Customer service is an important component of e-commerce

A new study from Kronos, Inc. discusses the phenomenon of retail sales shifting from brick and mortar stores to internet retailers. In a nutshell, the study states that internet retailers who expect to capitalize on this shift had better understand customer service.

I disagree with one of the conclusions of the article referenced above–that we are in an age where customer service is valued over the price. This is simply not true. All of my years of experience in e-commerce along with study after study show that customers are primarily interested in the lowest price. In fact, that is far and away the primary reason that internet retail took off in the first place.

Manufacturers fed up with internet retail?

Internet retailers are notorious price cutters, and manufacturers are getting fed up. I have been watching with interest the war between internet retailers and manufacturers for years, but there are signs that the battle is getting hotter.

Let me give you a brief history of this issue from my perspective. When I first started an internet retail company, I was a price cutter. That strategy worked; at least it worked for me. We did not own a brand at the time but instead specialized on obtaining in-demand products at lower than normal wholesale prices and dumping them on the market. It was (and still is) a legitimate business model that can generate a ton of profit, but will not make you many friends.

JupiterMedia Predicts Holiday Increase in Online Retail

JupiterResearch predicts that US online retail during the holiday season will grow to over $39 billion this year. This represents an increase of 20% over last year. About 126 million users are expected to buy online, which is a 6% increase over last year.

Internet retailers plan to drive their holiday sales primarily through search marketing, even though they are noticing that costs are rising and ROI is dropping. They also plan to increase free shipping offers and promote percent-off discounts.

None of this is a surprise. Internet retail has grown at 20% for the past two years after the huge explosion of growth early in the decade. As retailers find themselves fighting for their share of the stagnant (not increasing) pool of internet shoppers, they are becoming more desperate. It is no surprise that price wars continue to dominate the landscape.

Email still delivers sales at the lowest cost

A recent State of Retailing Online 2007 report from Shop.org provides some very useful information about the effectiveness of email in retail. Here are some highlights:

1) Emailing a house list is delivering orders for less than $7 each. This is a real bargain when compared to banner ads ($71.89), paid search ($26.75), and affiliate programs ($17.47).

2) 88% of the merchants surveyed indicated that email became a higher priority during 2007.

3) The average click through rate on house email is 11% with a 6% conversion rate.

4) The average retailer mails its list 64 times each year.

HackerSafe seal improves sales at Joann.com

According to Internet Retailer, Joann.com saw a 5.5% increase in revenue after implementing the HackerSafe logo into its site. They measured the increase with the use of a 30 day split A/B test.

This reminds me of a few things I have learned about HackerSafe and similar services.

1) Pricing is negotiable. Joann.com paid $15,000/year for this service, but I am not sure why. My guess is that the average site can get HackerSafe or a competitors’ service for $500/year if you negotiate. HackerSafe’s largest competitor offered us the service for free for a year at one point just because they were trying to take business away.

The Impact of Taxing E-tail Sales

Efforts to force internet retailers to collect sales tax seem to be strengthening. Brick and mortar retailers are spending a lot of money to try to get federal legislation passed because states currently cannot force businesses outside their jurisdiction to collect sales tax on orders shipped into the state.

The impact of this legislation will be felt by internet retailers at two levels:

1) It will remove a competitive advantage. The fact that most e-tail purchases do not require sales tax to be collected is partly responsible for the huge growth in online retail.

It is important to understand however, that this advantage is offset by a huge disadvantage that internet retailers have–the cost of delivering orders to customers. In our experience, shipping costs are usually higher than taxes that we would collect. In fact, our shipping costs usually run 9% of revenue while the average sales tax rate is probably between 6-7%.

Widgets: The Future of E-tail?

All of a sudden, widgets are getting very hot. I discussed Lemonade Stand last week, which is essentially a widget that attempts to combine affiliate marketing with Web 2.0.

This week, Amazon launched a set of widgets that attempt to do the same thing. They allow affiliates to display Amazon products in a colorful, more appealing way.

I have a gut feeling that widgets will eventually be very useful for e-tailers, but we have a ways to go to get there. I just don’t believe that these Amazon widgets are going to help affiliates. In fact, I predict that clickthrough rates on them will be worse than text ads and probably identical to the clickthrough rates on graphics ads. I think that site visitors are simply going to ignore them just as they do banner ads.