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e-Tail, Boom Or Bust? (Pt3) 29 June 2000 Edition
Previous Edition

So far we've looked at some of the fundamental rules -- the things that so many etailers have ignored to their cost.

Now let's look at what kind of things can go wrong when a traditional retailer decides to open an online store. We'll also examine what determines whether it's a good or a bad idea to move your business to the Net.

Too successful?
It's every etailer's dream: You invest a few thousand dollars in putting up an online store and the next day your email intray starts filling with customer inquiries.

But what do you do if you're a small trader and you can't touch-type? What if you've spent your budget on building that etail store and can't afford to hire skilled staff to reply in a timely manner to all those emails which say "I visited your site and wondered if you could...?" or "do you have...?", "can you deliver to...?", "Can I pay by cheque?", etc, etc.

Remember -- when you put your store online you're risking your reputation. If too many customers or would-be customers are put off by long delays in getting a response to their queries then you'll soon find that your name becomes mud.

Stop and think... what will happen if you get 500 orders in one day? Can you fulfill all those orders from current stock levels? Do you even have the systems or resources in place to handle those orders while maintaining adequate service levels?

Hidden costs
Have you made provision for losses due to fraudulent transactions? Remember that virtually all online purchases are made using a credit card and the use of stolen or "made-up" card numbers is not insignificant. Unlike an across-the-counter transaction, or even a mail-order transaction where you have the customer's signature, a sale made through your online store leaves you (the vendor) totally exposed to fraud. The card company may well process the transaction and provide you with an authorisation number but, if it later turns out that the card was stolen or made-up, then the payment will be reversed and you will be left to carry the loss. Tracking down those who engage in such fraud is very difficult and often impossible -- you can kiss that money goodbye!

With online vendors becoming increasingly aware of the need to remain price-competitive, margins are often already under pressure -- how many extra sales will you have to achieve to make-up the losses associated with a single instance of fraud? Have you budgeted for this? How are you going to limit your exposure to such risks without adversely affecting delivery times or service levels?

What about maintaining your online catalogue? Have you budgeted for the costs and time associated with this essential task? After all, the last thing you want is to find that because prices have risen and you've been tardy in updating your online catalogue, you're suddenly advertising and selling products at below cost.

Customers will be less than impressed if they suddenly discover that "bargain" they thought they were getting now turns out to be a little more expensive and perhaps not worth the effort. Each such mis-pricing will require an exchange of emails with the customer costing valuable time and money.

If you are to properly mange your online catalogue you will need to design and implement a number of processes that will take into account temporarily (or permanently) out of stock items, price increases/falls, specials for end-of-line items, etc.

Would you?
When you look at the costs and processes associated with properly setting up and running an online store, they are not too much different to those involved in printing and distributing a printed mail-order catalogue of products. Before you make the bold step to build an online shop you have to ask yourself -- why aren't I already in the mail-order business? Have I built a back-end that can properly process and fulfill the orders? Are there any legal or other issues that might affect my ability to transact across international borders? If I want to sell into overseas markets, how will I handle pricing or billing in US$ or some other currency? How much will it cost to promote my online store?

None of these issues are insurmountable -- but they can all absorb a huge amount of time, money and effort in resolving.

Maybe you can afford $5K for an online shopping website -- but can you afford the many thousands of dollars in other, and ongoing costs that are equally important but not immediately apparent?

And here's the clincher: will you actually be able to sell enough product, at a price which allows you to return a profit, through this site? If the answer to this final question is "no" or "I'm not sure" -- then think carefully before committing to an online store -- there may be better ways to spend that money.

If, after all this, you're still planning to take the plunge into online retailing and you're not just planning to service an existing customer-base, stop and ask yourself: what is going to make customers come to your store instead of the 4 almost six million sites that Infoseek returns for the query "online store"?

If you can't answer that in a very decisive fashion -- with facts and not presumptions -- then buy some lotto tickets instead.

It's the fashion!
It seems that since I started this little series on e-tailing, just about every other broadcaster and publisher has got in on the act.

TVNZ's Telstra Business programme has spent the last two days analysing the e-tail marketplace and where people are going wrong. Various print media publishers, including IDG have done something similar in airing the views of other informed participants or commentators on the subject.

And now, the BBC has launched a little series that is presented as a mini-tutorial on how to create an online shopping site. They've been giving some useful background on the steps taken to design, build and commission such a site and have built a "model site" at 4  www.splitz.co.uk.

I've already forwarded some of my comments to them, why not tell me what you think of this as a "showcase" of how e-tail should be done.

Keep your comments flowing in.

As always, your feedback is welcomed.

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