New dogs learn old tricks Sep 1, 2007 12:00 PM
, BY KEN MAGILL
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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.”
