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"The Web Is Falling!"
Published in the June, 2000 issue of
Gifts & Decorative Accessories Magazine
Copyright, 2000 George Matyjewicz 
June 9, 2000


Counteract dire predictions about Internet business by applying basic retail principles to your Web site.

"The Web is falling! The Web is falling!" - Chicken Little's Granddaughter, Spring 2000

This cry, while somewhat melodramatic, started echoing through people's minds this spring, spurred by predictions that major e-tailers would fail. One report said that 51 Internet firms would run out of cash within the next year - companies like CDNow Inc., Drkoop.com Inc., Medscape Inc., and online grocer Peapod Inc. It was predicted that Amazon would run out of funds within in 21 months. According to these reports, all sites will have difficulty raising new capital; the Wall Street honeymoon is over.

Is the honeymoon really over? Or is it just that reality has finally set in? While the Internet may seem to offer a new way of doing business, it really doesn't. Think about it: You have a "storefront," you order products, you inventory them, and you sell products. At the end of the day, if you have money in your pocket, you made a profit. This is the business world that your grandfather taught you about.

Now you have Internet businesses set up by twentysomethings with little or no business acumen. Their ideas sound wonderful, so investors pour money into them. These twentysomethings establish a business and revenue model, often without testing it. Their gross profit structure is too low, and their advertising costs are too high. And, worse yet, their return on investment for ad dollars spent is horrible. I had an Internet client last year whose total annual revenue was $25,000. We put together an e-commerce strategy that looked good to investors, and within three months the business was sold for $30 million! Somebody perceived a value in the business, and the total annual revenue was deemed immaterial.

Before you go saying, "I told you this Internet would go the way of the hula hoop," let's look at some simple commonsense business rules for operating an Internet business. And if they seem familiar, that's because they mirror the steps you took when you set up your first store.

Think about profit. Michael Dell, CEO and founder of Dell Computers, said it very well at a conference I attended: "In spite of what people think, you still need to make a profit." His company is now the largest computer company in the U.S., and it makes a profit. Too many folks think that the cost of doing business online is smaller, since you don't need a bricks-and-mortar store. Wrong! In many cases, the cost of an online store is greater than the cost of a bricks-and-mortar one. Toys "R" Us spent $80 million on its online store, ToysRUs.com.

Be sure you that have enough gross profit (GP) built into your products. I usually see online retailers establishing a 30 percent GP, whereas their bricks-and-mortar counterparts establish a 50 percent GP.

Examine your purpose. You first have to determine what your reasons are for creating an online presence. Do you want to sell online, or drive traffic to your bricks-and-mortar store? What is your target market? Why should somebody do business with you? What differentiates you from the hordes of competitors online?

Ask yourself what your customer wants. Too often, we make the mistake of thinking that we understand our market, and we develop a plan based on that knowledge. The correct method is to ask your customers or prospective customers what they want from your store. If you really want to do things right, conduct a series of focus groups with your target audience, and listen to what those people are looking for in a Web site. Probe them to find out if they would purchase from you online. How do they find you now? What would convince them to come to your site? While focus groups usually cost between $5,000 and $7,000 each, and should be done in threes, you'll find that they are some of the best investments you'll ever make.

Think about how you will fulfill orders. Will you be able to fulfill the additional orders generated by an online site? Will you stock more inventory, or have your supplier fulfill on a just-in-time basis? Are your back-office order processing, inventory, and accounting systems up to date? Another factor to consider is that the Internet is a global market and can potentially give you international business. Are you prepared to handle that? Or do you want to ship domestically or locally only?

Plan out your site. Now that you have established your preliminary goals, you have to consider what to include in your site. Be sure that the buyer using your site can easily navigate between products and categories. A good rule to follow is "two clicks to find, three clicks to buy."
Focus on your core business and avoid the temptation to stray. For example, don't accept banner advertising from others if it doesn't add to your site.

Build communication and support. In a series of focus groups that we did recently, we discovered that the number one concern was communication. People wanted to know when there are delivery issues, and they wanted to be able to contact somebody and get prompt responses, via either e-mail, fax, or telephone.

Don't be fooled into thinking that a Web site will require less support than your physical store does. Since the Net is global, and since folks like the convenience of shopping at any time of day, you may need to provide 24/7 support. This support may consist of answering questions via e-mail or phone, or conducting real-time online discussions.

Create comfort and trust. In order for customers to buy from you, they must be comfortable with your business, your products, and your longevity. So you need to convey staying power and trust. Write a detailed explanation of who you are, what you do, and why someone should do business with you. Expound on your history and the size of your organization.

Avoid the latest and greatest. Content is still king! Folks are more interested in knowing who you are and what you do than they are in the prettiness of your Web site. Don't use meaningless graphics or "splash pages" (i.e., pages that pop up without any links to other sections). Keep in mind that many people still use slow modems and old computers; thus they can't access streaming video or Java script. And, unless you are selling music, forget sound. Your customers may browse at your store from their offices, and sound suggests to their colleagues that they are goofing off. A simple and elegant site is much better than a gadget-filled one.

Have your site tested on different browsers. Netscape works differently from Internet Explorer, which works differently from the America Online browser. Some features that look great on your machine won't work at all on others.

Protect Privacy. Privacy is a concern, both in terms of financial security and in terms of the ways you use the personal information you gather about your customers. You need to post a privacy statement that alleviates customer fears.

These tips are the same ones any smart businessperson would use with a bricks-and-mortar store. Whether you're in physical space or cyberspace, a simple, commonsense approach to running a business is the best way to establish a solid footing in an unstable world. ?

http://www.gapent.com/etailer/media/G&DA2000-06.htm

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George Matyjewicz of GAP Enterprises Ltd., a management and marketing "solutioning" firm, can be e-mailed at georgem(at)(at)gapent.com. E-Tailer's Digest is a moderated Internet retail discussion forum, located at www.gapent.com/etailer/.



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