The Merits of Trying E-commerce

By Jon Huggett, Vice-President, and Joe Shlesinger, Managing Director, Bain & Company, Tornoto

Published in The Globe and Mail, Toronto on March 18, 1999

Futurist Paul Saffo observes that people across history have underestimated the long-term impact of new technologies, and overestimated the speed at which they’re adopted. In the long term, electronic commerce will provide opportunities for businesses to expand. But what should street-level business do about it, practically, today?

Boosters focus on the long-term impact and say: “Dive into a sea of E-commerce opportunities. Transform your business. Divert your marketing budget into an on-line service.” They predict that E-commerce sales will boom in North America to $327-billion (U.S.) in 2002 from nothing a few years ago, and will expand more than 200-fold in Europe, to $8-billion by 2004 from a meagre $39-million in 1998. Investors can’t seem to pour enough money into the pot. Amazon.com now has a market capitalization level that took Wal-Mart Stores Inc. about 27 years to reach. And Ebay Inc. is trading at a price of more than 300 times its revenue per share.

The skeptics, on the other hand, say: “Stay on land. This current Internet bubble will burst. Most E-commerce ventures lose money. Let someone else pay for the learning.” There’s something to be said for skeptics. After all, if technology predictions in 1970 had proved correct, you would probably be reading this column from your holiday home on Mars.

Happily, there is a middle road for wading into the market. There are no navigational maps to the seas ahead, but there are steps to get your feet wet and prepare to swim competitively in the E-commerce race. There are practical steps that will deliver real results in the short term, and will position your business strategically for the long haul. In the short term, you can generate sales, build profit and maybe even boost the stock price. For the long term, you can build assets — expertise, relationships and brands — that will serve you well, however E-commerce evolves.

Get Your Wares On-line
Develop a Website. The World Wide Web is a high-traffic retail environment, and has plenty of business buyers, too. If you want an E-commerce presence in the long term, the time to acquire retail and merchandising expertise is now. But demand results now, too. If you can’t see immediate results, revisit your strategy. Maybe there is a better approach, or maybe E-commerce is just not right for your business.

For starters, look at what you sell now over the phone. Dell Computer Corp., brokerage Charles Schwab & Co. and 3Com Corp. are selling successfully on the Web. They started by offering on-line what they already sold by phone. Many E-commerce winners are doing no more than selling over the Web what we can also buy over the phone: computers, airline tickets, clothes and so on. Even the revolutionary Amazon.com still delivers to you in a box.

If you do sell on-line, you can get to know your customers better. On the Web, you can track customer searches as well as purchases and use that information to personalize your offer. Take Dell, which masters customer segmentation to perfection, and uses the Web to do it.

Delivering results on the Web now will build your long-term ability to sell on-line. It’s both an art and a science to capture buyers’ imaginations where the competition is just one click away. You’ll have a true competitive asset if the team running your Web site has the merchandising flair of a great retailer, the data base skills of direct marketer and the listening ability of your best sales people.

Build Your Brands
Build them both above ground and on-line. Many of the same customers that visit you on the Web buy from you in more traditional ways. Brand building is like a rising tide that lifts all boats or pushes more volume through all channels, including stores, the mail and cyberspace.

For the long term, your brands will be more valuable in the E-commerce environment than in the “real world.” There are three reasons for this:

• First, customers in cyberspace can’t validate quality through seeing and touching merchandise. They can’t look sales people in the eye or hear their voices to gather confidence. They have to trust the brand they are purchasing.
• Second, faced with stunning variety on the Web, buyers will make their choice more easily by first checking out the names that they know.
• And third, global brands win over regional brands in E-commerce. With customers divided geographically, it often made sense to trade under one name in Europe and another in North America. On the Web, distance counts for little. A competitor with one global brand will have a real advantage over one with a patchwork quilt of regional brands.

With a strategy of wading, not diving, into the E-commerce market, companies can cost-effectively acquire the experience and presence they need to catch the big market waves when they come. Think of an evolutionary approach to achieve revolutionary ends.