As seen in the February 2001 issue of..
Gifts & Decorative Accessories
George Matyjewicz (10051 bytes)
George Matyjewicz
of  GAP Enterprises,  Ltd. a management and marketing "solutioning" firm, is the moderator of "E-Tailer’s Digest," an Internet retail discussion forum.   georgem(at)gapent.com.

The Emperor’s New Suit
Parable of the New Economy

 

“There once were many companies (“dotcom’s”) who convinced people (called “investor’s”) that they possessed magic cloth (called “the Internet”) which had the wonderful quality of being invisible to any man who was unfit for their caliber of business or unpardonably stupid. And so the investors came, and they lined the streets with money, and everybody partied as these dotcom’s continued spending big bucks.”

“Then came that little boy along the parade route who said “But he has nothing on at all.” And his father added “good heavens! listen to the voice of an innocent child.” And all the people shouted in unison “but he has nothing on at all.” That made a deep impression upon the investment world, for it seemed to them that they were right. So they cut off funds, and the dotcom’s thought to themselves “we must bear up to the end.” And they walked with still greater dignity, as if they carried the train which did not exist.”
 

My most humble apologies to Hans Christian Anderson and the classic “The Emperor’s New Suit,” but that parable seemed to speak of our new economy. This past holiday season, sales at brick and mortar retailers were down, but online sales were fifty percent higher than the previous year. Still many dotcoms are failing – 140 this past year according to a “60 Minutes” segment entitled “Dotcom Millionaires.”. Challenger, Gray & Christmas' projection is quoted often, that dotcoms lost 31,056 jobs. Yet there is no mention of the fact that the Internet created some 2.3 million jobs in the past seven years (that’s a 1.4% unemployment rate). Or that a major portion of the 16,345 companies funded in the past five years were Internet related. In 1999 alone, more than 1,700 dotcoms were funded alone, according to PricewaterhouseCoopers .

So what are the real issues facing online businesses? Manage your business, find customers, have a product mix that customers will buy, sell products, service customers, have adequate security, ship goods and collect for goods sold. Funny thing – the same issues facing brick & mortar stores! The major difference between the two channels is that online companies neglect that one most important ingredient – MAKE A PROFIT! 

While we have examined these issues in the past, there are some that are very important if you are going to survive and prosper in the coming years. Let’s examine customer service, security and payment methods and managing your business. 

Customer Service. One of the greatest innovations available online is a “live person” technology which allow you to service your customers while they are at your site. For example, let’s say I went to your site looking for a unique gift for my son. I could ask you for suggestions, and you could ask me questions about my son’s lifestyle, occupation and interests which would help make recommendations. You could then select some products, and show them to me online. Most of the questions you ask could be “canned” whereby you select a particular menu item (on your end), which passes the questions to me. Once I am satisfied, I purchase. Or, if we can’t get answers online, you could have me click on a button which connects us via telephone! 

Most surveys taken now all indicate that customer service is one of the major ingredients for customer retention. I personally experienced live person technology this past Christmas. I wanted to purchase a particular Lenox china pattern and found Murphy’s Department Store (Oklahoma) who had the particular pattern. Since I tried three other stores to no avail, I wanted to be sure they had the pattern in stock before purchasing. They had a live person link powered by Human Click which I tried and was able to chat with a person, even though it was 9:00 PM my time (8:00 PM). I confirmed that they had the goods and they could ship before Christmas, so I ordered. They also followed up with a telephone call within an hour of placing the order, as one particular item (of the eight I ordered) wasn’t in stock. Now that’s service! And they are not one of the big guys – a smaller store like most of giftware retailers.

Security and Payment Methods.  While a lot of the security issues are perceptions and media hype, there are some real concerns. But they are no different than your brick and mortar store, and everybody can be hit with security issues. The U.S. Postal Service had a major theft of money orders, which started showing up at retailers through the holiday season Creditcards.com was hacked , and 55,000 card numbers were held hostage for $100,000. When the extortion attempt failed, the hacker posted the card numbers on the Web. The company has since put up a Web site where merchants and customers can check for fraudulent transactions. Egghead.com (EGGS) announced that its system was breached by computer crackers in the week before Christmas. The online bandits may have made off with 3.7 million credit card numbers, according to a warning Egghead delivered to credit card companies. There was even one site that explained how to defraud supposedly safe payment methods like PayPal!

Any wonder why consumers are leery about giving out information online? 

How do merchants provide adequate security measures? One of the major problems all of these security breeches had was the fact that they kept all the confidential data online for any hacker to access. A better approach would be for the consumer to give his or her information one time to a service provider, and the merchant has no access to that information. There are payment services online now that provide that convenience – e-Gold and Standard Reserve do that now. With each the consumer completes an application, and deposits funds into their account, When they purchase from a merchant, they are linked to their individual account, via a secured payment screen. Only the consumer knows the account number, and can access that account using a private password that is known only to them. The merchant never sees any personal information, and is paid immediately as soon as the consumer transacts the payment. E-Gold is completely autonomous and is used online only. Standard Reserve has a completely autonomous account, and a premier account which includes a stored value card which can be used at any location that accepts Plus-based debit cards. 

Managing Your Business.  Dotcoms are usually associated with twenty-somethings running a business for which they have no idea of how business operate. This past year they got smart and started hiring the “gray hairs” who had business knowledge. And that seems to be working. “Clicks and mortars” i.e., brick and mortar stores who have a site, have other issues. Usually they have no idea how the Internet works, and depend on the knowledge of folks who design Web sites, but may not have retail experience. So they end up with another disaster. 

Use common sense with every part of your business – online or off. Listen to the advice of others, but if it goes against your instincts, don’t follow the advice. Just because “everybody” is using credit cards online and “it’s the only way you will increase your business” don’t believe it, especially if you sell the type of merchandise that can be easily ripped off, i.e., music, software, downloadables, etc. Don’t create an online store with the expectation of gaining a boatload of business. If it makes sense, do it. If you manage your business, find customers, have a product mix that customers will buy, sell products, service customers, have adequate security, ship goods and collect for goods sold, then open an online store. And use the same common sense ides and tactics that you use to make your brick and mortar successful. 

Managing a business is the same on- or off-line – sales, less cost of sales, less expenses equals profits. Exorbitant spending on advertising has proven to be ineffective as was evidenced by those dotcom’s who spent millions advertising on TV in 2000. If it makes sense, and it hits your target audience, do it. And be sure you know your target audience. 

Oh yes, and one last important thing: Please Keep Your Suit On!
 

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GEORGE MATYJEWICZ is Chief Global Strategist and a Partner at GAP Enterprises, Ltd. a management and marketing Solutioning ™ firm that assists retailers. He is a veteran of the Internet and the computer field, as well as a former retailer and the moderator of E-Tailer's Digest.  Matyjewicz can be reached at (770) 752-7022  or e-mail to georgem(at)gapent.com or write to him c/o G&DA, 345 Hudson Street,  New York, NY 10014