Why E-Tail Gets Derailed - [600 words]
"There’s a huge shakeout going on," says John Warnock, chairman of Adobe Systems. "There will only be a handful of survivors." Two primary reasons for the e-tailer’s crisis: Pricing and Service
"CD-Now Inc., once the odds-on favorite to dominate future sales of music to consumers, has warned it may not survive."
"Value America Inc. cut its work force in half and slashed its number of product offerings."
"BeautyScene.com was forced to sell its name and assets to new investors yesterday."
On Wednesday, Wall Street Journal reporters, William M. Bulkeley and Jim Carlton, identified these companies and stated that "many other e-tailers appear doomed."
Pricing: Bulkeley and Carlton state, "…the very efficiency at the heart of the Web’s retail promise is turning out to be a principal cause of death. The Web has turned out to be too efficient: They have found that they have had to keep prices low, often via special promotions that never seem to end, to please customers who, with just the click of a mouse, can find competing e-tailers."
Two quotes come to mind. The first is "On volume!" referring to the punch line from an old joke about losing money on every sale but making a profit on volume.
The second quote is: "You live by the sword, you die by the sword." Using price as your primary competitive strategy makes your business extremely vulnerable to competitors using the same strategy. An associate, Al Hahn conducts research and has published multiple articles on service pricing strategy. Many of the principles his research has uncovered on service pricing relate to any business’s strategy. Worth reviewing at http://www.hahnconsulting.com.
Service: When reduced pricing didn’t establish e-tailers as a category leader, many attempted to add service. Unfortunately, this required them to make the kinds of capital investment they originally expected to avoid. The additional costs of service are dripping more red ink on their balance sheets.
Which e-tailers will survive which will fail? I don’t have a crystal ball. However, I do have enough common sense to draw the following conclusions.
Lessons to be learned:
Using low price as your primary competitive strategy is a very dangerous and vulnerable strategy. Customers are willing to pay more if they perceive added value.
Infrastructure counts. The initial business plan may be fine for attracting investors. However, it needs to be converted into a practical organizational plan that will provide meaningful daily structure and guidance.
Customer service only works consistently when it rests on a solid organizational base.
Customer service is most effectively introduced, planned, and budgeted at the time of the organization’s birth, not as an afterthought.
Technology is ever changing. Customer service is not. Too many businesses are attempting to use technology to replace quality customer service, rather than facilitate it. [For a clear definition of customer service see http://www.growthassociates.org, Articles, CUSTOMER SERVICE 101 -- If You Don’t Know The Steps, You Can’t Do The Dance]
Don’t rely too much on your own press clippings. Eventually you are going to have to produce something of value for your company and its shareholders if you plan to stay in business.
Applying this information to your organization:
Are you over relying on price, rather than value, to differentiate yourself in the market place?
Do you have a solid organizational base [infrastructure] established for your organization? [See Common Sense Managing chapters on Vision, Planning, Controlling, and Accountability. Don’t have a book? Order one at http://www.growthassociates.org]
Are you using technology to effectively enhance your customer service practices?
How does what you do add value to your products and services?