E-commerce strategies for bricks-and-mortar companies

Despite the hype around e-commerce, it is predicted that 75% of projects will fail. Liz Warren finds what it takes to be a winner

The Internet revolution has brought IT directors into the front line of business strategy development. At the same time, they must take responsibility for delivering the infrastructure and solutions to support electronic business.

According to industry analyst Gartner, this is no easy task. It has predicted that 75% of e-business projects will fail to deliver the desired business benefits. So just what will it take to deliver the e-strategy dimensions of reach, richness and affiliation outlined in a groundbreaking article published recently in the Harvard Business Review? (see box left)

First of all, your underlying infrastructure has to be up to scratch. Steven Heneker, manager of the e-business unit at Cap Gemini Ernst & Young, points out that there are some fundamental principles which will apply to most e-businesses: systems must offer high availability, deliver appropriate response times, handle data reliably and correctly, and allow content to be refreshed easily and frequently.

Response times will be a key battleground. "If your service levels and response times to the customer are not good enough, all the effort you've put into getting your Web site up-and-running will be wasted," points out Simon Stevens, director of Amdahl's software division. "Equally, if it takes a painfully long time to complete a transaction on the Internet and it's quicker to do it by telephone, customers will use the telephone - or won't do it at all."

However, a survey carried out by IDC on behalf of Amdahl found that while 52% of companies considered response time to be the most important issue for their Web site, nearly half of them had no idea how long customers were having to wait to complete online business transactions. Amdahl's Enview tool is one of a number of products that will monitor user response times and allow systems to be tweaked accordingly.

Quality of service can also be improved in a number of other ways. One approach is to ensure every request for a page is answered by the Web server offering the best performance. The BIG/ip tool from Web management specialist F5 Networks sits on the local area network and continuously monitors each server, directing traffic to the most appropriate machine. Another F5 product, 3DNS, provides load balancing across geographically dispersed servers, so that a single URL will link to several servers and users will be pointed to the one offering the best response, whether it's local or on the other side of the world.

Matt Cohan, European director of e-business at Web solutions consultancy Tanning Technology, warns that IT directors shouldn't underestimate investment in security either, since the bad press associated with a single breach can irreparably damage your brand. He suggests firms should not only publish their security policy on the site to reassure customers but should look at accreditation by schemes such as Which? Webtrader.

Clearly the infrastructure for e-commerce is complex, failure can be very public and, Heneker adds, the devil is often in the detail, so a meticulous attitude to implementation and strong project management are key. In fact, Heneker says, e-business solutions have to be better than real world solutions because you don't have the human element to provide customer service when they get into difficulties.

E-commerce will certainly mean big changes for traditional IT shops whose systems are based on online days, overnight batch jobs and shutdown for back-up. Once companies start offering Web-based services, Stevens points out, they have to provide support on a 24x7 basis. That means adopting technologies which allow back-up, recovery and data maintenance to take place without taking systems offline. Stevens adds that a company's disaster recovery strategy may also have to be revised so that systems can be rebuilt in application sequence, allowing customer-facing and trading applications to be restored first.

A final headache on the infrastructure front, Cohan notes, is to balance the careers of IT staff so that those people involved in maintaining existing applications do not become disillusioned while their colleagues work on new, exciting e-business projects. All these infrastructure challenges suggest application service providers (ASPs) may become key technology partners in e-strategies. "ASPs are making a lot of expensive technologies available on a more affordable cost profile and they allow companies to focus more effectively on business issues without worrying about technology," says Paraic O'Toole, vice-president of e-business for Western Europe at consultancy Cambridge Technology Partners.

When it comes to technologies for each of the dimensions of e-strategy, there are a number of options. Reach, for instance, comes in three forms - products, customers and suppliers - and each demands a different response. It has already been shown in the real world that reach not only presents new challenges in terms of fulfilment but may also stretch the credibility of your brand. That means you will need to partner with organisations that have the appropriate status to offer products, advice and information in the areas you're moving into. James Pemberton, marketing manager at Web marketing solutions supplier Unipower, suggests retailers and manufacturers that are pursuing a strategy based on increased reach will face resource issues when collating and handling this third-party content; although technical solutions for content management may not be complex, they must be efficient.

The headaches of dealing with third-party information will be compounded still further if firms are also looking to offer rich product data. Cohan suggests traditional catalogue publishing solutions often don't provide the level of granularity needed on the Web because they tend to be designed around physical pages, whereas Web consumers want to access individual products and to search at a detailed level on selected attributes. Content solutions need to be able to aggregate information at different levels for each channel.

Furthermore, if you're working with associates which are responsible for fulfilling orders placed through your site, you will require good integration between the back-office systems of the various partners. "You have to be the co-ordinating point. If someone drops the ball at any stage, that will affect your customer relationships and your brand image," Pemberton points out.

On top of that, as you increase the number of partners you trade with, it quickly becomes impossible to develop point-to-point interfaces to each of them. Cohan sees technologies such as XML easing the process of sharing data, while content or service providers - such as finance companies offering banking services to portal partners - will publish flexible interfaces which their partners can brand and integrate as they see fit.

When it comes to increasing customer reach - which is, after all, one of the inherent attributes of the Internet - Cohan points out that you are likely to find yourself dealing with different types of customers, with different needs and different interaction styles. That means developing a range of channels, multi-lingual capabilities and systems to suit different cultures and legal and fiscal regimes. Chris Potter, of PriceWaterhouseCoopers, adds that it means you need to consider which platforms - such as digital TV and wireless application protocol (Wap) as well as the PC - to support. Each of these devices will demand a different style of user interface.

Companies pursuing the richness dimension will need to look at technologies which improve the speed at which content can be downloaded. It may even be preferable to shift some content offline and distribute it in the form of CD-Roms driven by the Web site, although Pemberton points out that this solution is only really feasible where you have a regular customer base.

Companies delivering rich content entirely through the Web will certainly want to move it to the edge of their networks, so that it reaches consumers as quickly as possible. Cacheing is a fairly simple solution for relatively static data, but as data becomes increasingly dynamic - and most e-commerce data and applications involve highly dynamic content - it becomes harder to replicate it in real time. Products such as F5 Networks' global/SITE allow content to be distributed and synchronised in line with user demand.

If you're looking to pursue richness in terms of customer data, you may be considering a customer relationship management (CRM) system. However, Heneker believes many CRM implementations are either not exploited properly or are misused, alienating customers. "You need a marketing view of what you are going to do with that information - and if you don't know, maybe you shouldn't do it," he says.

O'Toole points out that customer knowledge is often muddied by the fact that many people create alternative identities when they go online. That means e-traders may know customers' credit card numbers and dispatch addresses, but not much else, and it can be dangerous to assume the knowledge we have about customers is accurate and extrapolate from it.

Cohan agrees that if the technology fails at any point of the marketing process, from customer segmentation to service delivery, you will fail to gain customer loyalty. He also argues that CRM systems must integrate data from all your channels, not just the Web site. He adds that Web marketers will want easy-to-use applications which allow them to create campaigns and deliver them to a particular customer group quickly. They then need to be able to identify the effects of those campaigns on purchasing patterns and on-site behaviour within a couple of days, so they can tweak the campaign while it is still running.

Finally, Stevens notes, there will be significant storage implications to capturing rich customer information, so you need to make sure your storage solutions can handle those volumes and deal with issues such as back-up and recovery.

When it comes to affiliation, Pemberton suggests that sites looking to align themselves with customers by using their joint buying power will need to look at automating the process of negotiating with preferred suppliers or matching customer and supplier bids. Unipower's AuctionMagic can support real-time auctions on the Web and is already being used by Netherlands-based wine and spirits retailer Gall and Gall to auction vintage wines, exclusive spirits and promotional offers on its Web site.

According to Pemberton, the technology on which AuctionMagic is based can also be used to support real-time interaction with customer service staff, allowing Web sites to replicate the support by shop assistants in the real world. Kevin Kelly, European sales and marketing director for OnLink, points out that replicating the shop assistant function on the Web is vital. "Customers like to be listened to in conversational terms, they like to present their needs in their own words and they often have a requirement without knowing how to translate that into items within a product range," he argues. "Suppliers need to embed the black magic of good salesmanship into e-commerce systems."

One way to achieve this is through callback technologies which connect the customer to a call centre agent. For example, NetCall's HyperphoneLink can initiate a phone call from a Web browser, digital TV screen or Wap-enabled device.

Another option is the virtual buyer's assistant: OnLine's suite of sales assistant tools and Selectica's Internet Selling System can help customers by capturing their requirements and relating that to the company's product set.

However, the emergence of intelligent agents or shopping bots will present a new threat to companies adopting richness as a key focus. "Bots have implications for marketing, because people won't be reading banner ads or looking at clever Flash animations. They'll decide what they want and ask the bot to look for it and present it in the format they want," O'Toole points out. "There's no point worrying about the design of supermarket aisles if no one walks down them."

There are some other basic ground rules if you're focusing on the affiliation dimension. Cohan says anything consumer-facing must be "absolutely appropriate to their needs. That means designing collaboratively with users and, once you're online, observing them constantly and responding and evolving your services rapidly." He adds that you should also expect to develop a range of online channels.

"For instance, if you've dealt in the past with a small number of large customers and now you're attracting SMEs and consumers through the Web, they may want to use the site in a completely different way," he explains. "Traditional users will want fast repeat ordering. For new users, you will need product education and navigation through to purchase. You need to develop twodifferent front-ends."

Dave Gill, European managing director of F5 Networks, offers a final warning. "Unless your infrastructure matches your strategy, the system could fall over when you try to deliver," he says. "That investment needs to be made up front - if you don't have the right infrastructure, all that other effort is wasted."

What is meant by richness, reach and affiliation?

No one would dispute that the Internet has torn up the rulebook by which businesses have traditionally operated. The new rules are still being formulated, but a clear pointer was provided by a December 1999 article in the Harvard Business Review by Philip Evans and Thomas Wurster, co-leaders of the Boston Consulting Group's media and convergence practice.

In their article Getting real about virtual commerce, Evans and Wurster pointed out that Internet technologies have allowed "navigation" - the process of helping consumers to identify relevant products and services - to become a business in its own right. Once you have the basic technologies for navigation in one area sorted out, you can expand into other markets relatively quickly: look at the way Amazon has moved away from its initial focus on books into music, videos and online auctions. Equally rapidly, power can shift away from those which have traditionally provided the navigation function: high-street retailers, for instance, which have helped us find products by selecting stock to promote through their stores.

Evans and Wurster go on to point out that Internet technologies are also redefining the three aspects which have previously circumscribed companies' strategies and their ability to act as navigators. The first aspect is their reach, in terms of the number of customers they can access and the number of products they can offer. Instead of operating a couple of hundred high-street stores, each carrying no more than a few thousand lines, the Internet allows companies to offer tens of thousands of products to millions of computer and digital TV screens.

Secondly, there is the richness or depth of the information which companies can provide to customers and acquire about them. For instance, a CD site can provide artist biographies and discographies and samples of recordings, together with independent magazine reviews, all of which may help the customer decide what to buy. At the same time, the site could capture information about customers, so that it can recommend recordings which people with similar profiles have already purchased.

Finally, the Internet is changing affiliation. Companies in the physical world which are promoting a limited range of goods - in particular, brand manufacturers - will want to push those products as hard as possible. In extreme cases, such as the pensions mis-selling scandal, customers will be encouraged to buy those products irrespective of their ability to meet consumers' needs. By contrast, the interests of pure navigation companies more typically lie with those of consumers. They want to attract consumers by getting the best deal or finding the right solution for each customer. For instance, letsbuyit.com aims to bring together consumers so they can use their joint buying power to drive down prices from manufacturers.

According to Evans and Wurster, companies must decide to what extent they want to pursue each of these dimensions - and be prepared repeatedly to revise their ideas as their e-business evolves. They must also be prepared to rethink radically the structure of their organisations, as individual functions become businesses in their own right, and not shrink from competing against and cannibalising from their bricks-and-mortar operations.

Strategies for IT directors

Navigators, Brokers and "Independent" Service Providers
Business strategy: don't take the boundaries of your business for granted but constantly evaluate consumers' perception of a meaningful "search domain"; affiliation with consumers is a major competitive advantage but you must also compete on richness and reach

  • IT strategy: implement solutions to deliver content from other e-commerce providers; create close integration with partners' fulfilment systems; implement purchasing solutions which support negotiation with suppliers

    Electronic Retailers
    Business strategy: define your business in terms of a "search domain" which is meaningful to consumers, rather than traditional product categories; be wary of exclusivity deals with product manufacturers which will result in you sacrificing reach and consumer affiliation; improve the richness of your consumer information - and use it - and get smarter at logistics

  • IT strategy: implement solutions to deliver content from other content and e-commerce providers; strengthen fulfilment systems; implement customer relationship management systems

    Product Manufacturers and "tied" Service Providers
    Business strategy: richness, especially when it comes to product information, is the most powerful competitive weapon you have and on the Internet can be used to enhance the brand as an "experience"; be prepared to re-evaluate the structure of your business and develop strategies for individual functions; look for alliances which provide reach and change the balance of affiliation to provide greater credibility than can be achieved by each member alone

    n IT strategy: implement systems to support rich content and deliver it quickly to customers; implement links to systems run by partner organisations, such as trading hubs

    Case study - Health and Diet Group

    According to Margaret Peet, group managing director of the Health and Diet Group, you have to apply the same principles to any type of shopping, whether in the real world or on the Internet. "It's still about a good shopping experience," she says.

    The Health and Diet Group is the British operating arm of US-based General Nutrition Centres (GNC), the world's largest health-food retailer. The UK operation has turnover of about £28m and consists of 44 stores under the GNC or Health and Diet Centres brand names, as well as Manchester-based supplement manufacturer FSC.

    The Health and Diet Group's Web site will be launched next month. Peet says she felt moving into e-commerce was a necessary step because a growing number of existing customers will want to shop that way and she doesn't want to alienate them - but she spent a lot of time looking at the Internet market and what purely Net-based companies were doing before devising the group's e-strategy.

    "What we can do, which the pureplays can't, is bring to bear our years of customer service and product and nutritional knowledge," Peet says. "Very few people know as much about retailing and distribution of vitamins and other health products as we do, and what we're trying to do is translate our strengths - our variety of products, knowledge of formulations and skills in recommending products - onto the Web." So, although the site will offer all of the 2,000 or so products and 81 brands currently sold through the group's shops, its main focus will be to offer a rich customer experience.

    Part of that rich information content will be provided by the Health and Diet Group, but some of it will come from Healthnet International, which offers a turnkey e-commerce solution to retailers of natural products. Healthnet hosts the site and offers solutions for the mechanics of e-commerce, such as catalogues, ordering and credit card processing systems, all of which can be customised with the Health and Diet Group's branding. However, it can also supply health news and information sections, including an online health encyclopaedia, multimedia illustrations and videos, and interactive health tools such as calorie counters.

    Peet says partnering with Healthnet not only provided additional content but also gave the company access to the skills and experience needed to develop and maintain the site. "It's like shopfitting: I might design the stores and how things will be laid out, but I don't want to fit them myself," she explains. "On the Internet, that means I'm concerned with how many clicks a customer is away from a purchase and how they purchase, but I'm not interested in the back end." On top of that, working with Healthnet has reduced the risk of investing in e-commerce because Healthnet gains its revenues by taking a percentage of the sales made through its servers.

    The site will be supported by the call centre that handles the Health and Diet Group's existing mail-order business and will link to the fulfilment systems used for the mail-order operation. Peet says the main headache in the fulfilment operation is developing stock allocation procedures to balance the interests of different parts of the business calling off the same stockholding.

    Case study - Jungle.com

    Jungle.com exemplifies the notion that an e-tailer's offerings must relate to a "search domain" which is meaningful to customers but which may bear no relation to its historical roots. Jungle.com was initially set up to provide computer products, but quickly added other home entertainment goods such as CDs, videos, DVDs and games, all of which have a digital focus. Adding these low-value items has increased the frequency with which customers revisit the site, helping Jungle to build brand loyalty and repeat custom.

    "At one point, we had visions of providing pretty much anything as long as we had a fulfilment operation, but we quickly realised that was hard to accomplish in reality," explains Jungle.com's managing director Chris Alexandre. "We decided it would not make sense to offer other products, because they wouldn't fit with our customer profile and our strengths."

    Jungle.com has also placed a strong emphasis on customer affiliation, particularly when it comes to service. Its key aims are to make online shopping quick, easy and fun - and to offer customers lower prices in the high street coupled with high levels of service. This is partly because Jungle was the brainchild of "service evangelist" Steve Bennett, the owner and chairman of Software Warehouse, a leading UK computer retail and mail-order company.

    Jungle was initially set up as an independent company in June 1999, but hired Software Warehouse to provide its fulfilment operations. Then, earlier this year, it took over Software Warehouse and merged the two companies' operations. "Because fulfilment is so critical to e-tailers on the Internet, we felt we needed to control that ourselves," explains Alexandre. "A large part of the success of e-tailers is based on getting the fulfilment right and delivering when you say you will."

    At the front end, Jungle.com has ensured its technical infrastructure is set up to maintain good service to customers. For example, it is using products from F5 Networks to measure the performance of its site from the customer perspective and to load balance the traffic to its Web servers. It also surveys customers to find out what they like and dislike about the site and where they are struggling, so that the site can be redesigned.

    Alexandre points out that a particular headache when designing a computer-based shopping interface is that it can't replicate the one-to-one responsiveness and intuition of a human salesperson who can, for instance, work with the customer to determine the best day for delivery.

    As part of its service-based strategy, Jungle.com has also pursued the richness dimension through its attempts to provide customers with a wealth of information to help them in their purchasing decisions.

    This content is provided partly through Jungle.com's own efforts to obtain - or link to - data from suppliers and partly through links to independent information sources such as magazine reviews.

    Furthermore, Alexandre points out, the company needs to provide significant product reach as well. For example, most music sales over the Internet are made on back-catalogue items which are difficult to source on the high street.

    Here, a key requirement is for efficient search mechanisms to help customers locate products and rank them in order of suitability. This navigation role is also supported by a consistent look-and-feel across the different stores within the site.

Read more on Business applications