New dogs learn old tricks

Sep 01, 2007 9:30 PM  By

One of the most telling examples of how far e-commerce has evolved in the past decade happened this summer at the eTail 2007 conference in Washington.

Zappos.com CEO Tony Hsieh urged merchants to place their distribution centers be in a central U.S. location like Kentucky. His own shoes-and-accessories firm moved its facility from California because it could not make timely deliveries to customers on the East Coast.

He also issued a warning about the hazards of drop-shipping, one being that vendors will often claim a product is in stock and when it’s not, the customer will blame the merchant. “We gave up drop-shipped inventory to avoid disappointing people,” he said.

How far we’ve come. Here was a man whose dot-com credentials no one would question talking about what has long been known by those with a traditional cataloging background to be the least sexy, yet most crucial aspect of being a multichannel merchant: fulfillment.

In 1999, an online merchant talking about strategic distribution-center locations and the hazards of drop-shipping at a dot-com conference would have been yawned out of the room.

In another telling example of how the online channel has matured, Hsieh warned merchants against competing on price.

Early on, Zappos offered a $10 coupon to anyone who made a purchase. However, while the promotion significantly increased conversion rates, it did not attract loyal buyers. Once the firm’s competitors came out with $15 coupons these customers jumped ship.

The guy could have easily been speaking at a catalog conference in the mid-’90s. A check of his bio, however, reveals little to no traditional direct marketing experience. Previous to heading up Zappos, Hsieh cofounded investment firm Venture Frogs. Prior to that, he cofounded LinkExchange, which Microsoft bought in 1998 for $265 million.

And though Hsieh and his team clearly have learned some straightforward direct marketing lessons since the company was founded in 1999, he also demonstrated that they’re not shackled by traditional DM thinking. For example, Hsieh stressed that Zappos doesn’t measure customer service in terms of individual transactions.

Its representatives will point customers to a competitor’s site if Zappos.com doesn’t have what they’re looking for, he said.

“Customer service is an investment, not an expense,” he added. “We’re not trying to measure any single transaction. We’re trying to build a lifelong relationship with customers.” He added: “Next time they need a pair of shoes, we know we’ll be the first site they go to.”

This is certainly not an example of traditional direct marketing thinking.

Still, one thing is certain: The companies that survived the dot-com crash and are thriving today did so because they either had — or quickly got — a grasp of DM basics.

Orvis director of e-commerce Brad Wolansky estimates the mainstreaming of e-commerce began just after the dot-com crash of 2000. However, he says: “Over the last couple years it’s gotten a lot more down to earth in terms of the conversation merchants are having with one another.”

Wolansky adds that Hsieh’s top-10 list underscores that no matter the channel, it is imperative for merchants to get the basics right if they want to survive. And currently, the most successful ones are those who understand the fundamentals, he says.

“You don’t see a whole lot of flashy new-age e-commerce stuff going on with those merchants,” he says.

Indeed, the movement toward less sexy, block-and-tackle selling by online merchants got a big boost last month when NetFlix announced it was abandoning e-mail customer service altogether in favor of 24/7 call-center service. The move was aimed at heading off recent gains by rival Blockbuster.

NetFlix now has 200 customer service representatives based in a call center in Hillsboro, OR.

Meanwhile, the Internet has become such a significant contributor to most multichannel merchants’ sales that many are putting middle-aged executives with traditional marketing know-how in charge of them.

“People who have come up through the business are now in charge of this channel,” says Wolansky. “For example, at Orvis, e-commerce is no longer a little experiment, and Orvis is in no way shape or form unique in this. E-commerce is no longer a smaller channel than retail and phone. At the moment we are equals to them and very shortly we will be the largest channel.”

He adds: “The folks who are doing e-commerce now are the folks who know CRM, who know about handling million-dollar budgets with the conservatism that comes with cataloging.”

Indeed, according to the Direct Marketing Association most recent Statistical Fact Book, most multichannel merchants expect their catalog and their Website sales to be roughly equal by 2010.

The DMA predicts that e-commerce will have accounted for $424.5 billion by the end of 2007, or 20.6% of all DM-driven sales. In contrast, direct mail, both catalog and non-catalog, will have driven $699.1 billion, or 33.9%.

But Internet merchants haven’t embraced every old-school tenet, Wolansky points out. For example, try and find an 800- number on Amazon.com. And NetFlix, the Internet firm that claims to have gotten call-center religion, also doesn’t have an easy-to-find toll-free number. To be fair, though, the number is reportedly more prominent than it was during the days of e-mail customer service.

“Amazon narrowly chooses how they want to interact with their customers, and they do it well,” says Wolansky. “But if you look at my site, I give you every possible way to contact me.”

What does all this mean in terms of job prospects for marketers? Well, for one thing, senior DMers with multichannel CRM know-how are in demand, according to Jerry Bernhart, principle of Bernhart Associates Executive Search.

“Integrated marketers — the guys who know all the channels and can tie it all up — they’re in big demand right now,” he says. “Companies want to build relationships with their customers and you do that using multiple channels. However, this didn’t just happen. It’s been going on for some time.”

He adds that marketers who understand the various channels and have experience with all of them are getting increasingly harder to find. For example, a large unnamed client was looking for a marketer with multichannel experience. It has loosened its salary requirements because Bernhart is having difficulty finding an executive with experience integrating the channels who is senior enough.

“We need a leader who can introduce all of this into an organization,” he says. “That’s a combination of talents that’s not easy to come by.”

As a result, the company recently told Bernhart not to let its compensation range limit him in his search.

“I don’t hear that very often,” he says. “I’m starting to hear it more.”

That’s not to say multichannel marketing companies are simply throwing money at DMers. “There’s certainly upward pressure on salaries, but I wouldn’t say people are getting massive increases,” Bernhart notes.

Meanwhile, Bernhart has multiple searches in the works for firms for which the Internet accounts for a third to half of their business, and they’re all looking for the same thing. “These companies want integrated marketers who can build relationships,” he says. “They don’t want an Internet guy. They want a direct marketing guy.”

Okay, so it’s no surprise that experienced integrated direct marketers who can lead a team are hard to find. But what about the worker bees?

The youthful hubris displayed by many no-nothing e-commerce execs during the dot-com bubble has softened. But it’s not like traditional direct marketers are suddenly the new black, says Heather Frayne, president of Direct Marketers On Call, a DM freelancer and consultant placement firm.

“During the dot-com bubble, I would meet young people who were moving into this area [where her offices are located in the trendy SoHo neighborhood in New York], and they would talk to me about ‘a whole new paradigm,’ saying ‘we’ve never been here before, and it’s all about out-of-the-box thinking,’” Frayne continues. “Very often when some of these folks would contact me for freelance or consulting help, and I found them someone with direct marketing experience, they would day ‘Nope, that’s an old-time direct marketer and we’re not in the direct marketing business.’”

Today, Frayne is seeing Internet entrepreneurs embracing many of the principles of classic DM, but not necessarily its practitioners. Often, the person doing the hiring at an e-commerce outfit knows more about technology than marketing, and that skews them toward technically savvy hires, she says.

“Many hiring managers want new blood,” Frayne adds. “The fear is you can’t teach an old dog new tricks. They don’t want to consider [a seasoned direct marketer] for fear that they’ll be old style, won’t fit in and won’t be able to fully grasp what can be done online.”

Another problem is that no one ever grows up saying: “I want to be a direct marketer.” It was true during the heyday of print in the ’80s and is still the case today. Yes, some e-commerce players survived the dot-com crash by learning DM skills, but they’re still techies more than anything else.

“Many young people who understand technology and use it every day in their lives may not have grown as marketers yet, but they will often be more highly regarded for some of the openings we place than will people who have very heavy marketing experience but fewer years in the online space,” says Frayne.

But some lucky DM pros will be given the opportunity to make the transition within their firms from traditional marketing to online. They will fair better.

“There still really are two different camps, and it often depends on the culture of the company,” Frayne says.