E-Commerce Defined: How to Leverage Your ASP to Get the Most out of Your E-Commerce Strategy

E-commerce expert Louis Columbus discusses how to work with ASPs to maximize their core strengths, assess their abilities to deliver what you need, and ensure that they can meet and change with market demands.

From the standpoint of companies considering outsourcing their e-commerce strategy to an ASP, e-commerce means the ability to dynamically price items, tie back customers' preferences for products and services, and create a personalized shopping experience, as well as the ability to define customized sites that reflect the requirements of your largest customers (sometimes called stealth sites because they are visible only for the customers they are developed for). E-commerce is much more than simply selling products or offering services online; it's the integration of the business model of a business with the manner in which transactions are completed.

International Data Corporation, a research company that is actively tracking the ASP marketplace, has defined e-commerce as follows:

Take, for example, Harrod's, one of the most upscale stores in the world, located in London. Catering to an international clientele with needs as diverse as getting Vanilla tea to catering entire weddings and even renting the hall where a reception will be held, Harrod's has a breadth of offerings that makes it an end-to-end solution for both consumer-oriented and business-focused events. The company's e-commerce strategy is oriented to the United States and Canada, and its messaging welcomes U.K. residents. It's an innovative strategy of driving traffic into the store and yet also bringing the merchandise most popular with U.S. travelers to the Web for availability 24 hours a day, 7 days a week. The organization of the online store is also consistent with the needs of the international visitors that the actual store itself attracts. The business gifts are located in an area of the site that is completely separate from the mainstream gifts. The overall structure of the site makes it possible for Harrod's to target multiple online audiences with a single e-commerce presence.

From the small business with a single product or service to sell, such as companies who provide air conditioning in the desert southwest to the Harrod's Department Stores of the world, e-commerce is the packaging for electronic sale of the goods and services that a company offers. What separates the companies successful at e-commerce and those that struggle is their execution of the following key points:

1. Pricing strategies that strengthen the direct sales model—For a company to be successful with an e-commerce strategy, the costing and pricing of products needs to be flexible enough to change quickly in response to market needs. This area is one of the most paradoxical and challenging for many companies embarking on an e-commerce strategy because the lower cost of sales should be applied directly to profit. The Web does bring price competition, especially on commodity-like items, forcing companies to drop their prices in response to market needs.

2. Simple product messages—E-commerce is excelling at selling the items that require little up-front education. Books and travel are the most popular items being sold on the Web today. In creating an e-commerce strategy, think about which products and services you offer that are most easily understood and recognized by your customers.

3. Think fulfillment—Before the first sale is made off a Web site, it's important to think about how the orders will be fulfilled quickly and how the customers who are purchasing from you will be tracked for future promotional efforts. The best lead for a new product is often a customer using the existing generation of a product or service. Many companies think of themselves as having a marketing focus and strength, when, in fact, operations, the fulfillment of commitment to customers, is just as much (if not more) of a true marketing effort. Commitments kept keep customers coming back. Operations make that happen.

4. Product strategies that reward customer loyalty—With the velocity of transactions that the Web is capable of producing, it's imperative that product strategies be developed and refined to support sales that are self-contained and that require little outside support. One of the reasons books are so successful on the Web is their self-contained nature, the fact that brick-and-mortar stores further provide an information point for learning more about product offerings. Books also are very amendable to frequent buyer programs in that they are easily categorized for sales analysis. Think about creating a frequent buyer program for the very beginning of your Web site to encourage repeat sales.

5. Encourage customer feedback—It's very important to invite your customers to have a dialog with you about their experiences. Think about how you can create multiple points of contact with your customers through a Web site. First, the option opt-in e-mails can provide your customers with information pertinent to their personal or professional interests, giving them the opportunity to comment on how your company is doing in serving them. Be sure to invite customer feedback at all times after a sale to generate more knowledge of your customer base.

6. Ask your application service provider to create market metrics to gauge success—One of the key benefits of working with a technology partner is the opportunity to learn from that partner's accumulated experience. With the rapid adoption of e-commerce, companies of all sizes are increasingly looking at the ROI associated with it, starting with the Global 20000, who are investing millions in their efforts to be online. The need for generating reliable metrics ties back to the fiscal responsibility of running an e-commerce site. Even if the e-commerce site is just for a single series of products, metrics give you a benchmark for planning how to increase the overall profitability of the site itself. In your initial planning efforts with an application service provider, be sure to work toward a plan for getting the best possible metrics associated with your site as it is being built. You'll be able to measure its success much more efficiently and accurately that way.

7. Get your company known—Many of the application service providers also provide services for getting your Web site known with search engines. You may have seen these sites promising that you will be listed in all search engines within six weeks of submitting your URL. These free services are somewhat limited in what they can accomplish for your site—Yahoo!, for example, is turning away listings in many cases due to overwhelming demand. In response to the need for greater results from search engines, there are entire companies now offering these services. Using these services, you can have keywords embedded in your Web pages, causing them to be found more often than if just your URL was listed.

8. Build lead generation into your selling efforts—One of the most challenging aspects of any business is the development of an ongoing stream of leads that will in turn feed revenue. In creating your e-commerce site, think in terms of how you will be able to leverage your selling efforts to create opportunities for lead generation. The ongoing development of leads is the lifeblood of any company, and you can grow yours much more efficiently through the use of tools that capture leads while you are selling.

9. Plan for personalization—In structuring your e-commerce strategy and specifically your Web site, think about how you can customize your Web site for your customers' specific needs. You can do this with many of the server-based tools found in Microsoft and Sun-based server applications. In creating your Web site with an ASP, think about how you can add personalization to the shopping experience, thereby giving you a competitive advantage.

10. Verify payment gateway options first—Instead of just relying on the payment provider that your ASP may already have a relationship with, check out a series of payment gateways on your own first. This includes evaluating each in terms of their ability to scale on a global basis, fraud control, and the option of doing credit card verification from secondary Web sites in addition to your own. Increasingly, companies that are doing e-commerce sales are cascading them through multiple sites. Be sure that the payment gateway can scale across multiple locations.

Don't let that list stop there. You can work with the ASP of your choice to get even more leverage out of its core strengths. You also can use this list to guide the conversations with your ASP toward the needs that you have for using e-commerce to the maximum extent possible. This list is then a conversation starter for you to get an idea of how much depth the ASPs that you are talking to have when it comes to getting an e-commerce site up and running.

Further considerations when working with ASPs include the number of customers that they have working in e-commerce applications, the relative level of turnover or “churn” that occurs with their customers, and their ability to keep customers coming back for more functionality over time. When working with an ASP for your e-commerce solutions, be sure to think in terms of what they have done over time for other clients, and get references. Get behind the success stories that ASPs provide, getting to the customers who have had challenges. There is a set of customers who has challenged the ASP to grow; it's important to find out about that group and to see how the ASP is reacting to them, especially in the e-commerce arena.

Leveraging the experiences of ASPs in creating e-commerce Web sites is also critical, given the rapidly changing nature of the market. Recent surveys by Forrester Research show that instead of the traditional early adopters purchasing over the Internet, there is a wider breadth than ever when it comes to purchasing behavior. According to Forrester, 11 million more consumers in the United States alone will try purchasing over the Internet for the first time in 2000, generating $38 billion in sales. The result of this quickening pace of growth is that the profile of the early adopter is changing dramatically. Women and minorities are purchasing more online than ever, and content-oriented sites such as iVillage.com are driving women to sites for both advice and assistance with key questions in their careers and personal lives.

Forrester's Christopher Kelley completed the analysis of the latest surveys on e-commerce adoption by U.S. consumers. "When we started surveying online consumers three years ago, Web buyers were a homogenous group consisting of affluent males who used the Net to purchase software," Kelley says. "As new Web shoppers—who increasingly resemble the offline population—become more comfortable shopping online, their Net spending habits will mirror those currently seen with experienced Web shoppers."

According to Forrester, two factors will promote the growth of the online retail market in the next year. First, Web buyers are confidently shopping across new product categories, with the most money being spent on researched products, including travel, computer hardware, and consumer electronics. Second, although the core of online shoppers are generally male, younger, and more affluent than the online population as a whole, the new Web buyer is more likely to be female, younger, and less affluent than more experienced online shoppers—for the first time, more than half of new buyers are female.

As for those who don't buy, the fear of releasing credit card information remains the single most significant factor for online consumers who don't buy on the Net. Nearly half of online consumers in the United States and Canada have caught the e-commerce bug, but 52 percent of online households do not shop online due to fear of stolen credit card information and the distribution of personal information.

Another sign that online consumers are becoming more mainstream comes from the publications that they read. "Online shoppers are no longer just techies who sit around reading Wired all day long," Kelley says. "Instead, the top three magazines they subscribe to include Reader's Digest, TV Guide, and Better Homes and Gardens."

Forrester also found that while consumers embrace new shopping options, they expect a stream of innovations, reasonable prices, and promotions to keep coming. Experienced Web buyers embrace online auctions, drawn in by the fun of bidding and the possibility of acquiring a great deal. Ninety-four percent of online shoppers are also concerned with unreasonable shipping prices, with 44 percent having abandoned an online shopping cart due to shipping costs.

Online consumers have opened their inboxes to marketing, with 95 percent of Web buyers receiving offers or promotions via e-mail, according to Forrester. Online coupon and promotion companies lead the e-mail marketing race, filling the greatest number of inboxes of online shoppers and nonbuyers alike. Although consumers receive marketers' e-mail, a full 32 percent of e-mail targets delete most marketing messages before even reading them.

A survey done by Yanklovich Partners for Productopia found that 93 percent of online consumers have researched products online, and 85 percent have purchased a product online. According to the study, consumers say that it is very important to find information across a broad range of product categories at a single site. For consumers who are searching for product information online, 88 percent say that it is somewhat to very important to have all the information available from a single source. Among users who have researched online for product information, 86 percent are somewhat to very likely to purchase that product online.

But the Web is also changing the way consumers shop offline. In 2005, U.S. online consumers will spend in excess of $632 billion in offline channels as a direct result of research that they conduct on the Web, according to Jupiter Communications. That amount dwarfs the $199 billion that consumers will spend on the Internet. Web-impacted spending, which includes both online purchases and Web-influenced offline purchases, will exceed $235 billion this year and reach more than $831 billion in 2005. Consumers who are online represent a large and growing portion of U.S. consumer spending: All told, U.S. online users will account for 75 percent of all expected U.S. retail spending (both online and offline) in 2005, up from 43 percent in 1999.

The NRF/Forrester Online Retail Index, done in conjunction with Greenfield Online and the National Retail Federation, found online sales patterns for the month of April 2000 following a pattern similar to what would be expected by traditional offline sales, further proof that online shopping is being used by mainstream consumers for mainstream products. The arrival of spring saw increases in online sales among sporting goods, tools, gardening products, apparel, and footwear sales.

"The same cold weather in April that contributed to the soft retail sales as reported by the U.S. Department of Commerce may have helped fuel the increase in online sales, as consumers opted to avoid the weather outside and shop from the comfort of their own homes," says David Cooperstein, research director at Forrester. "Consumers are also cleaning out their closets and replacing last year's spring and summer fashions by shopping online. Our data shows that spending on apparel and footwear grew from $175 million in March to $223 million in April."

While the growth of business-to-consumer (B2C) continues to gather the majority of the press coverage of e-commerce today, the majority of sales over time will be between companies, typically called business-to-business commerce. The nature of B2B commerce is also rapidly changing, being driven by the advent of small businesses purchasing online. In fact, small businesses and their purchasing online is driving the B2B sales trends today.

The research company Access Markets International (AMI) completed a survey in May 2000 for Inc. Magazine that focused on spending by U.S. small businesses for online transactions. The study confirmed that sales in fact are growing very quickly, from $2 billion in 1998 to $25 billion in 1999, a 1,000 percent jump. The number of small businesses transacting business on the Internet drove this significant jump in revenue. Growing from 1.8 million in 1998 to 2.8 million in 1999, the study concluded that there was a 55 percent jump in the number of companies transacting business over the Web. Given the fact that the number of small businesses projected to be using the Web for transactions will jump to more than 3.5 million in the next year, many research companies such as Access Markets International are projecting that the total B2B marketplace will grow to $118 billion by 2001. The majority of these small businesses have e-marketing–oriented sites, where the primary message of their companies is presented on the Internet. There is also an increasing focus on the companies using the Web most often to create portals or exchanges—in fact, intranets—to streamline the development cycle on projects.

An essential part of the B2B commerce is the disproportionately high growth of larger corporations that are actively making investments in the development of their e-commerce capabilities, and the increasing role that Razorfish and others are having the in the definition of this market. The continued growth of e-commerce is also being driven by small businesses as well, which are expected to drive the first adoption of B2B auctions for their services. In looking at B2B auction sites and the possibility of implementing one for your company, ask the ASP provider that you are working with for references of auction sites that it has created in the past. This is a relatively new area, and the field of ASPs varies in terms of their experience working with auctions.

With the promise of B2B auctions as a strong market driver into the future—and as one of the aspects of B2B commerce that has attracted 670,000 small businesses to date onto online B2B auction and an additional one million by 2001—the need for auctions and dynamic pricing as part of your e-commerce strategy is clear. Online auctions will eventually become a major part of online catalogs, as the level of differentiation that is provided by auctions diminishes within the same time frame that catalogs need to create value by differentiating themselves. The result: catalog morph auctions into baseline offerings. ASPs that have strong e-commerce packages will be able to either create catalogs that include auction-like features or work with their technology suppliers to create auction-friendly additions to existing catalogs. In embarking with an ASP on an e-commerce strategy, make a point of having a discussion about online auctions role in the ASP's service strategy. Admittedly, only the most forward-thinking e-commerce ASPs have adopted a plan for providing auction capabilities in their catalogs.

Despite the limitations of catalogs today and the fact that the range of offerings varies widely between ASPs, there are an estimated 600,000 small businesses alone selling their products and services via e-commerce sites in 1999, up from 400,000 small businesses in 1998. The value of such transactions rose from $14 billion (1998) to $25 billion (1999), representing an increase of 79 percent.

What these small businesses are finding is that the Internet offers a wide variety of opportunities to sell their services to larger IT organizations that have established a Web presence and IT organizations staffing e-business initiatives. The small businesses that have adopted the Internet have done so to serve their largest customers, who have e-commerce strategies and requirements for vendors to be online. Otherwise, small businesses are finding the Internet tough to work with due to the trust factor. In working your ASP, find out how many small businesses (less than 1,000 employees) it is working with because this will give you a gauge of how strong or weak the ASP you are planning to work with or are working with already is at customer education and retention. What's ironic is that many of these small businesses are driving overall Internet growth and are the true early adopters of e-commerce.

Among the 7.4 million U.S. small businesses, 4.2 million access the Net, representing a penetration of 57 percent. Almost 17 million, or one-quarter of small business employees, use the Internet, according to reports from AMI-Inc. research. Because 80 percent of small businesses have fewer than 10 employees and there are relatively split between metropolitan and outlying areas, e-commerce offers tremendous efficiencies and economies of scale and the ability to compete on a global scale. More than half of the small businesses responding to the AMI-Inc. survey noted that a constant, high-speed connection to the Internet would be useful; 40 percent were interested in receiving and providing customer service and support via the Internet.

About the Author

Louis Columbus has more than seventeen years of product management, sales, and market analysis & planning experience, and has been actively involved with electronic commerce for the past six years. He actively manages marketing communications, public relations, technical writing, and training functions as the Director of Marketing for Linksys, an organization that focuses on launching state-of-the-art networking products for the SOHO, small business and enterprise-level markets. Louis was previously a senior manager at Gateway Business, where he lead business-to-business electronic commerce initiatives—including the definition of stealth sites, competitive analysis, and coordinating product introductions, in addition to managing content used on gateway.com. While at Gateway, he also managed the E-5000 Series of workstations. Louis has spoken at many industry conferences about the ASP model and the market dynamics of electronic commerce. He currently teaches electronic commerce and the fundamentals of networking operating systems at California State University, Fullerton, and he has also taught at the University of California, Irvine. Writing on topics for technical professionals, Louis is a contributing editor for Desktop Engineering Magazine. He has published twelve books on a variety of operating system, hardware, and electronic commerce topics. Louis double-majored in marketing and information systems design at the University of Arizona, and he has an M.B.A. from Pepperdine University.