November 2009 – Online Insights: Strategy

E-Commerce for the New Economy

By Jeff Zisk

Savvy e-commerce companies have become a bright beacon in today’s economy, experiencing stability and–in many cases–significant growth. It should come as no surprise that, as interest has skyrocketed among retailers and manufacturers, this burgeoning market is becoming increasingly competitive. Never has it been more important to differentiate oneself in the crowded, fast-paced e-commerce marketplace and to establish a forward-thinking strategic plan that positions a company for a profitable future. This relatively young industry has already undergone many changes, truly morphing into the next frontier for smart, enterprising companies willing to shift their mindsets and be open to a new business paradigm. The best will rise to this challenge by reevaluating the key factors that will impact their e-commerce success.

Today, solutions must be flexible, immediately responsive, scalable, customizable and most importantly, cost effective. As budgets are tightened, all investments will be closely evaluated and must consistently provide a high ROI. This shift has relegated many of the “old economy” solutions obsolete and has changed the dynamics of how to build and manage an e-commerce business.

Strategies for Future E-Commerce Success
An Effective Merchant-Driven E-Commerce Team – As the Internet playing field has become more competitive, and as website tools and operations have grown to be both stable and sophisticated, it is paramount that retailers build competent internal e-commerce teams. To be successful, these teams must be able to focus on merchandising, product development, marketing and branding, which are areas that are critical to sales growth. The right product mix, product availability and the development of Internet-only products will begin to separate retailers into groups of market leaders–and distant followers.

There is a strong indication that these teams will be driven by merchants and planners. This is a natural evolution, as the operational aspects of the site can more easily be managed due to the maturity of the platforms and the performance levels of fulfillment and customer-care providers.

Online merchandising will also play an important role in driving store traffic. Customers will visit multiple sites and make comparisons before visiting traditional stores. E-commerce sites led by sharp, merchandise-driven teams will consistently attract these online lookers/in-store customers.

Platform Evolution – Today, flexible, highly customizable and scalable solution platforms are available at significantly lower costs. Platforms are no longer “black magic.” They are technologically sophisticated backends with a wealth of front-end content-management tools.

Aligning platform development and hosting with fulfillment and customer-care operations, through a third-party outsourced provider, also provides an opportunity for greater cost savings without sacrificing quality, functionality or scalability. Outsourced providers greatly minimize up-front costs, spreading them over the term of the agreement, aligning their fees with your revenue.

Outsourced Operational Areas – Outsourcing operational areas such as web development, fulfillment, call centers and interactive marketing can be critical for the future growth of e-commerce retailers by minimizing activities that distract from their core competencies.

In order to sustain growth, e-commerce managers must focus on merchandising, marketing and branding and remove themselves from the daily focus of the more operational aspects of the business (web development and the order and shipping processes). An experienced outsourced provider can leverage a much larger, internally sustained enterprise to drive a high level of performance and benefit a client’s business. The division of “core competencies” allows all parties to do what they do best. Since customers now expect superlative shipping and online services, lack of performance in operational details becomes highly detrimental to business. E-commerce has matured to the point that customers expect a very high level of performance. Disappointed customers do not return.

E-commerce retailers must seek out providers with core competencies that complement their own and that assist in building areas of differentiation. This type of outsourced provider invests their own capital in warehouse management system updates, call center switch updates and base e-commerce platform updates. These investments will provide clients with key functionality and services at significantly lower costs. In an outsourced environment, clients benefit from the evolution of the provider’s services and best practices.

Another key advantage of outsourcing is flexibility. Partnering with a leading outsourced organization is a very effective way of addressing the challenges of scaling, growth and seasonality. Large outsourced providers leverage scale and seasonality over their entire client base, making it transparent to the customer and providing the same support and service levels–no matter the seasonality or individual volume rates. Whether it’s available bandwidth or server capacity, warehouse space for products or available trained call center agents, the outsourced provider is responsible for managing fluctuation. The client charge is based on actual transactions. The cost savings realized by this type of operation is significant since clients only pay for peak levels as they are utilized.

Move Beyond the Brick-and-Mortar Paradigm -With the success of e-commerce sales and merchant-led e-commerce teams, websites have the potential to go beyond existing merchandise assortments available in the stores. Web merchandise assortments will increasingly become more dynamic.

Merchants will be adding both web-only products to existing categories as well as entirely web-only product lines. The website becomes a perfect “testing ground” for potential new products, for both in-store and online selection. Website assortments will also include special sizes, colors and characteristics that do not make economic sense to carry in all stores, but that do make sense online–and complete the merchandise assortment.

Beyond merchandise, websites will add relevant, demographically suited content that complements the merchandise mix. This content will be provided through partnerships with non-competing retailers, restaurants, the music and film industries and other viable marketing partners. This content will create a new dialog with customers, expanding the existing shopping relationship into new areas of interest. This enhanced dialog will boost customer loyalty, attract new viewers and shoppers and turn tacit websites into dynamic destinations.

Never Underestimate Your E-commerce Potential
It’s a fact that many e-commerce businesses are posting notable growth in an overall retail climate that is experiencing decline. Even retailers who are citing overall losses are showing gains in their e-commerce divisions. Understandably, this has attracted great attention from executive management–especially from those who previously considered the brick-and-mortar model to be the primary driver of their companies.

This most senior level of management is keying in on the far-reaching potential of e-commerce and beginning to reevaluate their future growth strategies and partner alignments. The next generation of leaders will demand new, e-commerce-driven ideas, even better results and strategic plans that begin to tap the potential the Internet offers. No longer will e-commerce be considered an incremental piece of the business, but rather an instrumental part of the corporation’s vision.

Jeff Zisk is president and CEO of Speed FC, a leading provider of fulfillment, technology and customer-care services. He can be reached at jzisk@speedfc.com.