’s a lot of noise hear for what’s supposedly a Gdiapers forum. Again, this is why I wondered about branding loss here.

4) The best part of Jason’s comment (which is why they are such a great company) is he equals customers with “family”. Hats off to Gdiapers!

Proof that Pure Plays are ahead of the Curve

When retailers said that footwear (and apparel) won’t do well online because of fit issues……

There was Zappos…..now targeting a billion dollars in sales by 2008.

They have 110% price protection

Free Return Shipping 365 days

Orders arrive on average in 2 days

Free Shipping, period.

In the past 2 years
Footwear and Apparel are growing over 80% and are one of the top 3 categories selling online.

Now Gap has their own online footwear store: Piperlime.com

Now Amazon with Endless.com is in the mix

Google – Still the biggest bang for your marketing buck?

In a previous post….. I mentioned how budgeting for your online marketing spend based on expect ROI and customer lifetime value per vehicle (a valid and very worthy exercise) …..Inadvertently sends the major of your spend/budget to Google PPC.

This has been occurring, easily, for the past 3-4 years. Thus, Google’s net worth has been growing at astronomical levels.

However, something has changed. Google PPC is not returning the ROI, conversions or quality traffic that E-Retailers have grown accustom to. Thus, there is a minor sea change occurring amongst some small pure play online retailers. While this is a “small” change, we should note, these pure players usually “get it” first.

Read this Money article on Ice.com, Ebags and others. I find it very interesting that retailers are sharing there % of spend on Google and plan on decreasing it.

“Although Ice.com reported an increase of 70 percent in holiday sales, Gniwisch said it was "without the help of Google. In fact, [it] failed quite miserably," he said.”

Also, there is no mistake that while this is occurring Google and Yahoo are changing their PPC programs to link ad relevancy and quality landing pages to their ranking/cost algorithm.

Blogging for Business

There are a lot of businesses that have found good benefits from adding blogs or forums to their online "stores". Here's a couple of no-brainer benefits:

1) Great, quick way to build content.
2) Generating perm links for SEO purposes.

Don't know anything about SEO...check out webpronews. There's a great web forum on using blogs for SEO purposes:
Blogging for SEO Forum

But beware, if you start a blog, make sure it has good content that is in line with your business and if you have a forum....be very concerned that the discussion is uncontrolled and can end up changing your brand. For a great example follow Gdiapers (which is a very admirable company) who is loosing control of their brand through their forum. How? For one, customers are finding new uses for their product that either reduces their need for the product or leads them to use other products. Visit the gdiapers forum and blog:

http://groups.yahoo.com/group/gDiapers/
http://gdiapers.typepad.com/

It's hard to regularly blog.

Ok….New Year’s resolution…..Blog more. I’m becoming dangerously close to having a “stale” blog… Here’s how I’m breaking down (or procrastinating) why I’m not blogging enough…..

1) When I post, I generally want to make it about something I’ve put a good amount of thought into. However, this takes time.
2) I’m addicted to reading several blogs…for example guykawasaki. Somehow I see time reading blogs and posting comments on them easier for me to commit to than maintaining my own.
3) I typically work a 12-hour day and I have a family. Where do I have the time??

Have you detected the BS yet;). Ok….My resolution….blog more.

The Hype of Cyber Monday.....it's REALLY Cyber Mid December

Will anyone call this out? Cyber Monday is a ploy that marketers made up and now a site cybermonday.com is trying to monetize on the hype (good for them).

The problem with Cyber Monday is that it doesn't reflect what the strength of Internet buying is all about; eliminating distance, store hours, physical inertia strolling down isles, going to a physcial store to find that there's nothing there that interests you, etc.....and LASTLY convenience (ship direct to gift receipent, at night, etc).

The latest Comscore report backs this up:
Consumers Procrastinate, Spend More
On Monday, December 11, consumers set a single-day record for online spending with $661 million. Two days later, that record was broken as consumers spent $667 million online. Importantly, the growth rate versus year ago accelerated toward the end of the week, demonstrating that consumers are continuing to shop online later this season.

This year reflects that people are starting to understand (even if it is subconciously) the benefits of buying online.

Have we forgotten about Lock-in and Positive Feedback principles?

Everyone is looking for the WOW factor or that next, new Web 2.0 feature to build into their sites. (What’s Web 2.0? check out this post on creating passionate users)

A lot of times Web 2.0 for retailers turns into a simple blog (see Neiman Marcus’s attempt for their new CUSP stores or in Nordstrom’s case a silly flash page. Flash is a favorite (especially to high/luxury focused retailers due to branding concerns that “look” the part). Obviously, this far misses the point.

Yet, even the social/community builders are missing the point…when it comes to incorporating value laden user tools or functions….think lock-in and easy to use tools that build of positive feedback/critical mass domain acceptance. How are these 2.0 mongers and retailers missing the mark????….when it comes to developing throw the WOW or Web 2.0 factor out the window and start with functions that build incremental value.

Think: LOCK-IN

1) How will our each of our services functions “lock-in” users. Lock in is the simple principle of slowly laddering users to use/learn more of your services and in return incrementally sharing more information about yourself. Then, when it comes to possibly switching to a competitor’s service, make the cost of switching (and learning a new system) prohibitive.

Examples:
A) If you have already created an account for Yahoo email…..you are likely to use their IM…..if you use their IM you are likely to use their RSS services….if you use their RSS, you are more likely to use their 360 blog publisher and use their Yahoo forums…yahoo toolbar…..etc. Then when Goggle comes out with a new RSS reader…why would a Yahoo user choose to switch to use this, instead of the Yahoo RSS reader?

B) A user shops at Amazon and creates an account. They then sign up for a free credit card. They input all their shipping information/locations. They then sign up for Free Shipping for $79.00 a year. They then share reviews and create a wish list and registries. Then why would they switch to buying online at Wal-Mart or Toys R Us when the product in question is offered at both?

The question here is how do all of your services tie into each other and compliment the laddering approach.

Think: Positive feedback/Critical Domain Mass

2) Does each time a user uses a particular feature or service….does it become more valuable to him/her and if so, is it even further compliment by other users.

Examples:

A) Positive feedback….Think wish lists. Can a user email their wish list to others…..can they prioritize items in their wish lists? Does it have alerts? Does it auto stamp dates items are added. Critical Mass…..think online reviews…..do you have enough reviews collected to provide a new user with ample review information….are they segmented by expertise, rating, submitted date..etc?

Ho Ho Ho....go online and skip the lines

Holiday shoppers are expected to spend $32 billion online this season, with purchases happening well past ground shipping cutoff dates....(what does this say about all those free shipping offers that online retailers are pimpin'?). This is suppose to represent 18 percent increase over last year....

Black Friday!

Ok, so tomorrow is the super huge shopping day. But what about "Cyber Monday"? Both of these are just great examples of marketers making up "events" by talking about themselves.

The other intersting point about tomorrow is how many online retailers are just SPAMMING everyday this week their email lists with promises of discounts or free shipping.....or BOTH! Another example of "empty" offers. Do these emails say anything positive about these companies or their services? Do customers really need a discount if you offer a compling, valuable product/service? Neiman Marcus, Bluefly, Spiegel, Guess...just to name a few have emailed me everyday this week......nothing but noise! And what about FREE Shipping offers? I know first hand that many Online Departments offer FREE Shipping (and I've even seen them offer free EXPRESS shipping) because of a little hidden, secret:

SHIPPING COSTs in many organizations are not tracked on the E-Commerce departments P&L. They are usually absorbed as part of the distribution centers cost. Sales driven markets...trying to show "growth" over the holidays and hitting even higher marks look at Free Shipping as a quick way to say they are offering a compiling customer promotion....when in reality it is just a "cheap" way of them not really coming up with a good reason to "Buy" or "market" what their business really does.

Death of the Video Store

The business and technology world have been chiming about disruptive technologies changing entertainment, media and retail industries for years. With the maturation of the broadband Internet, cheap storage solutions and compression technologies in full bloom, it is apparently coming to fruition. (BTW, great book by Clayton M. Christensen, The Innovator's Dilemma)

This hit me recently when a neighborhood video store that had likely been a fixture for more than a decade or two (the video zone), was bulldozed down.

I didn’t become a Netflix member until about a year ago. Now I can’t imagine watching movies without it using its service. My queue is 40+ movies long and I don’t even have to think about it!

I have friends with TIVO and DVRs that don’t equate TV shows with actual program day/time schedules (i.e. what do you mean Survivor is on Thursday’s? I usually catch up on all my TV shows on Saturday afternoons without commercials).

We all know the next step has already been proven by iTunes. Why wait for DVDs in the mail via Netflix? Why wait until a show has been run to record it? Before we know it, we’ll have a little black, wireless box in our closets (probably powered by Google) that we can order and store on demand any media we want….watching/listening/enjoying it on demand, when we want to and how we want to (TV/Computer monitor/remote speakers/mobile device).

Now I wonder what they are going to replace our local video store with?

Good portion of the long tail is now available free: check it out.

What I’m reading

The Ultimate Question

On one of my previous posts I lamented that many companies choose not to do data base marketing. Not even simple 101 stuff. This is such a golden egg.

We’ll in the same vein, I’m realizing how many companies (all sizes) don’t do simple, actionable metrics:

1) Measure the value of their customers
2) Correlate this to the health of their business.

Fred Reichheld’s new book, The Ultimate Question points companies in the right direction. Many might find it rather simplistic, but that is the beauty of Reichheld’s finds. They are simple, impacting and customer focused.

Take a spin on his NPS blog. Also found this related Blog/Link for another take on this book:

I had a strategic marketing professor once tell me a story of what sort of business you want to be in. Those of you who are The Experience Economy by Pine II and Gilmore fans will recognize the laddering….

This guy was in the kitchen stove business back in the ‘80s. He sold a full line of stoves. He was struggling, carry a mix of this and that….from high end to medium and low end and a full price range. Then all of a sudden he experienced a huge sales spike on one particular black, very high end stove. He was having problems keeping it in stock, so he raised the price. It still sold. It sold for a solid year and pushed his business to the next level. He stopped focusing on price and started to carry higher end stoves that the market was asking for.

Why were these stoves selling? Answer: The black stoves were incidentally featured all season long on the very popular T.V. show Dynasty.

What were customers buying? Not stoves, but FANTASY.

What kind of business do you want to be in?

Mystified by Content?

I am still surprised at how many retail websites don’t use there product pages to describe their product? Their “stuff” still just sounds like line items on their PO’s or worse yet, the description straight out of their retail POS systems.

Any persuasive seller knows you have to speak in your targets language and you actually need to tell them why should I care…what does this do for me?

Here’s a great example of a big retailer describing a T-Shirt of all things:
Banana Republic

Here’s Nordstom’s falling a little short:
Dress


It’s funny, when content space is for free (unlike catalogs where each sku competes against the next)…it really exposes the lack of originality and saleswomanship behind companies.

I’d ask companies like Banana Republic to go a step further and start incorporating language that goes beyond the “materials” and event for the item…and looks to the reasons why and speaking in the voices of customers. Obviously user reviews play big here.

Good starting read:

Online Copy Writing Book

The Question of Drop Shipping

In my experience, I’ve had a lot of success at drop-shipping. Though, it comes at a heavy process cost and relies heavily on partner compliance. The obvious biggest benefit to drop-shipping is not absorbing inventory costs and expanding your offering (aka long-tail).

Yet, be weary and be strict on your process. Otherwise any short term gain will be at the experience of your customers and you will end up as an “arbitrage” middleman with not much of a value proposition.

Here is a short summary of the surface issues you’ll quickly experience if you go into drop-shipping unprepared:

-------------------------------------------------
Those of you who aren’t familiar with drop-shipping, it is when a retail store offers a product that ships directly from the manufacturer’s warehouse. Often, the manufacturer offers this to a few (or many) retail stores. The steps are generally:

The customer places an order with a retail store.

The retail store takes the order and passes the item and shipping information to the manufacturer’s warehouse.

The manufacturer then ships the item to the customer.

For a full explanation, wikipedia offers a great review.
http://en.wikipedia.org/wiki/Drop_shipping

The obvious advantages for retail businesses are they are able to offer items without having to stock them. Thus, they can offer sometimes hundreds, if not thousands of items. Suddenly stores see lots of dollar signs:).

Drop shipping also benefits customers by offering them incredible choice of products that otherwise aren’t available many places. An example of this is that there are many, many online baby stores that currently offer dozens and dozens of diaper bags that they don’t carry themselves.

Yet, there are often several cons/costs that directly affect customers. This is why we have been so weary of offering drop shipped products. Here are some of the main cons:
It is very difficult for manufacturers to let their drop ship retail stores know accurately what their stock levels are. In other words, when a manufacturer runs out of stock on one item, it could be several days before they tell all their retail stores that this item is no longer available and not to offer it to their customers.

This causes retail stores to take customer orders that they can’t fulfill. Obviously, this is an inconvenience that ultimately affects customers, not stores. The usual scenario happens: customer orders a diaper bag; retail store takes order and sends it to manufacturer. Manufacturer processes order and finds out they no longer have item. They send back news (not always) to the store that they can’t ship the item. The retail store then credits the customer back and notifies them that they can’t ship the order. This whole process can at times take well over a week.

The retail store trusts the manufacturer to handle and ship the order in an accurate, timely fashion. So much of customer service is captured in the previous sentence. And, it is often the case when manufacturers are excellent at making products, but not shipping them. Ask yourself how often your current suppliers ship your POs on time?

This is largely due to the fact that manufacturers are used to making products in bulk quantities (let’s say 100) and they are used to selling products to stores in other bulk quantities. Using the above example, a manufacturer may ship 40 of one item to store A, 15 to store B, 20 to store C and 25 to store D. Boxing them in bulk and shipping them within few weeks. If the product runs late, no worries, it just means that the store is unable to “sell” them.

Yet, when manufacturers get an order for 1 product going to customer A that needs to be there within days, often problems can arise. There warehouse is stacked with huge bulk shipments and just a small box, well….it’s importance gets lost.

How does the retail store know the item has shipped? Or better yet, how does the customer know the item is on its way? Usually once manufacturers ship the item it takes them several days to inform the store…if then. Retail stores often only contact the manufacturer for shipping information after the customer has asked the store. Again, this process can take days for a response. This leads to how you get this shipping info into your own internal systems?

How do you handle returns or exchanges? Often, these products are either non-returnable. Or, the customer has ship the item back to the retailer, who then ships it back to the manufacturer’s warehouse. Of course, costs add up quickly….and these costs are often passed back to the stores customers in general.

Obviously, the above usually implies a trade off between offerings and controlling your customer service, experience.

Email and Database Marketing post in Click Z today. Great read, simple to follow by Al DiGuido.

Read Here (make sure you "take the test")

The best aspect is Database Marketing is really the goose that laid the golden egg. It’s absolutely amazing how many companies don’t look at or capture their best segmented customers and look at a retention strategy.

Everyone knows it costs much less to retain customers than to attract new ones…in the long run. Apply this to your email efforts! No more shoot gun marketing. Target.

Are you a Tweak(er)?

How to handle site improvements?

I was just on Seth Godin’s blog (excellent source for motivating, business chatter) and his latest post on tweaking some improvements (whether in software design or home design) was very interesting:

About tweaking he states, “I'm talking about turning an arrogant checkout into a useful one by turning off the button that automatically resets to opt in to the spam list every single time I return to the checkout. Or changing the size of the product photo from 144 pixels wide to 500, because making the product the star can triple clickthrough.”

Seth Godin

Two quick take-aways that I got from the small post…which got me thinking.

First Take-Away: This is iterative, user-centered design which mitigates development risk and quickly garners user acceptance or lack there of.

I agree with the nature of Seth’s post. Tweaking is good in that I firmly believe any long term strategy for development (particularly an E-Commerce site) should be iterative, spiral in nature and continuous. This means that you (and your team) should be continuously gathering user and market feedback, along with industry trends and then plan for small site improvements in strategic areas of your site. Examples can be how to display your product, how your inventory index updates to your WHS, how you categorize or layout portions of your site, how your search function works, etc.

Using a project management voice, “You should always have something in the beginning, middle and end of your pipeline”. Basically, be documenting your conceptual plans (prioritizing per resources and opportunity), be actively working on a system improvement and have something that just released or is about to (and follow it closely for the feedback loop).

This approach is obviously helpful in that you pick up low hanging fruit, get impact-ful results in weeks rather than months and you get true uncluttered feedback. But, this is largely a great approach because the last thing you want to do is what GAP, Banana Republic, Old Navy did last year (See USA TODAY)…..because who else besides GAP inc could afford it? What they did last year is basically take down their entire websites for over a month during the busy back-to-school season to launch “ground-breaking” AJAX heavy functionality and design. They could do this because they have the $$$, they have the steady customer base willing to work through the confusion and they have a plethora of stores. Yet, this illustrates that who can afford huge, change?

The bigger the change, the harder your team will have releasing it “bug-free”. Expect many, many delays.

The bigger the change, how do you isolate what is working and what isn’t?

The bigger the change, who will get it?

The longer you wait to introduce change and new functionality, the harder and more costly it will become to replace your “old” system.

Lastly, the bigger the change, are you being responsive enough and really listening to your customer base?

Second Take-Away: Don’t drink the TWEAKING KOOLADE!

I’ve worked in environments where our team tested EVERYTHING. And, no change was ever made without an exhaustive scientific approach (minus the hypothesis). The way we went about this is really the extreme and not the rule. But beware, it is a slippery slope. Here’s what happened:

Before releasing a new button, new page layout, new text, etc. we would A/B and multi-variant test it. For example we might want to change the shape, color, text and placement of a certain button (e.g. the add to cart button). We weren’t really sure it the button change was warranted, but we just wanted to see if there was a better way (Flag, have a reason to change, don’t just change).

Next, we would say the button would be 5 different colors (red, green, blue, yellow, purple), 5 different shapes (roundish, circle, square…you get the idea). Couple this with 5 different text on the buttons (“add to cart” “add” “buy”, etc) and 5 different placements and you get 5 to the 4^th power. Or, 625 different variations to test. Remember, going into testing, we didn’t have a “reason” to believe change would be a good thing.

We would run “rules” software package that would display each variation to a portion of our web traffic and, depending on traffic exposed to each variation, we would gauge if certain variations produced more sales/conversions.

Usually what would happen is that out of the 625 variations 2-3 would produce slightly better results than the rest of the variations. For example variation 34 and 123 would produce a 2.7% conversion result rather than our normal 2.2% result over a 6 week span. Extrapolated out over an entire year, this could be lots of $$$. Next, we would take these 203 variations and do A/B testing; exposing 50% of our traffic to version A and the other half to version B. This was done for validation purposes of the first testing period.

Finally, with a clear variation (no we didn’t always have a clear “winning” variation) we would roll this out to every one of our website visitors. Unfortunately we weren’t necessarily sure why this variation one and inevitably 3 months later someone would want to test orange, dark blue and gray for the buttons. And, of course, we would….

Now this is all fine and dandy. And, it’s hard to argue with increased conversion results…even when you don’t know why they are happening. Yet, this makes you such a TWEAKER and so myopic…that you loose site of the larger picture…which is WHY DO your customers value your site/product/service and why are they reacting they way they are. The above approach turns your entire team’s attention on so many small details that you loose the PROCESSES.

The RUSH Development of Niche Shopping Blogs/Villages

We are all well aware of arbitrage sites that strictly attract “cheap” traffic by any means and then pass it to higher paying channels. These types of sites do well by the simple fact that “users” would rather click on a link than:

1. Click the back button
2. Type in the actual URL of the site they want to visit.

Well, one step up from these ARBITAGE sites, there is a bevy of new blogs that are trying to “cash in”. Don’t get me wrong. These sites are aren't arbitrage; in fact they often engage users and funnel highly targeted traffic onto advertisers. Yet because there are a few, select, very successful ones (see Celebrity Baby Blog for example), there is now a proliferation of “Style” blogs out there….ready to charge advertisers....be weary. Typical signs are Blogs with Big Images in their posts with little text and hardly any user postings. If this is the case, then your advertising dollar can quickly become lost.

For an example of this trend, I thought I’d highlight the development of blogs/websites specifically trying to cater to professional/high income woman/moms who value chic designs and fashion.

Do potential publishers and advertisers “get” that Woman do the surfing and chatting online? I think so! (side note, how many woman go online shopping for “their” men…makes you think?;)).

Here is a sample list of NEW WOMEN shopping blog/sites from big to super small

http://www.divavillage.com/

http://www.glam.com/

http://www.thriftyboutique.blogspot.com/

http://www.celebrity-babies.com/

http://www.poshcravings.com/

http://www.mommieswithstyle.com/

http://www.connectingmoms.com/

http://slavetotarget.blogspot.com/

http://www.ivillage.com/messageboards?ice=iv,mp,rn,mb

http://hotmomsclub.com/

These types of shopping blogs particularly focused on:

Fashion
Celebrities
Moms WAHM

Small mention of the development of social marketing sites check out:
Style Hive
This Next

Now from my experience from the last couple of years of watching this particular market very closely; this is the typical, rough lifecycle you get from a shopping Blog:

1. Beta version. Typically on Blog Spot.
2. Move to a dedicated site or wordpress/typepad
3. Incorporate guest writers or feature writers
4. Splash text ads on both the left and right sides.
5. Start to cover events rather than report on them. Start to create stories or reviews, instead of report on them.
6. Heavily try to develop an email list by attract sign ups. Work with small group of vendors/stores to have “product giveaways” for free ad spots.
7. Incorporate a “Shopping Section”.
8. Use a banner ads service (remember linkshare;))
9. Start to specifically post about where you can get the products they feature (paid testimonals and free samples).
10. Hire there own account sales teams.
11. Actively attract stores/advertisers with relatively low rates for their shopping section banner ads.
12. Then once they have attracted 40-50 stores, positive feedback occurs to the point that advertisers are competing against themselves for banner placement.

Here’s some of the advertising services that allow BLOGGERS to get into the game:

Web Blog Ads
Vibrant Media
Ad Brite
Ads to Go
Kontera

….Oh and of course the almighty Google’s Adsense.

Sample of their Email Campaigns

Posh Carvings Sample Email

So, should you participate? Yes/No. If you can afford the bigger sites, give it a trail period and learn quickly if it is working or not? Yet, ask yourself…have you invested in your own Forum or Blog development?

Heres’ a great example of a Manufacturer that is really getting this:

They have their own Yahoo Forum (developed by customers)
G Diapers Yahoo Forum

And there own Blog:
G Diaper Typepad Blog

What’s Your Online Marketing Budget?

Everyone’s heard the example of the marketing pro that say’s he knows for sure that half of her marketing campaigns are working; she just doesn’t know which half. Yet, it’s now become a given for online marketing traceability and performance can now be measured. With ROI tracking activities tied into PPC (thanks to 2003 purchases of San Diego area analytics providers Keylime for Yahoo and Urchin for Google) and analytics at the client level (Omniture, Webtrends, Fireclick, etc), the data is available to see what’s working. This extends to search engine comparison sites (Shopzilla, Price Grabber, Smarter, etc) as well as just about any online traffic source (e.g. organic traffic, banner campaigns, affiliates). So, it’s now very difficult to hide behind the “shot-gun” approach of spreading your budget across multiple online vehicles to ensure that whatever your business is included in “whatever” is working “out there”.

Setting Your Budget
The classic approach to setting a marketing budget is to go through a customer lifetime value, placing customer acquisition and customer retention as to distinct life stages and then laddering towards customer loyalty. To drive loyalty you then segment your customer database into quads, etc. (check out any classic database marketing book)

For example:
What activities will drive new customer acquisition?
Upon initial purchase, what activities will drive a repeat purchase?
To get a customer to X purchases what special activities can we apply?

This also looks at the propensity of certain customer events to “likely” outcome to a loyal customer. For example, if a customer purchases 3 times within x days, it is very likely if we do XYZ, they will purchase 10 times within the next X days.

The above is why I love this quote, that I can’t remember where I pinched it from, “We don’t count customers as customers until they’ve ordered twice!”

Yet, I’m going to avoid going into detail. Instead, I’ll describe just on the surface an:

Online marketing budget cheat sheet (rules of thumb). Yes, this has flaws, this is why it is a cheat sheet.

1. Look at your % of New Customers versus Repeat Customers, monthly.

If you have anything over 60% repeat customers monthly, then your retention activities are working well. To drive increased business you should apply new marketing budget funds towards customer acquisition. New funds towards acquisition will likely not achieve the same increase results.

Then, ask yourself how many new visitors do I get monthly? How many repeat? What is the percentage breakdown? Again, if your repeat monthly visitors is extremely high (let’s say over 40%), then you should look at getting new visitors. If not, then you have site issues that need to improve how they communicate to those users not familiar with your brand, products or site.

Then look at your sources for new traffic, look at which are driving the most traffic and correlate to CPA or purchase (optimally with true purchase amounts figured).

Here’s a secret…that supports the lazy marketers increase SPEND ON GOOGLE.

Most retailers I know have not maximized their PPC spend. This largely accounts for 50% of their current new acquisition budget. They often have to enforce minimum daily spends to ensure they have PPC coverage for the entire month. And, given most retailers neglected SEO activities, PPC becomes every more important (for the short-term view…and not many marketers are rewarded on long-term:)).

Here is an example for example only sake:

PPC: Need to build more keywords & broader terms often off.
Google Daily Spend 1,000 CPA $5-$15
Yahoo Daily Spend 100 CPA $15
Other Engines (sorry MSN) 100 CPA $30

Affiliate Program (built into CPA) 15% or let’s say $15

Shopping Comparison 50 CPA $30

Looking at the above, often your PPC campaigns (specifically Google) are under optimized needing new keywords and often your campaigns (even when time controlled) run out or are grossly under bidding. Hence, most online marketers can get away with just spending more on Goggle and achieve growth results. I’m not advocating doing the due diligence and measurement before setting your new marketing budget, I’m just saying that many marketers don’t and get the same results by simply spending more on GOOGLE. This is only one of many reasons why GOOGLE is a rolling in the $$$$$.