E-commerce: non-delivery fines must ring alarm bells

David Bicknell


The Federal Trade Commission (FTC), which is one of the few government organisations that seems to...

David Bicknell


The Federal Trade Commission (FTC), which is one of the few government organisations that seems to understand the Web's effect on business, this week handed down fines that should strike fear into the hearts of online retailers worldwide.

In announcing fines of $1.5m (£1m) for non-delivery of goods to seven companies, which included CDNow, Macy's and Toys 'R' Us, the FTC indicated that at last, online consumers might feel that their would-be purchases might be protected by legislation with teeth.

The commission's action followed an investigation late last year in response to a number of complaints from consumers during last year's Christmas rush, and was taken under the US Mail and Telephone Order Rule law. This requires retailers to ship goods within 30 days of receiving an order or provide a notice of delay. In its investigation, the FTC found that all of the companies failed to send delay notices offering buyers the opportunity to cancel their orders.

According to the director of the commission's Bureau of Consumer Protection, the rule applies equally to both bricks-and-mortar and online retailers. She warned new online retailers that they had to comply with the law or face penalties, adding that many online retailers ended up looking more like Scrooge than Santa.

There is as yet no equivalent legislation in Europe, except for future national laws emanating from the EU's distance selling directive. These must have to increase the pressure on both dotcoms and clicks-and-mortar companies to make fulfilment their number one priority.

That, as US e-commerce specialist publication Fast Company suggested this week, might mean needing a new approach to business design - one that revolves around the creation of "value nets" and the scrapping of old "supply chain thinking".

The ideas come from two US vice-presidents at Mercer Management Consulting, David Bovet and Joseph Martha, who, coincidentally have written a book, Value Nets - Breaking the Supply Chain to Unlock Hidden Profits, on the subject which is published by John Wiley.

Among their suggestions are:

  • Give customers "smart" choice - ie have business designs that begin and end with customers. Customers want products and services that meet their unique requirements and companies have to deliver that quickly. That leads to the suggestion of a "choiceboard" - a two-way real-time device that enables customers to design the products and services they want - including attributes, components, prices and delivery options - and then submit them to the company's fulfilment engine.

  • Faster is better, provided customers will pay for it, ie be fast, but be fast for the right customers. There is no point being fast if customers aren't prepared to pay for this speed. For example, one US company that builds doors enables its dealers to order the doors they want in 15 minutes from thousands of possible combinations. The trick was that the premium service was aimed at the company's most profitable dealers.

  • Know what customers want - "super service" and "perfect orders" ie rapid delivery and reliable delivery, on time, complete, at the required location, ready to use, and with the flexibility to handle last-minute changes. One Mexican cement company, Cemex, for example, used to only be able to set three-hour delivery windows, which caused havoc for its customers. Now, after spending more than $200m on new customer service information systems, it can set 20-minute delivery windows, meet the target 90% of the time, and still be able to make last-minute changes.

    Its all a far cry from those heavily-fined US Web sites that failed to meet the Christmas rush, and couldn't be bothered to tell the customers their products were going to be late. One day, customer service on the Web will be the real deal.

  • Read more on IT for government and public sector