The Hybrid Company: Reach All Your Customers Through Multi-Channels Anytime, Anywhere

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Senior Acquisitions Editor: Jean Iversen Cook Senior Managing Editor: Jack Kiburz Interior Design: Lucy Jenkins Cover Design: Jody Billert, Billert Communications Typesetting: the dotted i © 2001 by Dearborn Financial Publishing, Inc. Published by Dearborn Trade, a Kaplan Professional Company All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. Printed in the United States of America 01

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Library of Congress Cataloging-in-Publication Data Tiernan, Bernadette. The hybrid company : reach all your customers through multi-channels anytime, anywhere / Bernadette Tiernan. p. cm. Includes index. ISBN 0-7931-4294-6 1. Electronic commerce. 2. Internet marketing. 3. Internet advertising. I. Title. HF5548.32 .T534 2001 658.84—dc21 2001001414

Dearborn Trade books are available at special quantity discounts to use for sales promotions, employee premiums, or educational purposes. Please call our special sales department to order or for more information, at 800-621-9621, ext. 4410, or write Dearborn Trade Publishing, 155 N. Wacker Drive, Chicago, IL 60606-1719.

Dedication To my husband, Bill Tiernan, with gratitude for his encouragement and help

Acknowledgments

My sincere thanks to Jean Iversen Cook, Dearborn Trade senior acquisitions editor, for her confidence and support of The Hybrid Company from its earliest stages. I am also grateful to the leaders of the New Jersey Small Business Development Center at the Rutgers Graduate School of Management, in particular Brenda Hopper, Alyson Miller-Greenfield, and Nat Bender, all of whom provided help with research and referrals. Thanks to Katherine, Billy, and Caroline Tiernan for their patience and willingness to help out whenever I needed them.

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Contents

Introduction

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1. The Birth of Hybrid Companies

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The Mandate to Multi-Channel 2 Definition of a Hybrid Company 2 The Competitive Advantage 3

Characteristics of Hybrid Companies Early Mistakes 6

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Using the Web for Marketing Only 7 Inconsistent Pricing Policies 8 Out-of-Sync Inventory Tracking 8 Failure to Expand Product Lines across Channels 8 No Effort to Drive Traffic among All Channels 9

Chapter Summary 10

2. Changes @ Internet Speed

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Bulls and Bears: The Stock Market Revisited 12 The Changing Role of Venture Capitalists 14 Tech Labor 16 The Growth of Market Exchanges 17 The Impact of Mergers 17 Dot-Coms Near Defection 18

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Raising the Level of Customers’ Expectations 19 New Technologies Create New Challenges 20 Peer-to-Peer File Sharing 21 ASP Revolution 22 Wireless 22 Handheld Devices 23 Mobile Commerce 23 MSPs 24 Convergence 24 Voice Technology 25 Interactive Television 26 Webcams 26 Electronic Publishing 27

Taxation with Representation Chapter Summary 29

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3. Hybrid Leaders and Their Strategies for Success 30 Parameters of Success 30 Success Strategies Defined 31 Brand Builders 31 Channel Synchronizers 33 Merchandising Masters 34 Customer Centric 34 Alliance Builders 36 B2B Maximizers 37 Future Focused 38

Creating New Business Models 39 Assessment: Are You Ready to Create a Hybrid Company? 40 Chapter Summary 40

4. Clicks First 43 From Clicks to Catalogs 43 From Clicks to Bricks 45 The Clicks-to-Hybrid Advantage 46 When Clicks Established First: Case Studies 49 RedEnvelope, Inc. 50 EZiba.com 54 ConsciousMedia.com 56 UrbanRealtors.com 59

Dot-Coms, Now Hybrids, Worth Watching

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The E*Trade Group 62 IdeaForest and Joann.com

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Marketplace Exchanges as Clicks When Dot-Coms Die 63

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Boo.com 64 Pets.com 64 Gazoontite.com 66

When Pure-Plays Work 67 Lessons from Pure-Plays 69 Steps to Implement Multi-Channels from Clicks First 70 Chapter Summary 72

5. Bricks First

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From Bricks to Clicks, Catalogs, and Kiosks 76 Proactive Mall Strategies 78 Kiosks as Channels 79 Manufacturers Selling Directly Online 80 Couture Clicks 82 When Bricks Established First: Case Studies 83 Gap Inc. 86 Charles Schwab 87 Staples, Inc. 91 Williams-Sonoma, Inc. 93 Nordstrom, Inc. 97 The Home Depot, Inc. 101 Barnes & Noble, Inc. 106 Kmart/Bluelight.com 110 Blockbuster, Inc. 113 RadioShack Corp. 116

Steps to Implement Multi-Channels from Bricks First Chapter Summary 122

6. Catalogs First 123 Catalog Advantages 124 Case Studies of Catalogs First

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Gateway, Inc. 129 Lands’ End, Inc. 131 Dell Computer Corp. 134 Vermont Teddy Bear Co., Inc. 138 L.L. Bean, Inc. 140

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Coldwater Creek, Inc. 142 Hanover Direct, Inc. 145

Steps to Implement Multi-Channels from Catalogs First 147 Chapter Summary 150

7. Creating the E-commerce Channel

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Moving to Clicks 153 Application Flow Management 153 Placement in the Organization 154 Outsourcing Relationships 155 New Titles for E-business 155 Security 156 Dial-up Service Problems 157 Designing for Different Bandwidths 157 Designing for Broadband 159 Designing for Wireless 159

Selecting Services 160 Call Centers 160 Online Customer Support 161 Speech Technology 162 Order Fulfillment 163 Customer Relationship Management (CRM) 163 Digital Credentials 163

Application Service Providers (ASPs) 164 Online Collaboration Tools and Intranets 167 Performance Testing 168 Performance Measurement 169 Four E-Business Leaders 169 Oracle Corp. 170 Siebel Systems, Inc. 171 Cisco Systems, Inc. 172 IBM 172

Chapter Summary 173

8. Multimedia Marketing Trends

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The Marketing Challenge for Hybrid Companies Targeting the Customer 177 Research for Segmentation and Targeting Branding 181

Reaching the Customer

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Advertising through Traditional and Nontraditional Methods New Media Marketing Strategies 193 Promotions 198 Public Relations Strategies 199

Evaluating the Effectiveness of Campaigns Chapter Summary 201

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9. Knowledge Management 203 Impact on the Success Strategies of Hybrid Companies 205 The Human Infrastructure 209 Crossing the Lines of Departments and Channels

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Data Warehousing and Data Mining 210 The Technological Infrastructure 211 Customer Relationship Management (CRM) Applications 214 Customer Profiling Tools 216 Personalization Services 216 Automated E-mail Responses 217

Creating Business Intelligence Intelligence from Call Data E-contact Centers 219

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Chapter Summary 219

10. The Personal Touch and Customer Communities 221 Reach Out and Touch Someone 222 The Challenge for Hybrid Companies 223 Dashed Expectations 224 Exceeding Expectations 226 Telephone Contact 227 E-mail 228 Fax 228 Live Online Assistance 229 Voice Assistance 229 Proactive Live Assistance 230

How Hybrid Companies Build Customer Communities Live Events 231 Online Events 233 Chat Rooms 233 Message Boards/Discussion Boards

Examples from Hybrid Leaders The Home Depot, Inc. 235

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Barnes & Noble, Inc. 236 Staples, Inc. 237 ConsciousMedia 238

Chapter Summary 238

11. Warehousing, Shipping, and Handling Returns Transition Issues for Hybrid Companies 241 Clicks First 242 Bricks First 243 Catalogs First 243

Warehousing 244 Shipping 246 Handling Returns 249 Fulfillment Services 250 Strategic Decisions 253

Chapter Summary 254

12. Privacy, Security, and Legal Issues 255 Privacy versus Personalization

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DoubleClick’s Disaster 256 Consumer Criticism 257

Creating Consumer Behavior Profiles

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Cookies 258 Web Bugs 259 Opt In/Opt Out 260 Location-Finding Technology 260 Consumer Access to Personal Data 261

Achieving Anonymity 261 Support Organizations 262 Delete Cookies 263 Infomediaries 263 Platform for Privacy Preferences (P3P)

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Attempts to Protect Consumer Privacy 264 Chief Privacy Officer (CPO) 264 Independent Auditors 265 TRUSTe 266 Better Business Bureaus 266

Recommendations for Hybrid Companies 267 Sample Privacy Policies

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Customer Files as Dot-Com Property 271

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Security

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Credit Card Fraud 273 E-signatures 274

Intellectual Property Protection

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Napster 276 Application of Copyright Law 278 Trademarks 278 Patents 279

Legal Issues 280 Chapter Summary 281

13. The Future of Hybrid Companies 283 Globalization 284 Advertising Dominance 284 Where Are We Headed? 284 Conclusion 285 Index 287

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Introduction

In the aftermath of a plethora of dot-com disasters, the most successful business model of today and the future is the hybrid company. A hybrid company is a business that reaches its customers through multiple channels of clicks, bricks, and catalogs in a seamless, integrated entity. Hybrid companies assimilate e-commerce Web sites, a physical presence, and catalogs. Each channel promotes and reinforces every other channel. The most profitable hybrid companies demonstrate a deliberate, step-by-step expansion from channel to channel, mastering one mode and rapidly expanding to additional channels. Two channels constitute a hybrid company; however, the most successful hybrid companies operate with all three channels. In every hybrid model, the e-commerce channel is imperative. Why do hybrid companies thrive? First of all, according to a study by the National Retail Federation (NRF), retailers with a combination of physical stores, catalogs, and Web sites tend to do more business than companies with just one channel. In addition, a report by Jupiter Research revealed that multi-channel shoppers purchase 30 percent more than those who use only one channel.

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What You’ll Find in This Book The Hybrid Company explores the success strategies of today’s new breed of hybrid leaders and deals with the process of achieving profitability through multi-channels, from strategic planning through implementation. In Chapter 1, hybrid companies are defined, and early parameters of success and failure are identified. Chapter 2, examines Internet companies from the perspective of their stock market appeal, allure for venture capitalists, and customer magnetism. The prognosis for the impact of new technology is also assessed. In Chapter 3, seven characteristics of successful hybrid companies are presented, along with some nominations for “best of” clicks, bricks, and catalog businesses that became hybrid companies. Chapters 4, 5, and 6 focus on specific illustrations of effective multi-channel commerce utilization. Chapter 4 examines Web-based companies that began as “pure-plays” (Internet-only companies) and explores their augmentation. Pure-plays that failed to rally to the challenge of changing market needs are also explored for early warning signals. When is the right time to expand to new channels? What are the driving factors? What type of physical presence is optimum, and where are the ideal locations? How does channel expansion affect promotional strategies and overall budget? Chapter 5 describes the transition from storefront to Web and catalog operations. How do successful brick-and-mortar retail operations evaluate the profitability of their strategy for expansion into other realms? The popularity of kiosks illustrates new possibilities for businesses to establish a physical presence quickly and inexpensively. In hybrid companies, the Web site is integrated into the brick-andmortar business, not competitive with it. Chapter 6 examines how catalog-only companies made the decision to expand, how they fared, and what plans they have for future expansion. Catalog companies made a jump to the Internet with relative ease, but for many that was only the first step. Some, like Delias.com, have also added storefronts. The second half of the book defines techniques that successful hybrid companies employ to solidify their leadership position. Chapter

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7 discusses the placement of “e” in an organization and the integration of information technology into all aspects of the corporation— among departments, field representatives, distributors, and all others who help achieve a corporation’s mission. Oracle, Siebel, Cisco, and IBM were the early leaders in helping firms make the transition to e-business, and they provide excellent examples of the products and tools an e-business can use to work more efficiently in a totally integrated technological environment. Chapter 8 explores realistic options for hybrid companies. The landscape is changing, and even small to midsize businesses are booking radio and television time to make an impact on the consumer. What does it take to stand out in the crowd but not blow your whole marketing budget in one ad? Examples of leaders who have created well-rounded campaigns that survive the critics and consumers are presented here. Vortals, viral marketing, e-mail contacts, and specialized functions of advertising agencies are also addressed. How hybrid companies can use knowledge management tools is the subject of Chapter 9. New technological tools make it easier to communicate effectively with company team members in more complex ways than before. Chapter 10 focuses on personal contact with customers and visitors, exploring features that take the information gathered in knowledge management to reach out in new ways. Technology features, like voice and online customer service, are explored for their effectiveness in helping to build personal connections. Online communities continue to grow and chat rooms remain popular. Hybrid companies that provide discussion vehicles for their customers add another “sticky” feature to their Web sites. What are the latest features of community building, and what really works for hybrid companies? Warehouses have become prime real estate in many suburban locations as dot-com companies seek space to store products. Chapter 11 discusses the best strategies for hybrid companies, including outsourcing. Chapter 12 explores the privacy concerns raised today, and how hybrid companies can guard against pushing beyond the limits. Although we’ve cheered technological advances that enable us to track consumer behavior to the degree that personalization and mass customization are expected, some experts warn that we may be

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going too far. How much information is too much? How can we avoid alienating our customers? Chapter 13 attempts to define the next phase of hybrid companies as they seek international expansion. How will international e-commerce develop, and what countries show the greatest potential? Globalization issues from the perspective of European, Asian, and South American markets are evaluated. Finally, the appendix provides references to help companies make the transition to multi-channel commerce. These include university contacts, commercial and university e-commerce curricula, and certificate programs.

Who Can Benefit from This Book? The Hybrid Company addresses business-to-business (B2B) and business-to-consumer (B2C) e-commerce concerns. This book is critical for: • Owners, executives, and managers of businesses of all sizes, from major corporations to sole proprietorships, who need to learn about hybrid corporations to oversee development efforts in their own organizations • Leaders of Internet-only, or pure-play, companies who plan to expand their businesses to include a physical presence (storefront, kiosk, or partnership with a brick-and-mortar) and/or print (catalog, newsletter, or manual) • Owners, executives, and managers of businesses of all sizes who have some combination of two hybrid components and seek to add a third dimension for greater long-term profitability • Managers and executives of Fortune 1000 corporations making the transition to a fully integrated e-business • Small to midsize business owners and managers who have created a Web site, marketed via the Internet, introduced e-commerce, and need to expand their structure in order to increase market share • Entrepreneurs poised for growth, seeking the greatest possible market share

Introduction

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• Teachers (college, graduate school, and executive education) and workshop leaders in business or computer curricula who are conducting courses on electronic commerce • Business consultants at major firms and small private companies who advise business leaders on strategic planning issues • Technical consultants, system designers, and programmers who need to acquire depth of understanding about how the components of hybrid corporations operate As consumers and as business leaders, we are poised and ready to appreciate the advantages of a hybrid future, where the convergence of technology, customer support, and telecommunications will ultimately save us time and money in our homes and in our companies. Bernadette Tiernan Tiernan Associates P.O. Box 1382 Ridgewood, NJ 07451 E-mail: [email protected]

Seven Success Strategies of Hybrid Leaders 1. Brand Builders. Successful hybrid companies strive for differentiation in a market niche, leveraging first-mover advantage in a hot market and securing a leadership position through brand building and continuous innovation. 2. Channel Synchronizers. Successful hybrid companies itegrate databases, applications, networks, and human resources intelligently for the highest consistent quality performance and channel synchronization. 3. Merchandising Masters. The most successful hybrid companies master the skills of merchandising, including product demonstration, ordering, inventory tracking, packaging, shipping, handling repairs, and dealing with customer returns. 4. Customer Centric. The best hybrid companies create a customercentric focus, encouraging an active dialog and incorporating customer feedback into product and process enhancements while providing personalization of customer service. 5. Alliance Builders. The most successful hybrid companies forge alliances and partnerships that complement strengths and fortify weaknesses, creating the dynamic impact of a single powerful force. They share information with their partners and increase mutual value. 6. B2B Maximizers. Successful hybrid companies engage in business exchanges or Internet marketplace exchanges that provide access to the business-to-business market. 7. Future Focused. The best of the hybrid companies position the company to respond quickly to changes in the marketplace or technology by nurturing a strategic vision, embracing entrepreneurial attitudes, and remaining future focused.

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The Birth of Hybrid Companies

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A bold Going Out of Business sign covered the storefront window of a boarded-up shop in a full-page New York Times ad that accused e-commerce of the demise of community. “Why this crusade against small business, while we subsidize trendy titans of e-commerce?” the ad questioned, addressing the tax moratorium for online sales. Can’t these poor dot-coms get a break? First, we unilaterally and collectively blamed them for the demise of our retirement funding when their stock values plummeted. Then they were accused of attacking America’s heartland in an assault on human contact and the proliferation of a culture of isolation. Many of these dot-coms weren’t titans; some weren’t even trendy. Statistics failed to support prophesies of doom and destruction for malls and Main Street. In fact, for several consecutive holiday seasons, consumer sales figures soared exponentially for all of retail, online and offline. In addition, both business-to-business e-commerce and traditional sales experienced dramatic growth. The predicted cannibalism of traditional sales venues by competitive dot-coms never occurred. If anything, the dot-coms influenced the extension of the holiday shopping season into one big bonanza of event after event. Seasonal December peaks were repeated in the first quarter for several years. Online merchant promotions of all holidays from

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Valentine’s Day through Thanksgiving influenced sales in traditional stores too. No month passed without a hyped-up holiday, and both online and offline sales channels benefited.

The Mandate to Multi-Channel Online “hot-coms” and offline traditional companies have realized a synergistic effect by leveraging a multiple-channel approach to their business. Aspiring to new IPO heights by adding “.com” to the corporate logo is no longer enough to inflate stock value. Our infatuation with dot-coms is over, and we’re back to a competition of survival of the fittest. Survivors of the Internet immunity challenge include tribal members of the B2B (business-to-business) and the B2C (business-to-consumer) markets, all advancing toward their billiondollar prizes. A new breed of hybrid companies have emerged as the healthiest survivors.

Definition of a Hybrid Company A hybrid company is a business that reaches its customers through multiple channels of clicks, bricks, and catalogs in a seamless, integrated entity. Hybrid companies assimilate e-commerce Web sites, a physical presence, and catalogs; each channel promotes and reinforces every other channel. Although some hybrid companies can operate successfully with two out of three channels, the e-commerce channel is imperative in every hybrid model. Clicks. Bricks. Catalogs. The most profitable hybrid companies demonstrate a deliberate, step-by-step expansion from channel to channel, mastering one mode and rapidly expanding to additional channels. Two channels constitute a hybrid company; however, the most successful hybrid companies operate with all three channels. Not two or three separate businesses under one name, but a unified front. Some may accomplish their mission by strategic alliances of separate companies, but these alliances are invisible to customers or clients. Customers always see an integrated entity and always assume they are dealing with one company.

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The Competitive Advantage Incentives to move quickly to a hybrid company model are strong. Some experts predict that 80 percent of e-tailers who do not partner with a traditional retail company face extinction. Retailers with a combination of physical stores, catalogs, and Web sites tend to do more business than companies with just one channel, according to a study for the National Retail Federation (NRF). Cross-channel integration provides a competitive advantage, according to this study. Online shoppers tend to cross-shop frequently. And online shopping has injected energy into shopping in general, building brand and customer loyalty in multiple channels. A report by Jupiter Communications (now Jupiter Media Metrix) revealed that multi-channel shoppers purchase 30 percent more than those who use only one channel. Hybrid companies thrive in both the business-to-business and business-to-consumer sectors. The business-to-business potential for hybrid companies is the most dramatic. Businesses are expected to purchase almost 30 percent of their products electronically by 2004, and transactions from e-marketplaces will produce nearly 33 percent of the $2.78 trillion B2B e-commerce total, according to the Yankee Group. Forrester Research predicts that e-marketplaces will produce 53 percent of these transactions. The impact of the Internet is expected to generate more than $6 trillion in trade by 2005, according to Jupiter Communications. Consumer online spending is expected to reach almost $184 billion by 2004, or about 7 percent of all retail sales, according to Forrester Research. Jupiter Communications has predicted that by 2005 consumers’ online research will result in at least $632 billion in sales at traditional storefronts and from catalogs. Consumer spending for online and Web-influenced offline purchases, reflecting the momentum of hybrid companies, will exceed $831 billion in 2005, according to Jupiter. Traditional storefront and catalog retailers have taken the holiday online shopping lead over Internet pure-play e-tailers for several consecutive years, by over 29 percent according to research by BizRate .com. The bricks channel, for example, has provided an advantage in the sale of more expensive items, like computers and home video

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equipment, according to a study by San Francisco market research firm King, Brown and Partners. The appeal of physical shopping as a form of entertainment, socializing, and exercise has its own time and place, whether one is hunting for a personal or a business product. And the catalog convenience of circling favorite items, marking special pages by folding the corners, reviewing wish lists with kids or coworkers, browsing poolside or on a commuter bus, also serves its unique purpose. For regions without mall density, catalogs are more than a convenience— they’re a lifeline. Will either the store or catalog purchasing channel be superceded by e-commerce? It no longer appears likely, and the prophets of gloom are quieting down. Whether buying business equipment or vacation sportswear, the Internet presents a convenient tool for comparative shopping through price and product research, even if the final purchase is sometimes transacted at a company’s storefront or through a catalog. The companies that take maximum advantage of multi-channel selling and marketing stand to reap the greatest rewards, directing customers to their clicks, bricks, and catalogs while offering specialty items at each venue to keep every component fresh.

Characteristics of Hybrid Companies Hybrid, according to the Random House Dictionary, describes anything derived from heterogeneous sources or composed of elements of different or incongruous kinds. Hybrid companies are a synergistic combination of e-commerce, a physical presence (such as a storefront, a kiosk, or an open office), and some form of print (such as catalogs of all shapes, sizes, and quality). Corporations with a hybrid structure in both their physical form and their marketing endeavors have the highest profitability and longevity rates. Hybrid marketing strategies include the convergence of new media and old media marketing techniques. While the IPO dust settles, hybrid companies are the most likely to be left standing. Hybrid companies achieve profits, maintain a steady pattern of increasing sales, acquire capital for growth, and successfully expand through mergers

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and acquisitions at a rate faster than the most complex Web-only businesses. Some experts even predict that 80 percent or more of the e-tailers that do not partner with brick and mortar retailers will soon face extinction. Hybrid companies evolve along different paths, originating with Internet pure-plays, traditional companies, or catalog ventures.

Internet pure-plays. A growing number of Internet pure-plays have reevaluated their strategic plans and established a physical presence through storefronts or kiosks. In some cases, the physical presence is under their own name or brand. In others, they have partnered with an existing traditional store to build on its name and strength. Other pure-plays have taken their online catalogs and introduced a print version, something tangible for customers to keep around longer than the online transaction—a coffee-table version of their Web site. RedEnvelope.com and eZiba.com entered the arena, successfully increasing their Web traffic as a result of catalog mailings. Traditional companies. Traditional stores effectively secured an online presence to the extent of their ability to undermine their pure-play competition once they caught a dose of e-commerce fever. When catalogs are added to this potent combination, they have their customers covered from all angles. Williams-Sonoma covers its diverse consumer bases well through both stores and Web sales. Staples holds corporate employees and home-based business owners captive to its sales and promotions, not to mention its catchy commercials via its stores, catalogs, and Web site. Customers initially accessed Charles Schwab’s brokerage services by branch office or telephone, followed by a Web transformation that brought Schwab a moment of glory as an industry leader. Although other traditional stores and services may have been slow to move onto the Internet, their clout when they arrived was unquestionable as they began to leverage their respective brand names.

Catalog ventures. Catalog companies moved online in rapid-fire succession and achieved almost instant fame and fortune. They had the basics mastered: pick, pack, and ship. And they had the astute

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graphic awareness to recognize that a picture is worth a thousand words. In some cases, success in e-commerce led to new decisions about establishing a physical presence and opening stores. Lands’ End had its system of customer catering down to a science by phone before going on the Web. And Delia*s teen niche market catalog was a hit, reinforced by its Web site that encouraged the company to eventually open small stores in major malls.

Combinations. Innovative combinations of two or more channels through affiliations and creative partnering efforts have generated a euphoric atmosphere for business and consumer markets, where almost anything is possible and barriers to entry are eradicated. Zany Brainy, for example, sells Vermont Teddy Bears at in-store kiosks. General Electric offers an extensive product line to Home Depot customers at kiosks in Home Depot stores, avoiding inventory hassles and reducing delivery time. For an example of a company that started as an Internet pure-play but added catalogs to become a hybrid company, see Figure 1.1.

Early Mistakes Not all ventures creating a hybrid structure have proceeded smoothly and successfully. Early problems lingered for some companies. The most common problem areas have included • • • •

using the Web for marketing only; inconsistent pricing policies between sales channels; out-of-sync, outdated inventory tracking; failure to expand to make the complete product line available across multiple channels; and • lack of effort to drive traffic among all channels. Both business and consumer shoppers were quick to voice their dissatisfaction. Because customers have so many choices, there is no incentive to remain loyal to a difficult company.

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FIGURE 1.1 RedEnvelope started as an Internet pure-play but added catalogs to become a hybrid company.

© RedEnvelope. Used with permission.

Using the Web for Marketing Only Traditional sellers that created marketing Web sites but failed to sell missed opportunities to grab an early market leadership position. The first shoppers who became comfortable with online purchasing sought their old-time favorites first. Many were disappointed to discover information-only sites that merely served as online brochures and failed to provide e-commerce capabilities. In some cases the rationale behind decisions not to sell online was complex, as in the case of manufacturers with the potential to sell directly to customers. Would they offend their distributors and their retail partners? Rubbermaid Home Products’ Web site, to avoid a perceived conflict of interest with retail contacts, only helped visitors create a list of products they’d like to purchase at the nearest store. Levi Strauss and Maytag did the same

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thing. The potential for conflict between manufacturers and distributors will be discussed in further detail in Chapter 5.

Inconsistent Pricing Policies If a merchant priced products differently on its Web site, in its catalog, or in its stores, customers balked and complained. The greatest inconvenience occurred when returns were made in a different channel from the original purchase, such as an item purchased online but returned to a shop. At least 68 percent of the returns for online sales are returned at a brick-and-mortar company, so inconsistent pricing is no small issue to contend with. Pricing errors have created another set of migraines. Shopping robots, or “bots,” comb the Internet looking for products and expose these mistakes quickly. Word of e-mail spreads the news of errors when they favor consumers. A perceived “great deal” for a consumer can turn into a huge disaster for an e-tailer whose typing or editing skills need polishing.

Out-of-Sync Inventory Tracking As quickly as customers began to purchase across multiple channels, they expected to be able to receive up-to-the-second information about product availability. No patience for an online “okay” and a subsequent e-mail indicating a product was out of stock. Because we could place an order instantly, we expected to receive instant feedback about our order. Order confirmation numbers have been interpreted as a pledge to deliver on time. Companies that had to plod through separate channel inventory databases to find a simple item lost their edge. Syncronized, timely inventory tracking systems save both the customer and the company time and money.

Failure to Expand Product Lines across Channels When an advertising campaign entices a shopper to select a particular item, and the order can’t be placed online, will the customer

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come back? Companies who built a base step-by-step—and quickly— benefited from their expansion. The Gap introduced some of its inventory at the gaponline.com when the site became active; before you had a chance to gripe, it had expanded to virtually every product shown in its stores and in its catalogs. Macys.com began offering only their bridal registry services online in 1996, but by 1998 had expanded the site to include most of the items sold in its retail stores. Catalog companies have dealt with this challenge for years. Saks Fifth Avenue Folio catalog, for example, contains items not available in its stores; to return a catalog item in person meant a trip to the customer service department rather than the department where you’d logically expect to have purchased the item. The kinks in the processes had to be addressed one-by-one.

No Effort to Drive Traffic among All Channels Customers will often remain loyal to a Web shopping site, just as they will be faithful to a store and catalog, if they are satisfied with the company. Research from the Sloan School of Management at the Massachusetts Institute of Technology has indicated that customers continue to shop at a favorite online site even if it doesn’t offer the cheapest price. In fact, they seek trust, awareness, and branding over slim discounts. They’ll stay with a company they can depend on. Consequently, brand recognition offline frequently generates traffic online. Success in one venue has spelled success across channels for those who were wise enough to take advantage of their position of strength. Each channel can benefit the others and instill incentives to buy wherever it’s most convenient for a customer at a given moment. Cross-promotions and enticements to move from one channel to another result in increased overall sales more often than cannibalized sales. The incentives, however, take some creativity. RadioShack.com, for example, offers online coupons for redemption at its stores; the thousands of customers who show up are evidence of its success. The goal of presenting a unified front to customers demands finesse behind the scenes that can only be accomplished with strategic insight and technological astuteness. The transition from the Web to

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a store to a catalog is effortless on customers’ part; as far as they’re concerned, it’s a given that they should be able to buy, return, and complain to any channel at any time. No matter where we place our order, we want to be able to check the status from any channel: the Web site, a store, or a catalog order team via a telephone call. We expect it to be simple. It’s a “hygiene” item. When it isn’t simple, it’s a liability.

Chapter Summary 1. A hybrid company is a business that reaches its customers through multiple channels of clicks, bricks, and catalogs in a seamless, integrated entity. Hybrid companies assimilate e-commerce Web sites, a physical presence, and catalogs; each channel promotes and reinforces every other channel. 2. Two channels constitute a hybrid company; however, the most successful hybrid companies operate with all three channels. In every hybrid model, the e-commerce channel is imperative: Clicks. Bricks. Catalogs. 3. The most profitable hybrid companies demonstrate a deliberate, step-by-step expansion from channel to channel, mastering one mode and rapidly expanding to additional channels. 4. Hybrid companies develop along different paths. A growing number of Internet pure-plays have reevaluated strategic plans and established a physical presence through storefronts or kiosks. Traditional stores and financial services, having once caught a dose of e-commerce fever, have been so effective in securing an online presence that they have successfully undermined their pure-play competition. Catalog companies moved online in rapid-fire succession and achieved almost instant fame and fortune. They had mastered the basics: pick, pack, and ship. 5. Early mistakes have led to refinements across all channels, and hybrid companies have learned to avoid making such mistakes as using the Web for marketing only; inconsistent pricing poli-

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7.

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cies; out-of sync, outdated inventory tracking; failure to expand product lines across channels; and lack of effort to drive traffic among all channels. Hybrid companies operate as a unified front, not as two or three separate businesses under one name. If they form strategic alliances to build new channels, these alliances are invisible to the customer or client. Corporations with a hybrid structure in both their physical form and their marketing endeavors have the highest profitability and longevity rates. Retailers with a combination of physical stores, catalogs, and Web sites have a competitive advantage. These companies tend to do more business than companies with just one channel, according to a study for the National Retail Federation (NRF). Some experts even predict that 80 percent or more of the e-tailers that do not partner with brick-and-mortar retailers will soon face extinction. Cross-channel integration provides a competitive advantage. Multi-channel shoppers purchase 30 percent more than those who use only one channel, according to a study by Jupiter Communications. Hybrid marketing strategies include the convergence of new media and old media marketing techniques.

Changes @ Internet Speed

2

When the first dot-com shakeout occurred in spring 2000, overvalued technology stocks reached more realistic levels. The weaker companies, however, fell into a panic. Pure-play companies were hit the hardest as a sector, with stock prices dropping from 60 to 90 percent from the previous autumn. The plunge raised the specter of fear that secondary rounds of financing would be questionable for those that failed to show a profit quickly. The Amazon.com business model was no longer invincible.

Bulls and Bears: The Stock Market Revisited The volatility of the stock market has never been greater, according to most experts. A hint or premonition of trouble tends to send stock prices reeling. Days before the release of corporate quarterly earnings reports, leaks about individual company results can send their stock tumbling down. A negative report from a credit analyst can do worse than that. When Amazon.com was assessed by Lehman Brothers on the criteria of a traditional retailer, the credit report found that the company held too much risk for investors. “It should show a profit” was the

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basic premise of the report. No kidding. But, for the first time, this information actually mattered, and the stock plummeted 70 percent. Amazon executives called the report “hogwash.” When Salomon Smith Barney released a report warning that the chip industry could be peaking, stocks of semiconductor makers dropped 30 percent, dragging other technology stocks down with them. In a book entitled Irrational Exuberance (Princeton University Press, 2000), Robert Shiller claimed that American investors create a dangerous situation when they become caught up in their own fervor and make emotional decisions with their money. Psychology, sociology, and history all come into play to influence these decisions, none of which is necessarily based on sound analysis. The timing of a number of initial public offerings (IPOs) shifted so as to avoid low periods and cash in on market highs. The New York Times, for example, delayed the IPO for its Internet offering from spring 2000 until the market was perceived as being more receptive. At the same time, search site AltaVista postponed plans to sell shares of its stock. Even the e-brokers have been held hostage to a fickle trading environment as their own stocks rise and fall sporadically when a buzz is created about who could be taken over by whom. Can companies like E*Trade Group and Ameritrade stand on their feet when their stock prices drop and traditional companies such as Merrill Lynch open online services like Charles Schwab’s? E*Trade has ventured into stores, so that leaves few pure-plays. Business models based on quick public offerings were reevaluated. Companies like music e-tailer CDnow.com and online jewelry store Ashford.com went public early, before the market upheaval in April 2000, and were able to raise substantial amounts of money needed to push their brand into the forefront. The online jewelry store Ashford .com raised $81 million in its IPO. In February 1998 CDnow.com was able to raise $65 million. The probability of an e-tailer securing that degree of success is much lower today. By 2000, CDnow sought a merger with Columbia House to save itself from financial disaster, but the deal went south. The brand, however, gained strength while the company sought a new partner or investor. Bertelsmann AG eventually bought the company for $141 million. The deal meant survival for CDnow and an e-commerce

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The Hybrid Company

infrastructure for Bertelsmann’s record label BMB Entertainment. CDnow still faces the challenge of trying to become profitable, but in the meantime it has retained a growing loyal customer base. Wall Street often shines on the giants that provide the software that powers the Internet industry giants, including IBM, Oracle, and Ariba. Unlike the Amazon.com model of no profit, these companies make a profit before they’ve finished building the infrastructures that support the largest Web sites and e-businesses. In spite of stock price slumps, Americans as a whole remain optimistic about investing in e-commerce companies and their potential for the future, according to the Scudder Kemper Investments firm. A select number of industries have survived all the ups and downs of the stock market intact. Online automotive sales, for example, have soared, and both the health and beauty industries have experienced growth at a rate of over 780 and 440 percent, respectively, per year. Travel, computer hardware and software, financial services, and collectibles also show increasing strength and have a huge share of the total e-commerce market.

The Changing Role of Venture Capitalists When the frenzied venture capital pursuit of dot-coms shifted to a calmer, more discerning atmosphere, the Wall Street Journal reported a follow-up story about a gathering of Internet and software start-ups that had been funded by venture capitalists the previous year. Many had failed to make a profit and were quickly running out of cash. A company called Electrifier Inc. received $2.5 million in angel funding to produce CD-ROM disks that would “revolutionize” streaming video production. Eventually, the disks were used as coasters in the company conference room. In spite of some tales of woe, Internet companies still attract about 75 percent of venture capital investments in the United States in any given year despite shifting stock market values. The money available nationally for venture capital investment has tripled annually, according to the National Venture Capital Association. The investments tend to be for the long term, and most of the investors don’t

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expect to see a return on their money for three to seven years. The change in the stock market’s overall response to dot-coms has, if anything, left angels in a better position to evaluate companies for their true, uninflated potential. Investment bankers have also shifted their strategy from endorsing a business model that shows profits after years of quick spending and high growth to a model that shows a profit early, with more moderate spending. There are few forced marches to an IPO. In addition, a widespread tendency is for bankers and venture capitalists to take on the role of coach or mentor (rather than drill sergeant) to ensure each company’s survival and demonstrate a steady hand in selecting those who show the highest probability of success. Hybrid companies score high on this measurement. The favorites for funding are business-to-business ventures with an image of stability. One critical criteria in the decision to fund an Internet company is the management structure of the company. Experienced executives from established companies, preceded by their reputations and résumés, have an edge when they move into the dotcom arena. The executive team that empowers an Internet company (or any potential investment, for that matter) will undergo detailed scrutiny: Is this team qualified to put a complex infrastructure together? Vice president of marketing and vice president of engineering are two key positions to take a company into market leadership quickly by handling the public persona and the private technology together to make the company work. Internet experience also counts for a positive evaluation from most venture capitalists. Now that the arena is no longer new, seasoned domain experts are perceived as providing the most secure investments. Some of this experience is sought at university graduate school programs that incubate Internet start-ups. From the Harvard Business School, for example, came household words like Guru.com and UBUBU.com and some 35 other entrepreneurial ventures in a single graduating class. Another decision criterion is the type of company seeking funding. Hot types are still business-to-business (B2B) projects with vertical growth potential, streaming (or “rich”) media, communications services, and the highest of high technology (from chips to switching to infrastructure providers to patents galore). The shift is away from

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The Hybrid Company

business-to-consumer (B2C) companies in general, unless the company is solid. Among e-tailers, the most secure investment opportunities are believed to be those affiliated with traditional retailers, confirmed by the continuing success of Kmart and Wal-Mart.

Tech Labor The workforce that has supported Internet companies has also undergone a shift. Some of the individuals who traded traditional corporate jobs for promising dot-coms, lured by stock options and high salaries, were caught in the worst of the stock market fallout. Companies without a steady cash flow had to restructure. As Internet companies on the verge of a cash crisis tightened their reigns and trimmed their budgets, staffs were cut. Layoffs proved to be a quick way to regroup. Last in, first out. Just like the old economy. However, shed no tears for the dot-com castoffs with the worthless stock options. There are plenty more opportunities right down the road. For the elite workforce of the technology enabled, we now have an abundance of jobs. The demand for qualified applicants for technology jobs far exceeds the supply for the foreseeable future. The Bureau of Labor Statistics estimates that we will need over 1.3 million information technology workers by 2006. Software developers are in particular demand. As basic transactions, like Web site design and the execution of e-commerce purchases, become routine items, creative energy will be directed to forms of communication that will automate virtually all interactions. Enter the constantly recycling workforce of technology specialists, the few talented individuals with the most marketable skills, who can easily move from company to company (unless their stock option handcuffs are locked). Missing from the equation, however, are significant numbers of women workers. The “silicon ceiling” has been described as the technological divide limiting the number of females and some minorities in high-tech companies. The Computing Research Association found that only about 18 percent of those seeking undergraduate and doctoral degrees in computer science were women, so there are no immediate signs of a shift. Although Meg Whitman, president and chief executive of eBay,

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is a popular cover girl, she is a business leader with a degree in economics and not a techno-geek. But young women have still not rushed to pursue technical careers.

The Growth of Market Exchanges Two phenomena that need to be closely watched in the evolution of the marketplace are market exchanges and auctions. Dynamics of the marketplace have shifted, and business-to-business exchanges have breathed new excitement into the Web. Business-to-business exchanges, or online marketplaces, have emerged as a dynamic alternative to dealing with individual vendors. Exchanges unite commercial buyers and sellers in a type of one-stop shop. Sellers can make their goods available at auction prices; buyers can float requests for proposals to get price quotes and determine the availability of goods. B2B exchanges have taken off in procurement services for many industries, including the electronic components industry (Component Knowledge), industrial goods and services (DuPont), telecommunications (the Baby Bells), steel, automakers, information technology, and chemical suppliers. The success of B2B exchanges may ultimately depend on which factor is more important: price or trust. The exchanges provide the potential to reduce costs; working with individual vendors ensures relationships, reliability, and personal service.

The Impact of Mergers We’re also faced with a wave of mergers and acquisitions. In a new twist on the acquisitions game, several companies have united to serve the same market under the strongest company, or created whole new domains with a merger. Estee Lauder, for example, bought competitor Gloss.com, which enabled Estee Lauder to launch an online presence quickly while reducing competition. Away.com was formed from a merger of Greentravel.com and AdventureQuest.com, indicating that the whole can be greater than the sum of its parts in Internet pure-

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The Hybrid Company

plays too. For those companies that hope to compete on their own terms through their own company, mergers present a constant threat that a bigger and stronger team will suddenly emerge from a host of minor league players. Hybrid companies are in a more secure position to take on the challengers than are pure-plays.

Dot-Coms Near Defection Not all Internet companies leveled off when the stock market settled. Some made major decisions to shift their strategy and entertain offers for mergers and acquisitions. MySimon was a cash-healthy company that had planned to file for an IPO when it was acquired. But it was also concentrating on long-term growth and stability at a time when emotions and stock prices were fluctuating wildly. MySimon was purchased by Cnet, placing itself in a more stable and secure environment. OpenSite Technologies also opted to be bought by a stable and larger company, Siebel Systems. OpenSite’s technology was compatible with Siebel’s, and its online auction could be incorporated into Siebel’s e-commerce software suite. OpenSite improved its long-term position and stayed true to its mission. Online electronics retailer Egghead.com merged with Onsale Inc. to stay alive. CDnow is still not completely in the clear as it tries to regain financial stability in the face of extreme losses. On the other hand, its customer base continues to expand. It had hoped that an alliance and links with Napster would breathe new life into the business, but Napster’s questionable future is unlikely to be a true life-support alternative. Online grocery companies have faced similar challenges. Less than 3 percent of us buy our groceries online, according to Forrester Research, so the market is small to start. Webvan Group, Inc., acquired HomeGrocer.com for $1.2 billion in the hope of reaching economies of scale. After this acquisition, Webvan launched a redesigned Web store—Webvan.com that is based to a great extent on feedback from customers—along with a new logo and branding strategy. It also hustled to expedite an expansion into multiple major urban areas.

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Peapod, the Chicago online grocer that was first to market but faced a near-death experience, formed a lifesaving alliance with Royal Ahold, N.V., including the Stop & Shop chain of stores. Stop & Shop helped promote Peapod through joint advertising campaigns. Under this arrangement, Peapod uses Stop & Shop stores for produce and its own warehouse for everything else. Building alliances with larger companies or competitors, or combining two potentially competitive ventures, may be the best way for companies to build a brand name and increase their market share.

Raising the Level of Customers’ Expectations Customers demand more than ever before from every company they deal with, regardless of the channel they select to make their final purchase. They’ve raised the bar on their level of expectations. Surveys about individual use of e-commerce Web sites consistently reveal that the primary consumer concerns are (in no particular order) product quality, security, convenience, and control. When these factors are absent, consumers are less likely to make an online purchase. Consider a new twist to the old management Two-Factor Hygiene and Motivation Theory formulated by Frederick Herzberg, a pioneer in the field of human motivation theory and one of the major management philosophers of our time. Herzberg, as students of management theory recall, studied motivational factors in workers. According to Herzberg, high morale and good working conditions alone will not improve human performance at work. He classified these items as “hygiene factors.” Hygiene factors are variables that make an individual more comfortable and secure in the workplace and may reduce absenteeism, conflicts, and turnover. They do not, however, improve worker performance. When hygiene factors are absent, they become de-motivators, detracting from performance and adding to absenteeism and job turnover. “Satisfiers,” on the other hand, relate to an individual’s desire for personal growth and development. The absence of satisfiers does not seem to affect performance or lower morale, but their presence serves as an extra incentive that may increase motivation.

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The Hybrid Company

E-commerce customers have hygiene factors and satisfiers too. A hybrid company must meet certain expectations if its customers are going to make a purchase from its Web site. Meeting these expectations won’t increase online traffic or earn Web site accolades in Bizrate.com (hygiene factors), but not meeting these expectations will result in the loss of a sale and possibly the loss of a customer (demotivators). To earn great customer reviews and gain a sale, hybrid companies have to exceed expectations (satisfiers). Examine the four primary customer concerns as hygiene factors: 1. Quality: Customers expect the products and services they order to be well made and durable and to measure up to the Web site description. If an item falls short, customers expect to be able to return the item to any sales channel, regardless of where they made their original purchase. 2. Security: Customers expect their credit card information to be safeguarded and that e-commerce sites will provide secure credit card transactions and personal privacy protection. 3. Convenience: Customers expect a shopping cart, a simple checkout process, and a well-organized site. 4. Control: Customers expect to be able to select shipping options based on the urgency of their need for the products they have ordered. They want to make their own decision about overnight or expedited delivery if they are willing to pay for it. And they expect every purchase to arrive in one piece. Web site hygiene items don’t earn hybrid companies a positive review in this book because the fundamentals of excellent Web site design and service are assumed. Strategies that exceed customer expectations are the most important in my analysis.

New Technologies Create New Challenges The Web is changing so quickly that even the search engines, which pride themselves on probing hundreds of millions of documents with incredibly fast spider software, can barely keep up. A Dartmouth College study found that one in five Web pages is 12 days

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old or younger, which would require a pipeline carrying 50 million bits of data a second to stay current or up to only one week behind. Personal computers, the favorite means for making online purchases, are projected to generate about $246 billion in online sales by 2005, according to a report from Forrester Research. Non-PC devices, such as interactive television and mobile devices, are projected to generate $23 billion in online sales and another $128 billion in offline sales by 2005. Hybrid companies are forced to face the impact of new technological developments and devices as soon as they hear the sketchiest outline of what is up-and-coming. The time between design and rollout is short and frantic. Just a few of the technological developments that will be household words by the time the ink dries on the first run of this book are examined in the following sections.

Peer-to-Peer (P2P) File Sharing Peer-to-peer file sharing allows people to trade music, video, and text files freely among themselves. With P2P file sharing, there is no need for a centralized source such as a search engine to expedite the transaction. Peer-to-peer file-sharing technology made headlines when the Recording Industry Association of America sued Napster for the unauthorized use of music. Napster enabled over 20 million individuals to copy and share music downloaded from the Internet. Napster never actually stored this music in its own system but rather served as a centralized database, or directory, of the names of individuals who had copies of music that they were willing to share. Individuals swapped songs in the form of MP3 files between their computers with the help of Napster. While the major record labels were laboring to develop technology that would provide secure transactions to protect the copyrighted material of their artists, Napster beat them to the market with a method to spread music online at no cost to the listener. However, in February 2001, the United States Court of Appeals for the Ninth Circuit agreed in the main and ruled that Napster’s Websharing services infringed the copyrights of artists and record labels.

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The Hybrid Company

In the future, music can only be made available with the permission of the copyright holder. The Napster ruling changed the terrain for intellectual property sharing over the Internet, shifting the burden back to the entrepreneurs themselves to protect their rights to copyrighted material, whether music, books, articles, movies, or any other transferable property. The threat of an injunction, however, didn’t stop a host of others, including Gnutella and Freenet, from continuing their operations with renewed passion. These companies had the advantage of being more difficult to track because their directories were spread over computers throughout the Internet. (Intellectual property protection, including copyrights, patents, and trademarks, is covered in greater detail in Chapter 12.)

ASP Revolution Application service providers (ASPs) make continuous use of software among different companies, using licensing fees instead of high development costs to create and distribute software for long-term use. A software development company can make its software, or applications, available to its clients via the Internet. Clients can pay a relatively small fee for frequency of usage, far less than if the software were developed for one-time-only use by a single customer. A potential software sale is thus transferred into an e-commerce sale. Customized Internet applications are a hot concept now.

Wireless More than half of all Internet traffic will move over wireless equipment within two years, predicts International Data Corporation. The wireless Web, or “unstrung” Internet, offers promises of the convenience of receiving our Internet information from any number of portable devices. Sprint PCS was first with Wireless Web, and most cell phone companies followed quickly. AT&T arrived late on the scene with Digital PocketNet. But we’re not quite at the point where the technology can be used simply. Wireless application protocol (WAP) technology has hit nothing but snags. Designed to provide secure access to Internet informa-

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tion and services, the WAP screens in general are small and of poor quality, to mention just a few flaws. Nokia, Ericsson, and Motorola were to deliver the earliest equipment but fell far behind. The image of the sleek, refined, flawless interface hasn’t been realized. We’re getting there, but the devices are still clunky. And different devices are not yet interoperable. We’re using Palms, cell phones, laptops, pocket PCs along with desktop computers, but to date a wireless standard like the wired Windows to pull all these together is absent. Information providers still need to reformat their Web pages to fit display screens of different shapes and sizes. Putting aside the hype, until content can be easily adapted among all devices, efforts are tedious. Ease of use will strongly influence the adoption of wireless technology. When more devices to access the mobile Web catch up, experts predict that our Internet usage patterns will consume even greater portions of our time. Nokia’s experts predict that moment is soon and that 1 billion wireless devices will be used to access the Internet by 2002.

Handheld Devices The most popular platform for e-commerce will most likely be handheld computers, as prices continue to plummet. Experts have predicted that when Palms reach $200, they will also reach critical mass. Will they be the choice gadget to view the Internet? Possibly— but will we be able to stand those teeny, tiny images or soundbites of Web sites? Palms have increased in popularity, but the rapid advancements in voice technology may soon limit their appeal. Odds are that we’ll seek options, multiple alternatives in technology, just as we seek multiple channels in purchasing. There’s no denying the draw of any gadget that can be cradled in your hand, slipped into your pocket, or stashed in a purse or briefcase without significant additional weight or bulk.

Mobile Commerce Mobile commerce, or m-commerce, is predicted to become the fastest growing sector of the e-commerce market. Although only

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The Hybrid Company

about one-third of U.S. wireless device owners have attempted mobile online purchasing, according to the Boston Consulting Group (BCG), m-commerce has already begun to have a strong impact in Europe and Asia. Europe, in fact, now claims over half of all the mobile phones in use today. The m-commerce market is projected to reach $200 billion by 2004, with the greatest potential for growth in retail sales, entertainment, financial services, travel, and auctions.

MSPs Managed service providers (MSPs) offer packages of services geared to the technology infrastructure. MSPs handle more than just hosting; they take care of network problems, service and system upgrades, data storage, database management, firewall systems, and more. They enable companies to concentrate on their core mission while the MSP deals with databases and Web sites, enabling scalability, reliability, and faster entry into the marketplace. Loudcloud, Chapter 2, and SiteSmith were early entries into this market; IBM, Hewlett Packard, and Dell are moving in the same direction. MSPs and ASPs working together create maximum efficiency. MSPs are expected to comprise about $11 billion of the total $20 billion hosting market by 2004, according to Forrester Research.

Convergence A world in which the Internet, television, and the telephone converge in a world of interactive bliss—that’s where everyone agrees we’re headed. The pace of progress in that direction, however, is slower than anticipated. The general expectation was that convergence would be commonplace by 2000; but the saviors that were expected to make this happen, like Qwest, just didn’t pull through. Bandwidth capacity was a step in the right direction, but installation and delivery of a digital subscriber line (DSL) proved to be a much more tedious process than technicians had predicted. Local carriers fell months, not just weeks, behind schedule while demand increased. And DSL services that were successfully installed failed to

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deliver the speed, capacity, and reliability we expected. Fiber optics, which offers the most capacity at the lowest cost to the consumer, appears to be a low priority for telecommunications carriers because it is not a great revenue generator. Cable modems, the next highly anticipated means of achieving convergence, proved to be even more pathetically unreliable than DSLs. For convergence, unreliability is a disaster. TV-quality transmission needs from 2 to 5 million bits per second, whereas the best scenario for a DSL (when it’s working) is 500,000 bits per second. So we won’t be watching the next installation of Big Brother at television speed immediately; it will be at Internet speed. With an eye beyond today’s mundane constrictions, more creative futurists believe that convergence will be realized in ways that we haven’t yet witnessed— through media other than today’s television or Internet gadgets.

Voice Technology Voice technology may have the greatest impact on our use of the Internet as we gain the capability to speak into screens and microphones for every transaction. When Web customers converse directly with a live representative, the sensation of being in a real store increases sales and enhances customer service. Bringing back the personal touch of the human voice does wonders to dispel the anonymity and disassociation of the Web. Voice technology provider Lipstream, for example, uses software to initiate a voice connection over the Internet, allowing shoppers to talk to a customer representative using their PC microphone and speaker. Voice technology via the telephone has tremendous potential because the telephone is the one component of technology that almost everyone owns. How simple it will be to just list your commands into a phone: “Please check my e-mail” or “Please respond to that e-mail with a fax to Ms. Smith.” If you can pick up a telephone to access all of your resources, what a time-saver. “Demos” of this technology are fascinating. The technology is there, just not available everywhere. Speech recognition technology, which converts the words we speak to digital form, is used by voice portals to search the Internet

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The Hybrid Company

on the basis of specific commands. Voice portals serve the same purpose as Internet portals but have the added advantage of being connected by speech. Speech connectivity eliminates the constriction of working with the tiny screen of wireless devices and makes the Internet easily accessible from any cell phone. It has been predicted that the voice portal market will generate $12 billion through advertising revenue, e-commerce, related hardware, and telephone service carrier costs by 2005.

Interactive Television Interactive, or digital, television has been predicted to merge the Internet and TV, making program selection and purchases accessible on the same screen. According to Jupiter Communications, interactive television will be available to 15 percent of us by the year 2003. We’ll be able to use an interactive programming guide (IPG) to sort programs, make purchases, and check e-mail by remote control. With interactive television, we can play along with game shows, vote people off television shows, compile Internet research while watching a documentary, and shop ’til we drop the remote. When all the prerequisite technologies are in place (including digital cable connections in the home and interactive services), we’ll have the ability to do everything from program a VCR to order the T-shirts worn on the movie of the week. In the interim, we have America Online’s interactive TV service (“enhanced television”) rolling out city by city. With cable companies also competing to become the portal of choice for entry to interactive television, a company called Gemstar-TV Guide has been predicted to hold the edge because of its national capabilities (and patents pending), creating opportunities to draw advertising revenues at the level of today’s Internet portals.

Webcams What a way to shop: move a camera around within a store to do your shopping for you. Webcams are expected to increase sales, although they present the same issues of privacy invasion as does any videotap-

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ing. At Gallery Furniture’s Web site (<www.galleryfurniture.com>), you can zoom in and see from a new angle any product you may be interested in; as seen in Figure 2.1, this site features a Webcam with live showroom views. F.A.O. Schwartz (<www.fao.com>) lets you shop by brand and explore individual products in more detail. Perceptual Robotics in Illinois created the system and has installed cameras in stores of all types. And this was before Big Brother monopolized voyeuristic television.

Electronic Publishing When Stephen King decided to do his own publishing and released The Plant as an electronic book in 2000, he said, “I have a sense of being in a place and time where I might actually make a difference in how people view the Web.” He hoped to promote online

FIGURE 2.1 GalleryFurniture.com features a Webcam and live showroom views.

© Gallery Furniture, Inc. Used with permission.

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publishing by demonstrating that it can work as a profitable venture for any writer. His honor-system payment plan requested anyone who downloaded a chapter to send him one dollar. If at least 75 percent of the downloads were not paid for, King said he would stop writing. Will electronic publishing replace books in the future? Experts argue pro and con. The complex issues of P2P file sharing and copyrights return to the forefront. At the same time, opportunities for exposure to new writers and artists, freedom from restraints imposed by major publishers, and the opportunity for creative talent to command a bigger piece of the action have a definite draw. King plans to keep his commitment to his publisher and will print a traditional version of The Plant if it is a success. Allegiances between “creative and corporate” are not yet ready to be dissolved for King or for new talent.

Taxation with Representation The New York Times ad described at the beginning of Chapter 1 was paid for by the Turning Point Project, a coalition of some 80 nonprofit organizations that opposed the five-year extension of the tax moratorium on e-commerce activity. “It will mean less tax revenues for public services like schools, transportation, hospitals, fire and police,” the ad declares. Is money not collected over the Internet really a “loss” or just not a gain or a surplus? Congress passed the Internet Tax Freedom Act in 1998 and in 2000 voted an extension to 2006 after heated debate that crossed party lines. Taxes on sales have been viewed as virtually impossible to collect from e-commerce companies because of vast differences in taxation policies from state to state and in spite of limited efforts to remedy the problem. Forty-five states tax retail sales in stores, generating over $150 billion annually, or one-third of total state revenues. The National Governors’ Association is particularly concerned, standing almost unanimously (42 out of 45) in favor of lifting the tax moratorium on e-commerce. On the other hand, perhaps the growth of e-commerce will force the issue of simplifying state tax laws to provide equality for bricks, clicks, and catalogs. It would certainly simplify tracking and pricing for hybrid companies.

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Chapter Summary 1. Business models based on quick public offerings were reevaluated after the first dot-com shakeout occurred in spring 2000 and overvalued technology stocks reached more realistic levels. The plunge raised the specter of fear that secondary rounds of financing would be questionable for companies that failed to show a profit quickly—the Amazon.com business model was no longer invincible. 2. Market exchanges and auctions are two phenomena to watch closely in the evolution of the marketplace. Business-to-business exchanges, uniting commercial buyers and sellers, have emerged as a dynamic alternative to dealing with individual vendors. 3. In a new wave of mergers, companies have united to serve the same market under the strongest brand or have created whole new domains to launch an online presence quickly while eliminating competition. 4. Hybrid companies are forced to face immediately the impact of new technological developments that include peer-to-peer file sharing, ASPs, MSPs, m-commerce, convergence, interactive television, wireless devices, handheld computers, voice technology, Webcams, and electronic publishing.

Hybrid Leaders and Their Strategies for Success

3

Parameters of Success Should hybrid companies be judged by traditional standards of profit and loss or by the new economy methodology of measuring current stock prices? Have hybrid companies earned a position that entitles them to their own standard? In reality, hybrid companies will have to meet the toughest standards of both the old and the new economy. Some experts believe that salvation for dot-coms lies in the pursuit of old economy principles; others insist it’s time to create new criteria. For several years while Internet stocks reigned supreme, over $1 trillion in new wealth was created. If we truly live in a “network society” where profits and economic expansions trivialize historical accomplishments, our potential is virtually limitless. With the Web as the ultimate network, the more a corporation invests, the lower its average costs. Once the mind-numbing cost of initial investments in technological infrastructures has been accepted, the price of accruing additional customers is insignificant. Remember the old economies of scale and market domination? Just check the Media Metrix (now Jupiter Media Metrix) list of the top 50 corporations to

30

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see who’s really making progress. Many are high-volume megasites: AOL (in search of the highest volume of subscribers), eBay (seeking the greatest volume of auction participants), and Amazon (in search of the largest number of products and customers on earth). But size isn’t everything. The best of the new hybrid companies share a core set of characteristics that position them to do more than handle hygiene items. They also take advantage of growth opportunities as they arise. They are masters of merchandising, specialists in market segmentation, brand builders, aficionados of affiliations, and future focused. How do these common traits give them an edge in the multi-channel universe?

Success Strategies Defined Successful hybrid companies operate within a set of strategies that influence their position in the marketplace positively. These strategies and their characteristics are described in the following paragraphs and summarized in Figure 3.1.

Brand Builders Successful hybrid companies strive for differentiation in a market niche, leveraging first-mover advantage in a hot market and securing a leadership position through brand building and continuous innovation. Many successful hybrid companies aspire to understand and to excel within a market niche. The road to liquidation has been paved with the remains of companies that tried to be all things to all people. Federated Department Stores Inc., proud owners of Bloomingdale’s, Macy’s, and other mid- to high-price stores, attempted to stretch its reach in what turned out to be an expensive mistake. Federated combined Fingerhut, a downscale direct marketing company, as a single corporation with its upscale companies, creating a mess. Fingerhut offered a catalog and Web presence, a good combination

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FIGURE 3.1 Success Strategies of Hybrid Companies Strategy

Characteristics

1.

Brand Builders

In a market niche: • Differentiation • Innovation • Leadership

2.

Channel Synchronizers

Intelligent integration of: • Databases • Applications • Networks • Human resources

3.

Merchandising Masters

Expert in: • Product demonstration • Order placement • Inventory tracking • Packing and shipping • Repairs and returns

4.

Customer Centric

Focused on: • Interactivity • Use of feedback • Personalization

5.

Alliance Builders

Use alliances/partnerships to: • Complement strengths • Fortify weaknesses • Create dynamism • Reduce competition

6.

B2B Maximizers

• •

Active in exchanges Power through connections

7.

Future Focused

• • •

Quick to adapt Guided by a strategic vision Entrepreneurial attitude

for multi-channeling. Its target market, however, was so different from Federated’s primary customer base that common procedures and policies failed miserably. Specifically, when Fingerhut raised its credit lines, made credit easily available, increased late fees, and

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switched from monthly installment payments using a coupon book to a simple monthly billing statement, Fingerhut’s customers delayed bill payments or stopped paying entirely. Although many large traditional companies had an edge in branding when they moved to the Internet, they lost that edge quickly when they failed to create a Web site image that supported their offline image. Online branding strategies have become a specialty in their own right. Less than the best on the Web? It can send an established brand into a tailspin. This puts pressure on Web site designers to fully understand the brand, not just the technology to place the brand online, and pressure to be consistent with the image. The Gap has one of the most congruous approaches in presenting its brand in a click, brick, and catalog format of any company. When its store windows featured Capri pants and colored T-shirts, so did its catalog cover, its television and print advertisements, and its home page. Whenever its campaign changes, it changes in every mode almost simultaneously. Crisp, clean, and uncomplicated to the customer, the process takes tremendous coordination behind the scenes. Every component has to be in sync. QXL.com, a relatively unheard-of Internet auction company, is on the move to a leadership position in Europe, attempting to beat eBay for dominance in this marketplace. The QXL logo and image are always consistent from nation to nation, but advertising, promotions, and special offerings are tailored to what’s hot or what’s not in each country. A key component of its strategy has also been to make the European consumer comfortable with online auctions, so it has included business-to-consumer items, where name recognition helps build trust, as well as consumer-to-consumer items.

Channel Synchronizers Successful hybrid companies integrate databases, applications, networks, and human resources intelligently for the highest consistent quality performance and channel synchronization. Another significant characteristic of the best hybrid companies is that they have begun to thoroughly integrate their databases for inventory, customers, marketing, and fulfillment.

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The first companies to master the database issues were none other than IBM, Kmart, Home Depot, and Macy’s. Macys.com, under Federated Department Stores, established a common database for all of its sales, from its traditional stores and its Web site. Online buyers could return merchandise to the stores without hassle to either the customer or the merchant. Integrated, synchronized customer databases also enable the hybrid company to provide customer service among all its channels. Customer resource management (CRM) technology, which cannot operate without synchronized databases, enables customer service staff to track customer purchases from any part of a company and to respond by e-mail, online chat, or telephone. High-volume B2B and B2C centers benefit tremendously from this method of tracking customers and offering follow-up promotions or product discounts.

Merchandising Masters The most successful hybrid companies master the skills of merchandising, including product demonstration, ordering, inventory tracking, packaging, shipping, handling repairs, and dealing with customer returns. They become experts at providing customer service for all products, across all types of verticals. The definition of inventory for hybrid companies crosses clicks, bricks, and catalogs. Hybrids share and coordinate information about inventory, with online stores collaborating with offline shelves. Vendor relationships, volume discounting, sales projections, product forecasting—all facets of business that traditional retail models know well—have equal significance for the online business. Online businesses that have control over warehouses and order fulfillment, like their catalog and brick counterparts, fare best.

Customer Centric The best hybrid companies create a customer-centric focus, encouraging an active dialog and incorporating customer feedback

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into product and process enhancements while providing personalization of customer service. BizRate.com, which tracks e-commerce customer satisfaction, found that the quality of customer service influenced whether an online shopper returned to a site more often than did price, on-time delivery, or other factors. Customer satisfaction online should parallel the quality of offline service. Hybrid companies have learned the importance of personal contact, both in stores and on their Web sites. Customer service representatives need to be available to handle phone calls, whether the calls come while a customer is flipping through catalog items or while navigating the Web. Personal e-mail responses that directly deal with a customer’s question or problem also make a big difference. The best hybrid companies integrate all they know about both online and offline customers and use this information to guide their marketing strategy. Information about online behavior, customer profiles, click-stream data, and purchase history is assessed in conjunction with offline information from psychographics, direct mail responses, and customer service inquiries. The collective synthesis of online and offline customer data can generate enough information to formulate profiles of the ideal (or most profitable) customers. An “ideal customer” profile can provide insight into product design, placement, promotion, and pricing. The subsequent “intimate” knowledge of any individual customer can generate well-designed personalization programs across multiple channels. Personalization software can recommend online purchases; the same detailed customer knowledge can be used to tailor catalog contents or provide personal suggestions from the human sales support staff in a physical store. Places where “everyone knows your name” are endearing and enduring, whether they’re online, offline, or on paper. With an eye to the future, successful hybrid companies excel in customer service, which in turn helps them to retain customers. The same personalization that is used to entice shoppers to become buyers is transformed into follow-up sales support in the form of live online help, e-mail support, telephone support, and responsiveness beyond FAQs (frequently asked questions). Forrester Research found that 71 percent of online shoppers who needed customer

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service used e-mail first; 51 percent placed a telephone call. A report by research firm Datamonitor found that e-tailers that do not offer live customer service from representatives in call centers lose customer loyalty. Forrester Research found that 90 percent of satisfied customers are likely to visit a Web site again, and 87 percent will spread the word to family and friends about the site.

Alliance Builders Hybrid companies thrive through dynamic partnerships, seeking relationships that balance their own strengths and weaknesses. The most successful hybrid companies forge alliances and partnerships that complement strengths and fortify weaknesses, creating the dynamic impact of a single powerful force. They share information with their partners and increase their mutual value. W.W. Grainger, the largest U.S. distributor of maintenance, repair, and operations supplies with over $5 billion in annual sales, transacted about $267 million in 2000 through its Web site. In addition to the company’s seven-pound catalog, it owns a network of 350 outlets for direct customer pickups. Partnerships have played a significant role in the success of Grainger’s Web strategy. To supplement its original Grainger.com site, the company established two additional Web sites: OrderZone.com, which represented five noncompetitive purchasing companies (office supplies, safety equipment, uniforms, electronics, and lab supplies), and FindMRO, which tracked down hard-to-find items from suppliers’ catalogs. The company has now consolidated their “digital businesses” into a new organization called Material Logic. The goal of Material Logic is “making MRO simple eBusiness,” working to connect the distribution industry with customers. How Grainger has built alliances and partnerships is shown in Figure 3.2. Simple partnering has had widespread appeal through affiliate programs. Affiliate programs gained popularity in early Web days as a vehicle to increase sales among retailers with complementary products, between content-focused Web sites and retailers, and between serviceoriented Web sites and product providers. The methodology was sim-

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FIGURE 3.2 W.W. Grainger, Inc. builds alliances and partnerships to streamline operations, satisfy the MRO product needs of its customers, and reach new target audiences.

© W.W. Grainger, Inc. Used with permission.

ple, using Web links built into each affiliate’s Web site. In some cases, commission structures are established; in all cases, the goal is to keep shoppers engaged in a network of affiliated sites that serve similar lifestyle needs, while at the same time they complement and benefit one another. Although affiliate marketing may not account for a huge profit, creative forms of online and offline partnering offer a greater potential in hybrid companies than in any other business form.

B2B Maximizers Successful hybrid companies engage in business exchanges or Internet marketplace exchanges that provide access to the business-tobusiness market.

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Business-to-business e-commerce is still predicted to be the largest growth area for large and small businesses alike. The greatest largescale opportunities for growth can therefore be derived from securing a solid footing in B2B sales. The new electronic marketplaces extend beyond one company’s selling to customers in another company. In marketplace exchanges, groups of companies in the same industry use the same Web site to buy and sell products and services. Even a small hybrid company can achieve almost instantaneous exposure for its products and services to a vast number of businesses by becoming a participant in a marketplace exchange. Reverse auctions offer additional opportunities for exposure to specific target markets. In reverse auctions, groups of buyers band together in the same marketplace to post their needs to purchase goods. Traditionally, the bidding process for corporate business has been confidential, even to the point of sealed bids. No supplier knew the prices proposed by its competitors. In online auctions, every business knows what every other business has bid. As a result, buyers can reap the benefits of reduced prices as competitors vie for the largest market share. One of the largest reverse auctions is the marketplace formed by Ford, General Motors, and DaimlerChrysler. Suppliers can bid online for the orders of the automakers. Although some purchasers and consumer advocates argue that this marketplace is tantamount to collusion and as un-American as monopolies, others see long-term benefits to both sellers and consumers through the process of open bidding and consolidated ordering.

Future Focused The best of the hybrid companies position themselves to respond quickly to changes in the marketplace or in technology by nurturing a strategic vision, embracing entrepreneurial attitudes, and remaining future focused. Leaders of hybrid companies let go of traditional methods of operation, take risks on new processes, and embrace experimentation.

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They critically evaluate the very processes that have helped them to become a legacy; they discard what doesn’t help them advance toward their future market.

Creating New Business Models Hybrid companies selected for discussion in this book demonstrate most, if not all, of the success strategies defined above. Each of the companies featured as examples of hybrid leaders has implemented at least five of these seven strategies. Chapter 4 covers companies that began as Web sites; Chapter 5 addresses companies that began as a physical presence or store; and Chapter 6 describes businesses that began as catalog companies and have expanded their presence to include the Web and, in some cases, stores. Every hybrid company seeks immediate sustainable revenue stream and eventual profit. The proliferation of new e-commerce business models indicates that there are a variety of choices for achieving this goal. From merchant models to manufacturers, auctions to marketplaces exchanges, companies have both succeeded and failed with the same business models, often depending on how long they could tread water before becoming profitable. Hybrid leaders today are positioned to develop new formulas and generate new business models. These business models aggregate the strengths of traditional retailers, direct-mail companies, and Internet pure-plays. The case studies I’ve examined point to three business models and three patterns of expansion to multi-channels that appear to have the greatest opportunity to succeed: 1. From clicks to catalog to bricks (storefronts, kiosks, or offices) 2. From bricks to Web site to catalog 3. From catalog to Web site to bricks

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Assessment: Are You Ready to Create a Hybrid Company? It takes planning and coordination to successfully manage just one sales channel. When is your business ready to accept the mandate to multi-channel, and which channel should be added next? To become successful as a hybrid company, your business should address the issues and questions listed in Figure 3.3. (Implementation strategies are discussed at length in Chapters 7 through 12.)

Chapter Summary The set of characteristics that defines the best hybrid companies encompasses seven financial, technological, and human resources strategies. The best hybrid companies do the following: 1. Strive for differentiation in a market niche, leveraging firstmover advantage in a hot market and securing a leadership position through brand building and continuous innovation. 2. Integrate databases, applications, networks, and human resources intelligently for the highest consistent quality performance and channel synchronization. 3. Master the skills of merchandising, including product demonstration, ordering, inventory tracking, packaging, shipping, handling repairs, and dealing with customer returns. 4. Create a customer-centric focus, encouraging an active dialog and incorporating customer feedback into product and process enhancements while providing personalization of customer service. 5. Forge alliances and partnerships that complement strengths and fortify weaknesses, creating the dynamic impact of a single powerful force. 6. Engage in business exchanges or Internet marketplaces that can reach into the business-to-business market in some aspect of the business.

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7. Position the company to respond quickly to changes in the marketplace or in technology by nurturing a strategic vision, embracing entrepreneurial attitudes, and remaining future focused.

FIGURE 3.3 Is Your Business Ready to Become a Hybrid Company? 1. Assess the level of brand recognition your company, products, and services have achieved in your primary (or first) sales channel. • Consider your strength from the gamut of niche markets to local, regional, national, and international markets. • Which new sales channel offers the best and fastest opportunity to reach your target market at a more significant level? 2. Examine your technological infrastructure. • Consider real-time product inventory availability, data about individual customer purchase patterns, sales, and marketing trends. • Identify the functions that are suitable for outsourcing and the functions that require acquisition of in-house expertise. 3. Evaluate your product inventory, sources (vendors, manufacturers, etc.), and storage capability. • If you ship directly from a supplier, consider the option of adding warehouses. • With the next sales channel, will it be more efficient to build/lease warehouses to stock products rather than ship directly from manufacturers? • What arrangement is more suitable for additional channels: a centralized warehouse or a system of decentralized warehouses located near areas of high customer demand? 4.

Determine if current distribution arrangements are adequate for new demands. • Should distribution be in-house or outsourced? • Should new shipping contracts be negotiated to provide more options and better pricing?

5.

How will your business handle returns—from channel to channel, from purchase to returns to inventory? continued

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FIGURE 3.3 Is Your Business Ready to Become a Hybrid Company? (continued) 6. Consider new demands for customer service. • How will you provide responses 24/7 to customer inquiries? • Should a centralized resource (like a calling center) be considered for all channels? • Can this function be outsourced or should it remain in-house when additional channels are added? 7. Assess the quality of your connections with your customers. • Can you apply information about customer behavior from each channel so that valued customers will be recognized and rewarded wherever they shop? • What knowledge management systems should be implemented? 8.

Identify existing partnerships and strategic alliances. • Can these relationships serve as opportunities to exchange or share resources to strengthen your position against your competitors? • Should you form new alliances to guarantee that you are a survivor?

9. Evaluate the potential for expansion to new business-to-business venues with the addition of one or more channels. • Can you reach new business markets or expand sales within existing markets? • How quickly can you move toward new goals and expand in the B2B marketplace? 10. Assess the creativity and vision of your company. • Can you respond quickly to changes in the economy, global marketplace, and business community? • Will your current cash flow sustain you as your business grows and changes? • What financial accommodations will be necessary to sustain channel expansion? • Do you have the leadership potential to take your company into the next decade?

Clicks First

4

T Ò he worst thing . . . right now is a pur e-play dot-com. The more channels a company has to reach the customer the better.Ó —Rachel Terrace, Jupiter Communications When is the time right for e-commerce companies to expand to catalog sales? What are the driving factors? Is the inclusion of a printed catalog for pure-plays a fallback to traditional sales, a reversal of direction? When will a physical presence help, and what kind of presence is optimal and where? How does the addition of one or more channels affect a company’s promotional strategies and overall budget? These decisions affect every pure-play that makes the move to multi-channel, in every aspect of operation, from cash flow to staffing to investors’ perception of return on investment (ROI).

From Clicks to Catalogs The e-commerce company RedEnvelope, Inc., made the decision to add catalogs after its second busy holiday season operating as a pure-play. The catalog it introduced was a glossy, chic, coffee-table

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piece that displayed its products with the elegance of museum pieces. Now, it’s ready and willing to open stores in the near future. Producing a catalog after producing a Web site can be a far less onerous task than starting a catalog from scratch. Much of the groundwork has already been covered, such as photography, item descriptions, pricing, distribution, and customer service. Catalog items have to be well photographed and concisely depicted, so highresolution digital photos for the Web site are able to make a logical transition to the catalog format. Pricing and inventory issues have to be resolved (and sometimes readjusted) for online selling—if e-tailers’ pricing strategies are off, they hear about it or see the results very quickly in diminished sales. Online editorial content, such as advice from experts or contributing columnists, can be recycled to create a “magalog,” a composite of catalog products and editorials. Printed catalogs may bring back mail-order nightmares for some retailers with their high printing and postage costs, inaccurate pricing information, and inventory problems. The Web was supposed to eliminate these problems—why bring them back? The reality is that some individuals are more comfortable with catalogs. The attributes of some items can be more vividly captured in magazine-style photographs than they can on a Web site. RedEnvelope found that larger, higher-quality photos in the RedEnvelope catalog increased sales of specific items that had elicited a mediocre response on the Web site. In addition, catalogs offer an opportunity to generate a romantic image and an emotional response that Web pictures, simplified to download in seven seconds or less, are not always able to achieve. Catalogs allow bigger display size and rich graphics and texture that would infringe on the time to click to a Web page. The catalog can be used as a vehicle to drive traffic back to the Web site for order placement, a less expensive method of processing than the telephone. Alliances formed with investors, technology providers, advertisers, sponsors, vendors, and “copetitors” (i.e., cooperative competitors) translate into a support team of partnerships in additional channels if these allies are drawn into the process of channel expansion from the first decision point. Partners that add value, such as expertise in multiple channels in addition to money or services, are critical to growth.

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Each partner in turn has an opportunity to grow along with the hybrid company and to benefit from multi-channel exposure to a wider customer base. With strong partnerships, the transition from clicks to catalogs and then to bricks can be implemented with confidence. The advantages of adding catalogs to a pure-play Internet business are summarized in Figure 4.1.

From Clicks to Bricks E*Trade’s online brokerage was headed for trouble as Charles Schwab & Co. and Merrill Lynch took the leading positions. The decision to open traditional offices was designed to enable clients to personally meet with E*Trade’s service representatives, building stronger customer allegiance and greater visibility. Customers would be able to seek advice, open a brokerage account, trade stocks, and make deposits into the E*Trade bank accounts. In addition to securing major office space, E*Trade opened 9,000 automated teller machines in gas stations, drugstores, and supermarkets. It also formed an alliance with Target and had a physical presence in Target’s stores nationwide. Online companies that operate with just-in-time inventory from distributors, vendors, and manufacturers have to keep excruciatingly

FIGURE 4.1 The Clicks-to-Catalog Advantage • • • • • • •

Catalog items are already well photographed. Descriptions of products are concise and precise. Editorial content can be adapted and included. Product pricing is established. Inventory is available (but will need to be augmented). Supplier relationships are secure. Alliances with investors, technology providers, and others form an invaluable support team. • Advertisers and sponsors may be willing to move into additional channels.

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accurate track of stock and deal with extreme fluctuations in volume. The transition to storefronts, which may allow a little storage on-site, can be a relief. The process of handling returns is also simpler and more direct when storefronts are added. And customers become a reality instead of anonymous numbers.

The Clicks-to-Hybrid Advantage Pure-plays that expand to multi-channels have distinctly different advantages over companies with a brick or catalog foundation. Although the strength of a well-known, nationally branded store may be an indisputable plus, pure-plays have their own significant edge. Speed, technological expertise (or a great outsourced partner), responsiveness to customer needs, documentation of products and services, content, and alliances are their core competencies. These advantages, some of which are summarized in Figure 4.3, can be the bane of bricks-to-clicks.

Speed. Because the first-to-market advantage is a rule on the Web, speed is a must for survival. Internet companies have no room for corporate decision-making processes that drag through an endless executive hierarchy and require five-year strategic plans. Clicks work “hyperarchically,” directly with key decision makers.

FIGURE 4.2 The Clicks-to-Bricks Advantage • • • • •

The customer base is ready and willing to enjoy face-to-face contact. Customers are predisposed to be loyal. Data about customers are abundant, providing faces to support statistics. Just-in-time inventory procedures are well established. Procedures for tracking stock and dealing with volume fluctuations are in place. • Returns will become far less complicated than in the pure-play mode.

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FIGURE 4.3 The Clicks-to-Hybrid Advantage • Speed • Achieving the first-to-market advantage is a way of life. • Clicks work above the hierarchy and directly with key decision makers. • Technological expertise • Dot-coms have lured the technologically gifted. • They are ready and able with an Internet-savvy staff. • Knowledge of customer needs • Data gathered on a Web site, via e-mails, and by phone provide insight about a dot-com’s customer base. • Instantaneous information is available about customer locations. • These data can help determine store locations and catalog distribution. • These data also provide information that can be useful in the design, style, and format of stores and catalogs.

Technological expertise. Technological expertise (and the unceasing lure of dot-coms for the technologically gifted) is a given, so staffing issues are not the formidable burden they are to any traditional company striving to create a more youthful and innovative image. In addition to an Internet-savvy technical staff, Web site creative directors have often been drawn from the world of print or retail, so the transformation back to their original channel is a simple step.

Knowledge of customer needs. Customer needs can be clearly defined through data gathered systematically on a Web site, via e-mails, and on the phone. And it is possible to gather almost instantaneous information about the source of customers, how they were directed to a site, whether they lingered or left. Data gathered from a Web site can be analyzed to determine who the best customers are, where they are geographically located, what their other interests are, and more. Details in customer data may influence the location and design of storefronts and the style and format of catalogs.

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FIGURE 4.4 Benefits of Expanding from Clicks to Multi-Channels WEB SITE (Clicks First)

to CATALOG

to BRICKS

Catalog has been established.

The print version of the catalog may require only minor adjustments to content and layout.

Not every catalog item has to be physically displayed in a store. Large inventories aren’t required if the product can be quickly ordered from another location or warehouse.

Digital photos are available. Item descriptions have been written. Graphics have been designed.

High-quality photos are able to evoke a positive mood that can’t be captured on a Web site. Rich graphics may take too much time to download on the Web but can enhance a catalog and will be saved. Catalogs often drive traffic back to the Web site or the store for the final purchase.

Customers have indicated a willingness to purchase without trying on/testing.

Customers can keep a print copy and decide to buy at another time (and are more likely to remember your company).

An opportunity to demonstrate product quality. Customers can try on/test products. Returns can be brought directly to a store instead of mailed.

Pricing has been determined. Responses to the need for price adjustments are fast.

With a price foundation established online, the catalog can provide another opportunity to promote seasonal specials or outlet items.

Prices can be adjusted for special promotions. Local price adjustments could be made to promote special items or clear out excess inventory.

continued

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FIGURE 4.4 Benefits of Expanding from Clicks to Multi-Channels (continued) WEB SITE (Clicks First)

to CATALOG

to BRICKS

Customer preferences and purchase patterns are tracked.

Personalization strategies/data can be directly applied to catalogs. Catalog variations can be created for different market niches. Additional opportunities can be developed to track customer purchase patterns.

Personalized (human) service can create additional bonds with the customer.

Speed rules. Fast responses to marketplace changes are a survival requirement.

Experience with nonhierarchical decision making in the Web business can transfer to quick responsiveness in the catalog channel.

Pressure to create a traditional management structure can be relieved when Web success points to “hyperhierarchies” as a viable alternative.

Technological expertise to run Web operations is established (whether in-house or outsourced).

The catalog business will not be drained by trying to redirect tech resources.

Staffing could be less difficult than staffing a pure-play operation. Personnel hired for the storefront require expertise in merchandising and sales rather than in the more competitive Web implementation skills.

Personalization techniques can be used. Database analysis provides details about locations of shopper concentrations.

Data gathered online about locations of customers can identify best locations and design for stores.

When Clicks Established First: Case Studies The following case studies illustrate that when a hybrid company starts as an online business, opportunities for growth are abundant.

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Even hybrid companies with only two channels have made this list by excelling in at least five of the seven success strategies outlined in Chapter 3. The companies featured in this chapter began as pure-plays and expanded to include a catalog and a store. Some of these companies have taken the leap into all three channels. The hybrid companies featured in this chapter are: • • • •

RedEnvelope, Inc. eZiba.com ConsciousMedia.com UrbanRealtors.com

RedEnvelope, Inc. <www.redenvelope.com> San Francisco–based RedEnvelope, Inc., Gifts Online was launched in 1999 on the foundation built in 1997 as 911Gifts.com. The most fascinating chapter of the RedEnvelope story is how it successfully pulled its entire strategy together with Internet speed. It is a textbook example for small businesses to emulate, particularly those that aspire to advance from shoestring financing to venture funding. And it serves as a reminder to major corporations that regardless of size, you better have brains and good instincts on your Web site team. Scott Galloway and Ian Chaplin, fellow graduates of the University of California Haas School of Business, founded 911Gifts as their second online venture, a mediocre Web site with mediocre performance throughout 1999. With a small staff and small budget, they survived their first holiday season, but it became clear that the company needed an infusion of both money and new products in order to expand. Galloway sought recommendations for a new merchandising expert, searching for the right person to lead the company’s transformation from mediocre to meteorite. They quickly brought on Hilary Billings, a marketing expert who had contributed significantly to the growth of the Pottery Barn and Starwood Hotels & Resorts. Billings was initially a merchandising specialist but ultimately took over as

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chairman of RedEnvelope Gifts Online. Shortly after her arrival, major changes to the corporate mission and the Web site were introduced. As an early step, the name of the company and its Web site was changed from 911Gifts to RedEnvelope Gifts Online. The name change reflected the change in company direction, from selling lastminute gifts anyone could afford to consulting about thoughtful, tasteful gifts for an upscale market. When 911Gifts recognized that its potential market extended well beyond the world of crisis shopping—emergency and last-minute gifts—its total vision shifted. The new focus—and new name—were directed toward special “exclusive” gifts for any occasion, no panic necessary. The gift inventory was expanded to include one-of-a-kind items from commissioned artisans and exclusive merchandise from special collections sans sirens and flashing lights. Equal enthusiasm prevailed for the company’s catalog launch, a Valentine’s Day event that initiated a series of holiday extravaganzas.

Brand Builders. At RedEnvelope, each gift is presented with a personal message printed on a gift card placed inside a red envelope, the symbol of “luck, prosperity, importance, love, and power,” according to an Asian tradition of giving special gifts in this manner. The image of a bright red box adorned with a graceful white bow is repeated throughout the Web site, reinforcing the connotation of “special” as a prominent theme, a huge improvement over the emergency room images conjured up by the name 911Gifts. RedEnvelope is described as “the complete gift solution for discerning givers,” a far more flattering description than the blatant “I almost forgot about you!” that was implied by the return address of 911Gifts. This is a classic demonstration of how a brand name can kill or resuscitate a company’s image. Channel Synchronizers. RedEnvelope constantly updates its inventory so that customers know immediately if an item is in stock or when it is expected to be. Real-time inventory is a plus for both the customer and the company. When customers place an order, they are assured that the items they select are available. RedEnvelope’s cata-

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log and Web site are in sync. Both phone and fax orders are encouraged in addition to orders placed online.

Merchandising Masters. Billings’s arrival signaled the decision to shift focus to merchandising from engineering to fix the problems of 911Gifts, a dramatic departure from the strategy selected by other rising dot-coms. Billings had experience in brand development at Starwood Hotels & Resorts, where she had created upscale W Hotels, and at Williams-Sonoma, where she had developed the Pottery Barn catalog. Her combination of branding and merchandising experience gave RedEnvelope.com the infusion of creativity and energy it needed to get out of the ER and go beyond recovery to exuberance. When Billings gained the position of CEO, the company launched both a new name and a new mission, dramatic outside indications of a new internal focus on the fundamentals of merchandising. An exciting and upgraded product line specifically designed for an upscale market was a clear signal that this company’s makeover was more than just a domain name change. Marketing the change was equally as important as the change itself. Discarding television rate scales as prohibitively expensive, RedEnvelope Gifts Online went straight for a high profile in other media that reached its target market: print (including newspapers and magazines), billboards, buses, and kiosks as well as targeted e-mails to 911Gifts’ Web site customers and visitors. RedEnvelope’s successful marketing effort offers new hope to any small business that cannot afford television advertising but hopes to reach its unique demographic target through media alternatives that don’t threaten its economic survival. According to Nielson NetRatings, more than 17 percent of those who saw RedEnvelope’s banner ad clicked on it, compared with a standard click-through of only 2 percent. And almost 6 percent of those who visited the Web site bought something, compared with the industry average of 2 percent. But if RedEnvelope couldn’t deliver its products on time, it wouldn’t matter how sophisticated its marketing campaign was. RedEnvelope has not invested in setting up its own warehouse and shipping center; instead, it outsources. Order fulfillment is handled by an Ohio company called 3PF.com, specialists in warehousing and

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order fulfillment for companies that don’t want the burden and cost of maintaining and shipping inventory. 3PF.com provides the overnight shipping guarantee that has been so crucial to RedEnvelope’s strategy. Merchandising concepts influence the content of the home page before major holidays, when a big sales push is on. Items selected for display on the home page secure their position based on appeal to their target market—both women and men with money to spend on elegant gifts. Web site sales are monitored closely, particularly during holidays, and gift items that are not fast sellers are quickly replaced with new items.

Customer Centric. Customer convenience and contact are important priorities for RedEnvelope. At a minimum, everything is 100 percent satisfaction guaranteed. Convenient features such as “Multiple Ship To” make this an easy site for business owners, managers, and others to send the same gift to several people with a one-stop checkout process. The RedEnvelope search engine provides targeted results by price, occasion, interest, and product category. A special 911Gifts Collection, a carryover from the company’s early days, serves as a Band-Aid for last-minute gifts: order before midnight and it will arrive the next day. RedEnvelope expects to provide customers with perfect, thoughtful gifts; it also successfully establishes and maintains thoughtful personal contact with customers through its Web site. Live chats are available from the home page. Real-time online customer attention with live chat capability enables customers to reach a customer representative, who provides quick answers to customer questions. This personal touch provides a great advantage over other retail sites. Customers can access the Live Chat feature from almost every page on the Web site, so no time is wasted. Gift Reminders is a customized memory jogger e-mail service for special occasions that also offers gift suggestions. Most important of all, during its busiest holiday season RedEnvelope filled over 98 percent of its orders accurately and on time. Returns were extraordinarily low, averaging 2 percent compared with industry averages of 8 percent.

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Alliance Builders. Online portals proved to be the most valuable early allies. America Online, the Microsoft network, Yahoo!, Excite, Go.com, Lycos, iVillage.com, and Women.com were approached to place RedEnvelope in the heart of online activity. A total of $2 million was invested as flat fees or sales-based fees. Portals were identified as the best source of connections for RedEnvelope because of their extensive reach as well as their relatively reasonable cost. AOL can demand seven-figure fees for partners, but portals are a steal with only one comma in their total cost. Sales figures from Mother’s Day 2000 reflected revenue increases of 700 percent over the previous year, a solid indication that RedEnvelope’s strategy was working. In addition, RedEnvelope formed partnerships with retailer J. Crew and online greeting card company Egreetings.com, which also contributed to its growth. The popular Live Chat customer communication feature on the RedEnvelope Web site is provided by FaceTime Communications, a provider of real-time person-to-person online communications solutions. FaceTime uses a real-time instant messaging platform licensed from AOL and run on AOL’s Instant Messenger Network.

eZiba.com <www.eziba.com> Handmade items from around the world are the niche of eZiba.com, a clicks and catalog company. The company was created to “unite commerce, technology, art, and humanity,” just about as lofty a mission as one might imagine for a company whose products include miniature statues and handbags. On a more down-to-earth level, it is in fact a miniature global marketplace representing artisans whose work might not otherwise reach a market beyond their own village. Products are jewelry, clothing, home accessories, and gifts. With a catalog designed to attract new customers to its Web site, the first mailing went out to over 500,000 people. EZiba realized direct advantages with its catalog, primarily because of its method of order processing and inventory control.

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Brand Builders. Exotic. Ancient. Unique. The Web site name is derived from the Persian word for beautiful: ziba. The aura of exclusivity is preserved by the limited quantities that are available for each handcrafted item and constantly changing offerings. The exotic stories woven into the history of the items are preserved through educational narratives included as background information on the Web site. The people behind the products come alive through the stories on the site. Merchandising Masters. Inventory management for any company is difficult when a catalog is distributed, but for eZiba it is less difficult. EZiba does not stock huge quantities of any of its products, all of which are specialty items produced in limited amounts. A small catalog featuring only products that can be provided in somewhat larger, but still limited, quantities suited eZiba perfectly. The company was thus not driven to mass mailings à la Sears Roebuck. EZiba is headquartered in MASS MoCA, a contemporary art museum and hi-tech center in North Adams, Massachusetts.

Customer Centric. This site is simple to use, attractive to the eye, and interesting to read through. A browse through the online catalog is a lesson in geography and history all in one. It’s more like a tour of a museum than a shopping trip, except that all of the employees and staff are friendly.

Alliance Builders. Amazon.com invested over $17.5 million in eZiba.com to introduce its products worldwide, which gave Amazon about a 20 percent stake in the company. An agreement with Yahoo! positioned eZiba as a featured store on Shopping .Yahoo.com. EZiba is showcased in promotions on Yahoo’s home page and has “fixed button placement” in several categories of goods, such as Luxury, and Arts and Collectibles. The goods are also part of Yahoo’s direct marketing programs for holidays and special promotions. This is great exposure for eZiba in addition to providing a strong relation-

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ship that can speed its growth by attracting a much broader market than it could reach on its own.

Future Focused. Specialty items are a hot niche, and in a thriving economy we’ve seen specialty sites forge ahead, gaining large volumes of Internet traffic when the commonplace languished. EZiba has made itself distinctive enough—and flexible enough—to continue to generate interest. And it has the entire world as its potential source of new products and ideas. It could take quite a while for eZiba to run out of ideas . . .

ConsciousMedia.com <www.consciousmedia.com> This Alexandria, Virginia, company founded in 1999 by James Jacobson offers New Age books, music, and videos for the “body, mind, and spirit.” Jacobson has ten years’ experience as founder of Wave Communications, a New Age video company, and carries many of the same themes forward in his Internet company. The Web site for ConsciousMedia.com encompasses over 50,000 titles in about 26 subject categories. The site also features interviews with famous New Age authors and philosophers and book reviews by gurus; prices are discounted up to 40 percent. ConsciousMedia.com has achieved status as a hybrid company using two strategies that simulate the effect of building its own physical stores: exhibits at national trade shows and partnerships with local retailers. ConsciousMedia.com creates its own road show of a traveling bookstore and runs the circuit of New Age conferences and trade shows all over the country. It creates the effect of a temporary bookstore, transporting all of its own Internet stations, shelves, point-of-purchase merchandise, and a representative sample of book titles. Exhibits at trade shows are intended to build a broader customer base and to continually direct new traffic to its Web site. They’re also intended, according to Jacobson, “to help raise planetary consciousness.” The second strategy is to partner with traditional stores through its ConsciousMedia Partnership Program. The partnership program

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offers 10 percent of all sales from every order placed by a retail partner’s customer. Cross promotion is another part of the package. ConsciousMedia.com promotes its partners’ book signings and instore events, and helps local stores track down authors and speakers who are willing to participate in events in their geographic area.

Brand Builders. If you’re not into New Age authors and speakers, the name Thich Nhat Hanh may seem like a series of typographical errors. The title of his videotape Peace Is Every Step was prominently featured one month on the ConsciousMedia.com Web site along with his book Teachings on Love and his CD Drops of Emptiness. Even if you have never heard of Thich Nhat Hanh, you get a strong sense of his mission from the ConsciousMedia.com home page along with an invitation to swim with the dolphins. You aren’t going to be ordering a Palm Pilot from this Web site any time soon unless it comes preequipped with digital relaxation techniques to remove stress from your life . . . which, by the way, is a page on the Web site: an offering of recordings (Music for the Mozart Effect) designed to increase your memory and spatial intelligence through soothing music.

Channel Synchronizers. This company works with limited, justin-time inventory and tracks it all through one central database. The trade show exhibitions show only a limited inventory, and the Web site is used for placement of all orders from trade show and retail partners’ physical stores.

Merchandising Masters. ConsciousMedia.com handles everything in-house. Fulfillment is a particularly important area to this company because it represents direct contact with customers. The company has books sent from its distributor to its own fulfillment center in Alexandria for shipment to customers.

Customer Centric. The entire Web site and in-store connection is about making customers feel better and providing an opportunity to improve their quality of life. The site reinforces this attitude and encourages a dialog between customers and ConsciousMedia.com. A very non–New Age-looking character greets site visitors on every page

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to offer a one-click connection to live customer service. You can connect online or by phone or ask questions by e-mail. A weekly newsletter filled with articles by the company’s own experts, volunteer gurus, and well-known authors keeps a steady stream of new information flowing into the site.

Alliance Builders. The partnership programs built by ConsciousMedia .com are designed for both Web site owners and traditional store owners. ConsciousMedia.com strives to diminish traditional booksellers’ fears of cannibalization by online stores. The early success of the partnership program with individual Web site operators made it clear that the program was a good one and that ConsciousMedia needed to intensify efforts to bring booksellers on board. Booksellers needed convincing, and showing the potential for profits seems to be the way to their hearts. To win them over, ConsciousMedia.com has offered workshops for traditional bookstore owners at the International New Age Trade Show (INATS) to teach them how they can actually make money through partnerships that align them with the online bookstore at a comfortable rate of 10 percent.

B2B Maximizers. ConsciousMedia.com realizes that its long-term success depends on its association with bookstores, not merely with individual New Age Web site promoters. It has set its goals on the larger market rather than on communicating directly only with individual consumers.

Future Focused. ConsciousMedia.com has an eye on future bestselling New Age material, serving as a representative of independent authors and artists. The Access Program invites authors, recording artists, and video producers to contact ConsciousMedia for promotional help. Besides building future contacts with artists, authors, Web site owners, and booksellers, the company works to build a lasting reputation. The mission statement places as high a priority on value systems as on technology systems. The business plan includes eight steps of “Values in the Workplace,” a blueprint for creating a team that enhances the performance of every individual member. The list of values includes embracing diversity and “recognition and thanks,” with a sin-

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cere emphasis on employee empowerment. Although its headquarters office addresses physical comfort and provides a sauna, hot tub, and steam shower, the corporate culture encourages spirituality and community involvement. It’s a change of pace from the dot-com anecdotes that most often make headlines and include tales of terrible work hours and work hard–party hard mode. It’s an attitude that just could keep the company, as well as its employees, alive and kicking long after other dot-coms burn out.

UrbanRealtors.com <www.urbanrealtors.com> UrbanRealtors.com is a full-service realty company for homebuyers and sellers, renters, developers, Realtors, and businesses. The company features over 30,000 multiple listings (MLS), virtual house tours, satellite navigation assistance, and other unusual features. UrbanRealtors.com conducts business via a Web site and local offices staffed by licensed real estate agents and loan officers.

Brand Builders. UrbanRealtor.com strives to be a consultant of sorts to people and businesses that are buying and selling homes and offices. Their slogan is “Virtually all you need in the realty world,” and they have worked to include every possible service and feature connected with real estate. Its Resource Center has tools to help calculate mortgage payments, advantages of buying versus renting, forms, and statistics (demographic, school, crime, and more) to keep buyers informed.

Channel Synchronizers. The databases of houses, apartments, and commercial real estate listings are provided by partner companies that specialize in each area of information tracking and access. (See the list in the “Alliance Builders” section for the names of about 15 partners who make this Web site work.) Merchandising Masters. The MLS (Multiple Listing Service) takes the headache out of handling large inventories of houses. UrbanRealtor.com accesses this database and tracks only its own exclusive listings pre-MLS.

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Customer Centric. UrbanRealtors.com offers homesellers all the conveniences of a local real estate broker with the added convenience of a Web site. Homes are listed in the MLS database and on the UrbanRealtor.com Web site, with additional listings in Cyberhomes, MSN’s Home Advisor, Realtor.com, and Realestate.com. Because featured advertising and yard signage are typically expected from real estate agents, the Web site’s special features, such as a 360° virtual tour of a home from the Web site and real estate portals, are great enhancements (see Figure 4.5). A unique Urban FSBO (For Sale by Owner) Program provides signage, virtual tours, online marketing, and a 2 percent fee for individuals who are more interested in selling their home on their own—no MLS, no Realtor. Alliance Builders. Partners are responsible for bringing the latest technology and data to UrbanRealtors.com. ApartmentWorld.com pro-

FIGURE 4.5 UrbanRealtors.com excels in personal services for their customers, including a Personal Planner, Resource Center, Virtual Home Tours, and Home Consultants/Realtors at local offices.

© UrbanRealtors.com. Used with permission.

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vides the online database of local and national apartment listings. LoopNet, Inc., provides commercial real estate listings. Magellan Corp. created the voice-activated global positioning system (GPS) that is used in UrbanRealtors.com company vehicles. Stellar Mortgage provides home financing services. UrbanRealtors.com owns an Allstate franchise for insurance services. Banks, accountants, lawyers, design companies, and content and technology providers round out the services.

B2B Maximizers. UrbanRealtor.com targets commercial real estate, developers, and other Realtors, creating maximum opportunities outside the limitations of individual homebuyers and expanding their potential to serve a larger market. Other Realtors can work with UrbanRealtor.com to market their own services and can access the virtual tour service for their MLS listings for $49.95. UrbanRealtor .com also offers basic Web sites for other Realtors from $25 per month and up, as well as comprehensive Web sites for larger brokers. The sites include access to its mortgage, insurance, and title-closing services through Certified Business Arrangements. Developers are offered marketing programs and value-added services to help them attract buyers. UrbanRealtor’s commercial business division finds commercial space for office, industrial, and retail companies to buy or lease, again offering virtual tours of the property that are such a successful feature with homebuyers.

Future Focused. This is a company that understands the importance of staying one step ahead of its competitors to attract and retain business. The virtual tours, satellite navigation, and talking-house technology add interest as well as services to the Web site and an advantage to the real estate agents in the local offices.

Dot-Coms, Now Hybrids, Worth Watching Recent announcements have provided provocative sneak previews of recently launched hybrids and announcements of new hybrid companies that will surely have stories to tell in the months to come. As this book goes to press, I’ve identified two such companies, whose stories are highlighted below: E*Trade and IdeaForest/Joann.com.

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The E*Trade Group, Inc. <www.etrade.com> Certainly not new to the online brokerage venue, E*Trade has announced plans that it will become a hybrid company to strengthen its position against the competition. E*Trade’s hybrid strategy is in the form of E*Trade Zones, offices, and automated teller machines (ATMs). The pilot program of E*Trade Zones kicked off in a SuperTarget discount store in the Atlanta area. Shoppers can talk to a service rep and open a brokerage account, trade stock, or make E*Trade bank account deposits. New customer-focused offices are located on Madison Avenue in New York City, are staffed by customer service reps, and provide customers computers and a café. There are about 9,000 ATMs in drugstores, gas stations, and supermarkets. Moving to the street has the potential to open up E*Trade to a broader market than its current customer base of tech-savvy, investment-savvy customers. Although the customer base has been increasing, E*Trade has not seen increases at the same dramatic rates that Charles Schwab has enjoyed. But providing customer access by phone, customer service reps, and the Internet, E*Trade moves into the hybrid arena of Charles Schwab and Merrill Lynch.

IdeaForest and Joann.com <www.joann.com> In a strategy it has dubbed “clicks, bricks, and clicks,” online retailer IdeaForest joined forces with the arts-and-crafts retail chain Jo-Ann Stores, Inc., to launch the Web site Joann.com and a one-hour weekly television show, Joann.comÕ s Creative World. The partnership between IdeaForest, Jo-Ann Stores, and ValueVision Television is designed to serve consumers anytime, anywhere. The Joann.com Web site seeks to brand itself as “the Earth’s largest creativity store,” whereas the television show simply seeks 52 weeks of creative home and holiday ideas presented by an entertaining lineup of experienced television contributors. The project is supported by a multi-channel marketing campaign that includes on-air promotions, print ads, direct mail to Jo-Ann Stores’ regular customers, and in-store promotional displays. Will this endeavor create the synergistic effect it seeks? Arts and crafts is a $10

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billion industry, so if the endeavor catches just a small percentage of the market, it will be a viable business.

Marketplace Exchanges as Clicks Just a few more comments are needed about the most exciting clicks of all: market exchanges. Market exchanges operate in an Internet world, but their participants have some form of physical presence in the traditional world. They aren’t hybrids in the strict sense that hybrid companies have been defined here; however, they create the effect of hybrid companies because of the nature of their members. In Chapter 2, market exchanges were discussed as influential forces in e-business. Why are these clicks so effective? The very idea of whole industries becoming organized and buying and selling to one another is light years beyond eBay. In B2B e-commerce, there are several scenarios in which online marketplaces and exchanges transpire. The most well known is when buyers dominate the scene, and two or three major corporations buy from many different suppliers. The automakers’ Internet marketplace is an example of this type of exchange. A variation on this structure occurs when a few suppliers sell to a large number of customers, as in the steel and chemical exchanges, where suppliers dominate the marketplace. Finally, when many buyers and sellers trade with one another, as in the transportation and construction exchanges, competition and collaboration are more likely to occur and no one group is likely to dominate.

When Dot-Coms Die The year 2000 saw the death of 210 Internet businesses. More than half of these firms were e-commerce companies. Some went down with barely a public whimper. Others crashed and burned in newspaper headlines, including Boo.com, Pets.com, Furniture.com, and MotherNature.com. In a lightly publicized closing, Gazoontite shut down its Web site while the remainder of the company stayed alive.

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Three of these dot-com debacles are worth additional examination here. Rest in peace.

Boo.com A trendy London apparel company that went into liquidation when funding ran out, Boo.com, some might argue, went out of business for simply having an annoying Web site. The animated personal shopper Miss Boo alone could have killed it. Her impact was that of an overindulgent salesclerk. Complex graphics that took too long to load on basic 56K modems made it worse. And trying to get to a product required scrolling and mouse skills worthy of a skilled Sega player. A massive marketing campaign held great expectations and attracted huge numbers of visitors to the site immediately at its launch, leaving no margin for error—or for testing and fixing problems. Before liquidation, the site simply stopped selling. No final sales. No Going Out of Business signs on the Web site. Just closed. Over and out. After Fashionmall.com acquired the company, it appeared there might be a revival, but the transition was slow and tedious. In the meantime, shoppers were greeted with an opportunity to sign up for e-mail updates about the store’s reopening and the chance to translate this into eight languages. The resilient Miss Boo promised from an otherwise empty home page that she’d do all your hunting for you and bring you original styles from everywhere on earth. Well, she’ll certainly try.

Pets.com San Francisco–based Pets.com, which sold pet food and supplies, was ranked the number one online pet retailer by Media Metrix, Nielson/NetRatings, Gomez Advisors, and NextCard eCommerce Index. Pets.com purchased Petstore.com for $14 million and eliminated a major competitor. Soon afterward, Petsmart Inc. and its 500 pet supply stores went online, throwing the equation off again and forcing Pets.com to hustle to retain a leadership position.

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The Pets.com slogan “Because pets can’t drive” and its infamous Sock Puppet made this company a familiar brand. The Sock Puppet even appeared as a 36-foot balloon in the Macy’s Thanksgiving Day parade. As demand continued, Pets.com worked out a licensing arrangement for Sock Puppets and Sock Puppet–themed merchandise to be sold on the Web site. (See Figure 4.6.) Pets.com launched The Magazine in late 1999 with product promotions and lifestyle, behavioral, and health information. The company also initiated pseudo events that generated excitement and hype about the Web site, such as Take Your Dog to Work Day. The company added two distribution centers, a customer service call center, and an expanded product line. Pets.com was quickly ranked in the top 3 of 100 e-tailers internationally. It also burned cash at a heart-stopping rate—and it quickly ran out of cash. After talking with more than 50 companies in search of cash

FIGURE 4.6 Pets.com In Memoriam

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or a buyer, Pets.com was forced to close. Its assets (including brandnew inventory, distribution center equipment, and the Sock Puppet) were sold. Of all the Internet closures of the year 2000, this one was the saddest. With a focus on community service and outreach through partnerships and its own efforts, Pets.com stockpiled goodwill by a consistent pattern of raising funds through fun. The Pets.commitment Fund, for example, a Pets.com charity for People Helping Animals Helping People, contributed over $1 million to organizations that promote the therapeutic role of pets in people’s lives. Its generous attitude was admirable, no matter what the financial implication, and worth imitating. Unfortunately, the population it served was helpless to save the life of the company.

Gazoontite.com Gazoontite.com was formed as a health products and information hybrid company. Soon-Chart Yu, CEO of Gazoontite.com, was an early believer in the power of multiple channels. “When I built this model, I built it from the consumer perspective, not the investor perspective,” he said. Gazoontite.com, founded in 1998 and Yu’s first Internet venture, offered a comprehensive e-commerce site, a mailorder catalog, and retail stores. Yu bucked the trend of the pure-play darlings of the late 1990s and invested his energy in a hybrid business model. But in his model, Gazoontite.com attempted to launch all channels simultaneously. One year after the first Gazoontite.com Web site was launched, the site was completely revamped to include new and expanded features. Original and detailed content and community features were added as well as a call center for customer questions. However, the company quickly learned that catalogs were a far more popular channel with doctors than was the Web site, no matter how user friendly the site was. Store expansions, catalog improvements, and Web site enhancements are a matter of survival for hybrid companies. To take on all three efforts concurrently requires Herculean efforts. Planning in each sales channel is a daily drill as are designing marketing cam-

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paigns and securing a steady stream of financing. It was too much at once. Yu resigned to take a position with another e-commerce firm, and the Web site was shut down. Gazoontite continues to operate in the two channels of stores and catalogs. The company specializes in the niche market of people suffering from allergies—about 90 million intolerably uncomfortable Americans, according to Reuters. This is a growing population with asthma on the rise for an ever-younger group. Perhaps the Web site will be back at some future date.

When Pure-Plays Work The companies that thrive in the Web-only world offer something not available offline or in print: interactivity, no inventory necessary, a potential worldwide audience, and 24/365 access. Online auction sites like eBay don’t need a physical presence or catalog to keep people up all hours of the night in bidding wars with customers selling to other customers. Internet pure-plays have dominated several markets in the past and may maintain their edge in the future. Pure-plays work (see Figure 4.7) under a unique business model of distributing information or products and building customer relationships. Where do pure-plays have the greatest advantage? Their edge is evident when they operate as data aggregators, provide price comparisons, or expand to become a huge competitor to offline efforts in the same vertical industry.

Data aggregators. Data aggregators provide a service that customers find irresistible. Travelocity.com, for example, provides air-

FIGURE 4.7 Where Pure-Plays Work • Data aggregation • Price comparisons • Vertical giants

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line schedules and prices to and from any destination you select. The Web site can also help with accommodations and reservations. Does it need a physical presence to accomplish this? Not likely. It doesn’t seek to own grocery stores, airlines, or car dealerships, according to founder Jay S. Walker. Its strength lies in partnerships and helping its corporate partners profit. About.com, a conglomeration of over 700 information-based Web sites with more than a million links, is a combination search engine and content provider. Visitor traffic to the site is so consistently heavy that About.com usually ranks in Media Metrix’s top ten Web sites. It reaches customers directly on the Internet and directs customers to other Internet resources. This is a strictly Web business.

Price comparisons. Price comparison Web sites search discount offers of specific items for the customer. Priceline.com enables customers to name their own price while it searches for retailers to match it. Priceline.com expanded its niche from travel products to cars and mortgages, with an eye to adding other B2B products and services as its next step. A strength of the Priceline model, according to President and CEO Dan Shulman, is that it is a way of shopping, not a location. Priceline and Travelocity have formed a partnership that provides an additional convenience for customers: After you select the travel arrangement that meets your price via Priceline, you can book the arrangements through Travelocity. Mercata.com and buytogether.com collect buyers with the same product need and attempt to acquire group discounts from retailers. Shopping robots (or “bots”), such as hotbot.com and mysimon.com, seek the lowest price for an item anywhere on the Web. Pricing search engines like pricegrabber.com and dealtime.com provide a list of online retailers, evaluations, and delivery information for each item. Evaluation services like Bizrate.com provide details about how well online companies have performed in the past, including ratings of the retailers’ prices, product quality, customer service, delivery time, and shipping costs.

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Vertical giants. A limited number of pure-plays have expanded to become huge competitors to offline or hybrid companies in the same vertical industry. These pure-plays totally “blow away” offline competition in size, scope of effort, and financial backing. Amazon .com still outranks Barnes & Noble (online, that is) and consistently ranks higher than Barnes & Noble in Media Metrix’s list of the top 50 online companies. But in this battle, only the largest and most sophisticated Web structures have an edge.

Lessons from Pure-Plays The most successful pure-plays have more than a few coaching instructions to offer hybrid companies, particularly when it comes down to working out logistical issues swiftly and efficiently. Successful pure-plays offer outstanding customer service, competitive prices, a tremendous variety of choices, and personalization. But there’s more to them than that. They also anticipate future growth, providing for all contingencies, and have warehouses that could encompass small villages. (See Figure 4.8.) Advertising and promotion budgets are large enough to keep traditional retailers trailing far behind. When founder Jeff Bezos decided that Amazon should be everything, he went all out to reach his

FIGURE 4.8 Lessons to Be Learned from Successful Pure-Plays • • • • • • • •

Provide outstanding customer service. Offer competitive prices. Provide a wide range of choices. Personalize contact with customers. Anticipate future growth. Create dedicated warehouses. Select the best locations for distribution centers. Allocate significant financial support to strategic marketing.

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goal. Discount coupons for returning customers are a regular feature and just one example of the simple attention to detail in which Amazon excels. Growing at an unprecedented rate without showing a profit for years and years, Amazon, however, has a business model that is difficult for other companies to replicate.

Steps to Implement Multi-Channels from Clicks First How can a pure-play become a hybrid company? Following is a list of steps to take and issues to consider to move your business into the catalog and bricks channels. Marketing Issues 1. Reinforce the Web brand in catalogs and stores. • How will it transfer from the online message to print and stores? • What adjustments, if any, are needed? 2. Identify new competition in the direct sales channel and in stores (i.e., those who weren’t players online). • How can this business be differentiated from catalog competitors? • How can this business be differentiated from competitive stores? 3. Identify new marketing campaigns for the new channels. • Should new promotions or discounts be considered for the catalog? • Should local print advertising, regional cable TV, and/or radio campaigns be added to promote new stores? Can new public relations campaigns be introduced to connect to the local communities near store locations? Technical Issues 4. Ensure that databases used for the Web site are quickly accessible to the catalog and bricks channels.

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• Should some services now be reevaluated for outsourcing? • Can existing networks handle growth? 5. Ensure that the in-house Web site staff is up to speed. • What additional personnel should be hired for each new channel? • What new areas of technical expertise are mandatory for the catalog channel? For bricks? Warehousing Issues 6. Determine if the current warehouse arrangement is adequate to meet increases in orders. • Can this setup be retrofitted to pick, pack, and ship bulk orders to stores and/or catalog distribution centers as well as filling small orders to individual customers? • Should this function now be outsourced for bulk orders to stores? 7. Ensure that inventory for all products is available through all sales channels. • Can returns from any channel be processed quickly and items returned to available inventory? 8. Identify the most efficient way to ship bulk orders to stores. • Should new contracts/arrangements be established? Customer Interactivity 9. Determine if the current system of customer service can handle increased activity. • If 24/365 availability now exists, can higher volume of incoming calls/messages be handled? • Are all methods of customer contact available: phone, live online, e-mail? • Should the services of a call center now be considered? 10. Identify ways to use the Web site to increase impulse buys and to drive traffic to stores. • How can information gathered from analysis on online customer profiles be used to improve catalog and store offerings?

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• How can this company ensure that customer personalization does not come at the expense of loss of privacy? New Opportunities 11. Identify new opportunities for business partnerships and strategic alliances. • What new partnerships can be created to complement this business in the catalog channel? In the bricks channel? • Are there existing catalog companies that should be evaluated for merger or purchase? • Are there existing stores that should be considered for purchase? 12. Identify new opportunities to sell to businesses. • Can the catalog offer items that will appeal to corporate or association buyers? • Can the storefront offer new incentives for corporations to buy from this company through in-person service? 13. Determine how this company will stay focused on changes in the marketplace and respond quickly. • How will this company monitor the catalog industry? • How will this company monitor competitive and other traditional stores?

Chapter Summary 1. Valuable data about customer behavior and needs can be systematically and instantaneously gathered on a Web site. These data can be analyzed to determine who the best customers are, where they are geographically located, what their other interests are, and more. Customer data details may influence the location and design of storefronts and the style and format of catalogs. 2. Catalogs have their own appeal, no matter how sophisticated a Web site, for several reasons: Some individuals are more com-

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fortable with catalogs; the attributes of certain items can be more vividly captured in magazine-style, large display-size photographs with rich graphics and texture; and the enhanced visual images are more likely to elicit an emotional response and may increase the sales of items that received a mediocre response on a Web site. 3. The catalog can be used as a vehicle to drive traffic back to the Web site for order placement, a less expensive method of processing than via telephone. 4. Alliances formed with investors, technology providers, advertisers, sponsors, and vendors create a support team for the hybrid company. They add value such as expertise in multiple-channels in addition to money or services that are critical to growth. Each partner in turn has an opportunity to grow along with the hybrid company and to benefit from multi-channel exposure to a wider customer base. 5. Pure-plays that expand to multi-channels have distinctly different advantages over companies with a brick or catalog foundation. Speed, technological expertise, responsiveness to customer needs, documentation of products and services, expert content, and corporate alliances give pure-plays an edge when they decide to become a hybrid company.

Bricks First

5

A little Main Street shop called Bookends in Ridgewood, New Jersey, has fought a valiant fight against the domination of superstores and supermalls in this busy Bergen County suburban village for over a decade. Owner Dana Gilligen has become a local hero of sorts by attracting more traffic to events in her store than Barnes & Noble on the highway two miles away. When Dana brings in a famous author or celebrity for a book signing, people line up around the block for hours in advance. Former President Jimmy Carter drew crowds from three o’clock in the morning for a noon event. Former Senator Bill Bradley signed books for more than three hours. WWF celebrity “The Rock” attracted over 6,000 people, forcing the local streets to be closed down. “We had six cops on the payroll that day,” said Dana, “as well as other security.” The Bookends Web site <www.book-ends.com> seemed more of a necessity than an enhancement to the staff of experienced booksellers and hardly as exciting as a celebrity visit. The Web site itself became a no-nonsense, place-your-order destination without the charm and comfort of the physical store. No great celebration honored the launch. It was a nonevent until the day an international book order came in. “Do you believe I got an order from Germany?” Here’s a company that follows all the best marketing strategies for its land opera-

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tion but breaks all the rules for promoting and selling online. And it still gets orders globally. Bookends joined about 200 other independent bookstores on a new Web site created by BookSense.com, the e-commerce component of the American Booksellers Association (ABA). BookSense.com offers an attractively designed and secure Web site that lets Bookends maintain its own integrity while becoming part of a larger database of over 2 million titles and hundreds of local stores. A complementary site called Contentville also seeks the participation of independent booksellers but offers content rather than book sales. Content from magazines, newspapers, e-books, dissertations, and other sources supplements exclusive editorial content provided by participating booksellers. What’s selling, what books are “essential,” and personal endorsements are designed to create a sense of community. Business for book sales is referred back to independent booksellers with links to Booksense.com. Now when Dana Gilligen promotes an event in Bookends, even people from Schenectady hear about it. Bookends is just one of thousands of brick and mortars that slowly and cautiously made their way online after the e-tailing goldrush of 1998. (See Figure 5.1.) Even small store owners are in a much better position to compete with large chain conglomerates when they use the Web to promote and sell their products. In addition to expanding their customer base beyond their local neighborhoods, they can keep their online store open all the time. For a small store owner, a Web site offers an opportunity to continue to serve customers when practicality (like late at night) and local blue laws (such as the prohibition of Sunday sales) keep their doors closed. There are countless examples of companies that built their businesses to new global levels with style—and in some cases simplicity— by using the Internet. The Avid Reader, a small Chapel Hill, North Carolina, bookstore specializing in used and rare books, begrudgingly began online sales like Bookends and today attributes about 70 percent of its business to Internet sales. Although neighborhood demand for rare books was not adequate to ensure that the Avid Reader could remain a profitable business, its Web site brought new customers from all over the country who were seeking books that large stores have no interest in supplying.

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FIGURE 5.1 Brick-and-mortar Bookends in Ridgewood, New Jersey, draws crowds for author signings and in-store events. Here, former Senator Bill Bradley greets visitors during a Bookends event.

From Bricks to Clicks, Catalogs, and Kiosks Some experts predicted that once the huge traditional retailers jumped onto the Web, their massive branding strength and influx of capital would crush entrepreneurial start-ups. Without a doubt, a traditional store that has enjoyed decades of financial stability and success has an edge over a small e-tailer. But just as every U.S. mall owner desires a blend of the mighty chains and the minute boutiques to attract throngs of shoppers, online customers have developed a taste for Web variety. There is room for peaceful coexistence of the large and small retail shops on the Web—for the savvy ones, that is. Most traditional storeowners have more on their minds than merely squashing their competitors when they decide to make the

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transition to selling online. Their advantages are highly visible in their brand name and image, a physical presence with customers, easier access for returns, a place to try on (or try out) the goods, a trained staff, customer loyalty, and a comprehensive marketing campaign. Creative talent for advertising, displays, and artwork are usually on-staff or on retainer. Merchandising details and the mechanics of dealing with vendors, tracking inventory, packing, and shipping merchandise are strengths. The qualities that have helped pure-plays, such as speed, technological expertise, and strong alliances and partnerships (as discussed in Chapter 4) can be the nemesis of traditional stores. Many major chains lost the first-to-market Web race and have struggled to catch up. Corporate cultures comfortable with long-range planning often experience high anxiety in split-second decision making. Charles Schwab anticipated many of these factors (among others), which influenced the decision to separate the early Internet project from the core company. It was a step deemed essential to the survival of the enterprise. The same decision faces a significant portion of the major corporations that move onto the Web. Technological expertise is also at a premium in a nearly full-employment economy with a tremendous demand for e-business professionals. And while stores may have personal contact with their customers on a regular basis, no single store can aggregate the data on all of a chain’s customers or know as much about an individual customer’s total shopping history as can be gathered and analyzed through software. Traditional retailers have developed creative strategies to keep their edge. Discounts are a necessity to battle Web-based competitors and survive an increase in comparison shopping. The convenience of online looking and offline buying can be used to a retailer’s advantage if the retailer encourages it. Simplifying sales through all channels and making it simple for shoppers to cross channels during the course of the browsing-inquiring-buying and sometimes returningand-complaining cycle has an important return on investment. The advantages are summarized in Figure 5.2. Barnes & Noble never questions returns at its stores so long as the book looks like new.

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FIGURE 5.2 The Bricks-to-Hybrid Advantage • • • • • • • • • • •

Brand strength Influx of capital combined with financial stability Personal customer contact Easy method for merchandise returns A place to try on (or try out) the goods Personalization through personnel—the staff Customer loyalty Existing marketing campaign and resources to support it Experience in ordering merchandise and inventory tracking Good relationships with suppliers and vendors Experience in the process of pick, pack, and ship

Access to call centers provides human contact for the inevitable questions that can’t be addressed by a standard list of “frequently asked questions” (FAQs).

Proactive Mall Strategies Simon Property Group, the owner of 250 U.S. shopping malls, saw an opportunity to create another hybrid that would create growth opportunities for it and for its merchant tenants. Simon’s goal was to help shoppers buy products online that they couldn’t find in the stores and to provide additional services for the convenience of mall shoppers. A new company, Clixnmortar.com, was set up at kiosks to handle FastFrog.com and YourSherpa.com. Clixnmortar offers mall shoppers multiple choices: shop and buy in the mall, shop in the mall and buy online, or shop online and buy in the mall. Other shopping-mall managers and owners are watching this project closely. Industry experts agree on the need for the hybridization of malls and the Internet. Eventually, every shopping center will have some form of technological Sherpa available for customer’s conve-

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nience. Imagine how much more you can buy in a single holiday shopping venture when you don’t have to fret about carrying everything back to your car parked a mile away. The results of future testing and evaluation of Clixnmortar.com may generate additional services; either way, these results will be of interest to both mall developers and technology competitors.

TenantConnect.net. This is the vehicle through which Simon Property Group sells high-speed Internet access to its mall merchants. TenantConnect is an extranet that also gives stores the ability to conduct cybercasts and in-store multimedia presentations. FastFrog.com. Simon equipped shoppers with green handheld devices called “Zapsticks” to scan bar codes of things they would like to be given from family and friends. Designed for teenagers, this wish list can then be uploaded to the shopper’s own account from the computer at the FastFrog kiosk, called The Pond. The teenage shoppers can later send their request lists via e-mail to their beloved and generous relatives (undoubtedly breathless with anticipation) who can place their orders through the FastFrog Web site or visit the store.

YourSherpa.com. Adult shoppers use the scanners to create their list of gifts to buy for others. When they return to the kiosk, they can pay for everything in one transaction. No need to schlepp those heavy packages around the greasy food courts. Shoppers can bring the packages with them or have Clixnmortar wrap and ship everything. If they decide to bring the goods home, Clixnmortar staff run through the mall to pick up the items and have them ready within two hours.

Kiosks as Channels Internet kiosks provide a place for e-tail and retail to merge. Instore Internet kiosks have been described as the next wave of ecommerce, according to some industry experts. Forrester Research reported in “Mixing Bricks with Clicks” that 80 percent of retailers plan to add digital kiosks to stores by 2002. Kiosks have a potential

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beyond bricks. Envision little carts lining airport esplanades, decked with computers that can take you on an escape to your favorite shopping haven while you wait for a delayed flight. Imagine the business that could be raked in at Newark Airport alone, where its reputation for last-minute flight schedule changes is infamous. Kiosks are a strategy that even a small business can take advantage of, if it moves quickly. A small store, like a local Main Street boutique, with a Web site that potentially attracts a global audience, can create a physical presence in any mall with an eye-catching kiosk and Internet access. It’s far cheaper than renting racks and retail space and opens up a whole new wave of franchise opportunities for smaller companies, too, like the Clixnmortar.com projects—YourSherpa .com and FastFrog.com. Sears Roebuck, the third-largest retailer in the United States, established an early presence online with the Web site <www.sears .com>. Not to be outdone by competition from Kroger and Wal-Mart as the leading seller of appliances, Sears made a major move in 2000 to double its product categories on the Web and create one-stop shopping for brand names of home products. Expansion of five categories of its Internet business included home electronics and tabletop appliances, added to the existing offerings of major appliances, lawn and garden equipment, tools, and parts. Sears installed kiosks in its appliance departments in 1999 on a trial basis and quickly expanded them to all of its 850 stores. Sales personnel noted that customers frequently shopped with copies of pages pulled from the Sears Web site, so the kiosks were a welcome addition and time-saver for both customers and salespeople. Kiosks are gradually being added to more departments.

Manufacturers Selling Directly Online Could they? Should they? Results have been mixed. The answer seems to depend on the balance of the relationship (of power, essentially) between a manufacturer, its distributors, and its retail partners. Levi Strauss & Co. spent millions on an e-commerce Web site launched

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in 1998 as a way to feature its full line of Levi’s, Dockers, and accessories, up and above what was usually carried by retail stores. In a parallel effort, corporate marketing campaigns were overhauled in hopes of capturing a more youthful market. Poised and ready to assume a new and more dominant market position, Levi Strauss stumbled into unanticipated merchandising pitfalls. The process of sending boxloads of jeans to a department store wasn’t the same as mailing a single pair of 501s to an individual customer. Orders were impossibly delayed, and customers complained. But in the end, neither the company nor the customers had the last word. J.C. Penney, a major seller of Levi Strauss merchandise, put the heat on the company to stop selling online or Penney would discontinue the brand in its stores. This long-term and semisacred alliance was not one Levi Strauss wanted to lose. It acquiesced. Today, Levi’s Web site offers descriptions of every product and accessory, clips from its commercials, and everything you might want to know about the company. No e-commerce. Instead, shoppers can click to a list of companies, like J.C. Penney and Macy’s, that have Web sites from which you can place your order. More than 90 percent of manufacturers do not sell online, according to estimates by the Gartner Group. Levi Strauss is not the only one to run into channel conflict. Other manufacturers have met with similar resistance from the retail chains that carry their goods. Rubbermaid Home Products, with a Web site that carries incredible tales of human survival attributed to plastic containers, doesn’t sell these lifesaving products online. Instead, shoppers can build a “wish list” to bring with them to the nearest store that carries Rubbermaid products or visit the Web site of their local retailer. Maytag bowed to pressure the same way in spite of a successful launch of its e-commerce Web site in 1999. You can look at Maytag’s products on its Web site, but you must head to a store to purchase them. The Procter & Gamble (P&G) strategy, on the other hand, was creative and circumvented the channel conflict issue completely. Procter & Gamble simply created a separate brand of personalized beauty products, called Reflect.com, to sell on the Web. Reflect.com represents a completely new concept in customized cosmetics. The famous maker of such brands as Tide and Crest does not believe that it is

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worth ruining relationships with the likes of Kmart and Wal-Mart for the distribution of existing products on the Web. Procter & Gamble takes advantage of the Internet in its own way, using it to foster collaboration among its researchers and scientists, for example. It is also working with Internet companies to create a Web presence through other targeted Web sites. In partnership with iVillage.com and Women.com, P&G promotes health and beauty products and tests out new lines before shipping to stores. With Coca-Cola, Sara Lee, Kraft, and PepsiCo, P&G has joined a B2B marketplace exchange called Transora to purchase raw materials and share information to help reduce inventory tracking and shipping costs. In addition, P&G is investing in Web companies through its own venture capital fund, IVentures, and placing its own executives on the boards of Internet start-ups. And it has used the Web to test other products, including shampoos and gels, by distributing free samples. Nike and Compaq have been successful in avoiding the perception of channel conflict and have successfully humored retailers in the process, although not without a struggle. Compaq had an edge to begin with, as the PC industry overall has moved toward direct sales on the Web. Still, retailers took offense when Compaq began to sell to consumers online. To soothe relationships, Compaq offered special incentives to retailers like RadioShack that sold Compaq computers from their in-store Internet kiosks. Nike, on the other hand, pledged that Nike.com will never undersell retailers and will always promote local stores on its Web site. But what really made the difference for Nike ultimately? Huge clout in the marketplace. Market domination. The power associated with being a leader. And the “just do it” attitude that can’t be challenged.

Couture Clicks Upscale designers have their own set of concerns about selling their clothing lines online, and many have stepped into e-commerce as cautiously as the manufacturers have. In the case of upscale designers, concerns are focused on losing the customer rather than the retail distributor. Will people buy exquisitely expensive clothing without trying

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it on? Until they are certain, many famous designers are using their Web sites for marketing purposes only, saving the e-commerce portion until they’re quite sure about the risks. Can a Web site do justice to fine-quality fabrics and elegant tailoring, or do you need a Rodeo Drive showroom and megabucks catalog? Nicole Miller sells accessories and bridal wear at <www. nicolemiller.com> but not the best of her designer collection. Helmut Lang has introduced his seasonal collections online at <www. helmutlang.com> but only takes orders for perfume. Both agree with a number of other designers that the marketing value of their Web sites is unquestionable, and that requests for catalogs skyrocket as a result. Ralph Lauren developed the Web site Polo.com with NBC and the Home Shopping Network under a new company, RL Media, to sell clothing online. If this venture is successful, others may follow suit.

When Bricks Established First: Case Studies The case studies examined in this chapter are hybrid companies that began with a physical store or chain of stores and expanded to Web sites, catalogs, and kiosks. Hybrid companies have made this list of case studies below by exemplifying at least five of the seven success strategies in at least two channels. The benefits of moving beyond stores to multi-channels are summarized in Figure 5.3. The hybrid companies featured in this chapter are • • • • • • • • •

Gap Inc. Charles Schwab Staples, Inc. Williams-Sonoma, Inc. Nordstrom, Inc. The Home Depot, Inc. Barnes & Noble, Inc. Blockbuster, Inc. RadioShack Corp.

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FIGURE 5.3 Benefits of Expanding from Bricks to Multi-Channels STORES (Bricks Established First)

to WEB SITE

to CATALOG

The brand name is strong and well established.

The existing brand strength transfers to the Web and provides immediate distinction, creating an opportunity to stand out among the Internet crowds.

The catalog will be kept.There is a far greater chance of the catalog being thrown out (before being read) if the company/brand is unknown.

Marketing campaigns are in place and their effectiveness tracked.

Adding digital marketing can exponentially increase the amount of brand exposure.

The catalog serves as another vehicle for print marketing and can direct shoppers to buy via the Web site (a less expensive transaction).

Existing campaigns can be easily adjusted to promote direct sales via the Web site 24/365. Personal customer contact occurs on a regular basis.

Personal customer contact can be introduced on a much broader range through technology.

Shoppers can review merchandise at their leisure and order products at their convenience.

Customers can shop the company 24/365 from any location in the world. Individual contact provides understanding of customer behavior, one to one.

Data about individual customer behavior that can be gathered from a Web site is able to be far more detailed and can provide a better understanding of trends nationally, across all chain stores.

Catalog-shopping patterns can be tracked and analyzed if they lead back to Web site or store orders.

continued

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FIGURE 5.3 Benefits of Expanding from Bricks to Multi-Channels (continued) STORES (Bricks Established First)

to WEB SITE

to CATALOG

The established customer base, local and national, is a strong foundation to build on.

The Web site provides an opportunity to reach people in remote locations or geographic areas that are not within shopping range of a store.

The broader population of shoppers that is reachable by the Web site can be targeted for catalogs (to keep and order online).

There are new opportunities to reach global markets. A basic understanding of what types of promotions and discounts work with existing customers is apparent.

Promotions can be introduced on a broader scale and publicized immediately. Customers can respond anytime, anywhere.

Same benefits as the Web site if continual customer service is provided for all channels.

Many manufacturers have built their strength by selling to stores.

The Web site offers an opportunity to expand markets through direct online sales to consumers—provided the manufacturers don’t alienate the distributors.

Manufacturers can realize the same benefits as a traditional store, provided they do not alienate their primary sources of distribution.

Manufacturers can develop a new line of products for Web-only sales.These products can be marketed immediately, with fast and significant results.

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Gap Inc. <www.gap.com> The first Gap store opened in San Francisco in 1969. In 1983, Gap Inc. bought Banana Republic, which consisted of two stores and a catalog business. GapKids came along in 1986, and babyGap in 1990. In 1994 the company added Old Navy to its line. The Gap online store was introduced in 1997 followed by online sites for each of its other brands in the following two years. Today Gap Inc. is a global company with over 140,000 employees and 3,000 stores in the United States, Canada, France, Germany, Japan, and the United Kingdom. The company was recognized by Business Week as among the best performers of 1998 in “Top Companies of the S&P 500” and by the San Francisco Chronicle in 1999 as “Company of the Year”; and it made the Fortune 500 list in 1999.

Brand Builders. Gap Inc. has three distinct brands: Gap, Banana Republic, and Old Navy. Each brand has its own team of marketing specialists located in the San Francisco headquarters who create every detail from in-store posters to television commercials. The consistent look that each Gap Inc. brand achieves, from store windows to catalogs to Web sites, is the result of tightly coordinated efforts behind the scenes. Channel Synchronizers. Store operations, supply activities, and sourcing are coordinated worldwide. Within each brand, customers and store personnel can access up-to-date information about product availability across channels.

Merchandising Masters. Product development for Gap Inc. is coordinated from offices in Manhattan and handled by teams of designers, product managers, and graphic artists. Gap Inc. does not own manufacturing facilities; instead, the corporation outsources production to third-party manufacturers. Third-party manufacturers are scrutinized by Gap Inc. to meet the highest standards of product quality under its Code of Vendor Conduct, which governs product quality and working conditions. Gap Inc. sends a troupe of 80 representatives to inspect these worldwide facto-

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ries, which are located in about 50 countries. Gap Inc.’s Sourcing and Logistics group monitors order placement and production schedules. Manufacturers ship their finished merchandise to Gap distribution centers. Distribution centers located in the United States, Canada, the United Kingdom, the Netherlands, and Japan ship these products to stores worldwide.

Customer Centric. Gap has been cited as a positive example of a successful hybrid company on the basis of several features. To briefly summarize, the customer rules. At each of the Gap companies, customer service reigns supreme. All products can be returned or exchanged at any channel, regardless of where customers made their initial purchase. If a product has been marked down and customers can provide a receipt that they made their purchase before the markdown, they will be refunded the full price. If a customer can’t locate the desired size or color of an item in the store where the customer is shopping, sales staff will assist in finding the item in another store or searching for it online. Alliance Builders. Gap Inc. works with multiple companies to create incentive programs, points and rewards programs, and contests and promotional events. The company also maintains a consistent presence in local communities, supports employee volunteer activities (including roles on the board of directors), and participates in several partnership programs with nonprofit organizations. Gap Foundation contributes money, clothing, and volunteers in local communities worldwide to youth and HIV/AIDS causes. Working with the Boys & Girls Clubs of America, Gap Foundation offers a five-year grant that supports career development activities. The foundation contributes funding and volunteers to Communities in Schools (CIS) and the School Leadership Academy at the Center for Educational Innovation in New York City.

Charles Schwab <www.charlesschwab.com> Charles Schwab, founded in 1974 as a discount brokerage, today offers investment guidance, trading and brokerage services, and

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investment and financial products to over 7.3 million active accounts with $937 billion in client assets. At press time, the company had a total revenue of over $1.4 billion from 366 branch offices, 4 regional telephone service centers, automated phone services, and an e-commerce Web site. Schwab integrated e-brokerage into its business in 1998.

Brand Builders. Charles Schwab’s financial services have a reputation for quality. Schwab is not recognized as the least expensive brokerage, but it is accessible and thorough. The personalized services offered to clients at all levels of expertise has engendered trust and loyalty. In the midst of downsizing by other brokerage houses, including giant Merrill Lynch, Charles Schwab maintained a stable position as a leader. Worth magazine, CIO Magazine, and Forrester Research have each recognized Schwab’s commitment to excellence in customer service and technical innovation. Worth magazine gave Schwab the Readers’ Choice Award. CIO Magazine placed it in the top 100 list for having one central customer database and excellent customer relationship management. Forrester Research’s power rankings recognized Schwab as first in its brokerage category for providing comprehensive tools online, such as its stock analyzer, and for confirming commissions with customers before executing a trade. Add to these awards a long list of previous accolades from InfoWorld magazine, PC Week, Wired, and Supercomputer Sites magazine. Channel Synchronizers. When Charles Schwab introduced ebrokerage in 1998, branch trading and electronic trading were treated as distinctly different operations. The Internet business was run separately from Schwab’s offline operations. President and CEO David Pottruck explained in his book Clicks and Mortar (Jossey-Bass, 2000) that he sought an approach that would be the least threatening to his existing business and not create an expensive drain on the core business. Justification for the separation included the potential for freedom for the development team (in personnel and financial resources), a lack of demand from current customers, and the need for a different financial model to measure success. In reality, Schwab customers

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sought the ability to go between channels and expected comparable pricing and service no matter where their transactions occurred. Customers viewed the company as one channel, one business. As a reflection of the separate corporate structures, pricing standards differed between regular brokerage customers and online-only customers. Customers caught on quickly, and Schwab responded by shifting to one rate shortly afterward. Level pricing had the potential for Schwab’s losing commission dollars at first but gaining volume in the long run. The strategy worked. And Schwab learned that online investing was not simply a small side convenience for a few of its customers but a mainstream alternative for many. Customers wanted to trade at a branch or online at will. Schwab reorganized its corporate structure to bring the electronic brokerage into the heart of the company, and it fully integrated all pricing and product/service availability.

Merchandising Masters. The Web site, like the branch offices, offers the full spectrum of financial services. Trading stocks, options, bonds, and mutual funds is possible through expanded hours of trading. The site also offers retirement guides, college-planning guides, and a stock-screening tool. Fee-based research reports are available from Credit Suisse First Boston Corporation and Chase H&Q (formerly Hambrecht & Quist). Active traders and large-asset clients have access to additional premium services. Product and service offerings are presented in a logical, customer-friendly sequence that is geared to different levels of expertise. Even a new customer can navigate the Web site and find educational information that supports the product and service offerings without becoming overwhelmed. Schwab incorporates the latest and most efficient technology to manage and deliver information to its customers more efficiently in a cost-effective manner. And this technology is handled in-house, not outsourced. Schwab Technology Innovation (STECH) is a division of the corporation that builds, operates, and maintains the information technology infrastructure, which includes client/server systems, networking and telecommunications infrastructures, and database management systems.

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Customer Centric. Changes to the online brokerage have been a result of input from customers in every channel. The availability of 300 branch offices enables valuable personal contact and one-to-one communication. For new investors, the ability to ask questions online and offline is comforting. Branch offices also offer Web trading workshops free of charge. Online learning opportunities offer the promise of customers becoming smarter investors. Beginning investors are advised about investing basics, financial goal setting, and maneuvering the Web site. Intermediate investors are offered advice about mutual funds and stocks that meet their needs, objective research, and financial planning. Experienced investors are empowered with analyst reports, after-hours and premarket trading, sophisticated software, and options investment advice. Customer feedback about the Web site and about service offerings is a core function. Schwab takes pride in its staff of “knowledgeable, friendly people . . . available day or night.” Live chats with investment experts, articles, and message boards keep constant connections with customers. Alliance Builders. Instead of partnering for progress, Charles Schwab went the way of acquisitions. In February 2000, Schwab acquired the U.S. Trust Corporation and acquired online trading company CyberCorp, securing its position as one of the largest financial services firms in the country. CyberCorp, a small and expanding brokerage, had an attractive software package that enabled investors to directly access the traditional stock exchanges and electronic communication networks (ECNs). This software provided the potential to improve transaction speed and price. CyberCorp’s clients were primarily active traders (averaging eight trades a day), whereas Schwab’s clients averaged eight trades a year. Schwab benefited by increasing its number of active traders; customers benefited from access to CyberCorp’s software, including a type of “shopping bot” feature that seeks the best stock price for a specific trade and directs the order to the designated market.

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Future Focused. Schwab’s management “committee” of 16 executives representing key corporate divisions are charged with keeping the whole corporation focused on its core mission: “providing the most useful and ethical financial services in the world.” David Pottruck aspires to be as technologically advanced as Cisco or IBM, leaders in the world of fully integrated e-businesses. Technology advances and advances in customer service are viewed together. Leadership style is another component that is never taken for granted in building the future. Under Pottruck’s direction the corporation has shifted from command-and-control to a focus on teamwork. The new mantra is Innovation. Employees are encouraged to think of themselves as Change Agents.

Staples, Inc. <www.staples.com> and <www.stapleslink.com> Staples, the original office superstore, is the ideal hybrid example with its strong retail chain, thriving catalog business, and extremely active Web sites. With over 48,000 employees and 1,100 retail superstores, Staples is the largest operator of office superstores in the world. Two mail-order catalogs, under the names Staples and Quill Corp., provide products that serve every size and type of company. Three Web sites—Staples.com, StaplesLink.com, and Quill.com— serve consumer and business markets.

Brand Builders. Some of the cleverest commercials on television over the past few years belong to Staples. The joyful father exuberantly wheeling his tearful children in a shopping cart around a Staples store while they purchase back-to-school items is a classic. Staples has excellent brand recognition, and in hindsight it’s hard to decide which had the first impact: the commercials or the huge superstores. Today, its name is synonymous with office products and supplies, even while competitors have attempted to erode its market share. Channel Synchronizers. Staples has a high volume of orders across all channels and an equally high customer expectation of

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prompt delivery. Coordination between all supply chain participants in their multi-channel distribution environment is critical. Staples selected Manhattan Associates, Inc., a global technology provider with a suite of advanced supply chain solutions, to handle this mission for it. Staples’s efforts are coordinated in the SCC (Staples Contract and Commercial) division of the Staples Retail and Delivery unit. SCC fulfillment centers handle all of Staples’s customers, whether they come from business contracts, the catalog, or the Web sites. Supply chain management solutions include advanced warehouse management (PkMS®), productivity and labor tracking (Productivity Manager™), and “picking” efficiency (SLOT-IT).

Merchandising Masters. The separation of contract customers from the regular consumer base became a necessity when the volume of business customers grew to such an extent that it was difficult to serve all of them from the same Web site. StaplesLink.com was developed as the Staples Web site for contract customers by IBM e-Business Services. Midsize to large companies, government agencies, municipalities, and other groups can be served as a contract unit, with special pricing and catalog considerations based on volume discounts. Customized catalogs for contract customers are available through StaplesLink.com or through the procurement application.

Customer Centric. Back-end design factors significantly impact how well customers are served at the front end, so channel synchronization and merchandising contribute to excellent customer care. In addition, Staples has changed and grown over the years based on the needs of its buyers. Opening stores at Philadelphia International, Boston Logan International, and Newark International Airports was a practical move that provided a valuable service to people traveling for business. The airport stores offer the combination of a retail store, an Internet kiosk linked to Staples.com, and a phone line to Staples’s catalog reps. The kiosk and catalog combination enables customers to place an order and have it delivered directly to their final destination (free, in fact, for orders over $50). Products in the airport stores are geared to business travelers—transparencies, markers, and other presentation materials; small packages of paper, file folders, luggage, travel supplies, and other small items.

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Alliance Builders. An alliance between Staples, Inc. and PaperExchange .com enables Staples to purchase paper, which is a huge item for Staples, at the lowest cost. Staples can post requests for paper on the PaperExchange.com site, reaching vendors worldwide. B2B Maximizers. Staples.com took a major step to draw in B2B customers with the integration of StaplesLink.com and e-marketplaces. Agreements were established with nine e-marketplace technology providers to create the interface (webMethods B2B™, using XML) between StaplesLink.com and Web purchasing portals without the need for human intervention (filling out forms, etc.) or changing existing systems. This interface ensured that midsize to large companies would be able to order Staples products through their own corporate procurement procedures. By partnering with technology solution providers (including Ariba, Commerce One, Intelisys, Oracle, and others) that offer business-to-business procurement solutions for e-marketplaces, Staples secured a leadership position with companies that are always in search of low-cost products. StaplesLink.com can be easily integrated with Web purchasing portals, connecting to any trading network, or it can act independently. Future Focused. Staples.com launched its first international ecommerce site in 2000 in Canada (Staples.com Canada). Although Staples had already become the leading supplier of office products in Canada with its 154 stores throughout the country, the Web site in Canada offers something more: it can be accessed in both French and English. The Canadian enterprise is run “in Canada by Canadians for Canadians,” is targeted to the small business community, and is providing local inventory and country-specific content.

Williams-Sonoma, Inc. <www.williams-sonoma.com> and <www.potterybarn.com> Williams-Sonoma specializes in quality products for the home that are marketed by 344 retail stores in 39 states, 5 mail-order catalogs, and 2 Web sites. The retail divisions are Williams-Sonoma, Pottery

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Barn, and Hold Everything. Each retailer sells a product line similar to its products in the catalog. Additional catalogs are produced for Pottery Barn Kids and Chambers. Today, there are two Web sites, one for Williams-Sonoma and one for Pottery Barn. Both reflect the charm and unique style of their parent company, with a few engaging and entertaining twists. The newest entries in the Williams-Sonoma repertoire are the Pottery Barn Kids catalog, born in 1999, and the Web sites. The Wedding and Gift Registry Web site for Williams-Sonoma was launched in 1999, followed by the full Williams-Sonoma e-commerce site later that year. Pottery Barn’s online store first appeared in 2000.

Brand Builders. Did you ever hear of Hold Everything or Chambers? They’re names not nearly as well known as Williams-Sonoma and Pottery Barn, which have strength and distinction as brands. WilliamsSonoma specializes in cooking and serving equipment and accessories as well as its own line of food products. The brand Williams-Sonoma connotes extraordinary versions of ordinary goods. The Williams-Sonoma.com home page, “a place for cooks,” has the crisp look of a connoisseur’s dream, inviting the casual shopper as well as the gourmet chef to drop in, just as its stores do. And you’re treated to something more: recipes and seasonal menu ideas, for example. Pottery Barn stores offer ambiance and casual home furnishings along with smaller items from around the world. The brand Pottery Barn evokes the image of a unique collection and inspires you to redecorate immediately so you’ll feel more comfortable. PotteryBarn .com has its own unique features, like Home Tour and Design Studio, to make this Web site as unique as its offerings. Hold Everything, on the other hand, with only 32 stores nationwide, sells household storage and “organization solutions”—not quite the same pizzazz.

Channel Synchronizers. The subsidiaries of Williams-Sonoma are synchronized under each brand; the set of store-catalog-Web site recognizes each component’s existence and permits sales and exchanges across all channels. The same is true for Pottery Barn.

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Merchandising Masters. Williams-Sonoma and Pottery Barn stores are the heart of this enterprise. There are 185 WilliamsSonoma stores, 100 of which are “large-format” with about 3,000 to 6,000 square feet of selling space. Pottery Barn’s large stores have from 6,000 to almost 9,000 square feet. Combined, these large stores accounted for about 76 percent of retail sales in 1999. MarketMAX, Inc., was contracted to provide components of a major merchandising initiative for Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and Hold Everything. MarketMAX, which provides integrated ebusiness and merchandising solutions, is charged with providing assortment planning, clustering, micromarketing, performance analysis, and financial planning for all aspects of the corporation. Customer Centric. Williams-Sonoma stores have a crisp, clean line that feels like a brand-new professional chef’s kitchen and a cordial and helpful staff that encourage without intimidating the experimental connoisseur. The Williams-Sonoma.com Web site elicits the same sensation of cool efficiency with the customer in mind. Seasonal features might depict a Mediterranean table, autumn meals, or a weekend brunch that are an epicurean’s delight. Details of each meal include recipes and presentation tips, complete with deluxe photos and a “click to” inventory of related products, including cooking utensils, specialty food items, serving pieces, table settings, and decorations. Even a novice can handle these meals with the assistance the site provides. The bridal registry, the first online feature of Williams-Sonoma in 1999, has remained a feature of WilliamsSonoma.com’s Wedding and Gift Registry. The Pottery Barn catalog invites you to “come inside” with a warm welcome on its opening page. The Pottery Barn Web site extends a similar greeting, with the same sense of a relaxed but trendy lifestyle. Like Williams-Sonoma.com, this Web site is also simple for a visitor to navigate. And visitors are treated to more content and background information than they’d receive at the store or in the catalog. For creative inspiration, there’s a tour of the interior of a home filled with novel design ideas. As shown in Figure 5.4, the Home Tour at PotteryBarn.com encourages visitors to examine a floor plan of an appealing model house and click on the rooms they’d like to inspect.

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FIGURE 5.4 The Pottery Barn invites you to tour a model home.

© Williams-Sonoma, Inc. Used with permission.

Each room displays multiple views of the layout, furnishings, accessories, and window treatments. Visitors can click to any item they may be interested in pricing or purchasing. More pensive shoppers can also click to design lessons that include such tidbits as “the background and origin of wrought iron, and how to create a rope-covered vase”; and “Did you know that a sheaf of wheat is an ancient symbol of the harvest, and has come to symbolize peace and plenty?”

Alliance Builders. Besides the contractual arrangement with MarketMAX for merchandising support, Williams-Sonoma has formed alliances with other companies for content and support functions. In 1999, for example, Epicurious.com, of Gourmet and Bon Appetit magazine fame, formed an alliance to integrate Williams-Sonoma’s e-commerce package into Epicurious. Visitors to the Epicurious.com home page can elect to order cooking uten-

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sils from Williams-Sonoma and click to a direct link to the WilliamsSonoma.com shopping page.

Nordstrom, Inc. <www.nordstrom.com> Nordstrom, Inc., which operates both specialty and clearance stores, sells fine apparel, shoes, and accessories for men, women, and children. Founded by John Nordstrom and partner Carl Wallin in 1901 as a shoe store in Seattle, the Nordstrom sons took over in 1928 when John retired and Wallin sold his share of the company to the family. The company expanded step-by-step into additional clothing lines during the 1960s and went public in 1971. Nordstrom family members still retain command of the company to this date and have built a reputation for service that is known worldwide. Almost 100 years old, today Nordstrom, Inc., operates 105 stores in 23 states, with 72 specialty stores, 27 Nordstrom Rack stores, 1 clearance store, and a few specialty boutiques throughout the country. Nordstrom Racks sell clearance merchandise from the larger Nordstrom stores as well as merchandise directly from manufacturers. Sales for Nordstrom, Inc., at midyear 2000 exceeded $2.6 billion. Nordstrom, Inc., launched Nordstrom, The Catalog, in 1994 along with a new direct sales division. In 1998, a second catalog was added called Nordstrom 2nd Nature, and others have followed. The Web site Nordstrom.com, launched in 1998, was set up as a subsidiary of the Nordstrom corporation in 1999. Within a few months of the Web site launch, the full Nordstrom catalog was made available online. Dan Nordstrom, co-president of Nordstrom at the time, stated that “those retailers who offer their customers a fully integrated combination of stores, catalog, and Internet shopping will have a significant service advantage.” Nordstrom is in fact another hybrid leader.

Brand Builders. The Nordstrom mystique is captured in The Nordstrom Way (John Wiley, 1995) by Robert Spector and Patrick McCarthy, the latter one of Nordstrom’s top salespeople. “At a time when customer service is the buzzword of American business,” they wrote, “Nordstrom has become the standard by which other compa-

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nies privately, and sometimes publicly, measure themselves.” The store has been credited with everything from changing the face of retail to bringing tears of joy to the eyes of customers. The sense of coddling customers carries over into the design of each store. Nordstrom’s stores are known for elegance and spaciousness. Only slightly more than 50 percent of floor footage is designated for selling space with the remainder reserved for human comfort. Atrium lounge areas surrounding pianos are often filled to capacity. Careful attention to detail separates this company from other retailers in its near obsession with customer service and calm. Chairs in the shoe department, for example, are upholstered and custom designed to encourage you to linger. Dressing rooms are fitted with a combination of incandescent and fluorescent lighting that emphasizes the true color of clothing fabrics, and separate thermostats ensure customers’ comfort while trying on clothes. Wider aisles accommodate wheel chairs and strollers with ease. The company has about 100 trademarks, including Nordstrom, of course, as well as Preview Collection and Preview International.

Channel Synchronizers. When Nordstrom kicked off online shopping in 1998, the company used its existing distribution channels within the direct sales division. The online store sold women’s merchandise from two of the company’s catalogs along with assorted men’s clothing, shoes, and accessories. The goal, which has been achieved, was to steadily increase the number of items offered online. Initially, online shoppers could order anything featured on the Web site as well as any catalog item. Customers had immediate feedback on the status of the item they were ordering (including arrival dates for back-ordered items) because of real-time stock availability. Merchandising Masters. The Nordstrom flagship store in Seattle covers 380,000 square feet in the heart of the city. The fulfillment center in Cedar Rapids, Iowa, is the heart of the Internet and catalog channels. Here is the state-of-the-art pick, pack, and ship core of the business, headed by an executive, Mike Sato, who has spent 20 years

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with Nordstrom. The back-end logistics work hand in hand with front-end customer contact. Retek Inc. provides retail software for Nordstrom’s retail supply chain processes. This software is used to ensure the best response time for customers. Exodus Communications, Inc., provides Internet server hosting and management services for the Web site 24/365.

Customer Centric. The customer focus that has created a strong brand image of customer consciousness for Nordstrom’s stores carries over to direct sales and online efforts. It’s as easy to find what you’re looking for online as offline. Merchandise is grouped by lifestyle, and brand boutiques cater to the designer’s special collections. Online shopping works the same way, by items or by designer. If you can’t find what you’re looking for in the online store, you can e-mail your request to Nordstrom’s Personal Touch consultant, who will try to find it in a Nordstrom store. You can easily flip between the store, the catalog, and the online merchandise specials and enter specific item numbers or click on View Catalog Online. If you’ve spotted something in a catalog and want to order it online, a function called Catalog Quick Order makes this quick and easy. Select a catalog front cover (no need to check the barcode on the back cover) and go directly to the item you want. Merchandise can be returned to a store or by mail; mailing it is made as simple as possible. A labeled envelope is included in every order sent by mail for your convenience for returns, and the return is free if you used a Nordstrom charge account or Nordstrom VISA card to make your purchase. If not, a shipping fee of $3.95 is added to your bill. Gift orders can include special gift boxes for $4.00 each, or free flat boxes to assemble yourself. A gift reminder service and personal e-mail reminders for special occasions replicate the practice of sales staff in delivering personal services, such as phone calls and notes to their customers to remind them of upcoming birthdays and other events. What’s New brings visitors up-to-date on fashion trends and new merchandise offered online through regular articles and updates. The online men’s Business

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Casual Guide and new men’s catalog help resolve the corporate man’s dilemma of how to handle dress-down Fridays.

Alliance Builders. When Nordstrom.com formed an alliance with The Wedding List in 2000, it was a marriage of two hybrid companies. The Wedding List, with a focus on the wedding registry and gift market, has shops in Boston, New York, and London; a Web site <www.theweddinglist.com>; a catalog; and an 800 number. Tying the knot with a growing multi-channel retail company, Nordstrom leaped right into a booming market with a full commitment. Nordstrom also invested $1.5 million in the company, so tying the knot wasn’t cheap. Both companies benefit from the added brands and broader customer base. The Wedding List icon will be added to the Nordstrom.com home page, and space will be allocated in three Nordstrom stores to display The Wedding List’s gifts. Alliances with designers are a common event, which gives Nordstrom an edge in exclusive lines. BCBG Max Azria and Nordstrom partnered on a contemporary sportswear line in the $50 to $150 price range, a move that increased exposure for the designer and increased choices for Nordstrom customers. Amalfi shoes are sold exclusively in the United States through Nordstrom as a result of Nordstrom’s agreement with the Rangoni Organization of Florence, Italy. Nordstrom and Teen People magazine partnered in the creation of a CD called BP.ROM for Brass Plum, the name of the junior department. United Internet Technologies developed the CD, which mixed seasonal fashion previews with clips from music videos and WB television shows. On a more constructive note, Nordstrom had a valuable advantage working with the Rouse Company when it opened multiple stores in Rouserun projects in suburbs throughout the country. Future Focused. An alliance with two Japanese retailers—Seibu Department Stores and The Daimaru, Inc.—led to licensing agreements for two exclusive Nordstrom brands in Japan. The merchandise sold under these licenses is to be displayed in a miniboutique within the two Japanese stores and thus will keep the brands distinct and unique. At the same time, Nordstrom has worked its way around the

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United States, adding stores in both metropolitan and suburban areas at a steady pace throughout the year.

The Home Depot, Inc. <www.homedepot.com> The world’s largest home improvement retailer and the third largest retailer in the United States, The Home Depot, Inc., sells doit-yourself building materials along with home improvement and lawn and garden products. Sales for 1999 exceeded $38 billion. It operates 1,022 stores in 45 states with over 230,000 associates. About 15 of these stores are EXPO Design Center stores, which cater specifically to renovation and design projects. The Home Depot has two direct marketing subsidiaries: Maintenance Warehouse and National Blinds & Wallpaper. Maintenance Warehouse provides maintenance, repair, and operations (MRO) products to the multifamily and lodging facilities’ management markets. Maintenance Warehouse publishes a semiannual catalog of over 13,000 items and has a Web site at <www.mwh.com>. National Blinds & Wallpaper provides . . . well, take a guess. A magazine called Style Ideas features decorating ideas and is offered as a giveaway at Home Depot stores. Featuring articles and tips from the Discovery Channel’s Lynette Jennings, the magazine brings regional flair and beautiful photographs to get your imagination working, along with a planner and Buying Guides to help you move from fantasy to reality. The Home Depot Web site originated in 1998 and was overhauled in 1999 to be relaunched as a content-concentrated site. New features, like calculators to help you figure out the amount of material to purchase for a particular project, were added to reinforce the customer focus that prevails in its stores. In 2000 the Web site moved into e-commerce, location by location, beginning with a Las Vegas launch of 40,000 products online and following with Austin and San Antonio. The “virtual orange apron” seems to be the perfect nickname for this online store. “Integrated commerce is just another example of doing business on the

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customers’ terms because we are offering one more way for customers . . . to shop our stores,” said Home Depot’s group president, Jeff Cohen. With all online purchases, Home Depot customers can elect to have their products shipped via UPS, delivered to a job site or other location, or picked up at the nearest store.

Brand Builders. The Home Depot is a no-frills warehouse-type store with shelving that is abominably high, concrete floors that have never been covered, and a significant lack of windows. If you’re involved in a do-it-yourself project or a buy-it-yourself and getsomeone-else-to-do-it project, you’ll live in that store and love it until the project is finished. Home Depot has everything you can imagine and things you couldn’t. Typically, each store stocks about 50,000 items, mostly nationally known brands that cover every room in your house or condo plus your lawn or terrace. And those bright orange aprons that the staff wear—to any homeowner trying to revitalize an old home, they’re as welcome as the sight of a doctor’s scrubs in an emergency room. They can save you. Or at least salvage your ailing bathroom. As confirmation of its success, for seven years The Home Depot has been ranked as America’s Most Admired Specialty Retailer by Fortune magazine, which also ranked it in the “Top 10 Most Admired Companies in America” in 2000.

Channel Synchronizers. When The Home Depot Web site was upgraded in 1999, the plan was to fully integrate e-commerce and all Home Depot stores by early 2000. In fact, the rollout has been one metropolitan area at a time, with full testing before each launch. So far, so good. All products that are available at stores are also available on The Home Depot’s Web site, which is no small task considering the size of its inventory. Product prices are based on the customer’s particular market, another complication for Home Depot but an advantage for customers. Why pay a national average price if your region is more competitive? Customers are also able to check product availability online, order online and pick up at a store, or buy online and return products to a store. In-store kiosks are available for project information and product listings, so if a particular product is not

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in stock at your store at the moment, you can gain further information and place an order.

Merchandising Masters. Home Depot stores are like giant warehouses, averaging about 108,000 square feet of space inside and 24,000 square feet outside. The EXPO Design Centers, which do not carry lumber or building materials, are about 90,000 square feet. The Home Depot Maintenance Warehouse receives telephone orders from sales reps, from the semiannual catalog, and through the Web site. Fifteen distribution centers throughout the United States serve this subsidiary. Items are shipped for same-day or next-day delivery. The National Blinds & Wallpaper subsidiary is a telephone mail-order service marketed through magazine advertising. This company serves as a broker for customers seeking low prices; there is no inventory. The greatest challenge is the Home Depot Web site, which is built to handle 20 million or more customers each day. Inventory is always changing, which adds another dimension of complexity to merchandising. Seasonal items, local preferences, special needs—the store stock of about 50,000 products is a challenge to track. Tracking is handled electronically, store by store. The Home Depot Web site reflects the inventory of the store closest to each customer and uses customer zip codes to identify store locations. When an item is sold or returned, it is immediately changed on the Web site. Customer Centric. To continue the notion of a local inventory for each customer, the Home Depot Web site also makes it easy to search for products. Customers can work with a key word, brand name, or SKU (a standardized code). If customers decide to pick up their purchase at a nearby store, Home Depot needs only two hours’ notice. If the Home Depot truck is delivering to you or your job site, you’ll have it the next day. UPS provides you a two-day delivery time. Not sure about new tools or equipment? Home Depot will let you try them out with professional rentals before you make a purchase; its services also include professional installation of carpets, cabinets, and roofs. And for determined do-it-yourselfers, there are free in-store

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how-to clinics offered every weekend. The Web site replicates the offline combination of information, instructions, and advice and also offers gift cards to give your favorite do-it-yourselfer. Typical customers of the EXPO Design Center are middle- to upper-income customers who buy products for installation by professionals, so installation services are an important offering of these stores. EXPO Design Centers also offer installation services for kitchens, baths, lighting, flooring—and more.

Alliance Builders. Strategic alliances with vendors have been the lifeblood of The Home Depot. At press time, over 40 exclusive brands are being sold in Home Depot stores because of these alliances: GE SmartWater heaters, Hampton Bay fans, RIDGID power tools, Behr paint, and Mill’s Pride cabinets, to name a few. Maytag and Jenn-Air major appliances are now sold in Home Depot stores in selected markets through another agreement. Romala Stone, Inc., and Home Depot have partnered to market precut granite installationready bathroom vanity countertops. General Electric and Home Depot worked out an arrangement that enabled Home Depot to offer more GE products to their customers while taking up less warehouse space for inventory. With the kiosk arrangement in Home Depot stores, customers are offered a wider selection than ever before, and delivery time is expedited because orders are sent directly to the GE warehouse. GE put reins on the arrangement, however, by offering this service only in areas where there is a GE warehouse within a reasonable distance from a Home Depot store. All other orders are delivered to the Home Depot store for shipment by Home Depot to customers. Additional alliances for The Home Depot, Inc., have been strengthened by acquisitions. Georgia Lighting, a recent acquisition, has 6 retail locations and also provides lighting design and distribution. Georgia Lighting was acquired for the benefit of both Home Depots and EXPO Design Centers, offering expertise in training and merchandising in lighting besides its collection of residential and commercial products. Apex Supply Company, a plumbing wholesale supplier, has 21 locations and an inside track

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to the professional plumbing trades that could directly benefit Home Depot. Both companies have become wholly owned subsidiaries of The Home Depot, Inc.

B2B Maximizers. From its earliest days, The Home Depot, Inc., served professional tradespeople and general contractors as well as do-it-yourself consumers. Acquisition of Georgia Lighting and Apex Supply Company strengthened its position vis-à-vis the professional trades. The company has insight into and appreciation of the needs of professionals and has worked to simplify their interactions with The Home Depot in every respect, providing special services for contractors, even to the extent of providing financing. The company makes it easy for tradespeople to order everything needed for every job so that more time can be spent at a job site and less time waiting in line for a cashier. The company tracks information for contractors that makes it simpler for contractors to monitor their expenses and manage their credit account in a store and on the Web site.

Future Focused. Home Depot invests in people as well as in stores, which gives it the potential to thrive regardless of how the stock market fares. It was an official Olympic Sponsor of the U.S., Puerto Rican, Canadian, Chilean, and Argentinean Olympic Teams during the summer events in Australia. It manages Olympic Job Programs, providing jobs with the flexibility future medal winners need to maintain a training schedule. It invests in sports programs, teams, and events throughout the year for athletes of all ages. Home Depot also invests in the environment; it is dedicated, in fact, to conservation, responsible packaging, attention to the environment, and consumer education about environmental issues. Home Depot’s expansion within the United States is a given; expansion into South America and Europe adds a whole new dimension to the future of the company. In the year 2000, Home Depot opened stores in Quebec and Buenos Aires. In the same year, it also introduced financing assistance through Home Depot Home Improvement Loan Accounts that are available in all U.S. stores. Villager’s Hardware, a concept being tested in about four locations in

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New Jersey, is geared to home enhancement and sells items that are reminiscent of old-fashioned local hardware stores.

Barnes & Noble, Inc. <www.bn.com> Barnes & Noble, Inc., is best known for the retail sale of books— from hardcovers of all types to trade and mass-market paperbacks, children’s books, discounted books, and magazines. The corporation operates 1,009 bookstores in 49 states and 500 video game and entertainment software stores. Barnes & Noble, Inc., also sells over the Internet. Lately, it is infamous for being number two in the online booksellers category, having lost by a mile its first-to-market advantage to Amazon. Although it often secures a position in the top ten Web sites listed by Media Metrix, it never manages to nudge past Amazon. Barnes&Noble.com Internet activity is handled by Barnes&Noble.com, Inc., a wholly owned subsidiary of the Barnes & Noble corporation. A limited liability company Barnes&Noble.com LLC, in which Barnes & Noble has a 40 percent interest along with Bertelsmann AG, was formed to oversee online sales operations of all Internet activity. Barnes&Noble.com also produces a catalog of books that are available online and through the catalog incorporates editorial material, reviews, and recommendations, nudging shoppers to the Web site to place their orders. Barnes & Noble, has a mall component under B. Dalton stores, Doubleday Book Shops, and Scribner’s Bookstore trade names. Video game and entertainment software stores are operated under the trade names Babbage’s and Software Etc. in addition to GameStop, which also sells products through the Web site <www. gamestop.com>.

Brand Builders. The superstores of Barnes & Noble are their most frequently visited spots for dedicated book buyers as well as for serious researchers, book browsers, dating couples, searching singles, and parents seeking quiet refuge from their screaming kids— basically, anyone who enjoys peace, a comfortable chair, and a good latté. The brand Barnes & Noble has an aroma of coffee brewing and

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warm pastry coupled with a sense of timelessness. If it permitted copy machines, students would never visit a library again. Settle into one of those armchairs with a notebook and a stack of books, and you’ve got at least a B on your term paper and possibly a weekend date to top it off. The café, special events for children, and author appearances guarantee a constant flow of activity and community participation in each of the superstores.

Merchandising Masters. Barnes & Noble stores are 10,000 to 60,000 square feet in size. Size is dependent on the market, and the average new store in 2000 was about 26,000 square feet. Individual stores carry from 60,000 to 175,000 titles, with a small number of bestsellers (about 3 percent) and a wide range of university press, small, and independent publishers. Music departments in about 237 stores stock some 50,000 titles in all categories, customized by store to its individual market base. B. Dalton stores, only about 2,800 to 6,000 square feet in size, are situated in shopping malls and strip malls with about 25,000 titles. Doubleday and Scribner’s stores are upscale with more hardcover books. Baggage’s Etc., the video and entertainment software arm, has small stores under the three names identified above that usually average 1,500 square feet in size with 1,000 video game titles and 700 software titles.

Customer Centric. The stores’ wide-open spaces, wood fixtures, and antique-style tables and chairs are designed to remind you of an Old World library. The Web site attempts the same feel sans the café aroma. A powerful search engine on the Web site makes it easy to find the books you want. Prints & Posters Gallery is an interesting diversion, and eCards (you select the message, animation, and music to customize your card) is worth a try. Best of all is the ready-todeliver inventory of over 750,000 titles. Online chats with authors, including major names like Tom Clancy, supplement in-store author signings; and online reader reviews provide objective comments and observations. The introduction of The eBook Store at Barnes&Noble.com took this company into a completely new direction. E-books can be read on your laptop, PC, or handheld device. As a new service, books were

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offered free for a limited time. To make the process less intimidating to customers, the company recommended the best software and reading devices to help the novice user get started. Microsoft Reader software could be downloaded at no cost on Windows-based laptops or PCs along with Glassbook Reader software. A handheld device called Rocket eBook was recommended for reading books online. How-to step-by-step instructions guide you through the process, and once you’re set up, you can download and store e-books in your own account. Over 2,000 digital titles were available when e-books were launched and is growing at a rate of 150 new titles per week. On a simpler level, Barnes&Noble.com introduced same-day delivery service in Manhattan, and plans to expand the program to other cities.

Alliance Builders. Starbucks Corporation provides all the coffee and related products for the Barnes & Noble cafés. The Starbucks’ specialty line makes it clear to visitors and shoppers that this is not a fast-food location but a place to linger and relax. The Barnes&Noble .com affiliate program has over 300,000 members. The affiliate network has strategic alliances with AOL, Lycos, and MSN as well as with other major Web portals and content sites for marketing and promotion. Other partners include software, service, and content providers that contribute to the Web site’s efficiency. In a partnership with American Express, the American Express Corporate Purchasing Card is used in Barnes&Noble.com Business Solutions for electronic purchasing. Ariba helps to manage operating resources. Ariba.com Network™ connects buyers with suppliers worldwide with decreased request cycle time and improved end-user satisfaction. Arthur Andersen’s KnowledgeSpace® provides news and insight about business issues. EPIC Systems, Inc., provides software support for the procedures that contribute to Business Solutions’ efficiency in procurement, purchasing, and business-to-business supplier processes. Intelisys Electronic Commerce provides IEC-Enterprise™ to streamline the procurement process over intranets, providing the customized pricing data to employees under the Business Solutions program. The newest and most newsworthy alliance, however, is with Microsoft on

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the launch of e-books. Microsoft software makes e-books easier to read on all devices, and Microsoft is behind e-books in advertising and promotions.

B2B Maximizers. The Business Solutions program offered by Barnes&Noble.com offers government and corporate entities a direct link through their own intranets, procurement software, or the Internet to a customized home page and special offers. Fortune 1000 corporate clients are assigned their own account executive, who works with them to ensure that their employees’ online purchases take place smoothly and efficiently. Customized home pages enable companies to recommend books for their employees and facilitate their purchases. Barnes&Noble.com business editors can help companies select books that are relevant to a particular industry and promote books written by their own corporate executives. Through Business Solutions, corporate employees also receive an additional discount based on annual buying projections, which increases for bulk orders of over 50 books. Business Solutions offers subscriptions to 240,000 professional journals, magazines, and newspapers. Purchase patterns within an organization can be monitored by detailed reporting. Besides accepting credit cards, Barnes&Noble .com accepts payment by purchase orders and corporate accounts. The most recent advance into B2B commerce came with the acquisition of Fatbrain.com, the online bookseller specializing in professional and technical titles for the corporate market. In addition to a customer base of 3.5 million employees in 350 worldwide Fortune 1000 companies, Fatbrain.com offers a digital publishing capability and print on demand that complements Barnes & Noble’s goals. Its Information Exchange, a method of cataloging and distributing corporate materials, like books and training packages, is accessible via corporate intranets. “We believe that the companies have complementary cultures that will foster our ability to build both the consumer and business-to-business markets together,” said Steve Riggio, vice chairman of Barnes&Noble.com.

Future Focused. Although we may not be reading all our books online in the immediate future or substitute online books for printed

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copies, Barnes&Noble.com made a leap into a new genre and quickly became an industry leader, finally beating Amazon and other booksellers to market. It is predicting that it will soon be possible to obtain almost every book in digital format. Barnes&Noble.com invested $20 million in a company called MightyWords, publisher of short digital books, which has been a leader in wireless commerce with Barnes & Noble On the Go wireless shopping. Customers can access the MightyWords Web site from any portable device. Working with NetMorf, Barnes&Noble.com standardized material on the SiteMorfer™ mobile business platform. Barnes&Noble.com now has a lead in figuring out how to create an m-business (mobile business) to interact with customers, partners, and employees on the move and encourage shopping anytime, anywhere.

Kmart/BlueLight.com <www.kmart.com> Kmart Corporation is the second largest discount retailer in the United States (Wal-Mart Stores is first) and the third largest general merchandise retailer in the world. Kmart has over 2,165 Kmart, Big Kmart, and Super Kmart retail outlets in the United States and the Virgin Islands. Kmart’s mission statement declares that its goal is to become “the discount store of choice for low- and middle-income households by satisfying their routine and seasonal shopping needs” better than (or at least equal to) their competition. The company employees over 250,000 “associates,” and owns over 2,500 trailers and tractors to handle deliveries. Kmart, the retailing expert, and Softbank Venture Capital partnered in 1999 to form BlueLight.com, the online channel for Kmart products. BlueLight.com’s mission was to create an easy-to-use, friendly Web site that Kmart shoppers could access for free. The Kmart Web site now contains over 5,000 pages of weekly specials, online coupons, and gift certificates in a host of popular brands and exclusive private label brands.

Brand Builders. Kmart seeks to be the brand that always guarantees the lowest sale prices all the time. The Web site Kmart.com reflects the same strategy. Even the name “BlueLight” has its roots in

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the 1970’s Kmart gimmick used to highlight special sales items. With the Kmart Blue Light Special, a blue light was literally turned on at the end of store aisles to attract attention to the site of the current big discounts.

Channel Synchronizers. Kmart stores, distribution centers, and headquarters have to communicate to operate efficiently. Systems like Kmart’s Workbench and Warehouse Management System move them in the right direction. Workbench tracks sales, inventory, and profitability at the store level, providing a valuable tool for merchandisers, vendors, and field management. The Warehouse Management system is an initial attempt to create a consolidated distribution center network, improving productivity, and providing for a better flow of merchandise. The Warehouse Management System has been rolled out to other distribution centers. A monument to the significance of technology in the future of Kmart, the corporation constructed a $103 million state-of-the-art data center at its headquarters location. Merchandising Masters. In keeping with the brand identification of a low-price guarantee, Kmart works to ensure that its prices are always competitive. Specific goals of remaining within 3 to 5 percent of its competitors’ prices are strictly adhered to. But low price isn’t sufficient to make the stores and the Web site interesting enough to lure customers back. By featuring a combination of wellknown national brands and exclusive private labels, Kmart provides a wide assortment of merchandise and choices. Private labels include Jaclyn Smith, Kathy Ireland, and Sesame Street for apparel; Martha Stewart Everyday and Martha Stewart Lawn and Garden for the home; and White Westinghouse for appliances. A mix of “highfrequency items” and extensive choices are designed to keep customers coming back. In 2000 Kmart announced a major investment to replace outmoded computer systems throughout its stores, spending $460 million to upgrade its information systems. New scanners in all stores, new registers in the highest-volume stores, and new inventory management systems are at the core of the expenditure. Another $210 million is tagged to improve the distribution and logistics network.

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Customer Centric. Kmart Solutions, introduced in 1998, provided an in-store electronic catalog or “virtual store” within the physical stores. Solutions provides computer access to products in five retail categories and makes it possible for shoppers to access hundreds of additional items that were not available in every store, like Sentry safes, Muskin above-ground swimming pools, and Whirlpool major appliances. The same huge inventory became available on the Web site. Alliance Builders. Through a partnership with Yahoo!, BlueLight .com is able to offer free and unlimited Internet access, personalized notice of shopping specials addressed to its Yahoo! home page, and other online services at no cost to Kmart customers. Through partnerships with private label brand leaders, Kmart ensures a line of products ranging from appliances to apparel that is uniquely its own. Martha Stewart’s line of home fashions has been a success, and other long-term relationships with vendors like Thom McCann are nurtured. Kmart has sought to increase the promotion of national brand products and has formed strategic relationships with Rubbermaid, Procter & Gamble, and Kodak to name a few. A strategic alliance with SUPERVALU and Fleming Companies ensures timely distribution of grocery-related products to all Kmart stores for over 3,250 items sold in Big Kmarts and Super Kmarts. Acquisitions have also helped. The 1998 acquisition of 45 Venture stores and the 1999 purchase of Caldor stores set the stage for a new wave of Kmarts as these stores were overhauled and reopened under the Kmart name.

Future Focused. Chairman and CEO Chuck Conaway outlined three “strategic imperatives” for Kmart’s long-term growth: (1) make end-to-end improvements and investments in the supply chain; (2) create a customer-centric culture; and (3) become a marketing and sales organization with a differentiated market position. As evidence of the corporate commitment to strengthen its leadership position, Kmart will invest over $2 billion in infrastructure improvements in the next two years. Included in its long-term strategy are immediate improvements in customer service and management. A new Customer Service Center went into operation 24 hours a day, 7 days a

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week. And managers’ span of control was decreased from 13 to 8 stores each to increase personal commitment and accountability in every store. Kmart’s future plans include expansion in the largest 30 metropolitan markets, both urban and suburban. Future focus on urban markets is designated as critical for future growth.

Blockbuster, Inc. <www.blockbuster.com> Blockbuster, a subsidiary of Viacom, retails rentals of home videos, video games, and DVDs. The company operates 4,800 video stores in the United States with over 72,000 employees; it has a total of 7,200 stores in the United States and 26 other countries. About 20 percent of the stores are franchises or joint ventures. Late in 1999 the company separated into operating segments to handle video and new technologies, creating three operating divisions: Blockbuster Worldwide Store Operations, Blockbuster Entertainment Technologies, and Blockbuster Business Solutions. Blockbuster Worldwide Store Operations handles the retail store base, including all the traditional rentals—videos, games, and equipment. The Blockbuster Entertainment Technologies division handles the Web site Blockbuster.com and new technologies. A new Digital Networks division is exploring video on demand and state-of-the-art entertainment alternatives. Blockbuster Business Solutions is charged with marketing the company’s database, brand, and media assets in the business-to-business arena. Blockbuster relaunched the original Web site <www.blockbuster .com> in 1999 with more movie and entertainment news, improved e-commerce capability, new promotions between in-store and online channels, and movie recommendations for customers.

Brand Builders. The Blockbuster brand, according to the Gallup Organization, has virtually 100 percent name recognition among movie renters. Blockbuster’s expertise in the video business places it in a strong position to go after the video market of the future. The strength of the brand name gives Blockbuster leverage to achieve its goal of becoming the ultimate online video and entertainment cen-

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ter. The Blockbuster Entertainment Awards has become an annual event during which customers vote for their choices of movies and video games. When Star Wars: The Phantom Menace was released on video, Blockbuster stores opened at midnight so that devoted fans could be the first to rent the movie.

Channel Synchronizers. A major project for Blockbuster in the year 2000 was the integration of online searches with its stores’ inventory systems so that customers can reserve movies and pay in advance through the Web site, then pick up their movie at the store.

Merchandising Masters. Blockbuster uses three different store formats. Its new “Traditional Stores” are the largest, averaging 4,800 square feet and situated in optimal market areas. “Seam Stores” are less than 3,500 square feet and are most likely to be located in rural areas. “Store-in-Stores” are the smallest at less than 1,400 square feet and are constructed in primarily department stores and supermarkets. Blockbuster aspires to capture “the magic of the movies” and designs its stores accordingly. The layouts are standardized and the schedule rigorous: 365 days a year, 10 AM to midnight (except for the franchisees). Customer Centric. Blockbuster has worked to make its stores and Web site convenient for customers to browse for a movie (or video game) or get in and out quickly if they know what they want. But it has also expanded its scope to provide everything that goes with a rental— the equipment, for example, for video games, satellite TV access, and more. Blockbuster has attempted to be one step ahead of what customers want today so they have the service tomorrow. DVDs were available in 1999 as soon as they became a hot item, for example. A Customer Convenience Program increased the length of rental intervals and printed the due date and time on the sales receipt. Arrangements with partners (detailed below) have enabled Blockbuster to make more than movies available; concerts and sports and special events are available on 225 channels with DIRECTV.

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Alliance Builders. AOL is a powerful ally, and the strategic alliance between Blockbuster and America Online created cobranding of a joint site on America Online’s Entertainment Channel. The two companies will also cross-market and jointly develop content for broadband. Partnerships with equipment providers, video game distributors, and service providers have given Blockbuster more visibility and have enabled the company to offer more products and services to its customers. Blockbuster and NetActive cotested a PC game rental program. Blockbuster and InMotion Pictures signed a licensing agreement that places Blockbuster’s name on all InMotion Pictures DVD players and movies in airports. An agreement with Food.com provides a method for Blockbuster videos to be delivered through Takeout Taxi restaurant delivery service. Blockbuster and Retail Services formed Freebie to use RSI’s one-on-one marketing system and technology to offer Blockbuster store customers promotional offers on their sales receipts. A 20-year exclusive agreement with Enron Broadband Services provides for delivery of Blockbuster movies-on-demand through the Entron Intelligent Network. High-speed DSL lines are provided by Qwest, Verizon, SBC Communications, Covad Communications, Telus, and ReFlex. Blockbuster and DIRECTV, which provides satellite television service, have partnered in a number of efforts, including the sale of DIRECTV systems in many Blockbuster stores. They have also worked out an arrangement to cobrand pay-per-view service on DIRECTV through Blockbuster. MGM and Blockbuster are testing a plan to use the Internet to stream MGM films for downloading. AtomFilms and Blockbuster are working to allow short, digital content to be streamed on a cobranded section of Blockbuster.com. B2B Maximizers. The company’s database, brand, and media assets will be marketed in the business-to-business arena through its Blockbuster Business Solutions division. The strength of the Blockbuster brand has the potential to open new avenues in B2B for the company, which has just touched the edge of the possibilities. One current outreach to corporations is available on the Web site through Corporate Incentives. Blockbuster GiftCards are available

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for customization with a company logo for use as employee gifts or in reward programs. The company promises a 48-hour turnaround, offers volume discounts, and provides for disbursement from $1 to $100.

Future Focused. Blockbuster has recognized the future potential of electronic entertainment and is working to stay on the leading edge of new developments, demands, and delivery systems. It plans to grow beyond the video rental business into the business of providing entertainment services, and it is steadily moving in this direction. Video-on-demand is predicted to be a hot item, as is movie downloading, games-on-demand, and subscription video-on-demand. By strengthening alliances with technology providers and research partners, Blockbuster hopes to be the leading market provider for these services. Blockbuster stores and electronic video entertainment capacity are also being extended in Central America, South America, and Europe through a consistent program of growth.

RadioShack Corp. <www.radioshack.com> RadioShack sells consumer electronics through its companyowned chain of retail stores and a network of dealer/franchise stores. The company had 1999 revenues of $4.1 billion, with 5,087 company stores and 2,099 dealer stores serving over 1 million customers a day. The stores carry private label and third-party products, including electronic parts, telephones (cell, PCS, and conventional), audio and video equipment, digital satellite systems, PCs, and specialized products. RadioShack opened its first retail shop in Boston in 1921 for ham radio operators and electronics geeks. Catalog distribution began in the 1940s, and by the 1960s the company had grown to a worldwide mail-order business with nine retail stores. The company was purchased in 1963 by Charles Tandy, who fueled an expansion effort that capitalized on the company’s loyal customer base and excellent reputation, moving the company out of debt and into profits in less than two years. The company operated under the name of Tandy Corp. until 2000, when the name was changed to RadioShack Corp.

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The Web site RadioShack.com was launched in late 1999 under a new e-commerce business unit. The Web site offers about 20,000 products, including some specialty and hard-to-find consumer electronics products.

Brand Builders. RadioShack describes itself as “the largest and most trusted consumer electronics retailer in the U.S.” With so many local stores, there is no question that the company has a strong local presence with “94 percent of Americans” living or working near a RadioShack store. RadioShack successfully competes with big chains like Wal-Mart because it has held its own as a neighborhood store, trusted for electronics, telecommunications, satellite systems, and repairs (the cherished consumer service that most companies run away from) for virtually anything electronic. The company has seen tremendous growth in digital products and has adjusted its brand to “America’s Home Connectivity Store.” Channel Synchronizers. FileNET Corporation’s Panagon Web Services was selected for RadioShack’s intranet content management. RadioShack has connected 5,000 of its company-owned stores to a new intranet system that will enable store staff to access up-todate operations information on a daily basis. Merchandising Masters. RadioShack operates 11 distribution centers for its stores, shipping over a million cartons a month. Separate distribution centers serve as fulfillment centers for RadioShack .com. RadioShack manufactures some products on its own, including audio, video, and small electronic equipment as well as hard-tofind parts for consumer electronic products. Company-owned stores average 2,300 square feet and are situated in large malls, strip malls, and storefronts. In-store kiosks for Microsoft Internet Centers are used as demonstration locations for high-speed Internet access, which will be sold and installed by RadioShack. Customer Centric. RadioShack customer support handles over 5 million calls per year about technical questions, service requests, and direct sales requests for the catalog, Web site, and products offered

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through the RadioShack Unlimited program for items that are difficult to find. Customers can purchase, return, or exchange products from the Web site to any local RadioShack store, including dealer outlets. RadioShack offers customers assistance in obtaining third-party services for cell phones, pagers, direct satellite programming, and Internet access. The company also operates RadioShack Service Centers to repair brand-name products from Compaq, Sony, Panasonic, and others, along with private label products.

Alliance Builders. RadioShack, Compaq, and Microsoft formed a three-way strategic alliance to make Web technology and services available through a triple-branded Web portal. Microsoft Network (MSN) services, such as Internet access, e-mail, and more can be accessed through Compaq Presario Creative Learning Series personal computers, sold and demonstrated at RadioShack stores. Home pages are customized to provide easy access to MSN, Compaq, and RadioShack Web sites plus additional features. Each is crosspromoting and marketing one another’s services. RadioShack and Thomson Multimedia opened RCA Digital Entertainment Centers, stores in a RadioShack store that sell about 100 digital audio-video products. RadioShack and Verizon Wireless formed a strategic alliance that enables RadioShack stores to offer a special rate plan for cellular service from Verizon Wireless, which has national cell plans under Single Rate plans. The Single Rate plan eliminates roaming and long-distance charges, a far more cost-effective structure for consumers than local rate plans.

Future Focused. A campaign—“School Violence: Let’s Get It Out of Our System”—kicked off in 2000 with a video cosponsored by United Against Crime (UAC), a coalition formed by RadioShack, the National Crime Prevention Council, and the National Sheriff’s Association. The video was made available through the UAC Web site. Community outreach is part of the corporate mission, with a commitment to contribute to nonprofit organizations in local communities, promotion of volunteerism, and local partnerships to help disadvantaged youth gain access to technology.

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RadioShack has cosponsored a new program with RCA and MSN that premiered on DIRECTV in fall 2000. The series, called Music in High Places, is a sort of MTV meets National Geographic and is described as an “adventure/travelogue/music series,” a pilgrimage with recording artists. It’s a first of its kind, achieved through a combination of artists and corporate and community efforts, and it is targeted to a youthful audience. Featured locations are sites around the world that have been designated endangered “world heritage” sites by the United Nations’ UNESCO. Part of the proceeds are to be donated to the Grammy Foundation, the nonprofit division of the Recording Academy.

Steps to Implement Multi-Channels from Bricks First How can a traditional store or office become a hybrid company? Following is a list of steps to take and issues to consider for moving into Web site and catalog channels. Marketing Issues 1. Reinforce the company/store image and brand on the Web site and in catalogs. • How will this brand strength transfer to the Web site and the catalog channels? • What adjustments, if any, are needed? 2. Identify new competition in the online channel (including pure-plays) and in catalogs of those that don’t have traditional stores. • How can this business be differentiated from pure-play competitors? • How can this business be differentiated from existing catalog companies? 3. Identify new marketing campaigns for the new channels. • Should special offers (promotions, discounts, free shipping) be considered for incentives to shop on the Web site? • What e-mail marketing efforts can be added?

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• What search engines should the Web site be registered with? • What online ads should be included? Links to/from other Web sites? Sponsorships? • How quickly can existing advertising and public relations efforts be changed to reflect the Web site? • What additional online strategies (like communities and chats) can be incorporated? • What offline events can be arranged to draw traffic to stores? Technical Issues 4. Ensure that databases used for the store are quickly accessible to the Web site and catalog channels. • Should some services now be reevaluated for outsourcing? • Can existing networks handle growth? 5. Ensure that the in-house staff is up to speed. • What additional personnel should be hired to handle development, implementation, and maintenance of the Web site? • What new areas of technical expertise are mandatory to work on the Web site? For the catalog channel? • Select the best outsourcing option, if necessary. Warehousing Issues 6. Determine if the current warehouse arrangement is adequate to meet increases in orders. • Can the current arrangements used to store and pack bulk orders for stores be expanded to handle small orders to individual customers? • Should this function now be outsourced to handle direct-toconsumer sales? 7. Ensure that inventory for all products is available through all sales channels. • Can returns from Web site or catalog orders be processed quickly in the stores and items returned to available inventory?

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8. Identify the most efficient way to ship small orders to individual consumers. • Should new contracts/arrangements be established? Customer Interactivity 9. Determine if the current system of customer service can handle increased activity. • Web site customers expect 24/365 customer service availability. How will this be handled? • Are all methods of customer contact available: phone, live online, e-mail? • Should the services of a call center now be considered? 10. Identify ways to use the store to drive traffic to the Web site. • How can information about the existing customer base be used to make the Web site more efficient and effective? To improve catalog offerings? • How can this company ensure that customer personalization does not come at the expense of loss of privacy? New Opportunities 11. Identify new opportunities for business partnerships and strategic alliances. • What new Web site partnerships can be created to complement this business? What about the catalog channel? • Are there existing pure-play companies that should be evaluated for merger or purchase? • Are there existing catalogs that should be considered for purchase? 12. Identify new opportunities to sell to businesses. • Can the Web site offer items that will appeal to corporate or association buyers? • Can the catalog offer new incentives for corporations to buy from this company? 13. Determine how this company will stay focused on changes in the marketplace and respond quickly. • How will this company monitor changes in online sales, technology, and marketing?

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• How will this company monitor competitive Web sites and catalogs?

Chapter Summary 1. When traditional stores expand to multi-channels, they have strong advantages: high visibility in brand name and image; a physical presence with customers; easier access for returns; a place to try on (or try out) the goods; a service-oriented staff; customer loyalty; and a comprehensive marketing campaign. 2. The most powerful advantage of traditional stores is their expertise in merchandising details and the mechanics of dealing with vendors. Their experience in tracking inventory, packing, and shipping merchandise gives them an edge over Internet start-ups. 3. In-store Internet kiosks have been described as the next wave of e-commerce, providing a place for e-tail and retail to merge. Experts predict that 80 percent of retailers will add digital kiosks to stores by 2002. Internet kiosks can access a company’s Web site and offer merchandise that is too large, cumbersome, or extensive to be featured or stocked in a store. 4. Not all manufacturers have been successful in selling directly to their customers online. Those who succeed have recognized the real balance of power in their relationships with their distributors and their retail partners, and have worked to avoid the perception of channel conflict.

Catalogs First

6

My friend Mary Lou has made a science of catalog shopping. Donning a bathing suit and terrycloth wrap, armed with her credit cards and a pen, she settles into an afternoon of poolside telephone ordering with indefatigable energy. Her legendary mail-order accomplishments even drew the attention of television journalist Bill Geist, who featured a tour of her home in a WCBS-TV Sunday Morning segment on United Parcel Service deliveries. When her daughter, Lynne, reached the age of interest in the American Girl Doll Collection catalog, Mary Lou decided to order the entire collection of dolls, clothing, and furniture in a single sitting. “After all, I’ll only end up buying most of it eventually anyway,” she commented. Although not everyone can match Mary Lou’s devotion to catalog shopping, there is an audience for catalogs that remains truly dedicated to the paper format. As discussed earlier, no substitute exists for the glossy photographic artwork that can be illustrated in a catalog and brought to the beach with you, tucked in with your towels and suntan lotion, or read while you’re curled up on the couch under an afghan. RedEnvelope and other former Internet pure-plays have recognized this and have added catalogs to their channels to reach a broader customer base.

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The century-old catalog industry, which has been shown by companies as old as L.L. Bean to be a great way to acquire customers, is projected to exceed $111 billion by 2002. The catalog continues to function as a sales channel in its own right and as a marketing device for Web sites. Catalog companies have seen dramatic revenue expansion and derived benefits for their whole business from multi-channel sales efforts.

Catalog Advantages Catalog companies may be the most likely channel to benefit quickly from e-commerce in spite of initial fears of channel cannibalism. Catalog companies have expertise in distribution and delivery, which facilitates a smooth segue to online selling. Web orders are less expensive to process than phone orders from a catalog, so direct mail companies can afford to offer discounts or free shipping to draw customers to their Web sites. Catalog companies understand how important it is to have adequate inventory for the items they promote. Customers can be lost permanently with a simple screwup and lack of stock. On the other hand, it’s expensive to be stuck with excess inventory and wasted warehouse space. Most direct mail companies can predict when their orders will come in because they usually receive the majority of their orders within 40 days of mailing their catalog. And they understand the inalienable customer right to consistent sizing; their customers have no use for dressing rooms. Their customer service staffs are trained in dealing with people on the telephone, placing orders, assisting with selections, handling complaints, advising about returns. The information they gather from their mailing lists about where their customers are located is invaluable when and if they decide to open stores. Locations can be pinpointed based on their greatest marketing successes. So the combination of catalogs and Web sites is both complementary and appealing. The advantages of moving from catalogs to the Internet are summarized in Figure 6.1. Not every transition from paper to Web sites, however, has been uneventful, as demonstrated by the example of Delia*s.

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FIGURE 6.1 The Catalog-to-Hybrid Advantage • • • • • • • • •

Direct to consumer as pick, pack, and ship facilities already in place Knowledge of appropriate inventory levels Secure relationships with vendors and suppliers Appropriate warehouse facilities Understanding of customer buying cycles (busy seasons) Consistent quality and sizing of merchandise Extensive information about the location of customers Ability to track the success of marketing efforts Trained customer service staff to deal with • telephone questions • order placement • selection assistance • resolution of complaints • advising about returns

Delia*s Inc. Delia*s, a hybrid company featured in E-tailing (Dearborn, 2000), has come full circle since I first examined it as a case study to illustrate effective niche marketing and e-commerce. The beauty of the company had been its simple focus on a niche market of preteens and teenagers. Delia*s markets casual clothing and accessories to kids from 10 to 24—that is, Generation Y. The business started in 1993 with a catalog focused on college students. In fact, it drew the attention of younger teens. Delia*s expanded to several lines of merchandise (TSI Soccer, Droog for Generation Y guys, and Storybook Heirlooms for girls 4 to 11); launched a Web site, then more Web sites; and opened retail stores, all at Internet speed. In the early days of e-commerce, a company called iTurf provided Internet content, community, and e-commerce capabilities for the whole network of Delia*s Web sites. Chat rooms, posting boards, and the many dynamic features that appeal to this age group kept the Web sites hopping. In spring 2000, Delia*s Inc. spun off iTurf and Delia*s.com as a separate business to the joy of a stock market infatuated with its youthful market focus. The separation turned out to be a mistake,

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and within six months the company announced that it would bring the separate business back into Delia*s Inc. under the new name of Delia’s iTurf Inc. Delia*s and iTurf had partnered before such alliances became trendy. ITurf offered a skill set that the Delia*s team lacked: Internet expertise. And iTurf successfully launched a set of Web sites that captured the attention of teens, parents, and investors. Things fell apart when the iTurf team members were entrusted with more than the Internet side of the business. The old-fashioned merchandising expertise, which made Delia*s successful in the first place as a catalog company, were at the heart of running the entire hybrid company. “It turned out to be this structural disaster,” Delia*s Chairman and Chief Executive Stephen Kahn said. The separation of online and offline turned out to be nothing but confusing—to everyone. Where does Delia*s stand now? It has a stronger management team, an organizational structure that makes more sense to investors and analysts, and a potential to regroup and breathe life back into its stock price. This is a company to keep watching. It remains my favorite, and the favorite of my teenage daughters and their friends. Delia*s is the one catalog that we manage to wear out after a week’s worth of reading and markings; it is as eagerly anticipated as the Delia*s merchandise itself.

Case Studies of Catalogs First The case studies examined in this chapter are hybrid companies that began with a catalog and expanded to Web sites, stores, and/or kiosks. Hybrid companies have made this list by exemplifying at least five of the seven success strategies in at least two channels. The hybrid companies featured in this chapter are: • • • • •

Gateway, Inc. Lands’ End, Inc. Dell Computer Corp. Vermont Teddy Bear L.L. Bean, Inc.

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FIGURE 6.2 Benefits of Expanding from Catalogs to Multi-Channels CATALOG First

to WEB SITE

to BRICKS

The business has an existing base of loyal customers.

These customers—and a much broader range of national and international customers—can place orders online anytime.

Consumers who will not shop by catalog or online will visit a traditional store. There is expanded visibility in the local community.

The business has expertise in pick, pack, and ship directly to the consumer.

Web sales use the same procedures—no change.

Shipping orders in bulk to stores may require some changes but is less cumbersome than the pick, pack, and ship process the company has already mastered.

The expense of processing telephone orders is already factored into the budget.

It is less expensive to process Web site orders than phone orders.

Taking orders in person at the stores is not expected to be a 24/7 operation.

There are opportunities to offer free shipping and discounts to draw customers to the Web site, encouraging them to order online.

Discounts from Web site purchases can be applied to store purchases to spark sales in both channels.

There is a good grasp of appropriate inventory levels throughout the year—not too much but enough to meet demand.

Web site information provides a base for projections of inventory requirements.

There is more flexibility with inventory that is maintained in each store.

Warehouse space and location requirements have been determined.

Although the Web site will increase sales, it is easier to add warehouse facilities than to start from scratch.

There is no need to maintain a huge inventory in the store if personnel can access a central database to order and ship immediately. continued

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FIGURE 6.2 Benefits of Expanding from Catalogs to Multi-Channels (continued) CATALOG First

to WEB SITE

to BRICKS

The business can track seasonal sales patterns and spot trends. Predictions of time intervals from catalog receipt to order placements are relatively accurate.

When catalogs are mailed, an increase in Web site activity can also be anticipated.

Stores can maintain a more even flow of customer traffic between catalog mailings, resulting in additional income.

Customers are predisposed to buy without a fitting room.

There will be no hesitation to continue the pattern online.

Fitting rooms will be a bonus, a luxury, and lure customers who would not buy without trying on.

Quality reigns supreme.The importance of consistent quality and sizing cannot be overstated.

A positive reputation in the direct mail channel can influence Web site visitors. Web shoppers also demand high quality.

Sales of products that consumers hesitate to buy without seeing/ testing can now increase.

Customer service expertise has kept the catalog business thriving: accepting phone orders, answering questions, handling complaints, and advising about returns.

Web shoppers will require the same—not different—attention.

Person-to-person service is still highly valued by customers no matter the channel. Personal store contact can be the most positive.

Information about responses/orders placed from mailing lists provides data about geographic areas served.

Web site information can be expanded through data gathering and database analysis.

Information can be used to place stores in the most profitable locations.

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• Coldwater Creek, Inc. • Hanover Direct • Martha Stewart

Gateway, Inc. <www.gateway.com> Gateway, Inc., is a Fortune 250 company founded in 1985 with global revenues of more than $8.65 billion and 20,000 employees worldwide. Gateway PC products are manufactured in the United States, Malaysia, and Ireland. The first channel of sales for Gateway was telephone orders. In 1996 Gateway Country Stores were added as well as an e-commerce Web site, making Gateway the first major PC manufacturer to sell computers online.

Brand Builders. Gateway earned its highly acclaimed reputation initially by providing outstanding world-class PCs and servers through its telephone sales channel. Customers could special-order systems to meet their needs, a unique and appealing concept. Each system was personalized, so there was never an inventory of completed systems. A professional, well-trained staff of over 5,000 handled customer service, technical support, and sales calls. Product and service were consistently excellent, and Gateway preserved its reputation as a leader by providing the latest innovative computer equipment and support.

Channel Synchronizers. Gateway clearly represents itself as one company with multiple sales channels. Gateway has never outsourced core functions. Unlike Charles Schwab, Gateway has never experienced channel conflict. It has always sold directly to its customers and always tracked all channels as one. Merchandising Masters. The core PC products and related services were just the start. Gateway began to grow through new, related services that could be marketed along with its hardware and software. Customers can finance their systems through a Gateway program with a low monthly payment, then trade in the system two years

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later for a cash credit. Software and peripherals from a wide range of providers are available to complete each customer’s computer configuration. Internet access is provided through Gateway.net and a personalized Internet portal.

Customer Centric. Gateway was the first PC manufacturer to offer a wide selection of peripherals (such as printers and scanners), software, a proprietary Internet service provider, a personalized Internet portal, and bundled Internet access with most of its PCs. Its retail network offers better personal contact with customers in locations all over the country. Gateway has a philosophy of “keep it personal, make it simple,” and employees are trained to offer more than hardware advice to customers. Financing, Internet service, peripherals, software, training, and service are also part of the company’s mission to create relationships with clients. Because it has always sold directly to customers, Gateway has been able to maintain close contact without the intervention of intermediaries. It reportedly maintains contact with more than 1 million people each day via telephone, its retail stores, and its Web site. The staff are referred to as “trusted guides,” so there is never any question that the role of Gateway’s employees is to direct and inform customers, usually referred to as “clients.” Retail outlets, called Gateway Country Stores, were started in 1996 and now number about 758 worldwide. These stores provide customers with hands-on previews of Gateway equipment. Only demo models are available in the stores; there is no inventory. All customer orders are sent from the stores directly to the manufacturer. The stores also provide a site for conducting training courses and software or Internet demonstrations. Alliance Builders. Gateway’s alliance with America Online (AOL) is a powerful combination of two industry giants with the same customer-centric, future focus. This alliance provides Gateway customers with a choice of AOL’s Internet service or gateway.net service; new products and services codeveloped by Gateway and AOL; and a jointly developed software store. As a premier hardware and software store for AOL, Gateway gains prominent exposure to more than 23

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million AOL members. Partnerships with other industry leaders have given Gateway an edge in providing excellent pricing for hardware and software; these partnerships include Hewlett-Packard, Epson, Microsoft, Corel, Hasbro, and Intuit. By acquiring NECX, Gateway extended its product offerings to include more than 30,000 computerrelated items. On a lighter note, an alliance with Nickelodeon children’s television network led to the development of Gateway Astro PC, in Rugrats and Blue’s Clues editions, all-in-one, easy-to-set-up systems. The alliance with Nickelodeon, which also extends to computer accessories, software, and CD-ROMs, is Gateway’s most extensive licensing partnership.

B2B Maximizers. Gateway has always offered products for individual consumers, small to large businesses, educational institutions, and government agencies. Before it was clear that B2B had the largest potential, Gateway was deeply involved in this market.

Future Focused. It is part of Gateway’s present and future mission to be on the cutting edge and innovative and bringing its customers along. As the need for products beyond PCs, including wireless and handheld devices, expands, Gateway expects to leverage relationships with partners to remain competitive with new product offerings. As the price of computers drops, additional sources of non-PC income will continue to provide Gateway with a firm foundation. Gateway proclaims on its Web site that it is “evolving to be the company that is about the entire computing experience, not just about the computer.” As non-PC income rises to exceed 45 percent of the base, it’s clear that Gateway is poised to hold on to its leadership position.

Lands’ End, Inc. <www.landsend.com> Mail-order retailer Lands’ End was founded in 1963 by Gary Comer, a sailor and advertising copywriter. Lands’ End sells casual clothing for men, women, and kids as well as home products. Today, sales exceed $1.32 billion, and the company distributes more than

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236 million catalogs. Lands’ End established its first Web site in 1995, promoting only 100 items and including the editorials that gained fame in its catalog. By 1998, Lands’ End accrued $61 million in online sales. Today, Landsend.com offers every product featured in its catalog, visitors exceed 38 million each year, and sales average $10 million monthly, going beyond $138 million annually. Its Web site receives orders from 175 countries; local sites were launched in Japan, Germany, and the United Kingdom, with additional European sites being planned to open every year.

Brand Builders. The Lands’ End image is one of clothing of exceptional quality offered at reasonable prices and excellent customer service support. Long before the Web site was introduced, Lands’ End reps engaged telephone customers in entertaining dialogs without ever losing patience. Place just one order and you’re hooked. The Web site extended this personal touch without ever missing a beat—and not by accident. Lands’ End turned down opportunities to outsource customer service, knowing that it was its personal style with customers that was an essential ingredient to its success formula. Channel Synchronizers. When Landsend.com added “Live,” it replicated the familiar comfortable style of the telephone staff that endeared this catalog company to its customers. When making a decision about how to provide customer support for the Web site, the design of the customer contact center had to fit its existing telephone support methodology. Today, customers can speak with a sales representative online or request a phone call to answer all their questions. Lands’ End Live Voice service, compared with computer responses, is more expensive, but Lands’ End chose to make quality service its top priority. Merchandising Masters. Like Gateway, Lands’ End suffers no middlemen and deals directly with manufacturers and mills. The Lands’ End catalog has been ranked as the 2nd largest mail-order provider for apparel and the 15th largest for all products. The catalog and Web site both feature similar articles and lines. Monthly editorials by famous

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authors have been a favorite. Specialty lines include Lands’ End for Men, Coming Home, First Person for women, Kids clothing, and School Uniforms (who knew about that one). Quality assurance personnel inspect all garments. And they strive to ensure consistent sizing. Fabrics are tested in a Lands’ End lab to ensure durability.

Customer Centric. Lands’ End has always provided the most solid guarantee in the industry: “Guaranteed. Period.®” Customer service is available 24/365. About 300 phone lines handle close to 50,000 calls per day (it jumps to 100,000 per day during the Christmas holiday). Lands’ End Live was one of the first interactive customer assistance services provided by an e-tailer. The Computer World/Smithsonian Award was given to Lands’ End in recognition of the Live feature. In addition to Live, more than 189,000 e-messages are received annually and responded to personally. Shop-with-a-Friend, another unique feature, allows two customers to connect their browser windows, browse the Lands/End online store together, and contact one another by phone to make shopping decisions. Your Personal Model, the first interactive online feature, lets women build a 3-D model of themselves and then try on clothing to see how they would look. The Personal Model also recommends clothes that complement each customer’s measurements. Oxford Express, a feature for men, sorts through fabrics, collars, cuff options, and sizes to find the perfect dress shirt. “Specialty Shoppers” answer questions over 16 hours each day. Some alterations are free, and monograms and gift boxes are low cost.

Alliance Builders. Many of the partnerships Lands’ End forms are with more than 250 U.S. suppliers in mills and manufacturing plants as well as with others in the Pacific Rim and the British Isles. Lands’ End buyers are entrusted with scouting out prospective suppliers, followed up by an on-site visit from Quality Assurance staff. Once a supplier has passed Lands’ End scrutiny, it is viewed as part of the Lands’ End alliance for top quality. Its input to the design process is given serious consideration, and it is included in Lands’ End planning and forecasting dissemination of information. R. R. Donnelley is also credited as a partner and valued for consistently producing the

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Lands’ End catalogs on time and in excellent form. Photographers, artists, and writers who have provided content for the catalog and Web site are also viewed as partners.

B2B Maximizers. Through a Corporate Sales program, Lands’ End offers arrangements for corporate incentives, gifts, group apparel, and rewards. The Corporate Sales Catalog for business-to-business customers, was introduced in 1993. By 2000, Corporate Sales accounted for over 10 percent of Lands’ End overall sales. Future Focused. Since Lands’ End was formed, the company has undergone a slow, steady pattern of growth and expansion. It has expanded to other countries, including Japan, the UK, and Germany, but at a controlled pace.

Dell Computer Corp. <www.dell.com> Dell Computer Corp. sells everything in computer systems from desktops to notebooks, workstations, network servers and storage products, peripheral hardware, software, and services. The world’s leading direct computer systems company, Dell has about 37,000 employees worldwide and an annual revenue of approximately $28.5 billion. Dell earned a reputation for producing an excellent product and providing excellent support. Founded by Michael Dell in 1984, he continues to serve as the company’s chief executive officer and key spokesperson. Dell’s early claim to fame was made-to-order computer systems, a first in the industry. Today, Dell continues to sell directly to corporations and institutions through personal sales. It also accepts orders by telephone and over the Internet, which accounts for about 50 percent of Dell’s sales. Services include online and telephone technical support as well as on-site product service. Dell launched its Web site <www.dell.com> in 1994. By 1996, e-commerce was added. Today the Web site has one of the highest volumes of e-commerce sites in the world. In addition to the primary Dell Web site, the company launched the site <www.gigabuys.com> in

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2000 to create a source for 30,000 computer-related products, including software and peripherals. Dell has moved into a broader arena of Internet products and services by providing servers, storage, and support needed by customers to build their own Internet infrastructure. Programs that Dell has introduced for Internet customers are Service Provider Direct (marketing, sales, service, and financing); Dell Expert Services (consulting and Web hosting); and PowerApp (a line of Web server appliances).

Brand Builders. Dell first earned its reputation through made-toorder computers; the company is viewed as innovative, a trend-setter. To stay several steps ahead of the crowd, Dell has now moved aggressively into marketing products and services to support the Internet infrastructure in consumer and business markets. It also continues to expand its existing full line of products and peripherals. The company releases new models, new lines, enhancements to existing lines, and new programs weekly—literally. The company is constantly in motion, headed forward ahead of the pack. To the delight of investors, Dell also remained a solid financial performer for many years, until the technology market fell in 2000 and early 2001. Merchandising Masters. Customization is the foundation of Dell’s mission. With its approach of built-to-order computer systems, Dell does not stock preassembled computers. Dell’s inventory turns over every seven days. The company has six manufacturing plants located in the United States and other countries. Dell never uses retailers or resellers that could increase time and cost to reach customers. Direct sales, in Dell’s terms, also mean direct input from customers about what is important to them. With streamlined procurement, manufacturing and distribution processes, Dell has continued to offer competitive pricing. Using the Internet, the company continues to work to improve its procurement through distribution and internal corporate processes. Customer Centric. There is never a one-size-fits-all approach with Dell. The clearest definition of Dell’s distinct markets is the differentiation used on its Web site’s home page, where the categories listed

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are Home and Home Office; Small Business Center (less than 400 employees); Medium & Large Businesses; Internet Service Providers; Healthcare Businesses (over 400 employees); Federal Government; State and Local Government; and Education. By clicking on a category, shoppers are shown unique products and special offers (discounts and rebates) that pertain to the lines best suited to their needs. Dell’s desktop computer lines, for example, are separated to meet the different needs of distinct business markets. The OptiPlex line for corporate customers in networked environments meets their demand for extremely reliable systems. The notebook computer designed for corporate customers is the Latitude line. The Dimension line of desktop computers, on the other hand, is designed for smaller businesses and consumers who are not connected to remote networks; although the line incorporates the latest technology and provides high-speed performance, it is a lower-cost item. The Inspiron line of notebook computers is geared to small business and home computer users. Dell’s “threetier” Internet/Intranet Infrastructure approach is a well-formulated scheme to inform and simplify the introduction of three lines of Dell products: PowerApp, PowerEdge, and PowerVault. PowerApp is designed for front-end functions (caching, load balancing, and Web servers). PowerEdge servers and PowerVault storage are application servers and database servers. Customer service through the Web site has three dimensions worth noting: E-Support, Dell Talk (discussion forum), and Ask Dudley (natural language technical support).

Alliance Builders. Dell’s alliances throughout the year 2000 focused on companies that could advance Dell’s agenda of moving into the mainstream of Internet product and service offerings. Early in 2000, Dell formed a sales and marketing division aimed at Internet service providers and Web-hosting companies, and the alliances followed in steady formation. America Online partnered with Dell, and AOL’s newest software was installed on Dell products. Dell customers could then go online with AOL on Dell PCs—a nice arrangement for two giants. NaviSite, a Web-hosting company and application service provider, agreed to work together to cross-promote outsourcing ser-

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vices. An agreement with Palm led Dell to sell all Palm handheld devices and accessories on the Dell Web site and through its catalog. A deal with Boeing put Dell hardware maintenance services to work for 85,000 Boeing users. Xerox formed a strategic alliance with Dell to market a new line of office printers by all Dell channels. These and other partnerships come on the heels of strategic pacts with IBM that were initiated and reinforced throughout 1999 for business arrangements in the order of multibillions of dollars.

B2B Maximizers. To continue with the customer-centric focus as it applies to B2B, Dell has a line of workstations and servers specifically geared to enterprise systems. The Dell Precision workstation line can run computer-aided design, digital content creation, computer animation, software development, and more. Its PowerEdge servers can be used in networked environments, from one workstation to complete enterprises. Dell has established a high priority for corporate customers, offering personal service online and offline. Dell deals with the largest corporations, government, health care, and education customers through in-person sales contacts as well as through telephone and Internet ordering. Medium-size to large businesses generate about 65 percent of Dell’s revenue. Small- to medium-size businesses and home-based business owners are other important markets for Dell. Today, Dell offers Premier Pages, which are customized Internet sites for corporate customers that are designed to aid the procurement process. Through Premier Pages, Dell handles purchase orders electronically, offers special product configurations and pricing schemes, and provides realtime order tracking. Dell can also track corporate account history. Future Focused. Dell is focused on helping customers build an online presence and use the Internet to expand their businesses. It addresses the Internet infrastructure by providing technology and related services, and plans continued growth in this area, expanding its product line and building its services to help businesses build and grow in their use of the Internet. In the meantime, Dell continues to move more of its own sales, service, and customer support online.

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Dell sells worldwide and has sales offices in 34 countries. Its goal is to create a stronger global presence and to expand into Latin America and India.

Vermont Teddy Bear Co., Inc. <www.vermontteddybear.com> Vermont Teddy Bear Co. designs, manufactures, and sells personalized teddy bears delivered by Bear-Grams. Three business segments— retail, wholesale, and Bear-Gram delivery—generated revenues of $21.6 in the 1999 fiscal year. Vermont Teddy Bear began as a oneperson sales operation from a pushcart in Burlington, Vermont, in 1981. It grew as a direct marketing company, with a catalog to promote the Bear-Gram delivery service and telephone ordering arrangement. Today the company also sells bears retail from its Shelburne, Vermont, factory, where it also runs family tours of the facility to show fur cutting, stitching, stuffing, final stitching, and final “grooming.” As part of the tour, shoppers can help create their own bear in the Make a Friend for Life room. Vermont Teddy Bear sells products wholesale and successfully markets through the Internet. With the expansion of its Web site, an increasing number of sales have shifted from catalog-driven telephone orders to orders placed online. Bear-Grams, by the way, are personalized teddy bears that are customized for holidays and special occasions. Customers can choose the teddy bear’s size, color, outfit (from a collection of 100), embroidery, candy treat, and personal gift card to be delivered in a colorful gift box. The teddy bears are handcrafted and guaranteed for life.

Brand Builders. Vermont Teddy Bear ventures into uncharted dimensions of cuteness to catch customers’ hearts and loyalty. Customers are served by bear counselors, not sales representatives. At the Make a Friend outpost in the Shelburne factory, bears are assembled by a bear crew surgeon (no foremen in this outfit) and identified with a birth certificate. There’s a bear for every holiday, sport, special occasion, and significant life event. The big push to build a connection between holidays and Vermont Teddy Bears has been relatively successful—Bear-Gram delivery services peak at Valentine’s Day,

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Mother’s Day, and Christmas; and the company has made headway in pitching personalized teddy bears as a long-lasting alternative to a dozen roses for special occasions. “Nothing says you care like sending a bear,” Vermont reminds you.

Channel Synchronizers. With 275 employees operating in a limited number of assembly sites today, only one retail store, and one catalog, Vermont Teddy Bear has yet to confront major issues in channel synchronization. It has one inventory source. As the company continues to expand within the United States and internationally, it will be faced with more of a challenge than it faces today. Today, sandwiched between job listings for maintenance worker and marketing analyst at the Shelburne facility are job descriptions for bear ambassadors and bear cutter. Merchandising Masters. In 2000 the company completed the first phase of a major project that expanded its space for assembly, customization, and order fulfillment. Phase one of a 180,000 squarefoot expansion project consisted of leasing and renovating a 60,000 square-foot building adjacent to the Shelburne factory. A smaller manufacturing facility of 12,000 square feet had been opened in 1999 to meet growing demand. Radio advertising has played a significant role in marketing the Vermont Teddy Bear line all over the country and promoting its 800 number. The catalog promotes seasonal and year-round bears in a 16-page publication produced three times a year. The Web site features a larger selection of products. Customer Centric. Vermont Teddy Bear is all about customer service, from the bear counselors to fulfillment. Although customer service is not available 24/7 and live online service is not offered, the company is accessible 14 hours a day during the week and from 9:00 AM to 3:00 PM on Saturdays. The Web site helps shoppers determine precisely when their order will be shipped based on the complexity of their customization (such as special embroidery); and they can also see precisely how to select the best shipping time and cost option.

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Alliance Builders. Zany Brainy is the first significant outreach in this area. Vermont Teddy Bears are sold at kiosks in Zany Brainy stores (more on this in the next section on B2B potential). Watch for this type of alliance to create one of the most significant areas for growth for Vermont Teddy Bear in the next two years. B2B Maximizers. The corporate affinity market and wholesale markets are new to Vermont Bear, having started in 1998. Affinity programs involve the company’s brand bear, from Vermont, but have been expanding to include Vermont Teddy Bear designs manufactured in other countries. Zany Brainy, for example, buys at wholesale Make a Friend for Life teddy bears, which customers can assemble at kiosks in selective Zany Brainy stores. Business-to-business is a fastgrowing sector for the company as the Bear-Gram and other products are marketed to more retailers like Zany Brainy and corporate customers. Future Focused. A partnership with US-Style.com enabled Vermont Teddy Bear to expand Bear-Gram gift deliveries to Japan. US-Style is an online mall of U.S. shopping sites geared to the Japanese market.

L.L. Bean, Inc. <www.llbean.com> Leon Leonwood Bean founded a one-man direct-mail-order business in 1912, sending a four-page mailer to sportsmen outside of Maine. Today L.L. Bean has more than 4,000 employees and more than $1 billion in sales annually. This hybrid company today produces a catalog, operates retail stores in Maine and Virginia, runs factory outlet stores on the East and West Coasts, and operates an e-commerce Web site. The first full L.L. Bean catalog was shipped in 1925. Today the company offers a selection of 16,000 items. L.L. Bean is a privately held, family-owned business.

Brand Builders. The L.L. Bean golden rule has resulted in a tradition of excellent product quality and outstanding customer ser-

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vice: “Sell good merchandise at a reasonable profit, treat your customers like human beings, and they will always come back for more.” L.L. Bean has stood behind its products with a “rock-solid 100% guarantee” since 1912. A 1916 circular included the notice: “Above all things, we wish to avoid having a dissatisfied customer.” It holds true today.

Channel Synchronizers. Not every catalog item is depicted online, but everything can be ordered from Catalog Quickshop. Certain things cannot be ordered online, like ski sets, but require a telephone order. You still can’t order online from L.L. Bean retail or factory stores, although most store items are available online. Merchandising Masters. The L.L. Bean state-of-the-art Order Fulfillment Center processes 27 million items a year and sends out about 12 million packages. At the holiday peak, it has successfully handled 157,477 customer calls and shipped 124,153 packages in a single day. A manufacturing facility near Brunswick, Maine, produces 300 products and repairs or reconditions the same products (e.g., dog beds, luggage, and Bean Boots). The factory is a source of pride and has been the recipient of industry awards for its use of computerized designs, ergonomics, and innovative work processes.

Customer Centric. The Customer Satisfaction Department takes calls 24/7 in the same spirit of commitment to customers as the flagship store, which has been operating 24/7 since 1951. That was the year all locks were removed from the front doors and L.L. Bean welcomed customers anytime, any day. Customer service extends to assistance in selecting products and in determining sizes, both online and by telephone. The company also provides services that benefit customers in creative ways. The Web site feature Outdoors Online offers hiking, biking, and kayaking tips. Outdoor Discovery Schools offer cross-country skiing, fly fishing, and other how-to classes (about 500 each year). A feature called Park Search provides the inside scoop on activities in 1,500 state, regional, and national parks.

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Special Gift Services add a personal touch and extra convenience for L.L. Bean customers. Engraving and monogramming are available on many items (even dog beds); the company provides electronic or paper gift certificates, gift boxes (your choice of color and style), gift messages, and an address book for frequent gift destinations to add a unique touch.

Alliance Builders. Subaru and L.L. Bean are both supporters of conservation causes, and a current alliance resulted in an L.L. Bean special offer of a Subaru Outback available through the Web site. L.L. Bean encourages volunteerism on the part of its employees and contributes generously to nonprofit activities and agencies, particularly in the region closest to its Maine roots. The company works with national, regional, and local conservation groups, and donates money to education (mostly local schools in nearby Maine communities). It has a long-term commitment to United Way, Girl/Boy Scouts of America, and the American Red Cross.

B2B Maximizers. The L.L. Bean corporate sales program reaches out to every industry with personalized products and generous discounts. A corporate gift catalog offers clothing and accessory ideas for employee incentive and client thank-you gifts. Items can be personalized with a company’s colors and logo or name. Volume discounts of 10 to 20 percent are extended on corporate sales.

Coldwater Creek, Inc. <www.coldwatercreek.com> Coldwater Creek, Inc., started as a home-based business with one successful catalog in 1984 for marketing women’s apparel, jewelry, and gifts. The company now has 1,250 employees and has been publicly traded since 1997. Coldwater Creek has four merchandise lines and four catalogs: Northcountry, an expansive clothing line; Spirit of the West, upscale and higher quality products than Northcountry’s; Natural Elements, casual mixable separates; and Coldwater Creek Home, bed and bath linens plus accessories for the entire home. Retail stores are a new addition that are gradually being introduced

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in key locations around the country. Several outlet stores are used to sell off overstocked merchandise but are being phased out as these sales make a successful transition to the Internet. The e-commerce Web site, started in 1998, has been a huge success. From its first to second year online, activity picked up on the Web site at a phenomenal rate, triggering a major overhaul of the site between holiday shopping seasons. By the second quarter of 2000, Web site sales had increased more than 717 percent for a total exceeding $18.8 million. The company is now gradually adding a third channel—brick and mortar—through a test market of four specially designed (with waterfall) retail stores in urban locations.

Brand Builders. Forbes listed Coldwater Creek as one of the “200 Best Small Businesses” in 1998. Coldwater Creek sells comfortable, classic women’s clothing in a unique collection that is targeted to affluent, middle-aged women. The clothing is simple with no fussiness often including an elasticized waistline, and usually monocolor separates (until the bold innovation of the Natural Elements line, which introduced mix-and-match outfits). This is not a company likely to promote miniskirts or animal prints; no neon or other retro trendy items, thank you. Coldwater Creek’s competitors are the likes of Talbots and Anne Taylor. It’s a company known in the West and Midwest but is working to build its brand through a nationwide magazine advertising campaign starting in 2000 with Vanity Fair, HarperÕ s Bazaar, and The New Yorker.

Channel Synchronizers. The company is generating about 17 percent of its total sales through the Internet, exceeding the industry average of 11 percent. Its goal is to achieve 25 percent of sales through its Web site. After a clunky 1998 season in which only a few catalog items were offered online, Coldwater Creek hit the 1999 holidays with the full product line from all four catalogs available through its Web site. In spite of high Internet demand, however, the company continued to function with the same level of staff support as before the expansion, which created occasional internal conflict over resources for the catalog versus the Web site.

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Today, anticipating future growth for all three channels, Coldwater Creek is working to upgrade its technology at both the front end and back end. A new point-of-sale system will be integrated into its current software platform to allow retail stores to locate merchandise throughout the company and access customer information across all stores, catalogs, and the Internet. The goal is to make all information instantly available from any channel. Performance of the Web site has been further enhanced by building up the Internet infrastructure and adding four geographic sites that provide redundancy to ensure against possible disruption of Internet traffic. Image-caching, the saving of digitized images onto a computer, by Akamai has been installed for product-intensive sites to ensure peak performance. Akamai is a global network of providers of Internet content, applications, and streaming media.

Merchandising Masters. Ultimately, resources had to be expanded and concentrated in areas that would best serve distribution and shipping needs. East Coast customers are served by a new distribution center in West Virginia, and a third was recently added nearby. The company has worked to update its clothing line and to track trends, adding the mix-and-match Natural Elements clothing line, targeting the 35- to 55-year-old working women’s market. The trial of four new stores will be expanded to four more in Chicago, Dallas, Denver, and Cincinnati for a total of eight retail stores from 7,000 to 10,000 square feet each. Locations for these stores were selected from sales data generated by tracking catalog customers from a database of over 9 million customers to determine the best targets. Customer Centric. Along with behind-the-scenes improvements to make cross-channel ordering easier for customers, Coldwater Creek is working to provide more enhancements to its customer interface. Better tracking of its customer database will result in more frequent communication between the company and its customers through weekly e-mails to targeted markets. Online help is now available to answer shoppers’ questions personally and immediately. The Personal Shopper provides help in selecting items for special occasions (which could be as uncomplicated as Sunday afternoon loung-

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ing) by entering a few parameters, like the event, your size, color preferences, and fabric choices.

Future Focused. Building the brand will be a mission-critical task for Coldwater Creek in the year to come. It’s got the potential to spread nationally and internationally, and it’s poised to make this happen. International expansion has started with the launch of an e-commerce site for Japanese shoppers, to be followed by Germany and the Scandinavian countries.

Hanover Direct, Inc. <www.hanoverdirect.com> Hanover Direct, Inc., is a direct marketing company that sells 12 specialty brands of merchandise through catalogs and Web sites to consumers and businesses. It employs more than 2,700 people and shipped more than 7 million packages and 240 million catalogs in 1999. Sales in 1999 reached $33 billion. In the course of building its direct marketing business, Hanover Direct also built expertise in fulfillment, surpassing most other companies in the same field. The company split into two separately incorporated business units in 1999 to focus on these two distinct markets—consumers and businesses—with a new concentration. Business-to-consumer retail sales were allocated to Hanover Brands, which became the traditional side of the business. Hanover Brands handles the catalog and Web site collection of home fashions and brands, including Domestications, The Company Store, Scandia Down, and nine other brands. Each brand has its own catalog and Web site. Business-to-business activity is handled by Erizon, which services the information technology and fulfillment needs of Hanover Brands. Erizon also provides telemarketing, fulfillment, and distribution services to other e-commerce companies.

Brand Builders. Hanover Brands is a collection of brands that stand on their own. Domestications offers home fashions for the “value oriented.” The Company Store offers upscale home fashions. Scandia Down specializes in down products and home fashions. The

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remaining brands are Domestications Kitchen & Garden, Kitchen & Home, Silhouettes, International Male, Undergear, Gumps, and Improvements. A new brand called Company Kids is targeted to the youth market. Hanover Direct was presented with the U.S. Postal Service’s “Partnership for Progress Award” in the year 2000; the award honors companies that have built a close working relationship between the Postal Service and its customers.

Channel Synchronizers. Each of the Hanover Direct brands is unique, and the catalog–Web site combinations serve an individual brand. Technology innovations and the mission to remain cutting edge ensure that this company will continue to seek completely integrated service across the catalog and Web channels. Its credibility as a fulfillment service provider for other companies depends on it.

Merchandising Masters. The pride of Hanover Direct is the stateof-the-art common platform for telemarketing, order and credit processing, fulfillment, and inventory management. The platform also incorporates database marketing techniques that facilitate product and service offerings to targeted markets; distribution centers are state-of-the-art. Hanover Direct has decided that this expertise is just as marketable as its brands, so in 1997 it formed Keystone Internet Services, Inc., to provide Internet services for other companies. Keystone Internet Services makes all the services Hanover provides for its own brands available to others, including three call centers; product fulfillment and distribution centers; information technology systems; volume print and paper purchasing; and database and direct marketing services. Customer Centric. Each of the individual Hanover Web sites creates a distinct relationship with its target market. The sites follow a pattern of simple navigation, convenience, quick-to-load, easy-tolocate products. Customer service is considered critical, and call centers handle questions and requests 24/7. Because Hanover Direct has found a formula that works for its core brands, it has credibility when it extends this formula to client companies.

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Alliance Builders. Partnering with EXCITE and XOOM.com, Hanover Direct is shifting its marketing strategy and positioning itself as a leader in using e-commerce to sell branded merchandise. It plans to extend its partnerships to include other e-commerce leaders. EXCITE, for example, has selected Hanover Direct as its exclusive fulfillment services vendor, which will mean a great new promotion for Hanover. B2B Maximizers. Erizon is all about business helping business. Hanover Direct has two subsidiaries under Erizon: Keystone Internet Services, Inc., and Desius, LLC. Desius is a joint venture with RS Software Ltd. to provide 24/7 Web services and e-commerce systems development. Companies that have selected Keystone Internet Services as their fulfillment services provider for their e-commerce Web sites include Mercata, Inc. <www.mercata.com>, Kbkids.com (a joint venture between BrainPlay.com and Consolidated Stores Corp.), The Dress Barn, Inc. <www.dressbarn.com>, Fogdog Sports <www.fogdog .com>, and Oxygen Media <www.womenshands.com>. Future Focused. Erizon and specifically Keystone Internet Services appear to be the components of this package with the highest potential for future growth based on the dramatic need for fulfillment expertise by e-commerce companies. By positioning itself as a leader in the execution of order taking, packing, shipping, and customer service, Erizon can lead other businesses to success in direct marketing. Local retail companies moving their businesses online have little, if any, experience in global shipping, and end-to-end fulfillment is a struggle. Erizon’s track record of success is a worthwhile commodity in its own right.

Steps to Implement Multi-Channels from Catalogs First How can a catalog (direct mail) company become a hybrid company? Following is a list of steps to take and issues to consider for moving into the Web site and bricks channels.

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Marketing Issues 1. Reinforce the catalog image and brand on the Web site and in stores. • How will this brand strength transfer to the Web site and store channels? • What adjustments, if any, are needed? 2. Identify new competition in the online channel (including pure-plays) and in stores (those who do not produce catalogs). • How can this product/service line be differentiated from pure-play competitors? • How can this product/service line be differentiated from traditional stores? 3. Identify new marketing campaigns for the new channels. • Should special offers (promotions, discounts, free shipping) be considered for incentives to shop on the Web site? • What e-mail marketing efforts can be added? • What search engines should the Web site be registered with? • What online ads should be included? Links to/from other Web sites? Sponsorships? • How quickly can existing advertising and public relations efforts be changed to reflect the Web site? • What additional online strategies (like communities and chats) can be incorporated? • What offline events can be arranged to draw traffic to stores? Technical Issues 4. Ensure that databases used for the catalog are quickly accessible to the Web site and stores. • Should some services now be reevaluated for outsourcing? • Can existing networks handle growth? 5. Ensure that the in-house staff is up-to-speed. • What additional personnel should be hired to handle development, implementation, and maintenance of the Web site?

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• What new areas of technical expertise are mandatory for the Web site? For the stores? • Select the best outsourcing option, if necessary. Warehousing Issues 6. Determine if the current warehouse arrangement is adequate to meet increases in orders. • Can the current arrangements used to pack and ship orders to individual customers be adapted to handle bulk orders for stores? • Should this function be outsourced to meet additional volume from the Web site? 7. Ensure that inventory for all products is available through all sales channels. • Can returns from the Web site and catalog also be processed quickly in the stores and items returned to available inventory? 8. Identify the most efficient way to ship a high volume of small orders to individual consumers and bulk orders to stores. • Should new contracts/arrangements be established? Customer Interactivity 9. Determine if the current system of customer service can handle increased activity. • Web site customers expect 24/365 customer service availability. How will this be handled? • Are all methods of customer contact available: phone, live online, e-mail? • Should the services of a call center now be considered? 10. Identify ways to use the catalog to drive traffic to the Web site and to stores. • How can information about existing catalog customers be used to make the Web site more efficient and effective? To improve the line of products offered in the stores? • How can the company ensure that customer personalization does not come at the expense of loss of privacy?

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New Opportunities 11. Identify new opportunities for business partnerships and strategic alliances. • What new Web site partnerships can be created to complement the business? Partnerships with traditional retailers? • Are there existing pure-play companies that should be evaluated for merger or purchase? • Are there existing stores that should be considered for purchase? 12. Identify new opportunities for selling to businesses. • Can the Web site offer items that will appeal to corporate or association buyers? • Can stores offer new incentives for corporations to buy from the company? 13. Determine how the company will stay focused on changes in the marketplace and respond quickly. • How will the company monitor changes in online sales, technology, and marketing? • How will the company monitor competitive stores?

Chapter Summary 1. Catalogs serve as both a stand-alone sales channel and a marketing catalyst for a hybrid company’s Web site. 2. The catalog industry is expected to exceed $111 billion by 2002, so even Internet pure-plays are enticed to seek a piece of the action in this century-old form of business. 3. There is no true substitute for the glossy photographic artwork that can be illustrated in a catalog 4. A catalog offers the convenience of a shopping aid that can travel with you, with its pages folded and favorite items circled, until you get the urge to order.

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5. Web orders are less expensive to process than phone orders from a catalog, so direct mail companies can afford to offer discounts or free shipping to draw customers to their Web sites. 6. Catalog companies understand how important it is to have adequate inventory for the items they promote. Customers can be permanently lost from a lack of stock. Accurate projections are crucial because of the expense associated with excess inventory and wasted warehouse space. 7. Most direct mail companies can predict when their orders will come in because they usually receive the majority of their orders within 40 days of their catalog mailing. 8. Catalog companies have a high probability of achieving quick success as a hybrid company when they go online because of the following additional factors: • The predisposition of their customers to buy without touching or trying on the merchandise • Their expertise in distribution and delivery • Their dedication to consistent sizing and quality 9. A trained telephone customer service support team should be in place and ready to help with everything from orders to returns. Separation of offline and online merchandising functions can spell disaster for most catalog companies. The distinction can confuse not only the customer, who expects seamless ordering, but also the company’s staff, who expect their own channel to reign supreme. 10. The information gathered about customer locations from catalog mailing lists is invaluable when a company decides to open stores. Locations can be pinpointed based on their greatest marketing successes.

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Become an e-business—it’s not an option, it’s an imperative. And it’s urgent. A five-year strategic plan to implement the transition to e-business will put virtually any company in any industry out of business. The e-commerce channel is an essential component of every successful hybrid company. No matter what other channels the business embraces, without online sales the full potential for business growth cannot be realized. And selling online is only part of the process of becoming an e-business. Marketing, customer service, human resources, finance, vendor relationships, and all other processes that connect a company’s departments internally and its partners externally encompass the complete e-business profile. The image of the Internet as synonymous with young, pure-play companies is totally out of focus now. At the heart of the transition to e-business are thousands of huge, established corporations struggling like start-ups to incorporate new technology, skills, and processes. The transition is about more than customer payments and online inventory inquiries, although these are significant components of e-commerce. To become a full e-business, a hybrid company must be able to handle procurement transactions, manage supply chains, and work with trading partners online too.

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Moving to Clicks The strength of your Internet infrastructure will determine the success of your business, according to Michael Dell, CEO of Dell. In his keynote address at the Windows 2000 Deployment Conference in San Francisco, Dell said, “Your infrastructure must be built to emphasize four key attributes: reliability, scalability, manageability, and flexibility.” The hybrid companies that are the most progressive (with databases, storage devices, and servers that work with their partners’ systems) and respond the fastest will thrive. The benefits to business-to-business e-commerce are enormous and instant: access to global suppliers, opportunities to save money by purchasing through auctions, the capacity to handle small orders quickly, better inventory control—that’s just the beginning. Reductions in labor costs are also evident immediately. Tedious and errorprone processes of manually recording fax and phone orders can be eliminated or significantly reduced as transactions are processed automatically over the Internet. The size and scope of the transition to e-business can be mindboggling. When the Turner Broadcasting System decided to expand the network’s presence online to include research tools and more detailed news coverage, it allocated a new downtown Atlanta office tower and 3,000 new employees. The push to make CNN available through interactive television and on wireless devices was part of an overall $1.2 billion expansion campaign scheduled for completion by 2005. Speed is essential in news reporting, and almost every leading news organization has faced timing issues when breaking stories were reported differently in its television coverage and in its Web site as different reporters handled the same events with varying coverage and emphasis.

Application Flow Management Fast and reliable delivery of content and information to the end user is the primary goal of e-business. The greatest challenge for

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e-businesses is to integrate front-office and back-office systems. Front-office systems allow the user interface to operate smoothly and successfully; and successful e-businesses depend on Web site content and performance. Back-office functions relate to employee productivity, data tracking, and more—networked applications that must perform at peak efficiency without having an impact on the customer interface functions. The customer should never experience a delay because of internal user activity. This e-business network is not an easy package to manage; it’s characterized by layers of equipment and technology, a combination of in-house and outsourced services, and unpredictable traffic variations. The most effective strategy for managing performance and integrating the e-business storefront and back-office operations, according to Communication News, is to strategically place probes to gather data about every detail of the network. Application management systems are a combination of probes plus application-monitoring software that pinpoints sources of Web site and networked application problems. Early diagnosis of problems enables a fast response and repair effort.

Placement in the Organization When a new Internet channel is going to be added to an existing corporation, should this effort be a spin-off of the main organization or folded into the core business? Charles Schwab President/CEO David Pottruck opted for separation of the old and new businesses when Schwab started preparing for online trading, justifying his decision on the grounds that autonomy provided the most freedom and creativity for the online trading development team. In The InnovatorÕ s Dilemma (Harvard Business School Press, 1997), Clayton Christensen suggests that a separate organization is best suited to situations in which “an organization’s values would render it incapable of focusing resources on the innovation project.” Large organizations, simply stated, may not be willing to turn over the appropriate budget or personnel to keep the new channel afloat in small, new niche markets. If a new technology requires a different cost structure from the core organization, or the size of a

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market is very small compared with high-end mainstream markets, “then and only then,” Christensen believes, is a spin-off the best strategy.

Outsourcing Relationships Small and midsize companies don’t face the dilemma of where in the organization to position their new technology efforts, but instead must determine which outside organization can best serve their needs. Outsourcing can turn a project that would be unaffordable if developed in-house into a reality; a technology company can get a business online, keep its services up and running, and stay one step ahead of new technology developments that would cause eyes to glaze over for the average small business owner. With a good outsourcing relationship, a business of any size can remain competitive.

New Titles for E-business Corporate roles change under the e-business structure in many evolving organizations. The chief information officer, for example, is usually a technical geek (by old economy standards) who handles the information technology (IT) needs of a corporation, is guardian of the computer systems, and keeps the pocket-protector intact. But as information technology becomes central to the core mission of every corporation, the impact of technical specialists in the corporate hierarchy has been strengthened. Their role as change agents has been recognized and rewarded with increasing responsibility and input in nontechnical arenas. Isolation in backoffice procedures and problems is no longer at the heart of their jobs. Are they minutiae maniacs who will never really become effective as strategic thinkers? Lock them in a room with customers and sales reps and you’ll find out quickly whether they’ll make it in the long run outside the box. And speaking of sales representatives, they’re known by new nomenclature now; relationship managers, customer advocates, val-

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ued associates, account specialists, and client consultants are just a few names. Their job duties and responsibilities? The whole dynamic of building and sustaining meaningful relationships, if not friendships, with their customers is an awesome—if not frightening—burden.

Security Protecting corporate assets and customers today is a high priority for all executives and managers, but particularly the IT professionals. E-business security is critical to protect information in transmission, the network, and applications. The weakest line of defense is often at the application level, where hackers can slip in undetected by transmission or network security, through weaknesses in HTML coding in common gateway interfaces (CGIs) or in Web servers. One route to creating a secure environment is the use of virtual private networks, a concept that has not caught on with the fervor predicted but one to be considered in the creation of an e-business. (Security and privacy are discussed further in Chapter 12.)

Virtual private networks (VPNs). Virtual private networks create a controlled, secure tunnel through the public Internet. VPNs are most valuable where sensitive corporate data are exchanged between trading partners, where the data must be real-time, and where the consequences of breached security are severe. VPNs can be complicated, so a realistic alternative to building an in-house technical staff to support a VPN is to outsource it. AT&T and Sprint provide VPNs as managed services, for example. With outsourcing a VPN, just as with any other outsourcing arrangement, a carefully negotiated service-level agreement (SLA) with a service provider can ensure protection in case of a VPN’s failure. An area that remains without a simple solution, however, is the combination of wireless devices and VPNs. Wireless devices in general do not offer the same level of security as do personal computers. VPNs on mobile devices and PC VPNs have different communication requirements, which is not a simple problem to resolve.

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Dial-up Service Problems Whenever we can’t access the Internet or communicate by e-mail, we’re held hostage by Internet service providers (ISPs). Even the best ISPs can suffer from problems with telephone lines, overload, or servers that go down. As inconvenient as these problems are to customers, they create insanity for a Web master. Some experts recommend acquiring not only redundant accounts through a company’s primary ISP but also establishing a separate dial-up account for backup access to the Web. It is safer to have more than one method of getting online. Other ISPs claim that their systems are so well supported by technology support staff and redundancy that there is no need to go through this extra step. But for a small company, the ISP is its lifeline. For any company that has been stuck without access to e-mail accounts, dependent on e-mail to notify its ISP of Web site difficulty, that extra step seems well worth taking. Large regional, national, and international ISPs now seek to serve the business market, leaving AOL to expand in the consumer world, according to a survey in Internet World. The large ISPs offer a full range of services, including access, hosting, database application development, content development, and Web site design. As cable and DSL are introduced at a slower-than-projected rate throughout the country, the dial-up ISP remains alive and well. It gains a new advantage—and a breath of life—from the exponential increase in wireless.

Designing for Different Bandwidths Millions of households in the United States have handheld devices such as cell phones, pagers, and personal digital assistants (PDAs) that could tap into the wireless Web, according to Media Metrix. The Web design dilemma de jour is reconciling the different needs of broadband applications and wireless. With broadband, we have the opportunity to maximize motion and activity, transmit enormous amounts of live-action video and audio, and mesmerize our cus-

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tomers. With wireless, we have the chance to catch everyone on the run, checking in for updates and maximum information in minimum time and space. How do the two coexist? Internet World referred to this as a design problem for “broadband and teenyband” and “lightweight and heavyweight,” using the analogy of Alice in Wonderland and the alternating bites of her magic mushroom to crystallize the image when it reported the results of its “Design Survey” in the September 2000 issue. How would the average company handle this dilemma? More than half of the survey respondents had been involved in projects for PDAs, cell phones, and Web TV. The biggest challenge is not figuring out how to expand or constrict information displays but rather determining how—and why—we will use each of these devices. Some experts predict that this redirection of focus to what consumers need will drive design and development efforts away from entertainment overload and toward information concentration. When asked about their strategy for extending Web sites and services to wireless and PDAs, more than 43 percent of the design survey respondents were still deciding. About 15 percent were designing content that could be presented with different stylesheets for PC and wireless devices. Close behind at 14 percent were designers who created parallel sites specific to wireless devices. About 11 percent reduced the scope of the main site to facilitate wireless viewing. These designers also indicated that well over 60 percent had used search, streaming audio/video, and threaded discussions. More than half had worked on projects for display devices other than desktop computers. This was a well-seasoned group that still didn’t have all the answers; the issue is still evolving. Apparently no one wants to be everything to everyone at the risk of diluting his or her main message, but everyone wants to please all the people all the time. Remember the list of lost Internet lives mentioned in Chapter 2? The shopping site Boo.com made that list, one of the first Web sites to jam every moving design gimmick into its site launch. Today we question—Boo who?

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Designing for Broadband At its best, broadband enables Web designers to bring vivid images to life, assuming the viewer is using a T1 line in an uncongested area. The broadband service Yahoo FinanceVision , an online financial news show, is a great example of how to combine the best of old and new media effectively. Streaming video presents live anchors, while three windows display graphs and data related to the broadcast and Web pages for customization. When ads are displayed, you can order the items that appeal to you directly. Not too complex. Familiar in appearance, but new in what it delivers. The best of broadband, in which colorful logos and complex graphics thrive, unfortunately doesn’t translate well into handheld devices—not yet, at least. Once you scale down the size and simplify the presentation, all that survives is content.

Designing for Wireless One of the original and most popular wireless pure-plays is Vindigo, a New York–based start-up that provides city guides and restaurant information for portable devices. The type of Zagat restaurant guide information offered by Vindigo is possibly the easiest information to envision on a tiny screen. Short directions and review phrases are simple to translate and still have meaning. Yet even the streamlined Vindigo process includes a clunky download via a standard Internet connection. As technology evolves, this step can be permanently eliminated. Charles Schwab has addressed the wireless brokerage market niche with a service called PocketBroker. PocketBroker lets Schwab customers stay connected to their accounts no matter where they are. Palm, Inc., digital handheld organizers are the first available access device, but cell phones and pagers are in line for the future. Wireless modems are still slow compared with other services, so wireless companies have resorted to delivering content-concentrated versions of Web information written in Handheld Device Markup

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Language (HDML) or Wireless Markup Language (WML). Palm, Inc., has chosen a different strategy, using “clipping” software to extract only critical text on Web pages. Other developers have gone the route of creating separate content for PDAs. But what happens to the advertising that helps to create the revenue to support wireless Web sites? Will the impact of advertising be diminished when displays are reduced to a fraction of the size of traditional Web site banners? Leading-edge enterprises like Web developer Razorfish are prepared to run with this new market and harness whatever energy it generates to break down barriers created by traditional creative designs. They expect the wireless advertising phenomenon to take off, with a major surge in the New York metropolitan area where finance, television, telecommunications, and publishing converge.

Selecting Services In every step of the development cycle, e-businesses face an array of choices for designing the interface of humans and technology, including computers and communication systems. Each of the hybrid companies presented in Chapters 4, 5, and 6 has dealt with critical financial and interpersonal issues in the process of making their decisions about the services they will include, the components they will outsource, the features they will incorporate or eliminate, the tradeoffs between manual and mechanized functions. Some of their decisions involve back-end infrastructure related to the managing of a supply chain and maximizing a customer base; others are front-end features that directly affect the customer interface with the company. The services identified below represent a sample of the options available to every e-business.

Call Centers Call centers represent companies on the phone, in a live chat, and in e-mail, handling customer questions and complaints as an outsourced service. In general, experts agree that the best strategy for

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customer service is to build an in-house function so that the personality of your own business shines through. Lands’ End opted for this approach. With generations of experience in servicing customers in the catalog channel, Lands’ End was light-years ahead of any other company in understanding what its customers needed and how best to respond to them. Bluefly.com, on the other hand, as a pure-play Internet start-up, risked hiring a company to handle its customer service. In its situation, this was less of a risk than it would have been for Lands’ End. Without the wealth of customer service experience of Lands’ End personnel, Bluefly.com had nothing to lose by selecting another company to handle this work for it. Somewhere along the line, someone had to be trained to perform this function; in the case of Bluefly.com, outsourcing was an equally viable option. Precision Response Corporation (PRC) is just one example of a call center that provides live customer service on the Web, click-to-chat. PRC was bought by USA Networks (of Ticketmaster and the Home Shopping Network fame), creating a powerful combination of customer service, fulfillment, and database marketing infrastructure. PRC uses the Cisco Collaboration Server, and Web site visitors can elect to chat online with a customer’s rep or ask for a telephone call-back.

Online Customer Support More than 40 percent of all call centers in the United States will provide multimedia customer service by 2003, according to research firm Datamonitor. That means a lot more sophistication than a simple voice answering a customer’s question over the telephone. Live online customer service, like Lands’ End Live (illustrated in Figure 7.1), is believed to be a key factor in increasing e-commerce sales and securing loyal customers. Live customer service provides an opportunity for additional product suggestions during a purchase, known as “upselling.” Maintaining customer loyalty is the key to expansion, according to Datamonitor’s research. It can make the difference between abandoning a shopping cart and entering your charge account information. Surprisingly, Datamonitor’s research at press time also

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FIGURE 7.1 Lands’ End Live online customer service is a key factor in increasing e-commerce sales and securing loyal customers.

© Lands’ End, Inc. Used with permission.

discovered that only 8 percent of the 69,500 call centers in the United States are Web-enabled and less than 1 percent of all e-tailers provide live customer help. The online customer support market will grow to $2 billion by 2003, Datamonitor predicts.

Speech Technology Speech recognition can have a tremendous impact on the way we interface with computers, experts agree. The need for simple access to information from multiple sources and the Internet emphasis on speed have driven the development of speech technology to the forefront. As the technology moves into the mainstream, speech recognition is available for mass-market use through voice portals. Using natural speech, voice portals provide an interactive bridge to

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the Internet, personal data, and personal communication. Speech recognition systems, such as Tel@GO from Comverse Network Systems, provide a personal multiaccess and multiservice portal with telephone features like voice mail and call return, plus voice-activated dialing, a personal address book, and telephone browsing of such Web information as e-mail, e-commerce, news, and stock quotes. To watch a demonstration makes it clear how much simpler our lives will become when we can access everything from anywhere: multiple channels, anytime, anyplace.

Order Fulfillment If you’ve done an excellent job of handling the preliminary steps of designing and promoting your Web site, your next physical challenge is getting your merchandise to your customers: processing transactions, maintaining stock, tracking inventory, dealing with suppliers, shipping, dealing with customer returns. A company called CrossCommerce, for example, supplies all these services and more for inexperienced retailers who are moving into e-commerce and never want to carry inventory or pick, pack, and ship.

Customer Relationship Management (CRM) Customer relationship management, which will be covered in further detail in Chapter 9, is a huge topic for e-commerce today. How can a company gather information about customer’s buying patterns and use these data to create more intimate dialogs with their customers in future transactions? There are trade-offs in cost, efficiency, and privacy concerns for the smallest e-commerce companies as well as huge corporations.

Digital Credentials VeriSign Inc., a market leader for digital certificates (the authentication process for online buyers and sellers), is a trusted neutral party

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that helps people ensure they are doing business with the real thing. VeriSign blew past first-to-market companies like GTE CyberTrust and Entrust Technologies by making digital certificates a household word. The next step, according to CEO Scratton Sclavos, is to expand the capabilities of digital credential into wireless applications.

Application Service Providers (ASPs) U.S. companies are expected to spend over $14.5 billion on software by 2003, according to Forrester Research. The market will be dominated by large companies, which will account for over 50 percent of total software spending. Even greater is the projected market for applications. Private equity and venture capital firms shifted their focus from e-commerce retailers to technology companies providing e-commerce software, applications, and infrastructure, according to The Daily Deal (www.thedailydeal.com). New Moon, a San Jose company, received $35 million from Softbank Venture Capital and other investors to expand its scope. Vjungle was initially funded by personal investments from Andy Bechtelsheim, a Cisco Systems executive and cofounder of Sun Microsystems, and Ashutosh Roy, cofounder of eGain. The total potential market for ASPs is expected to expand to $24 billion in 2003, according to the Yankee Group. Businesses can save considerable expense and time by leasing from an ASP, as much as 53 percent over buying and managing the hardware and software themselves, according to preliminary studies. Small to midsize business enterprises (SMEs) will increasingly turn to application service providers to lease software, equipment, and services. ASPs provide small and midsize companies with capabilities that would have been far too expensive and expansive to develop on their own. By paying a subscription fee to an ASP, companies can outsource the headache of designing, maintaining, and upgrading software. In essence, ASPs give more power to small companies and more options to large companies. Application service providers are similar to ISPs in that both provide access to core applications and a basic computing infrastructure. ASPs sell or rent online access to software programs. ASPs

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deliver and manage computer programs from remote data centers to many users via the Internet or private networks. The application services provided by ASPs are usually packages that require little, if any, customization. SMEs can lease basic applications for business processes, scheduling, contact management, workflow integration, and other functions. ASPs can implement new applications more quickly, provide optimum security, manage enterprise applications, and provide a high quality of service to their customers. A summary of the advantages of ASPs is shown in Figure 7.2. Payment options are a flat monthly fee, a fee based on the number of users at each customer’s facility, or a package of free core services with additional feebased services. The first wave of ASPs operated as traditional outsourcers. Today the management of these services has become more sophisticated. Full-service ASPs handle everything that drives the application, from telecommunications to hosting to network equipment to platforms, whether it belongs to them or not. Major vendors such as Microsoft, Oracle, IBM, and Sun Microsystems were quick to extend their scope, working to convince customers to purchase a broader platform for e-business. Some large corporations formed their own fullservice ASPs, like Oracle Business Online and Qwest Cybersolutions. Microsoft and PeopleSoft became investors in Corio, a company that hosts human resources and financial systems for other hi-tech com-

FIGURE 7.2 The ASP Advantage • Leasing from an ASP can save businesses as much as 53 percent over buying and managing hardware and software themselves. • Small to midsize business enterprises are a rapidly growing market for ASPs. • ASPs provide small and midsize companies with capabilities that are far too expensive to develop on their own. • By paying a subscription fee to an ASP, companies can outsource the headache of designing, maintaining, and upgrading software. • In essence, ASPs give more power to small companies and more options to large companies.

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panies. Corio provides a large-scale software suite from PeopleSoft, Siebel, CommerceOne, and other vendors.

USinternetworking. Other start-ups and independent companies also stepped up to the challenge of assuming total responsibility for hosting their customers’ applications. CEO Christopher McLeary of USinternetworking (USi), a leader in full-service ASPs, considers the litmus test of ASPs to be taking a request for application support and handling it directly. The goal of USi is to take responsibility for everything: application development, integration, hosting, maintenance, and support. USi built its own infrastructure for application hosting and manages relationships with software and network suppliers for their customers so that there is only one point of contact. Managing vendor relationships has led USi to develop expertise in each of its vendors’ products. VJungle.com. VJungle.com, a Washington company whose site was launched in January 2000, dubbed itself “the first integrated application service provider (iASP),” offering Web-based business services for small and home-based businesses, from sole proprietorships to multiemployee, multisite companies. The integrated vJungle.com platform can plug in third-party services and integrate them with each other, significantly decreasing a small business’s investment in overhead costs and enhancing operations between customers, partners, and employees. The vJungle OpenEX Platform™ provides the technology for integrated applications and services based on the extensible markup language. The suite of free core services offered by vJungle.com can put a company in business online in minutes with unlimited companywide e-mail accounts, instant flash messaging, company intranet, file sharing and storage, contact manager, calendar, and a Web site. VJungle. com also offers a free basic accounting application and such services as online chat-based customer support. It expects to make its real money from enhanced fee-based applications that small businesses will add as they expand, such as human resources, payroll, and telecommunications. As a small business grows, all of its additional applications are still accessible through one site.

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Hewlett-Packard (HP) has partnered with vJungle.com to service its small business customers through a cobranded site called Business Customer Center. The Business Customer Center opened with the suite of vJungle core services and will expand to include HP’s own services for payroll applications, procurement applications, unified messaging, and online printing. The OpenEx platform automatically distributes data entered in one application throughout the system. For example, OpenEx automatically updates a company’s online bookkeeping service with invoices generated by the online printing service.

Online Collaboration Tools and Intranets Fifty percent of U.S. companies with 500 or more employees use an intranet for information sharing, e-mail, document management, and electronic form distribution, according to a study by IDC. A survey of Fortune 1000 IT executives interviewed by Forrester Research found that improved internal communication and increased efficiency were believed to be the greatest benefits of intranets. Lotus Notes and Microsoft Exchange have been a huge success as messaging and collaboration platforms. Conducting business online with suppliers and customers was clearly a logical next step. Collaboration networks provide a central place for activities that involve a high usage of documents, often material that has been transmitted by e-mail with attachments. Security via the e-mail method is risky, especially when the documents and discussions are centered around confidential company data and decisions. Several companies have developed products to help manage document reviews and interactions, including iManage, Inc., Intralinks, and Netmosphere. The InfoCommerce product suite by iManage enables companies to open parts of their stored documents to selected companies or individuals using the Internet. Imanage bought ThoughtStar, a company that specialized in Web collaboration software and immediately expanded its potential. Customers include Hewlett-Packard, Wal-Mart, and Charles Schwab, all of whom use the InfoCommerce suite to set up their own Internet-based collaboration networks to

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work with customers and suppliers. With the iManage system, a customer starts the collaborative process by posting a document to the iManage content server on the Internet. The server notifies all project participants by e-mail that they can access the document with a URL embedded in the e-mail, make changes, and approve the final document.

Performance Testing How well does your Web site perform under maximum load conditions? What types of delay, if any, will your customers experience if traffic to your site is ten times normal? The days of trial and error on the Internet are long gone. It has become increasingly important to test the performance of any site thoroughly before problems occur. Better to find out what your problems are before your customers do. A “Best Practices” for B2B commerce study by QDI Strategies found that it usually takes three times to get it right. Test. Test. Test. The amount of time allocated for testing should be 20 to 40 percent of total development time, according to a study by Jupiter Communications, which found that 46 percent of users have left one site for another because of a failure. Testing can be done in-house or outsourced. In-house testing may initially cost more than outsourcing but ultimately results in company ownership of the test applications. RSW Software, for example, provides a do-it-yourself test suite for less than $5,000, with monitoring components that cost up to $7,000. These products test browser applications, simulate loads, and perform monitoring. With these products, the user still needs to define test “scripts” that are based on the activities of a typical user. Outsourcing performance testing has advantages in that hundreds of thousands of test scenarios can be worked through to uncover blockages in system design or hardware. Companies such as Keynote Systems and Service Metrics monitor almost every part of a Web operation and can pinpoint precisely where delays may occur during busy periods.

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Performance Measurement Information about the volume of traffic coming into a Web site helps companies measure return on investment and determine what’s working and what’s not. Site traffic information can provide critical advertising information as well as input to strategic business decisions. The most well-known compilers of Internet usage data are Nielsen/NetRatings and Media Metrix (now Jupiter Media Metrix), but they deal with very large sites. Media Metrix, for example, only reports sites with over 200,000 unique visits per month. Smaller companies can license software that creates customized traffic analyses, as good if not better than the access major corporations have. WebTrends, NetTracker, and Personify are just three of the companies that license software to provide information about site traffic, clickthrough links, and trends. WebTrends, for example, can be licensed for about $500 per month (as of press time) and reveals which search engines and ad banners drive traffic to the site, where visitors to the site come from, what they do when they’re on the site, and how the site performs overall. You can measure page hits, keywords used, length of visits, enter and exit pages—a complete history of every visit. Reports are easy to read and provide the analysis needed to make quick decisions. Should a home page feature different promotional items? Are some ads working and others falling flat? Web site designs and promotions can be adjusted immediately to maximize revenue—not after a busy period is over when it is too late to regroup.

Four E-business Leaders E-business involves using Internet technology to transform all business processes, including e-commerce, relationship management, supply chain management, knowledge management, human resource systems, and more. Four of the leading companies that provide the foundation for the comprehensive structure of an e-business are highlighted: Oracle, Siebel, Cisco, and IBM.

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Oracle Corp. Oracle achieved its fame and glory as a creator of relational database software. Today Oracle has redesigned its software to take advantage of the Internet, cut costs, and centralize tasks. It has also repositioned itself as an innovative company, not a stodgy provider of databases. Oracle’s database and e-business applications have become “the software standard of the Internet,” according to former CEO and cofounder Larry Ellison, who reports that 93 percent of public dot-coms use Oracle, along with ten of the world’s biggest Web sites. Oracle had revenues of $10.13 billion in fiscal year 2000. Oracle set about making itself a fully efficient e-business first and foremost. It had thousands of computer servers running hundreds of databases worldwide, with each corporate department separate and distinct from every other one. Financial planning and analysis ran on 60 databases on 32 different servers. Its internal e-mail system ran on over 120 databases accessed through 95 servers. Exchanging documents required a long and tedious process of faxing and expressmailing packages around the world. Today Oracle employees can communicate globally, exchange documents, and check operations in any department in the company, anywhere in the world. Oracle also set its sights on serving Internet marketplaces and secured a contract to supply software for the market exchange for 12 airlines called AeroXchange.

Systems software. Oracle’s system software is an Internet platform for applications computing on the Internet and corporate intranets. The Oracle8i relational database management system, for example, is designed to bring data management, transaction processing, and data warehousing to the Internet. Oracle8i supports traditional client/server applications as well as Internet architecture. Oracle8i Lite provides a less complicated database structure and can be run on laptops and handheld devices. Oracle Application Server provides the infrastructure to run Internet-computing applications based on any generation language and allows transaction processing with large numbers of users and data.

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Business applications software. Oracle’s business applications software supports the functions of customer relationship management, supply chain management, financial management, procurement, project management, and human resources management. Oracle’s Internet Business Solutions integrates the front-office functions (such as call centers and sales applications) and the back-office functions (such as finance and procurement) of a company.

Siebel Systems, Inc. Siebel Systems provides e-Business applications that enable companies to serve customers across multi-channels, including the Web, retailers, resellers, call centers, and dealer networks. Siebel Systems has been ranked by Fortune magazine among the “100 Fastest Growing Companies.” Business Week named founder Thomas Siebel as one of the “Top 25 Executives of the Year.” Siebel eBusiness Applications create a single source of customer information for marketing, sales, and service to better serve customers’ needs. Siebel eBusiness Applications have been provided in industry-specific packages, including pharmaceutical, apparel, technology, and more. These applications encompass a long list of specific functions. Only a few examples are listed next.

Siebel sales. Teams of sales and marketing staff can exchange and manage information related to their prospects and customers with Siebel Sales. This application covers early prospecting activities (Opportunity Management, Account Management, Contact Management, and Activity Tracking) and follow up (Message Broadcasting, Quotas, and Incentives). The application provides tools for managing sales campaigns, targeting accounts, forecasting products, proposals, and the like.

Siebel service. Teams of customer service reps and sales and marketing staff can track customer service management with Service Request Management, Asset Tracking, and more through Siebel Service Assistant, Quality Management, and Siebel eMail Response.

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Additional Siebel applications. Siebel Field Service, Call Center, Marketing, and General Products (Calendar, Expense Reporting, Executive Information System, Incentive Compensation, to name a few) round out this extensive selection of offerings.

Cisco Systems, Inc. Cisco Systems creates hardware and software that link computer networks and enable us to access information regardless of the type of computer system we are using. In fiscal year 2000, revenues reached $18.93 billion. The company has become a leading supplier of communications hardware for the Internet and was designated the second most valuable company in the United States (General Electric placed first). Cisco targets established companies and startups. About two-thirds of Cisco’s sales come from corporate customers, and sales are increasing to communications carriers. The company has grown exponentially through acquisitions in the recent past, gaining financial strength, new markets, and new technology in the process, until a recent slowdown in the economy and subsequent impact on technology providers. Cisco’s product offerings provide end-to-end networking products and services, with hardware and software features that can be configured to meet customer requirements. New video and voice capabilities enable customers to move to a combination voice-data-video network from existing data networks.

IBM IBM is the largest information technology financier in the world, with $44 billion in annual applications in 1999. IBM has designed and deployed Internet trading platforms worldwide with over 6,000 dedicated B2B e-commerce and e-marketplace salespeople. It partners with other leaders, like Linux, to provide comprehensive delivery of products and services. IBM Netfinity® servers, for example, are industry leaders with the largest selection of Intel processor-based servers certified to run Linux.

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IBM will help businesses at every step in the process of becoming an e-business, from developing an e-commerce strategy to establishing a Web presence (IBM Small Business WebConnections Platinum Package, for example) and a network with partners and suppliers (IBM Web Selling and Procurement Service Offerings) to wireless reach and creating e-marketplaces (IBM E-Marketplace Solutions). The Small Business WebConnections package, for example, provides a local server computer (Interjet), 24/7 technical support and an Internet connection for up to 100 users. According to Mike Braun, general manager of IBM’s Global Small Business division, “[W]e’re on a mission to make every business an e-business.”

Chapter Summary 1. Experts agree that the development effort for large organizations belongs in the heart of the company instead of in a spinoff, with a few exceptions. A separate organization is most suitable for large corporations that may be truly incapable of committing the appropriate budget or personnel to creation of the new channel; or cost structures are different; or target markets are not up to the core company’s main market. 2. Small to midsize companies face a different decision: not where in the organization to position their e-commerce efforts but to which outside organization to entrust the project? With a good outsourcing relationship, a business of any size can remain competitive and profitable. 3. Reconciling the different needs of broadband applications and wireless has become a complex issue for designers: How can you satisfy the two extremes? The most constructive redirection of focus has been determining what consumers need, driving design and development efforts away from entertainment overload and toward information concentration. 4. E-businesses face an array of choices about how to design the interface of humans and technology, including computers and

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communication systems. Call centers, online customer support, speech technology, order fulfillment, and payment processing are just a few of the services that require immediate decisions about implementation. 5. The total potential market for application service providers (ASPs) is expected to expand to $24 billion in 2003, according to the Yankee Group. Businesses can save considerable expense and time by leasing from an ASP—as much as 53 percent over buying and managing the hardware and software themselves, according to preliminary studies. ASPs provide small and midsize companies with capabilities that would have been out of their budgets, far too expensive and expansive to develop on their own. 6. The greatest challenge for e-businesses is to integrate frontoffice and back-office systems. The customer should never experience a delay because of internal user activity. Application management systems pinpoint sources of Web site and networked application problems. Early diagnosis of problems enables a fast response and repair effort. 7. It has become increasingly important to test the performance of any site thoroughly before problems occur, either in-house or outsourced. Testing can be used to monitor almost every part of a Web operation, and can pinpoint precisely where delays may occur during busy periods.

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When the Gap took over one of New Jersey’s Main Street storefronts several years ago, residents bemoaned the encroachment of the mall mentality into the bustling village, which had also mourned the opening of the fast-food chain Blimpies a decade earlier. Five years later, we welcomed the new addition—babyGap—across the street from Momand-Pop, no questions asked. Today, both parents and child are healthy, thriving, and growing nicely. No one complains about the intrusion of a big chain store anymore because it is an asset to the neighborhood. Today, Gap stores no longer meet resistance because local residents appreciate the convenience of easy access to a quality brand product. They can avoid time-consuming trips to the mall, and they know they are purchasing a product of substance. The babyGap online store features an adorable selection of “Preemie” clothes for tiny babies, a line not too many other children’s clothing stores bother to carry but a big help to me when my niece was born about two years ago weighing only two pounds. Who would think that buried behind the grown-up displays of black leather jackets resided a world of color and kids’ stuff? We all do. Why? Because the Gap’s message is crystal clear: it has something for everybody. This corporation has successfully reinforced the brand strength of the Gap, GapKids, and babyGap through its hybrid marketing of its

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stores in malls and neighborhoods, catalogs, and its Web site. It has a totally consistent marketing image as well that replicates one motif among all channels simultaneously. Gap Inc. represents a model of synchronicity in branding, customer service, and merchandising. It utilizes every marketing channel to get its message out, with a heavy push during holiday shopping seasons and a decent presence throughout the year. Marketing is such a critical consideration for this hybrid company that every facet of its stores, catalogs, and Web site bears the impact of each season’s well-conceived theme and perfectly implemented strategy. Whenever its marketing campaign changes, the change is reflected in every channel concurrently. Even among the hybrid leaders, Gap Inc. stands out.

The Marketing Challenge for Hybrid Companies What can hybrid companies learn from the surge of dot-coms into radio and television advertising and the swell of traditional merchants into Internet advertising? What does it really take to attract consumer attention in today’s glut of hyperactive sales pitches? Success demands multiple exposures to your message. And it takes an integrated online and offline marketing strategy. In order to break through the noise barrier, hybrid leaders use multiple channels to be heard by their target market, ensuring that their customers see, hear, and read their message over and over and over. Today, there are more ways for marketers to reach consumers than ever before and new methods for advertisers to build distinctive brands. Effective marketing strategies, as seen in Figure 8.1, integrate online and offline marketing, sales, advertising, promotions, and public relations. Each aspect of a successful hybrid company’s marketing strategy supports every other dimension, promoting a concept and appearance that is consistent and cohesive, regardless of the marketing channel. Hybrid leaders ensure that their message makes sense, using the medium that most effectively reaches their customers throughout their

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FIGURE 8.1 Measures of an Effective Hybrid Marketing Strategy • • • • • • • • • •

Maximize the merger of marketing and technology. Use multiple channels—combine online and offline media. Ensure that consumers see, hear, and read your message—over and over. Make sure the message makes sense (if it’s bizarre, then make solid bizarre connections to the company’s brand). Promote a concept and appearance that is consistent and cohesive. Create a unified, not schizophrenic, image. Reflect marketing campaign changes in every sales channel concurrently. Prominently display logos on everything from stationery to storefronts to Web sites. Carry color schemes through print ads, catalogs, and the Web site home page. Reinforce your slogan or pitch on radio/television commercials, multimedia Web transmissions, Web sites and Web advertising, in catalogs, and in promotional material.

busy schedules. Even when their commercials are creatively bizarre, the commercials craft solid connections to the company’s brand. Logos are prominently displayed on everything from stationery to storefronts to Web sites. Their selection and placement of color carries through their print advertisements, their catalog, their Web site home page, and their Web advertising. Their slogan is heard on their commercials, seen on multimedia Web transmissions, and printed in their catalogs and promotional material. Their image is unified, not schizophrenic. And when one channel changes, all change.

Targeting the Customer The target market of a hybrid company influences its choices for implementing the combination of online and offline marketing techniques. Whether the target market is general or a niche makes a difference in the venues selected for advertising and promotions. General markets are costly to reach and may be more risky and unpredictable. Trend shifts and unprecedented changes in consumer

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preferences can sabotage complex plans and hurl a hybrid company back to the beginning. Online marketing efforts geared to general markets include advertising on portals and negotiating sponsorships with other general market companies, such as Amazon.com and eBay.com. Niche markets are the dream of smaller hybrid companies, offering the opportunity to serve a tighter target from a specialized perspective with less competition. From a practical point of view, marketing to a niche restricts advertising and promotions to the arenas that the specialized market attends to.

Shifting demographics of online shoppers. In the United States today the dominant online demographic is the 35- to 44-year-olds (24.8 percent), followed by the 25- to 34-year-olds (20.8 percent), according to Media Metrix. The fastest-growing demographic group online, however, is aged 45 to 64, currently representing a total of 20 percent of the total market of Internet users. It appears that online shoppers have evolved from a homogenous set of young, affluent, tech-focused males to a critical mass of 35- to 54-year-old baby boomers (see Figure 8.2). As this demographic group reaches retirement age, its members tend to stay online longer and view more unique pages per month, according to Media Metrix. The number of active Internet users in the United States aged 55 and older is expected to reach 22 million by 2002. This demographic group window-shops at a rate of 92 percent, and purchases at a rate of 78 percent. Even the music industry is shifting from predominantly teen buyers (under age 19) to almost 25 percent over age 45. According to BizRate.com, the over-55 shoppers account for almost 10 percent of online sales. Even with slow dial-up modems, they are more patient shoppers, welcome the alternative to crowded shopping malls, and have higher credit card limits.

Research for Segmentation and Targeting Hybrid companies can prevent costly mistakes in the design and release of new products and marketing campaigns by using multiple

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FIGURE 8.2 Demographics of Online Shoppers • Online shoppers have evolved to a critical mass of 35- to 54-year-old baby boomers. • Internet users from ages 45 to 64, about 20 percent of the total market, are the fastest-growing demographic segment. • The number of active Internet users in the United States aged 55 and older is expected to reach 22 million by 2002. • Although 58 percent of GenYers are online, only 28 percent of them make online purchases. • About 46 percent of online users from 35 to 54 years old will buy online. • Internet users from ages 55 to 80 window-shop at a rate of 92 percent, and purchase at a rate of 78 percent. • Over-55 shoppers account for almost 10 percent of online sales. • Personal information should not be shared with other businesses without the permission of the consumer, according to these shoppers. • About 55 percent of online shoppers are male, whose average age is 42. • About 45 percent of online shoppers are female, and they handle most holiday shopping.

channels to gather market research. Hybrid companies can take advantage of a combination of traditional market research techniques (like questionnaires and focus groups) and online techniques. The most effective method will be determined by the nature of the information required. Electronic surveys, for example, are particularly well suited for fast and inexpensive data collection, such as reactions to a new commercial or new product announcement, but are incomplete for insight regarding consumer decisions.

Questionnaires. Questionnaires, whether administered online or by traditional paper-and-pen methods, are a difficult method of obtaining data unless consumers are motivated to participate and feel assured that their time is not wasted nor their privacy invaded. Because questionnaires can be a valuable source of market research for a hybrid company, it is worth the effort to find an incentive that elicits responses. Compensation for participation definitely operates as an incentive.

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Greenfield Online, Inc., a Connecticut firm specializing in online market research, projects that by 2003 more than 25 percent of all market research money will be spent on the Web. The speed and accuracy achieved with electronic tabulation of results makes this data collection alternative a cost-effective tool.

Focus groups. For hybrid companies, the decision process influencing where their customers browse, buy, and return goods is important. Focus groups can provide insight into customer preferences. Consumer feedback about new product developments, pricing structures, branding issues, and other time-sensitive issues can be gathered and analyzed relatively quickly. In focus groups, participants are usually paid for their time. Focus groups can also be conducted online using an Internet chat room, with groups of about ten participants at a time for an average of one to two hours. The greatest advantage of online focus groups is the speed with which they can be arranged and reduced travel costs. With online focus groups, the dynamics of personal interactions and body language are missing (which can be a good thing when it comes to the potential for individuals to dominate the group), but everyone has an opportunity to participate. Observers can watch from their computers and interject questions to probe an issue in more depth, and no one needs to be inconvenienced. Online focus groups are particularly well suited to gathering information about the design and performance of a hybrid company’s Web site, gauging reactions to marketing campaigns and testing brand strength.

Panels. Panels are a relatively new method of data gathering that can help hybrid companies assess the performance of their online channels. In a cross between market and media research, the major polling companies Media Metrix Inc. and Nielsen/NetRatings draw from their respective lists of over 50,000 panelists, who are randomly selected volunteers. Panel members agree to allow their Internet usage to be monitored in return for periodic cash incentives or giveaways. Panel information is helpful for marketers to determine the

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best placement locations for their ads based on traffic patterns, volume, and demographic information.

Branding Branding is crucial for hybrid companies as they rise to meet the challenge of being first, fast, and focused in defining their image. Branding involves using a seamless interaction of multiple media. Clicks, bricks, and catalogs are cross-promoted as one source for the same company’s products and services. The brand is reinforced through advertising online and offline, by sales and customer service efforts, in promotions that combine online and offline offerings, and through public relations strategies that reference all selling channels. Ultimately, what consumers think of a hybrid company defines the brand. Indifference is an intolerable reaction. Hybrid companies that begin with bricks and mortar often have established brand names before they open their e-tail shop. This gives an indisputable edge on the Internet: They don’t have to prove their quality; they build an emotional bond in person. Hybrid companies that start with clicks have to work harder to promote their brand image and quality before the consumer’s first click, using testimonials, guarantees, easy returns, and other aggressive confidencebuilding actions. Internet firms, according to a report “Beyond the Blur: Correcting the Vision of Internet Brands” (Andersen Consulting and Online Insight), are often guilty of failing to adhere to basic marketing principles and are highly likely to throw tons of money into ill-conceived campaigns that do not reach their target market. When clicks branch out to bricks, the opportunity to promote quality and build a brand can gain solid reinforcement from a personal sales staff and one-on-one contact with customers.

Reaching the Customer Four primary methods of reaching a hybrid company’s customers are through advertising (traditional and nontraditional), new media

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strategies (advertising and marketing), promotions, and public relations. These methods are highlighted below.

Advertising through Traditional and Nontraditional Methods Do the lessons learned in one advertising medium transfer to the others? Experts describe two schools of thought, fundamentally emphasizing either active or passive viewing. To one way of thinking, if a concept works in television or print, it will work on the Internet (passive viewing). The alternative approach stresses that in order to engage the consumer’s attention successfully online, different rules apply. Online attention-grabbers need to offer new and exciting content or an interactive attraction (active viewing). In the future, no matter what the medium, we will definitely see a more integrated approach to advertising and sales, as in the seamless ability to link by a single click a Web site ad to an e-commerce purchase or link a television commercial to an e-commerce Web site. Traditional advertising campaigns for a hybrid company may include television, extreme advertising, print, and radio. Nontraditional advertising includes banner ads, online sponsorships, ads on portals and vortals, and PDA advertising. Advertising networks are the geniuses who create strategies that enable hybrid companies to combine elements of traditional advertising with new media strategies.

Television. Is television the best way to create widespread consumer awareness of a brand name? Many experts believe TV is crucial. Network television still delivers the broadest reach, with the greatest potential for building brand awareness. Cable television presents a growing challenge. Research now indicates there may be additional benefits for hybrid companies that advertise on television. A survey by BizRate.com found that cross-promotion from television to the Web works, with over 75 percent of respondents indicating they have visited a Web site after seeing a television ad for it. Over 66 percent reacted after a site was mentioned on a television program. Cable still offers the advantage of being less expensive than the major networks. “People

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who watch cable TV are people who click onto the Web,” according to a print advertisement for Adlink, a company that digitally links at least 40 top cable networks, delivering a viewing audience of over 3 million homes. Television campaigns need to be smart and creative, not abstract and absurd. Absurd works only when relevant to the message of a hybrid company’s products or services. Outpost.com learned this truism the hard way. The company ran a television commercial showing gerbils being shot out of a cannon, which could be labeled either bizarre or bleeding edge. Robert Bowman, president of Outpost .com, noted in an interview that the company had 37,000 new customers right after the infamous gerbil ads were introduced, but only 8,000 returned to make a purchase. The following year, after running a more conservative ad promoting free overnight delivery, visitors numbered 100,000 and return buyers numbered 35,000. “We have to tell people what the value proposition is,” surmised Bowman. The Super Bowl delivers the year’s largest TV audience and commanded a price of more than $2.3 million for a single spot in 2001. Is it worthwhile? Reviews are mixed. Dot-coms dropped from 17 advertisers in 2000 to only 3 in 2001, evidence of overall precaution and precision in marketing strategies. E*Trade, a pure-play inching into hybrid channels, was one advertiser that returned. E*Trade’s Super Bowl message reverberated with humor, clarity, and simplicity and helped to kick off a new level of brand awareness. However, E*Trade also bolsters its television ads with radio, print, direct response, and online partnerships to create a comprehensive multitiered brandstrengthening strategy.

Print ads. Print ads are considered effective if a reader remembers the name of the advertiser and reads at least half of the copy in the ad. Dot-com print ads accomplished neither goal. The best ads are believed to be those that have a single focal point, a great picture, and an explicit headline message of fewer than nine words. The “grabber” needs to highlight the benefits of the product being pitched, answering the timeless question, “What’s in it for me?” Hybrid companies can lose their marketing edge if they follow the dotcom leads into long copy and reader confusion.

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Extreme advertising. Bus wraps, billboards, blimps—these are the venues of extreme advertising. Oversize outdoor ads appear more frequently today as a reaction to the clamor of ads bombarding consumers in more subtle modes. They have caught on most enthusiastically with clicks-first companies. If the target market of a hybrid company can be reached by extreme advertising, the method works best when the message is straightforward and simple. Keep in mind that the target market is usually in motion when viewing these ads, so complex graphics and extended narratives need to be eliminated—like an eye-catching home page but a few thousand times larger. Interactive advertising. Interactive advertising, or advertising on “smart television,” has evolved from the need to engage consumers in new and different ways to make an impact. More than 81 million NetTV units will be installed throughout the world by 2004, according to industry analyst IDC. Forrester Research places the projections even higher, predicting 87 million units by 2005 in the United States alone. In conjunction with the growth of these devices is an increase in interactive advertising. Interactive television advertising offers hybrid companies an opportunity to reach their target markets in an exciting new format and is expected to reach about $10 billion by 2005, according to the Myers Group, about $17 billion by Forrester’s account. To reach these projections, however, television networks, cable and satellite providers, and hardware and software companies must ultimately agree on format and delivery standards. Hybrid companies can use interactive advertising to differentiate their mission from competitors through creative entertainment and content. The most creative strategies surpass Web imitations of television commercials and devise totally innovative approaches. The RedSky agency, for example, created a Miller Lite Beer Pager, a downloadable application that could be used to send out the word “It’s Miller Time” from a desktop computer. New media advertising. By the year 2005, online ad spending is expected to exceed network broadcast television, according to The

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Myers Group of New York. U.S. advertisers will spend $32.5 billion for online advertising compared with $19.2 billion for network broadcast television and $23.8 billion for network cable television. Global online advertising is expected to grow to $28 billion by 2005, according to Jupiter Communications, which represents about 6 percent of all global advertising revenue. The United States alone is the largest global ad market, making up 75 percent of the total. The Myers Group places worldwide online ad spending at $45.5 billion by 2005, with the 71 percent U.S. share. Online ads have been found to increase traffic to e-tail sites, attracting visitors who are likely to linger, according to the AdRelevance division of Media Metrix. People who spend more time on a Web site are more likely to view significant content, the study found. The case in favor of multi-channel advertising for hybrid companies is constantly reinforced. An Internet Advertising Bureau study of 1,500 ad-supported Web sites found that about 50 companies dominate online advertising dollars, receiving about 90 percent of the total action.

Banner ads. Despite a barrage of criticism of the results achieved from banner ads, they remain the most common form of online advertising. They offer repetition of a brand name using low-cost headlines. When banner ads became synonymous with “boring,” the click-through rate dropped from a high of 2 percent to a low of .5 percent. As a result of diminished click-through rates, predictions are that banner advertising will continue to decline unless it becomes more creative and interactive. In many cases, it has already been bumped from its prominent position at the top of home pages over Web sites’ name and logo to a side or bottom page position. Proponents of banner ads claim it has the ability to build brand awareness, even if a Web site visitor doesn’t click (although banners alone cannot carry a branding campaign). You may not make a purchase on the spot, but you’re more inclined to remember the name that reappeared on multiple Web sites, proponents believe. The highest click-through rate today comes from kids younger than 11 (.87 percent). Teens seldom click on ads (.19 percent for 12 to 17 year olds), according to a study by Nielsen/NetRatings. The study

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also found that teenagers are most likely to click on ads that are highly specific to their own interests, such as an Eastpack online contest for a free backpack filled with prizes. To improve click-through rates, advertisers have tried to be more creative in their approaches, using interactive gimmicks and games to attract attention. John Hancock Mutual Life Insurance Co., for example, ran banner ads that asked your age (“I’m ___ years old”) and income (“I make ____ a year”). “What will I need to retire?” prompted about 5 percent of those who viewed the ad to click through. New designs for banner ads include “skyscrapers” and rectangular print-style ads.

Rich media banner ads. Rich media (or multimedia) banner ads are believed to be three to five times more effective than standard ads, but the market lags behind technology capabilities. Some advertisers fear that their consumer target market may not have the equipment to take advantage of a multimedia presentation; others fear that with slow modems, time delays will ruin the impact or drive visitors away. A distinct advantage, however, is that when visitors view a rich media banner ad, they are getting the whole concept at once with no need to click through to an advertiser’s Web site and back. Rich media banner ads can be designed to be far more creative and dramatic. They can accept requests for additional information, provide a printed brochure on request, accept e-mail addresses, provide chat and instant messaging capability, or add an e-commerce function. Technological advances that work to avoid the slowdowns experienced when loading rich media banner ads have been addressed by companies like Unicast Communications Corp. in New York. Unicast has produced Superstitials, which show up unexpectedly on a Web site, and worked for American Express, Proctor & Gamble, and AT&T.

PDA advertising. Forrester Research predicts that over 55 million personal digital assistants (PDAs) and mobile phones will be in use by 2005. Mobile commerce (m-commerce), or reaching consumers through these wireless devices, provides hybrid companies with another opportunity to increase business volume, build customer loy-

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alty, and provide additional support services. This is truly the way to reach customers anytime, anywhere. Revenues from m-commerce are projected to reach $38 billion in 2003. Considering the projections for the near future, the decision to move business applications to wireless platforms makes sense today. Specific wireless devices have unique space and size requirements, so PDA advertising is most effective when it is specifically designed for these devices rather than for personal computers. Reaching consumers through m-commerce advertising requires adapting existing Web marketing campaigns to the restrictions of smaller screen space, lack of color and font choices, graphics restrictions, and slow content delivery from narrow bandwidth. Text-based advertising, with minimal graphics, has been the way to go until more creative alternatives arrive. In addition to the attraction of a burgeoning million-plus market, the greatest attraction (and potential for privacy violations) of wireless advertising is the ability to track down an individual user’s physical location. Phones have tracking devices that provide a wealth of information about consumers for use by marketers (and potential for abuse of the information). There is, however, a risk that the use of this information will be considered invasive and offensive by consumers, despite its appeal to advertisers. Today the most frequent use of m-commerce is for on-the-go transactions, such as travel arrangements, comparison pricing, auction bidding, hotel and entertainment plans, directions from Vindigo, stock activities, and urgent items. The hybrid companies that can derive the most immediate benefit from PDA advertising are those that connect in any way to its on-the-run mentality, offering solutions to problems or attention-grabbing products and services for harried individuals. Hybrid companies can use PDA advertising in at least two ways: to run ads for their own business and to sponsor information delivered by other content or service providers. E-commerce transactions for PDAs are best focused on impulse buying, so ads for a product or business that answer an immediate need can be extremely effective. Notifying customers of the start of a sale for a product they’ve expressed interest in; promoting an item that is also receiving radio promotion; pitching a one-day-only special—these time-sensitive messages can capture consumer attention in spite of small screen space.

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The experimental field for wireless advertising today is primarily in the European market, where the technological infrastructure is less fragmented. In the United States, where variety in devices and transmission capabilities dominate, progress in wireless advertising has been slower. All of the major players, including DoubleClick, 24/7 Media, and Engage, agree that they need to move aggressively into discerning what types of targeted ads will work best for m-commerce from the consumers’ perspective.

Long-term sponsorships/cobranding Web sites. Long-term sponsorships help strengthen brand awareness in niche markets. Long-term sponsorships account for about $1.2 billion, or 27 percent, of the total amount spent for online advertising. A survey by the Association of National Advertisers found that 60 percent of large corporate advertisers used online sponsorships. E-Marketer estimates that in 2003, about 30 percent of all online ad dollars will be spent on sponsorships. Sponsorships can be designed to meet the marketing goals of any hybrid company because of the Web’s flexibility and can offer the added value of building goodwill. Sponsors can control the area on a Web site where their brand name appears, unlike banner advertisers, and commitments from sponsors are generally from one to two years long. Cobranding Web sites is one form of long-term sponsorship arrangement that provides high visibility for the advertiser. John Hancock Mutual Life Insurance Co., for example, worked out a contract with Microsoft to sponsor insurance pages on MSN.com. The deal places John Hancock’s signature throughout the insurance section of this major portal, providing repeat exposure to a vast audience of visitors. Cobranding Web sites is more complicated than designing and placing banner ads but offers hybrid companies an opportunity to gain greater exposure by offering specialized content or products. Web users tend to be more receptive to valuable information than to pure commercials. Cobranding can be arranged as an exclusive deal or set up as a joint sponsorship involving several companies. Cobranding between content providers and retailers seems to be a natural fit, with each partner in the relationship contributing something unique and complementary.

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An arrangement of iVillage.com with Charles Schwab and Intuit is an example of a successful joint sponsorship arrangement. Under this cobranding deal, Schwab offered links for visitors to open an interactive investment account, and Intuit provided links to Quicken .com, where investors could track their savings. Schwab has also cosponsored iVillage’s MoneyLife Lifestages section along with a bank, insurance company, and credit card company. The Money Life section contains content related to Starting Out, Couples and Kids, and Market Mavens. The Charles Schwab area offers answers to investment questions and a free pamphlet of advice on request.

Portals. Portals guarantee a tremendous number of viewers at an exorbitant price. In the first wave of portal advertising, there was a rush to stake a claim on a portal’s real estate to beat the competition. Portals could name their price, and companies paid it without hesitation, signing multi-million-dollar deals that locked them into years of commitment. Advertising on a portal will not be within the reach of smaller hybrid companies; for the major players, portals offer the largest audience for mass marketing. While mass-market reach is appealing, advertising on portals still requires some knowledge of consumer behavior to achieve the best results. Advertisers need to fine-tune their strategy and identify the location on the portal that can benefit their company the most. While portals in their prime could hold the line on advertising rates and use their own discretion for advertising placement, they are humbler and far more flexible today. Today, advertisers have more leverage in negotiating deals with portals according to time of day, frequency, location, and other considerations that place their ads in the spot that offers the greatest benefits.

Vortals. General portals offer their own advantages to marketers, but in the surge to stand out from the ever more crowded landscape of Web pages, vortals offer new energy. Vortals, or vertical portals, offer access to niche markets on a larger scale than a strategy that pursues placement of advertising on individual Web sites. Vortal ad placements are at least twice as expensive as portal advertising but

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can reach a more responsive audience if properly identified. For marketing online to women, for example, the key vortals are iVillage.com, Oxygen.com, and Women.com. Other examples of major vortals are ESPN.com, Cnet.com, and Actfit.com.

Advertising networks. The tasks of identifying the best ways to advertise (television, radio, Web, etc.), deciding when (by days and times), and determining how much to pay can be overwhelming. Add to this the negotiation of rate schedules, monitoring makegoods, and measuring advertising effectiveness and you have a mission more complicated than most business owners can handle on their own. Traditionally, advertising agencies have helped their clients make these critical decisions and broker advertising time in conventional media. But most advertising agencies specialize in traditional forms like television, print, and radio. Online advertising is a specialized area that complicates the scenario. Because online advertising is a niche that requires different media planning strategies, many businesses seeking a multimedia approach to advertising prefer to have their account handled by an advertising network instead of an ad agency. Advertising networks handle media planning for online advertising with the same goals that a traditional advertising agency strives for with conventional media. Advertising agencies identify the best online advertising locations for general or niche markets, determine the frequency and schedule for advertising campaigns, negotiate rates, monitor online “traffic” or eyeballs, and more. Advertising networks serve as the brokers of Internet time and space. Advertising networks include companies like DoubleClick, 24/7 Media, AdForce, and Engage Media. They pool online advertising inventory and sell spots to advertisers, saving clients the time and trouble of pouring over endless lists of potential advertising sites and negotiating individual deals. Their fee is paid as a percentage of ad sales or cost-per-thousand rate. Ad networks can also focus on a specific target market segment and identify Web sites to fit that niche. Engage Media (a competitor of DoubleClick, created from a consolidation of Flycast Communications, Adsmart, and Engage Technologies) offers services related to

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advertising, such as optimizing Web media spending (AdKnowledge), Web traffic verification, and analysis research (I/Pro). Companies like DoubleClick, AdForce, and Engage Media work to strengthen consumers’ bonds with brands by integrating advertising messages across multiple media. According to Internet World magazine, “This convergence of advertising across multiple platforms and media is nothing short of an advertiser’s dream come true.” Top of Forbes’ Best of the Web “Media and Advertising” category was a company called OneMediaPlace, which brings media planners, buyers, and sellers together to work on deals that cross a variety of media. Media planning assumes a role of heightened importance when hybrid companies use multiple platforms. What media schedule is most likely going to work to reach a niche or target market, for example, when consumers in that market watch television, work on the Internet, listen to the radio, read magazines or newspapers, or notice a billboard? The most common criticisms of ad networks are that their inventory may be sketchy (or a combination of great and zero Web sites) and that their profit motive works against the marketer. They operate for the benefit of the Web sites in their stable and for their own profit, not directly for the benefit of the company seeking advertising. Ad networks offer the greatest benefits for hybrid companies that seek a wide reach of advertising exposure. They are a one-stop medium for the busy executive that eliminates the need to identify a host of Web sites on which to place ads. DoubleClick, for example serves an average of 50 billion ads per month for about 1,000 clients. Competitor 24/7, with about 1,300 clients, sold about 17.6 billion ads. If a company seeks to run a highly customized, highly targeted campaign, it can generally handle the buys itself. In such cases, a direct negotiation with a site or portal may be more appropriate and cost effective than using an ad network.

Direct mail. The pros and cons of direct mail have been debated forever, and arguments about the cost of postage versus the rate of response are well documented. Technological advances in tracking and interpreting consumer information, however, have changed the odds in favor of direct marketing for hybrid companies. The key dif-

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ference is that today we have the capability to refine direct mailing efforts and create more precisely targeted campaigns.

Database marketing. Database marketing enables a company to present personalized information to customers based on knowledge of their previous buying patterns. Personalized, or one-to-one, marketing anticipates what customers are seeking. Pseudopsychoanalytically, it predicts future behavior from past behavior. And it is suitable for every sales channel in a hybrid company. Personalization dates back to the first savvy sales clerk who called a customer when a new shipment of his or her favorite product line arrived at the store or was marked down for a major sale. Today, personalized services are based on the accumulation of a plethora of information about individual customers’ preferences that far exceeds the memory of any sales clerk. The challenge for hybrid companies is to integrate customer database information across all sales channels, from customers’ catalog purchases to their shopping-mall trips to their e-commerce buys. With the integration of these data into a single source of knowledge, hybrid companies can maximize their use of personalization. Web marketing has just begun to tap this potential. For example, database information about an individual’s Web behavior could include both purchasing and browsing data (such as a history of Web pages visited). Data from individual customer profiles can be used to infer preferences, then to present different Web pages to welcome shoppers when they arrive, for example. It can also be used to send personalized e-mail notices about upcoming sales promotions or new product releases for items that relate to a customer’s history of past purchases. If you’re on the road a lot, the message will be forwarded directly to your PDA. Hybrid companies will gain the supreme advantage when their sales clerks in every store location can access the same data and can quote from this information at the point of sale, offering special discounts or promotions in person. “I noticed you bought pink preemie pajamas some time ago,” a Gap sales associate might ask me as I pay for a black leather jacket for my daughter. “You know, babyGap is running a sale on size 2T girls’ items right now.” An e-mail message

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on my PDA could then confirm that the clerk is holding a few new items for me at the store across the street, and because I’m a frequent shopper, I can have an extra 20 percent discount.

New Media Marketing Strategies Among the most popular methods of new media marketing strategies are e-mail marketing, viral marketing, affiliate marketing, reciprocal marketing, and comarketing alliances.

E-mail marketing. E-mail is predicted to outpace U.S. Postal Service direct mail volume by the year 2004, according to Forrester Research. The average U.S. household is expected to receive nine pieces of marketing e-mail daily by then. Forrester also predicts that in 2004 marketers will spend $4.8 billion on 200 billion e-mails, with 66 percent sent to existing customers and 33 percent sent to generate new customers. Jupiter Communications (now Jupiter Media Metrix) places the global e-mail marketing number at $7.3 billion by 2005. Benefits of e-mail marketing. Permission-based e-mail—not to be confused with electronic junk mail called spam—can strengthen a total marketing campaign. The appeal of e-mail marketing is its personalization (with personal offers extended to individual consumers based on their past history of purchases), the opportunity to promote new merchandise, permission marketing (the opt-in or opt-out capability), and low cost. The cost of e-mail is about $.01 to $.25 per piece compared with $1 to $2 for direct mail campaigns. That’s not to say that the cost of implementing an e-mail marketing effort is cheap. Overall costs to outsource can run into a commitment of about $10,000 a month for high-end campaign management or about $100,000 and up for high-end e-mail marketing software. E-mails are also more likely to be read than direct mail, particularly if they create an interaction with the customer and offer information that is of perceived value. And they stand about a 10 percent chance that the recipient will click to the e-tailer’s Web site, and a 2.5 percent chance the recipient will make a purchase.

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FIGURE 8.3 The Benefits of E-mail Marketing • • • • • • • • • • • • •

Strengthens the impact of a total marketing campaign Reinforces ideas and images presented in offline marketing efforts Extends personal offers to customers based on their history of purchases Generates more qualified leads Results in higher response rates Creates an opportunity to promote new merchandise/services Offers creative opportunities to mix online and offline promotions Allows opt-in and opt-out capability (permission marketing) Reinforces relationship with customers. Provides information to fine-tune future marketing efforts. Create an interaction with customers. More likely to be read than direct mail. Lower costs and highly effective.

Hybrid companies can use e-mail to reinforce their relationship with their customers and gather additional personal information (provided a rapport is established) that can be used to refine future marketing efforts to that customer. If a customer’s buying patterns and price preferences are analyzed from database information, marketing can become increasingly precise. E-mail also offers limitless opportunities to mix online and offline promotions. Estee Lauder Co., for example, sent a special Clinique promotion of Stop Signs Visible Anti-Aging Serum to a select portion of its e-mail database—women over 35 or those who said they were worried about wrinkles. A few weeks later, Clinique sent an e-mail message encouraging these women to buy the product online, and about 8 percent did. E-mail service providers. E-mail service bureaus, or e-mail service providers, are a rapidly growing industry that specializes in targeted direct e-mail campaigns. They seek opt-in consumers for an e-tailing company to create legitimate e-mail lists with no spamming. They address issues of security and privacy, technical implementation, and tracking results. Other hybrid companies have continued to handle the work internally, keeping a tighter reign on their customer information and gradually building expertise in their own staff.

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Many hybrid leaders that kicked off an e-mail campaign with an inhouse staff eventually opted to outsource e-mail marketing to specialists that can benefit from economies of scale. BarnesandNoble.com initially handled its own e-mail campaigns and promoted its e-mail newsletters on specific topics by customer request. When it decided to expand the scope of its e-mail effort, it outsourced the project to two e-mail service providers, FloNetwork and CheetahMail. Now BarnesandNoble.com’s e-mail is based on its customer database to create dynamic content personalization. Individual e-mails now notify customers of events, such as author signings, that are happening nearby. L.L. Bean uses the services of ClickAction for all of its Webbased e-mail technology. Macy’s uses Digital Impact, and WilliamsSonoma is a client of Kana Communications. Permission-Based E-mail Marketing That Works! by Kim MacPherson (Dearborn Trade, 2001) is a great e-mail marketing source for further information.

Viral marketing. Viral marketing uses word-of-mouth networks for promotional purposes and operates with amazing speed and effectiveness. Viral marketing refers to a company’s offer of a product or service that is so “awesome” that people pass the information along to their friends and family, who tell two other friends, who tell two more friends. The phenomenon is based on the sheer multitude of people creating a buzz. The implied personal endorsement makes the advertising message stronger and the reaction faster. Viral marketing predates the Internet. Legend has it that Trivial Pursuit and Pictionary were promoted by a marketer who generously distributed free games to celebrities and toy buyers, and then set up contests among game players in restaurants, bars, and other public forums. This may be the first recorded case of viral marketing. Viral marketing works best when consumer interest is hot for new gimmicks and high-profile and trend-setting items. Viral e-mail marketing can be used to spread the word about everything from products to political causes. The key is to avoid pushing the customer to do too much to spread the word or to commit too strongly. With e-mail viral marketing, a personal endorsement from a known individual immediately neutralizes the taste of spam. Hybrid companies have to be cautious about the potential hazards of viral marketing. If the viral buzz takes off quickly, the demand for

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whatever is being offered can skyrocket, especially if a company is already a known and trusted commodity. Balancing the marketing need with the profit motive is a delicate assignment, and the profit may have to shrink while the customer base and market share expand.

Affiliate marketing. Affiliate marketing is a way any company or individual can drive traffic from its Web site to another merchant’s Web site via hyperlinks, with a percentage of the sales as commission. Natural partners in affiliate programs are • content to e-tailing sites (when products are connected with the information offered) and • e-tailing to e-tailing sites (when products are complementary or enhancements). Amazon.com has one of the most widely recognized affiliate programs. It recruits affiliates to link visitors to Amazon (earning a 5 percent commission) and sell Amazon products on their own Web sites (earning a 15 percent commission). BarnesandNoble.com has a similar affiliate program but requires an exclusive arrangement and offers commissions in the range of 5 to 7 percent based on the volume of sales. Can hybrid companies benefit from affiliate programs? To a degree. And they can’t lose business. The risk is low, especially if the commission is in the range of BarnesandNoble.com’s. Affiliate programs may be crucial for pure-plays, but they’re not the lifeblood of hybrid companies—just an occasional shot of adrenaline. The primary concern about affiliate programs is that unless they are designed well, the visitor who clicks from the primary Web site (say, a content provider) to the hyperlinked e-tailing Web site may wander off permanently. The original point of contact is the loser unless its Web site is designed to automatically bring the visitor home again. As a variation on this theme, new products are available that enable e-tailers to set up minisites on content providers’ Web sites so that the transactions can take place entirely in one location. These minisites are designed and controlled by the e-tailer, which has more influence over the presentation of its treasures with this service than if it leaves it up to its affiliates to promote.

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Will products sell on content sites? Only if they make sense and the buyer is primed for the sale, no matter how convenient it is to point and click.

Reciprocal marketing. Reciprocal marketing is an arrangement in which one company offers its customers discounts for another company’s goods. Within local chambers of commerce, merchants may reach agreements to honor discounts for one another’s products in a show of harmony and smart marketing. Large retailers have had more difficulty negotiating similar deals, primarily because of the perceived difficulty in monitoring these programs and ensuring everyone gets a fair shake. There seem to be fewer difficulties in working out reciprocal marketing arrangements online. BarnesandNoble.com has a reciprocal marketing arrangement with VitaminShoppe.com, a nutrition supplement supplier—they don’t compete with one another and the companies are distinctly different. Gap.com and eToys.com had an arrangement whereby each online store offered discounts to the other’s online store.

Comarketing alliances. In amazing shows of allegiance among giants, corporations have begun to form more collaborative advertising campaigns than ever before. Industry and professional conferences today often boast lists of sponsors that would have balked at being seen on the same letterhead a decade ago. New symbiotic relationships have replaced the cut-throat competitive spirit of yesteryear, as predicted by James Moore in The Death of Competition (HarperBusiness, 1996). Among the first was a television campaign about Amazon.com by Hewlett-Packard. Hewlett-Packard (HP) is now the Amazon.com supplier of information technology products, and a new comarketing campaign is designed to offer a very public expression of gratitude. Hewlett-Packard gains exposure to everyday consumers who purchase Amazon.com goods by spreading the word that it is the brains behind the Amazon scene. “HP technology makes it happen” is the theme integrated into a series of spots that tell stories incorporating characteristics of the Amazon.com shopping experience that have a special appeal to customers. It’s a win-win formula for both companies.

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Promotions Rewards, incentives, and giveaways come in as many forms as creative marketers can conjure up. Internet incentive programs have grown just as rapidly as the Internet itself. Hybrid marketing involves integrating incentive programs, building a connection between online promotions and offline delivery or offline promotions and online reinforcement. Hybrid companies gain the greatest advantage when incentive, or loyalty, programs are linked between their Web site and their bricks and mortars. Following is a synopsis of the most popular programs that can cross mediums.

Reward/Incentive programs. Airline miles, shopping points, dollar discounts—rewards programs take any number of shapes and sizes. Rewards can be offered by an individual company or grouped into a larger association of merchants, all of whom honor the program. When a hybrid company is trying to attract new online customers, rewards or points programs have their highest value. They are relatively inexpensive to administer, quick to produce results, easy to measure, and simple to adapt. To create a points program, hybrid companies have the option to hire a firm to customize a plan for their Web site or join a points network like MyPoints.com. Customized plans formulated by developers like Netcentives can cost from $60,000 to several million dollars to develop. MyPoints.com, with about 15 million members, has a client base of about 300 firms that spend an annual average of $58,000 for its services. These companies pay MyPoints 90 cents for each user that replies to the offer. Incentive programs can backfire if bonds are forged between the consumer and the program rather than between the consumer and the brand. If the incentive program becomes an end in itself, the program was misguided. Ultimately, the bond must be strengthened between the consumer and the hybrid company. Sweepstakes and cash back. Sweepstakes and cash giveaways have long been used as a bribe by major Web sites to lure customers

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into giving up registration information that is invaluable to marketers. Today, sweepstakes are included in the simplest e-tail Web sites and are no big deal. Programs can operate at two functional levels: first, to gain new customers; later, to encourage customers to return to the Web site. The success of Web sites like Grab.com, which offers a chance to win multi-million-dollar sweepstakes in return for providing personal registration information, indicates that incentives are thriving. They create a buzz and viral marketing takes hold. Sweepstakes are less expensive, more fun, and more imaginative than offering free giveaways with every purchase. Sweepstakes can be as mainstream as trips, cars, and concert tickets, or as innovative as OurHouse.com’s offer of one week of service from its specialist Mr. Fix It. It has the best fit for hybrid companies with a light-hearted approach.

Add-ons. Bricks-first establishments know the benefits of suggesting a product to accompany another product (like a belt with those pants, slippers with that robe), a simple but effective way to increase sales with existing customers. Hybrid companies have already figured out that the online equivalent is just as simple and far less costly than marketing techniques based on database marketing. Persuasive, without being a nuisance. Subtle.

Public Relations Strategies Traditional public relations (PR) plans work to build and maintain good relationships with the general public, customers, investors, analysts, and other influential resources. A strong, positive PR campaign can put a hybrid company in the spotlight to achieve exceptional recognition. It is ultimately all about reaching the intellect and emotions of consumers and decision makers. And it isn’t cheap. Public relations, like media planning, can be handled in-house with a number of advantages. The dedicated staff of a hybrid company genuinely has its own interests at heart and knows the subtle nuances that can make for a great story. On the other hand, without

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the right expertise, PR efforts can fall flat. When it comes time for a major publicity push, such as before an IPO, the PR effort is probably best delegated to skilled professionals. Public relations set the foundation for things to come, like the confidence and goodwill that can boost sales or attract venture capital investments. That’s not to say that an IPO is the only newsworthy event for a hybrid company. Opportunities are as boundless as your company’s imagination. Press releases are the simplest component of PR, documenting the brilliance and intensity of any hybrid company as a combination of personal press secretaries and historians. Every corporate action is grist for the PR mill: accomplishments of executives; dramatic increases in sales from one quarter to the next; new alliances and partners; technological innovations; reorganization efforts—all can be given a positive spin. Newpapers seek newsworthy information. And they seek more of it during slow news periods. Try to get an inch of coverage during the presidential election debacle of 2000 and you’d better have literally bred a clone for your chief executive. Try a slow news day in midwinter, and your company cafeteria could make headlines. It’s all about timing. And for that, hybrid leaders have the privilege of paying exorbitant retainer fees to public relations agencies that specialize in how to capitalize on news droughts. For a fee, a reputable public relations firm can spin straw into gold for you. Stock down? Spinmeisters can paint a rosy glow on your prospects for the future. Easy to see why public relations firms became the darlings of dot-coms. Want to turn your stodgy senior executive into a sex symbol or your flamboyant leader into a stodgy executive? A little nip here, tuck there, and you have reinvented history. And for that, hybrid leaders have the privilege of paying exorbitant retainer fees to public relations agencies that specialize in creative writing. Worth every penny, if you ask the leaders. All this has a price. Yet the most amazing thing is that the truly great stories—the ones that have the most enduring impact—are those that depict genuinely delighted customers, generously rewarded employees, benevolent executives, altruistic leaders, dynamic foundations, unselfish alliances. These are the stories that money can’t buy. Every hybrid company has to generate this spin from its heart.

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Evaluating the Effectiveness of Campaigns Among the immediate benefits of the merger of marketing and technology is our enhanced ability to test marketing campaigns on a small scale, make adjustments as needed, and retest and reevaluate before launching a full-scale campaign. The ability to target small groups to measure effectiveness allows marketers to tailor their approach to different audiences. A print ad for Web Trends Enterprise Solutions <www.webtrends.com> shows a cartoon of a roomful of nudists enjoying a cocktail party, while two sole pinstripe-suited guests ask, “What banner ad brought you here?” Targeting—the oneword response of Web Trends, which offers to help companies evaluate the effectiveness of their marketing and advertising campaigns. Testing marketing campaigns is a strategy that should be incorporated into any online marketing medium, whether banner ads, e-mail marketing, sponsorships, or viral marketing. Adjustments can, and should, be made swiftly to reflect results.

Chapter Summary 1. Successful hybrid marketing strategies present a comprehensive approach that integrates online and offline marketing, sales, advertising, promotions, and public relations efforts. 2. E-mail marketing is one of the fastest-growing methods of reaching customers for a hybrid company; it is less expensive than other forms of marketing and has the ability to personalize and target promotions. 3. Spending for online advertising is projected to exceed network broadcast television by the year 2005, according to The Myers Group of New York. Forms of online advertising include banner ads (which come in and out of favor), long-term sponsorships, advertising for personal digital assistants (PDAs), and rich media ads.

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4. Advertising networks offer a broker function by pooling online advertising inventory and selling spots to advertisers. Beware the profit motive, however, as advertising networks work for the benefit of the Web sites they represent plus their own profit, not directly for the welfare of hybrid companies seeking the best advertising deals. 5. Public relations can be the strongest marketing component of all, if favorable publicity can be achieved early and often. Corporate and individual accomplishments within the hybrid company and the community at large provide substance for news reports that have the potential to generate lasting impressions. 6. All of the above statements presuppose that the hybrid company actually delivers a high-quality product, excellent customer service, and beautifully navigable sales tools offline and online. Without that, the largest advertising budget in the universe won’t help.

Knowledge Management

9

Knowledge is the ultimate intellectual property asset of a hybrid company. Knowledge management involves acquiring, storing, configuring, synthesizing, and sharing knowledge from and about your customers, supply chain partners, and company personnel to generate new knowledge and increase profitability. Knowledge management includes digital and human information management; front-end customer relationship management (CRM); competitive intelligence; and back-office enterprise resource planning (ERP) applications. In the ideal scenario, information about marketing, sales, manufacturing, fulfillment, distribution, human resources, information technology, customer services, and other corporate functions is promptly accessible by all company personnel for comprehensive cross-analysis and precise forecasting models. In reality, many hybrid companies have information and knowledge stored in a variety of departments across a multitude of information systems that cannot completely communicate with one another. They still have a long way to go to blend these disparate sources of information into an allinclusive knowledge management strategy. Although the terms information and knowledge are often used interchangeably in conversation, here the concept of information refers to factual data, and knowledge refers to the accumulation of facts

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over time. Knowledge management involves the analysis of data accumulated over time to gain insight about a hybrid company’s operations that can aid in achieving goals and objectives. Prerequisites for knowledge management include both a human and a technological infrastructure: • A results-oriented marketing and sales staff • A well-staffed information technology (IT) department • A technological infrastructure to support data warehousing, data mining, project collaboration, and more • A corporate culture of interdepartmental interactivity • A proactive corporate leadership At the heart of knowledge management is the dual goal of using existing knowledge to create new knowledge and using new knowledge to deploy creative strategies for improvements in speed, efficiency, and growth. It’s more than the accumulation of tons of paperwork and reports. As information is power, knowledge is strength. The use of information for new knowledge can create leverage for even very small hybrid companies. New technological tools make it easier to communicate effectively with members of your company in more complex ways than before. Team members in remote locations can do more than share ideas via e-mail. (In fact, e-mail can be simplified and better organized.) They can engage in work sessions from several locations, collaborate on project tasks, jointly examine and comment on documents and designs, and hold online meetings. And the process can work even when individuals need to work closely together with data and decision input from one another continuously. Time and cost constraints for travel among team members can be significantly reduced while collective team performance is enhanced. Faxes and FedEx packages can be minimized. Benefits of knowledge management may include increased efficiency (and ultimately reduced cost) for personnel as duplicate efforts are virtually eliminated. More accurate predictions of process time are possible, allowing better projections of manufacturing time and costs. For hybrid companies, the task is more complex than for

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single-channel companies. Information from stores, Web sites, and catalogs requires analysis within each channel and across channels. The payoff, however, for having a better understanding of the performance of each channel is well worth the effort.

Impact on the Success Strategies of Hybrid Companies When a hybrid company embraces strategies for incorporating knowledge management into the mainstream corporate culture and decision-making processes, it has the opportunity to leap past its competitors in the long run. The human and technological infrastructure of knowledge management correlates directly with the success strategies of hybrid companies introduced in Chapter 3. These “need-to-know” items are briefly listed in Figure 9.1. Specifically: • Integrate databases, applications, networks, and human resources intelligently for the highest consistent quality performance and channel synchronization. Knowledge management tools enable hybrid companies to capitalize on the information at their fingertips. These data can be analyzed across multi-channels to assess the strengths and weaknesses of their business and to analyze differences in performance between various channels. What channel is the top performer? Are resources allocated properly among channels? That is, do the highest-performing stores, Web sites, or catalogs have the staff, budget, capital equipment, and technology to maintain top performance? Are poor performers in need of additional resources? Does the current technological infrastructure meet demands from every channel? • Master the skills of merchandising, including product demonstration, ordering, inventory tracking, packaging, shipping, handling repairs, and dealing with customer returns.

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FIGURE 9.1 Implementing Success Strategies: What Hybrid Companies Need to Know

Success Strategy

What Hybrid Companies Need to Know

Channel Synchronizers

The strengths and weaknesses of each channel Which channel is the top performer/lowest performer Specific differences in performance among their channels Validity of resource allocation among channels (staff, budget, capital equipment, technology) Adequacy of current technological infrastructure

Merchandising Masters

Patterns of sales by product, region, and date for each channel Repair and return patterns by product for each channel Locations/channels of highest volume of orders Locations of most “ship to” items The best location for warehouses, shipping, and staff to ensure the fastest and least expensive customer deliveries

Customer Centric

How customers interact with the company (shopping sprees, bill paying, correspondence) The best customers (Who spends the most money and shops most frequently?) How to change/improve all products/services based on customer input How online and offline sales, marketing, public relations, promotions, and advertising strategies can be used most effectively Customer shop-to-buy patterns (Do your customers like to browse online but purchase offline? Do they browse through catalogs and then purchase online?) The best way to notify your customers of special promotions or new products and features

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FIGURE 9.1 Implementing Success Strategies: What Hybrid Companies Need to Know (continued)

Alliance Builders

Measure and track the impact of strategic partnerships Before-and-after comparisons of productivity, revenue, sales, and other relevant indicators Quantitative information to support qualitative assessment (Is this alliance truly a benefit to your hybrid company?)

B2B Maximizers

Revenue derived from B2B sales across channels Factors that influence sales in each channel The best B2B customers and the best way to reach them

Future Focused

How the marketplace has changed Anticipated future changes in trends Strategic decisions that can be made to improve your hybrid company’s competitive position in the future

Knowledge management tools enable hybrid companies to interpret sales patterns for their products across channels, spot seasonality, and track potential problem areas in patterns of repairs and/or returns. Are a majority of orders for a particular item coming from a specific region at a specific time of year? Knowledge about product demand, levels of inventory, and patterns of shipping requirements can influence decisions about the location of warehouses and shipping facilities or the selection of an outsource company to handle fulfillment regionally for the hybrid company.

• Create a customer-centric focus, encouraging an active dialog and incorporating customer feedback into product and process enhancements while providing personalization of customer service.

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Electronic customer relationship management (e-CRM) tools provide a more powerful analytical capability to hybrid companies than do manual sales and service records. By tracking customer interactions with your company—including everything a customer does, from shopping sprees to bill paying and correspondence—you can identify your best customers. Who spends the most money and shops the most frequently? Tracking correspondence, from complaints to kudos, can reveal areas for improvement in products and services, and in your interactions with your customers. Understanding customer interactivity across all your channels can provide input to your online and offline sales, marketing, public relations, promotions, and advertising strategies. Do your customers like to browse online but purchase offline? Or do they browse through catalogs and then purchase online? What is the best way to notify your customers of special promotions or new products and features? • Forge alliances and partnerships that complement strengths and fortify weaknesses, creating the dynamic impact of a single powerful force. Strategic partnerships can add qualitative and quantitative value to a hybrid company. The measurement and tracking of the real impact of these relationships can help a hybrid company decide where to pursue future relationships. Comparisons of productivity, revenue, sales, and other relevant indicators before and after establishing an alliance can provide quantitative information to support a qualitative assessment of the actual value. Is this alliance contributing to the overall success and growth of your business? • Engage in business exchanges or Internet marketplace exchanges that provide access to the business-to-business market. Knowledge about your past and current performance in the B2B sales arena can help a hybrid company design future strategies to build campaigns online and offline to reach this prized target market. How much revenue has been generated from

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B2B sales? What factors could be influencing sales? Who are the best B2B customers? What is the best way to reach these customers? • Position the company to respond quickly to changes in the marketplace or technology by nurturing a strategic vision, embracing entrepreneurial attitudes, and remaining future focused. A five-year strategic plan may never see the light of day when a hybrid company changes at Internet speed. The insight derived from a combination of competitive intelligence, business intelligence, and customer intelligence together give a hybrid company the route to implementation of new strategies as soon as they’re needed. Knowledge management tools can provide quick and visual feedback about marketplace developments.

The Human Infrastructure Knowledge management works only when individuals within a hybrid company buy into the process. Individuals within a business must share a common vision of enhanced operations and be motivated to assume personal responsibility to keep systems and processes up-to-date, including their own set of skills. This repertoire of personal skills includes how to use information technology; update, request, and interpret data; and make high-quality decisions based on their analysis. It may also include formal training and informal networking with coworkers.

Crossing the Lines of Departments and Channels How can knowledge management infrastructures, products, and services help hybrid companies become more effective? Marge Chertok, an attorney with the firm of Pitney, Hardin, Kipp, and Zuchup in Morristown, New Jersey, has found that the most effective use of knowledge management with her clients occurs with the breakdown

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of parochial lines of communication. “Information belongs to the whole organization,” said Chertok, “not to a single department in the organization.” Companies that are not rigid in their thinking can remove barriers, such as departmental budgets, that tend to restrict the flow of information. If a company builds a prototype, for example, and seeks input from all departments, the probability of uncovering major design flaws early is large. Marketing, sales, and customer service should be included in the information loop before final decisions are made. By seeking input from all departments early in the design and development stages, a company has a better chance of avoiding catastrophe. The dynamics of sharing information and facilitating open communication can help a company get its product or idea to market faster, Chertok believes.

Data Warehousing and Data Mining Could you make better business decisions if all your data were readily accessible for analysis? Definitely. Data warehousing, the collection and storage of data from multiple sources, is an information necessity for hybrid companies, from the simplest to the most complex. Grocery stores, catalog companies, insurance companies, banks, and a slew of others are now warehousing. Data mining, which refers to accessing specific information within a data warehouse, is a method of weeding (actually, drilling) through ancillary information to get to the core. According to a study by IDC of 60 companies that have used data warehousing and mining within the past two and a half years, the average return on investment was 400 percent. The leader in the development of the software to support data warehousing and data mining, with over $1 billion in revenue and over 3.5 million customers, is SAS Institute Inc. in Cary, North Carolina, established in 1976. Waging a tough battle for market share in this lucrative arena is IBM’s Global Solutions and a growing number of ASPs. SAS gained its global lead through products targeted for niche markets that are readily integrated into a customer’s existing systems. Their product, SAS Enterprise Miner, is a statistical tool that examines customers’ ages, incomes, and location and determines

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relationships between these and other variables as they affect customers’ potential to be up-sold or “outta here.” From basic data about customers come next-step decisions about how to handle different categories of customers—the big spenders versus the not-so-big spenders. A tool from Recognition Systems called Protagona <www.protagona.com>, for example, divides customers into segments, depending on their characteristics, and creates different customer service campaigns based on their relative value to a company. Convergys Business Rules Decisioning Engine can then be used at call centers to pass “high value” customers along to service representatives and pass others to automated voice response systems.

The Technological Infrastructure Business intelligence, collaboration, and knowledge mapping are just a few of the components of a comprehensive knowledge management strategy. Implementation strategies are entering a new phase in which hybrid companies have multiple choices. Tools such as collaborative software, for example, can be installed throughout a company’s enterprise or outsourced to an ASP. When projects are outsourced, your company’s teams collaborate via extranets provided by the ASP. IBM has been a leader in providing knowledge management tools and consulting support, strengthened by the purchase of Lotus and acquisition of its powerful line of collaborative work products. Knowledge management solutions from IBM focus on five primary functions: business intelligence, collaboration, knowledge transfer, knowledge discovery and mapping, and expertise. DB2/DB2 OLAP. For business intelligence (making the right decision), IBM offers DB2 and DB2 OLAP for online analytical processing. IBM describes its DB2 product line as “industrial strength database management” for a wide range of processes for an unlimited number of types of businesses.

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Enterprise Information Portal (EIP). The IBM EIP is central to a comprehensive software strategy. The reality of e-business growth is that successful companies build their databases over a period of time in different formats and structures. In addition, when companies merge, they are faced with the past and present databases of their new corporate member. To compound the variety, alternative formats extend to e-mail, scanned documents, computerized reports, and video and audio material. EIP makes it possible to access information regardless of the format or structure of the original database. The goal, according to IBM, is “a single point of access to information from various sources.” The significance of this portal lies in both its ability to integrate access to historical records as well as its support for IT staff working on future applications. In its newest version, EIP enables users to make specific, personalized data searches. Lotus K-station. For collaboration (including real-time chats as well as other groups and discussions), the renowned Lotus Notes brings information, e-mail, scheduling, and Web access together. Lotus K-station enables users to access essential information past the boundaries of their own organization. K-station users can create “virtual meeting places” according to activity, tasks, or projects for planned and unplanned communication, eliminating organizational and technological boundaries. K-station accumulates and stores data within its own boundaries instead of serving as a portal that sends users through to other systems. This creates a single source of information that users can work from collaboratively. Kstation is integrated with Sametime and QuickPlace for additional features. Lotus Sametime. Lotus Sametime, which allows users to know who is available for instant messaging, provides communication over distributed networks and includes interactive audio/video conferencing. Sametime Everyplace extends the capability to wireless devices. Instant language translations can be added through Lotus Translation Services for Sametime (LTSS).

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Lotus QuickPlace. QuickPlace lets groups of users create a common Web site to collaborate on shared documents and other project information. Domino.Doc. Knowledge mapping makes it easier to manipulate complex documents, improving the quality of decision making by sifting through huge amounts of information and feeding it to users in logical format. Lotus Domino.Doc lets Microsoft Office and Outlook users save and access e-mail, Web material, and desktop applications in centralized Domino databases. Domino.Doc supports enterprisewide document management and records management. IBM DB2 KnowledgeX. This product organizes content from different sources in large organizations and presents pertinent information in a consolidated format to meet users’ needs. By identifying relationships between information from multiple sources, users have the tools to make better decisions. IBM Intelligent Miner for Text. This product can find “hidden” information in e-mail, new feeds, Lotus Notes, customer correspondence, competitors’ Web sites, and other sources for the benefit of businesses of any size. IBM describes Intelligent Miner as a “knowledge-discovery toolkit” that enhances business intelligence.

Omniprise software from Ikimbo. The Ikimbo Omniprise platform, now used by PriceWaterhouseCoopers, can improve project coordination by allowing hybrid companies to build their own collaboration “hubs” for their employees, supply chain partners, and customers. This file and application-sharing network can be used within a company and also shared with outside contacts. SAS Collaborative Server T. Created by the SAS Institute, this new software enables collaboration among workers at different locations through the collection of graphics, text, and numeric files into a single data warehouse. Whenever data are added or changed, all partners are notified by e-mail and hyperlinked to the new information.

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Customer Relationship Management (CRM) Applications The need to retain loyal customers has become an undisputed and singularly high priority of successful hybrid companies. A growing list of experts predict that loyalty marketing will be the deciding factor in dot-coms that fail and those that thrive. Hybrid companies face the same challenge, as identified in the criteria for success listed in Chapter 3. In Loyalty Marketing in the Internet Age (Dearborn, 2000), Kathleen Sindell presents a comprehensive assessment of the processes and programs that generate effective CRM strategies, describing products that support loyalty marketing efforts through the use of case studies. For an in-depth analysis of CRM for e-businesses, Sindell’s book is a great resource for both dot-coms and hybrid companies. The DoubleClick double-trick almost gave a bad name to all efforts to gather customer information from Web site visitors. The DoubleClick disaster <www.doubleclick.com> was headed off at the pass by privacy advocates, and the company’s plans to sell information about individual usage patterns were thwarted. In the wake of consumer vigilance and new watchdogs, the appropriate use of CRM techniques, or permission marketing, gains popularity. (The DoubleClick disaster, customer privacy, security, and other legal issues are addressed in detail in Chapter 12.) Hybrid companies also need to integrate data from call centers with other customer-related information. With hybrid companies, customers can shop for—and return, or complain, or praise—the companies’ products and services from multiple-channels just as they have multiple options for their purchases. Customer contact can come from a sales call, a Web site visit, or a call center. In an innovative merger of the analytical aspects of CRM and the practical implementation of customer-focused strategies, IBM offers a package that connects its CRM content management program with the Siebel Call Center 2000. Its approach goes a step beyond the offerings of competitive vendors by providing a structure to handle all forms of customer communications, including paper, fax, and e-mails that are typical of many hybrid companies’ customer contacts. IBM’s CRM

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integrates structured call center data with unstructured information, providing a faster turnaround time in corresponding with customers. In building loyalty, the speed of a hybrid company’s response to its customers is critical to success. Customer service representatives must be able to view at a glance the complete history of your company’s communication with any customer in any format. Besides improving the productivity of customer service reps, CRM provides simplified access to customer recommendations and complaints about products and services, providing a tool to analyze feedback and evaluate potential areas for change or improvement. Not that IBM has the market cornered. The Onyx Software Group <www.onyx.com>, Siebel Systems <www.siebel.com>, and Oracle <www.oracle.com> are among today’s e-CRM leaders. New resources are released regularly, so hybrid companies have an opportunity to pick and choose the solution that best meets their own needs. To continue with the list, which is intended to present ideas not a complete index of ever-changing offerings by tech providers, following are a few additional packages. PeopleSoft’s CRM. PeopleSoft’s CRM product enables, for example, the sales and billing departments and suppliers to work together from the same customer information that the customer service representative has. With the addition of enterprise performance management (EPM) to this product, data can be brought in from external sources and compiled in a data warehouse for numerous forms of analysis. ClearSight from ClearForest. ClearSight’s technology can read and analyze text from e-mails, company documents, and news wires and extract only relevant user information according to a prescribed set of interactions. ClearSight is offered as an ASP and targeted for Fortune 500 companies and major financial institutions. Its executive summaries enable its customers to stay current on business events worldwide. Roundarch’s preintegrated solution platform (PSP). Roundarch is a creation of Deloitte Consulting, BroadVision, and the WPP Group.

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The preintegrated solution platform (PSP) integrates CRM applications across multiple systems. The goal of Roundarch’s product is to help companies understand their customers and create new strategies to improve revenue and customer loyalty. PSP is a scaleable platform that enables Roundarch customers to expand as they need to.

Customer Profiling Tools Understanding the behavior and needs of individual Web site visitors can create a wealth of personalized information. Personalization, the technique that makes us feel as if a Web site had been created just for us, can increase stickiness, sales, and satisfaction. Cookie-based technology, which provides information about a Web site visitor’s patterns of viewing the site, in conjunction with other specialized programs, can yield data that can influence site design and interactivity. Bluelight.com, for example, uses technology developed by Fort Point Partners to gather and analyze data. Fort Point Partners’ product eSelling Intelligence provides a tool to allow taking action on information that has been gathered and analyzed and then gathers additional data to measure results.

Personalization Services When it’s done well, customers are hooked on a Web site and—it’s hoped—the company. When it’s done poorly, it alienates customers. The parallels to in-person company visits is almost perfect. In a recent visit to Lord & Taylor’s makeup counter, for example, the saleswoman who processed my credit card returned it with a “Thank you, Bernadette.” Well, that’s Ms. Tiernan to you, thank you, I thought as I longed for Nordstroms more elegant version of personalized service. When CDnow.com suggests that I might be interested in the latest release from ’NSync for my personal collection, I have to remember that my credit card processes all my kidsÕ transactions, reflecting taste that ranges from Dave Matthews through Snoop Dogg.

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Portals such as Yahoo seem to have pinpointed the crucial formula for effective personalization strategies. With only your zip code in its My Yahoo Service, Yahoo will return weather and sports information pertinent to your location. You aren’t forced to answer an annoying number of questions, and the customization is effective immediately. Although customization isn’t quite as effective as personalization, it might, however, not be as offensive.

Automated E-mail Responses As the Web site of a hybrid company gains popularity, correspondence from customers increases exponentially. The volume of e-mail can be overwhelming. Customers expect a timely response, creating pressure for companies to become efficient as fast as possible. Sometimes demand exceeds the limits of even a full-time, well-staffed customer service department. The technology for automated e-mail responses can interpret customer information and knowledge data from within a company, responding within seconds to simple requests, while forwarding more complex e-mails to a customer service rep. Knowledge data are gathered from customer support databases, product information databases, and other information resources that can be used to define response parameters. About 50 to 80 percent of the volume of typical requests can be handled automatically. Reducing the workload of the support staff to this extent enables them to respond more quickly to the remaining inquiries. ExpressResponse, a package from the Island Data Corp. in California, is one example of an Internet-based automated service for reading and answering Web site e-mail traffic.

Creating Business Intelligence The best marketing strategies are based on an understanding of a company’s target market, interpretation of customer profiles, assessment of previous marketing and advertising campaigns, and tracking customer service. IBM Start Now Business Intelligence Solutions was

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designed for small to midsize companies to help them acquire analytical information about their customers, just as large companies have been able to through more complex and expensive programs. Who are your most profitable customers? Least profitable? What products and services have been selling at each of your channels? Are some products or services marketed more effectively by one channel than another? What advertising and promotion campaigns have achieved the greatest results? Where? With more information about past performance, hybrid business leaders can make better decisions about their allocation of future efforts. This body of knowledge is referred to as business intelligence. Some examples are described next.

Intelligence from Call Data With advanced intelligent networks (AINs), call data can generate more useful information than ever before. “Call reporting data,” according to Communication News, “can provide an in-depth look at call data through maps, graphs, and charts to help businesses visualize the effectiveness of their marketing and operations.” Through partnerships between software developers and carriers, new services are being introduced and more detailed analytical information is available for hybrid companies to understand their market better. Who are your top customers? Where are they calling from? How frequently do they call? Call data can pinpoint the exact location, time of day, and length of the calls. If a high volume of calls come from a particular area, should this location be considered for a retail store? Trends of peak calling times and lost calls provide information that can be used to help a hybrid company gear up to handle high volume with additional support. Are you busiest during the week or on weekends? Do you need additional phone lines? Should staff be added to handle these calls so that every customer receives the attention he or she demands? In addition, when it comes down to assessing the success or failure of radio, television, or billboard advertising, the measurement of customer responses and caller activity can be used to fine-tune campaigns. One such partnership combined products and services of US West and OneLink Communications to generate visual

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call-reporting tools that simplify the interpretation of data. US West Call Reports, Call Reports Online, and TeleSmart Web services combined reports that can be checked daily at the US West Web site.

E-contact Centers A call center typically has 20 or more service representatives in one office handling telephone calls to a toll-free number. E-contact centers have more than one office located in different time zones in addition to home-based staff. E-contact centers provide a virtual central source to handle phone, e-mail, and Web contact in a consistent, professional manner. They offer the distinct advantage of providing equal attention and service to every customer, regardless of how that customer entered the loop—by phone, e-mail, or Web site. E-contact centers have the ability to process multimedia interactions, handling voice, e-mail, and Web site contact with equal efficiency. In addition, e-contact centers can gather statistical information from all contact points into a single process, providing timely statistics and analytic reports across all media. This is a step beyond Web-enabled call centers. E-contact centers offer another opportunity to level the playing field between large and small businesses, because even the smallest company can replicate the personalized service offered by their bigbudget competitors. Where call centers operate under the constraints of the voice network, e-contact centers are based on the Internet protocol (IP) network of a company and can literally connect resources from one end of the world to the other. The greater flexibility offered by e-contact centers in terms of merging voice and data networks will create a greater demand for these services in the near future.

Chapter Summary 1. Knowledge management involves every stage of a hybrid company’s information manipulation, from acquisition through dissemination.

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2. Synthesizing knowledge to generate new knowledge creates an invaluable hybrid company asset and can result in increased profitability. 3. Knowledge management includes digital and human information management; front-end customer relationship management (CRM); competitive intelligence; and back-office enterprise resource planning (ERP) applications. 4. Prerequisites for knowledge management include both a human and a technological infrastructure. At the heart of knowledge management is the dual goal of using existing knowledge to create new knowledge and using new knowledge to deploy creative strategies for improvements in speed, efficiency, and growth. This new knowledge can create leverage for even very small hybrid companies. 5. New technological tools make it easier to communicate effectively with team members in remote locations in order to engage in work sessions, collaborate on project tasks, and hold online meetings. Time and cost constraints for team members’ travel can be significantly reduced while collective team performance is enhanced. 6. Benefits of knowledge management can include increased efficiency (and ultimately reduced cost) for personnel as duplicate efforts are virtually eliminated, provided that individuals within a hybrid company buy into the process, sharing a common vision of enhanced operations, and assume personal responsibility to keep systems and processes up-to-date. 7. The technological infrastructure of knowledge management changes repeatedly as new applications and platforms are released regularly. Hybrid companies have an opportunity to pick and choose the solution that best meets their own needs.

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If you have trouble when you go to the Coldwater Creek Web site <www.ColdwaterCreek.com>, live online help is available through its Customer Service tab. Before Thanksgiving I tested this feature, wondering if I would feel the same sense of personal contact as if I had placed a telephone call. When you click on Instant Help, a dialog box appears at the bottom of your screen. You can ask questions and refer to the screen at the same time through this window. My personal customer service representative responded within a minute. “Welcome to Coldwater Creek. My name is Brooke. How may I help you today?” Brooke asked. “Is live online help available 24/7?” I questioned through my keyboard. Brooke responded, “Yes, we are available 24/7.” After I thanked her for the information, she replied, “You’re welcome! You have a wonderful holiday!” and extended a pleasant offer to provide additional future help, signing off, “Sincerely, Brookelyn.” If I requested a transcript of this transaction, I would receive it shortly via e-mail. Could I have received a response as quickly by telephone? Probably. But in this case I didn’t have to change my stride and move from my computer. And I didn’t have to leave the lovely Web page featuring seasonal clothes that “capture the romance” of the holiday season. Brooke seemed friendly enough, too, with a bit of holiday cheer.

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Reach Out and Touch Someone Hybrid companies that provide personal contact for their customers answer a human need to connect. No hovering and groveling, thank you. Simply undivided personal attention at the moment we want it. A clear focus on one-to-one customer interactions is only part of the challenge of the personal touch. A pattern is also emerging involving personal connections through communities and group interactions. This chapter addresses both personal customer contact and community-building efforts of successful hybrid companies. Online customers have the same need to make contact with a human as customers using offline channels, according to recent studies. A survey of over 2,300 online shoppers by the market research firm NFO Interactive Inc. of Greenwich, Connecticut, indicated that 14 percent of the people who had never made an online purchase would if they could speak to a human. Of those who have already made a purchase, over 35 percent would buy more if they could speak with a customer service representative. The need for human contact in the online shopping channel was also reinforced by studies from the Boston Consulting Group, which found, as shown in Figure 10.1, that 28 percent of the customers surveyed who had had a bad experience would not purchase online again—period; and 23 percent said they would not buy from the troublesome site in the future. Today, hybrid companies have the potential to combine in-person, telephone, and online personal contact. Knowledge management tools and e-CRM products help to identify and prioritize the most important customers. The U.S. market alone for CRM assistance by phone, fax, and the Internet is expected to grow to $12.9 billion in 2003, according to the Aberdeen Group. There are now more options to establish a personal connection with customers than ever before. These new opportunities also create challenges: customers have a higher level of expectations about personal contact. They want to be able to make a choice about how your company should contact them, and they want all choices to be available through your customer service department.

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FIGURE 10.1 The Personal Touch Percentage of customers who won’t return to a Web site after a bad experience. • 28% won’t buy online again if dissatisfied. • 23% won’t buy from that site again if dissatisfied. Source: Boston Consulting Group.

The Challenge for Hybrid Companies What differentiates the leaders from other hybrid companies in providing the personal touch? Leaders take advantage of each method of communicating with their customers; they cross over channels. Although they put forth a Herculean effort to serve customers one-toone in their storefront or office, they also totally support customer service via telephone, handling calls swiftly and with charm. At the same time, their Web sites are monitored for e-mail questions—or better yet, staffed and equipped for live online help. No customer slips through the cracks. Each channel has an advantage over the others for personal contact and personalization of communication. The strengths of a hybrid company’s first channel can be used to build its strategy for more comprehensive customer connections in each additional channel.

Bricks first. Personal contact with bricks and mortars is predominantly in their physical stores, where names and faces really mean something. When a traditional store has nurtured a reputation for excellence in customer service, customers expect to find a replication of the company’s personal commitment when they call to place a catalog order or key in a request on the Web site. Customers expect to reach a human, no matter what channel.

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Catalogs first. Direct mail companies were among the first to staff full lines of telephone personnel to take orders and answer questions. Catalog companies have long faced the challenge of matching the excellence, patience, and helpfulness demonstrated by the customer service team at Lands’ End. This hybrid company set the standard for the personal touch by which other mail-order businesses were forced to measure themselves. Imagine if you called Lands’ End and got a snippy service rep? It’s unheard of. Clicks first. Web-based companies have to face the reality that their online customers may also demand some form of human contact with the company. If you didn’t offer your phone number on your Web site over your first holiday season, you probably didn’t make it to a second holiday season. Not everyone is patient enough to wait 24 hours for an e-mail response to a quick question.

Dashed Expectations With great expectations, I anticipated a stellar performance in the cross-channel personal touch approach among all the hybrid leaders mentioned in this book. One might also extend this positive outlook to the creation of communities of customers. False hope. Consequently, “online personal touch” and “creating online communities” didn’t make it to the top seven list. Too many candidates would have been knocked off the chart. But I’m not giving up on this. Hybrid companies need to adapt to these ever present customer demands. A few surprises are worth noting. Although live online help is not yet available on a majority of Web sites, it is amazing how many nonlive online customer service programs still fall behind their offline counterparts. The disparity seems most common with companies that started with stores, then grew to catalogs and Web sites. It happens least frequently with catalog companies that grew to Web sites and stores. Why? Invariably, catalog companies have recognized the need to try harder to connect with customers while never meeting them face-to-face.

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A study entitled “Benchmarking Study of Electronic Customer Service” by ICSA/e-Satisfy.com found that even though the majority of online shoppers expect to receive a reply to their e-mail to a merchant’s Web site within an hour, only 12 percent of the customers studied experienced a response that quickly. In fact, only 42 percent received replies within 24 hours, as shown in Figure 10.2. It costs far more to acquire new Web site customers, according to the Boston Consulting Group, than to market to current customers on the Web—$34.00 compared with $6.80. It appears to be well worth the effort for any hybrid company to hold on to every customer it has. Nordstrom’s Web site <www.nordstrom.com>, in a surprising contrast to its excellent customer service in its stores, offers phone or e-mail responses to your questions within two business days (an eternity in Internet time). When you e-mail a question to the site, you receive an automated response confirming receipt of your inquiry, promising a personal response from a Nordstrom.com Customer Service Specialist “shortly,” which is then defined as normally within one business day, excluding holidays. Heck, even on the Web we understand the need to give people a 24-hour break to enjoy a holiday—at Internet speed, please. To hold you over in the meantime, your e-mail response offers you a list of links that may provide you with additional help, which is only useful if your question had to do with the status of your order. This

FIGURE 10.2 Improving Communication with Customers Customer expectation • Receive a reply to e-mail within 1 hour. Actual experience • Only 12% receive a response that quickly. • Only 42% receive a response within 24 hours. (Source: ICSA/e-Satisfy.com)

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inconvenience is to some degree offset by the fact that you can download the Nordstrom True Size Foot Measurer, print a copy, and stand on it to ensure you are ordering the correct shoe size. Williams-Sonoma <www.williamssonoma.com> provides e-mail and telephone customer service from 6:00 AM to 11:00 PM PST, seven days a week, which is close to 24/7 and a valiant effort that probably serves the majority of its customers but excludes West Coast insomniacs and parents who start shopping at 11:05 PM. RadioShack <www.radioshack.com> supports a commercial call center with telephone and e-mail staffed from Monday through Friday, 7:00 AM to 7:00 PM, and Saturdays from 8:00 AM to 5:00 PM. If you’d like to “meet” the call center team, just click the link to a few photographs of the call center in action. Not live and not 24/7 but a long day nonetheless—for the staff, that is. Unfortunately, many consumers don’t begin to think about shopping until the end of their own long day, when someone is turning off the lights at the call center. RadioShack also lets you “Ask the Shack” from its home page, suggesting that you type a question, keyword, or product number. Ask Jeeves handles the search. When I tried to ask the Shack if it has live online customer service, I received a response of 309 matches in the product category “Ni-Cd Cylindrical and Prismatic Cells without Tabs.”

Exceeding Expectations The whole concept of providing the personal touch is about exceeding, not meeting, expectations. In the ideal situation, customers can successfully contact your company by telephone, e-mail, fax, and a live online connection, 24 hours a day, 7 days a week. Customer contact centers, discussed in a previous chapter, facilitate the technological exchange of information from one method of contact to another, ensuring that a service representative has as much data as possible about the history of your account while responding to you. Given that technology can handle the database access, the issue of human access remains. A study by Forrester Research indicated that 90 percent of online shoppers demand good customer service when they select an online merchant. Shoppers’ options for contacting a

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customer service representative are described next and summarized in Figure 10.3.

Telephone Contact Voice contact via the telephone is still the preferred method of contact for a majority of shoppers, even the technically savvy. For questions that are difficult to phrase, for reassurance, or for human contact, the phone is perceived as a necessity. From a practical perspective, for some individuals it is their only device with 24/7 availability. If they share a household computer with a 56K modem and a service such as AOL, they may not always be able to sign on and check e-mail messages at a moment’s notice. The phone is still perceived by many customers as the best way to receive an immediate response or a call back. Even if customers ask their question by e-mail, they may want the option of requesting a return phone call. The primary distinction of telephone interactions is that customers are more tolerant of normal business working schedules if their question or problem initiated at a physical store or from a catalog. We don’t expect those operations to work around the clock. If our request was the result of activity on a Web site, our mindset is 24/7. Call centers (outsourced or in-house) can fill this void for a company.

FIGURE 10.3 Communicating with Customers Hybrid companies need to reach out to their customers through the channel that suits customers’ personal needs. Consider the options for contacting a customer service representative: • • • • • •

Talk on the phone, right away Be contacted later by phone Send and/or receive information by fax Send and/or receive information by e-mail Live online dialog while the customer continues to navigate the Web site Live online dialog switching to telephone during the transaction

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E-mail The perception of individuals asking questions by e-mail is that because they can ask the question quickly, they should receive an answer quickly. Soon or sooner. Many customers expect a reply within an hour, or at least within a day. If they’re shopping on your Web site at 2:00 AM, why aren’t you there to help them? If they have a question that can’t be answered by a Frequently Asked Questions (FAQs) list, should they hold that thought until the morning and submit it during normal business hours? If the mindset of a customer is that an e-mail question should be answered within a day, the customer will keep searching his or her incoming e-mail for a response. It can become an obsession. Imagine the ill will generated by ten unrequited e-mail checks. And imagine the impact if the response doesn’t come for another day or two. Forrester Research estimated that 37 percent of Web purchasers have used customer services while shopping. Dissatisfaction with service was most often cited as a reason for not returning to a merchant’s Web site. Customer frustration with repeated unreciprocated e-mail checks could certainly fall into that category.

Fax Sometimes just the fax works. If a customer needs to forward a document to your company (e.g., a receipt, warranty statement, proof of purchase, cancelled check, credit card billing statement), a fax works faster than snail mail. Not every home has a scanner, and not every document can be scanned legibly. If a customer needs information from you and the customer’s service provider is unavailable (hard to believe in this age but still a problem), the fax works. There are still occasions when the fax method of transmitting data makes sense. A handwritten note or signature on the fax form from a customer service rep doesn’t hurt either.

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Live Online Assistance The best route for reaching Web site visitors who have a question while they’re shopping is live online assistance because it enables a merchant to keep the buying process in motion. The customer service rep can work with customers through a dialog box on their computer screen or over the telephone. This service is applicable only to Web site use, but if the Web site shopper is a transitional customer, one who might also visit a store, you had them at “Hello.” If a question can be answered right away, live assistants can use the opportunity to up-sell (suggest additional items) just like a salesperson in a physical store. Live help can also be used to walk a customer through a transaction, telling the customer how to find what he or she is looking for or suggesting alternatives. E-mail question-and-answer dialogs miss this dynamic completely. Live online customer assistance may not be feasible for a company to handle on its own, but a growing number of services are available for outsourcing. Some of the companies that offer these services include IBM <www.ibm.com/solutions>, Cisco Systems <www.cisco .com>, as well as LivePerson <www.liveperson.com>, PeopleSupport <www.peoplesupport.com>, Kana Communications <www.kana.com>, and Cosmos.com Inc. <www.cosmos.com>.

Voice Assistance The technology to deliver live voice assistance is already fairly sophisticated, but the technology to receive voice help from a typical household personal computer lags behind. You need speakers, a microphone, and a soundcard in the computer, and you still run the risk of receiving a fuzzy connection as the voice data travel to your home destination. With voice technology, when a customer clicks the icon for live help, a voice instead of a dialog box responds. Cool. Prerecorded audio responses are the simplest levels of voice assistance, and they

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have a useful function for some simple online functions, like checking the status of an order, inquiring about shipping fees, and asking other direct questions that fit the pattern of FAQs. J.Crew.com, macys.com, and gap.com have introduced prerecorded audio as an introductory step. Lipstream <www.lipstream.com/voice> and LivePerson Inc., for example, offer voice service that is designed for low maintenance, easy installation, and the clearest voice possible.

Proactive Live Assistance The most complete forms (or most intrusive, depending on your point of view about privacy) of online help are the services that jump into your online transactions without a request from you. The offer to help is triggered by contact center representatives who monitor customer shopping and browsing activities. If you appear to be dazed and confused, a rep may just jump into your reverie and ask you what you’re looking for. This type of live online customer assistance is provided by companies such as !heyinc <www.!heyinc.com>, a merger between Hey Software Inc. and icontact.com, inc. !Heyinc provided contact center and voice technologies, and icontact.com, inc., was a leader in personalized online communication software. Their new combined services feature NetReps™, live customer service agents who monitor customer traffic on Web sites and initiate conversations with customers—to their shock or delight, depending on your point of view. Either way, they are 100 percent available, at your service all the time. !heyinc works to ensure that no opportunity to connect with a customer is missed.

How Hybrid Companies Build Customer Communities A clear focus on one-to-one customer interactions is only part of the challenge of the personal touch. A pattern is also emerging involving communities and group interactions. There is a growing trend of community involvement displayed in traditional stores, cata-

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log companies, and Internet companies. Activities and events that foster interactivity among groups of customers or Web site visitors are on the rise. Hybrid companies face the challenge of providing some kind of group interactivity as part of their process of building loyalty and encouraging return customers. A community, according to the Random House Dictionary, is “a social, religious, occupational, or other group sharing common characteristics or interests and perceiving itself as distinct from the larger society within which it exists.” Online communities have sprung up spontaneously within portals as stand-alone groups within e-commerce sites—virtually anywhere on literally anything. They revolve around a common theme: social, political, religious, or economic views; or educational, recreational, or business issues. The Microsoft Network (MSN), for example, actively encourages the formation of communities among their visitors and makes the process as simple as possible. It offers a step-by-step instruction format to help you create an interesting home page and build your group. Every month, MSN selects its picks for the “coolest” online community. Winners depict all types of personal interests and hobbies, indicating that the appeal of communities reaches a wide audience demographically and psychodemographically. A community of customers creates an additional bond with the hybrid company and a new “stickiness” factor for the Web site. A hybrid company that facilitates and strengthens that community bond can reap the benefits of goodwill, good public relations, and loyal customers. Hybrid leaders have experimented with a variety of communitybuilding programs; live events, online events, chat rooms, and message boards are the most commonly used approaches. See Figure 10.4 for a summarization followed by detailed descriptions. Jupiter Communications (now Jupiter Media Metrix) has estimated that over half of all major Web sites online today use some sort of discussion forum.

Live Events Traditional retail establishments have an edge when it comes to providing live and in-person events. They have the physical space.

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FIGURE 10.4 Creating Customer Communities Live Events • Feature a guest expert, author, celebrity for a speech, workshop, or signing. • Consider simultaneously broadcasting the event on the company’s Web site. • Follow up with photos, press coverage, and Web site commemoration. Online Events • Feature a guest expert, author, or celebrity for an online discussion, Q&A with a host, and open chat with Web site visitors as participants. • Follow up with transcripts of the online event. Chat Rooms • Feature a moderated discussion led by a Web site host or guest expert, centered around a topic or theme. • Follow up with a consistent, frequent schedule of chats. Message Boards • Encourage frequent and open exchanges of information peer-to-peer and/or post questions to a subject matter expert. • Follow up with responses to questions for experts as soon as feasible.

Several of our hybrid leaders have successfully orchestrated live events that increase customer traffic, such as arranging for visiting experts or guest lecturers. Barnes & Noble stores regularly schedule authors for workshops and book signings, and even the tiny Bookends in Ridgewood, New Jersey, promotes an impressive array of celebrity speakers. Apparel shops feature fashion shows; Home Depot coordinates “how to” workshops; gourmet cookware shops promote local or national chefs. Live events generate the greatest impact when they are also well publicized before and afterward. The best-case scenario for a hybrid company is to use both its bricks and clicks as promotional vehicles. Cross-promoting an event online and offline generates the greatest visibility. Simultaneously broadcasting the event on the company’s

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Web site is another way to maximize an event. With a simulcast, the audience becomes national—or even global—instead of local. After the event, follow-up press releases and photographs of the event may attract the attention of small weekly newspapers. Photos of the event should be displayed in stores and on the Web site to commemorate it.

Online Events Using Web site hype and hoopla, online events attempt to replicate the excitement and energy of an in-person appearance by a renowned individual. Online events feature a guest expert, author, or other celebrity for an online discussion or a question-and-answer period with a host. Web site visitors can usually join in as participants in the online conversation. Generally, as a follow-up to the event, transcripts are available through the Web site for those who missed it.

Chat Rooms The great attraction of chat rooms appears to be the spontaneous interactive discussions that occur. The content is lively and unpredictable for the most part. Some chat rooms feature an online discussion moderated by a Web site host or guest expert, centered around a specific topic or theme. Other chats are less formal, with minimal participation by the moderator and most of the discussion among participants peer-to-peer. Chats are usually scheduled to occur on a regular basis at a consistent day and time. Over time, chat room visitors may get to know one another and look forward to an exchange of information and ideas.

Message Boards/Discussion Boards Message boards or discussion boards encourage frequent and open exchanges of information peer-to-peer. Discussion boards encourage

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extensive “conversations” that consist of messages posted over a period of days, sometimes weeks, and occasionally months. Moderators play the role of chaperone, ensuring that no one gets out of line. Message boards can also serve as a way to post questions to a subject matter expert, who will follow up with posted responses. Answers to questions from experts should be provided as soon as feasible. Message boards can be added to a Web site relatively easily. CoolBoard works to ensure that the content of message boards remains dynamic and that interactive discussion is woven into the fabric of a Web site’s overall content to keep it new, fresh, and interesting. PeopleLink <www.peoplelink.com> offers message boards, chat rooms, and interest groups in real-time and e-mail formats. Its pitch is the complete integration of each company’s community functions into its Web site so that the community portion of the Web site fits the image and functionality of the rest of the site.

FIGURE 10.5 How Hybrid Companies Build Personal Contact and Community From:

To:

Add:

Bricks

Clicks

Live online help Online communities Online events Message boards Call centers 24/7 availability Live events Expert staff Call centers Live events Expert staff Live online help Online communities Online events Message boards

Catalogs Clicks

Bricks

Catalogs

Catalogs Bricks Clicks

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Examples from Hybrid Leaders There are many noteworthy customer community–focused programs that are dynamic and energetic and arouse the enthusiasm of their participants. Several of our hybrid leaders have taken creative measures to both build communities and encourage person-to-person information exchanges among their Web site visitors. Examples of their unique approaches are highlighted next.

The Home Depot, Inc. <www.homedepot.com> The Home Depot has been running instructional workshops for do-it-yourselfers in its stores about once a week since its early days in business. It has taken this instructional approach to its Web site as well through online tutorials. The Web site also takes a unique approach with online chats that appeal to the sports, interests, and hobbies its customers relate to. In addition, it runs online chats to directly target its core mission of promoting merchandise by helping customers learn how to use its products.

Special online events. Home Depot supports sports events and teams throughout the year, and its online chats reinforce these sponsorships. Special online events feature chats with NASCAR drivers and celebrities such as Tony Stewart, a record-breaking NASCAR newcomer. Online chats, led by a Home Depot host, run for about an hour. Less glamorous but more practical chat sessions are regularly led by Home Depot lighting and ceiling fan experts. Online help. Although Home Depot did not have live online help as of press time, it recommends that customers use its online Help feature for quick responses to questions. The online Help feature requires you to type in your question and wait for an e-mail response. Replies are usually offered within one to two business days. Online instructions. Many “how to” questions concern specific products or installation problems that are generic in nature. Home

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Depot uses the combination of online help and online tutorials to address the practical matter of how to become the next This Old House success story. Step-by-step instructions guide you through assembly processes, and online help is available to handle your detailed questions.

Barnes & Noble, Inc. <www.bn.com> With a successful track record of in-store events, including author signings, readings, and discussions, Barnes & Noble wisely chose to take the formula online. Its Web site offers chats and special events with extraordinary frequency. It has also built Barnes & Noble (B&N) University into an exciting resource for visitors.

Special events. Celebrities appear in abundance at Barnes & Noble bookstores, and its Web site features the same high caliber of guests. In some cases, the live appearance of an author in a Barnes & Noble store is Webcast live to the online audience, such as an appearance by Patricia Cornwell (The Last Precinct) at the Union Square New York store. A schedule of upcoming chats is likely to include anyone from Julia Child to Jamie Lee Curtis. At least one or more celebrity chats are scheduled every week, sometimes more than one a night. This rapid pace has generated a library of over 800 chat transcripts. Special events are also well promoted on the Web site in advance. Before a celebrity special event, chat participants can use the feature called “the Auditorium” to post their questions and then return as the scheduled event takes place.

B&N University. With campuses called Literature & Languages, History & Society, and more, this online university brings students and live instructors together. The eclectic mix of courses seems to offer something for everyone. Among the top courses in December, for example, was “Jazz: A History of American Music” and “Holiday Entertaining.” Each course has a message board, where students can post comments for one another and the instructor. Student feedback from these courses indicates that over the course of a few weeks of

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instruction, the dynamics of the instructor-student relationship become just as important as the material covered.

Staples, Inc. <www.staples.com> Staples.com concentrates its customer community–building approach on the business community. The Business Services section of its Web site lists community activities not found in the consumer portion. These activities are described below.

Business community. The Business Community features a guest authority, such as an accountant or attorney, who covers a specific topic—for example, “What is a silent partner?” A small business marketing discussion called “How to Be a Big Fish in a Small Pond” was hosted by a Staples marketing expert and support team. Site visitors can send questions and receive a response from one or more experts within a few days. The dialog remains available for review on the site for several weeks. The Web site also provides a list of all scheduled events, most of which are free seminars that are offered on a regional basis.

Message board. Staples.com calls this a “Discussion Board,” but the concept is the same as the non–business community of information exchange. The Discussion Board is available under <www.staples .com/bigfish>. Industry experts can also be addressed in the Staples.com Solutions Center under “Ask the Expert.” Experts include a range of Staples’s selected consultants specializing in such topics as office operations (billed as “The Organizangelist”), technology and communication, money management, and more. Customer surveys. For no major business reason, but just for the fun of addressing issues that make a Web site sticky, Staples.com asks ethereal questions such as, “What will you be doing the day after Thanksgiving?” Your options are working on leftover turkey; working on holiday shopping; working off the holiday feast; or working at

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home. If you stay tuned for the next week, you’ll learn the earthshaking results.

ConsciousMedia <www.consciousmedia.com> This is a company that prides itself on personal and other-wordly connections. It is right and just that it should also have ways for its customers to connect. Although some companies aspire only to earthly contacts, one has the distinct impression that ConsciousMedia would be delighted to foster interactions between all levels of the universe. If it could host an interplanetary chat room on the implications of interplanetary chat rooms, that might suit it just fine. In reality, ConsciousMedia hosts The Conscious Café and Forums and Message Boards for its Web site visitors.

Forums. ConsciousMedia forums are general discussions of any topic, ranging from yoga to religion to witchcraft—just about anything you can imagine. During October, witchcraft is a huge favorite. Like the live chats mentioned earlier, ConsciousMedia forums provide an interesting exchange among participants. Participants can send in their questions on any topic, and anyone can respond.

Chapter Summary 1. Research indicates that the need for human contact prevails for customers in every channel. Customers seek the personal touch found in traditional retail stores when they shop by catalog and through an e-commerce Web site. 2. Hybrid companies need to maximize in-person, telephone, and online personal contact with their customers to build loyalty. Cross-channel customer service is a requirement. 3. Online customers have high expectations about the level of personal customer service they should receive; unfortunately, they

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are often disappointed. Even though they expect an online response to their questions within an hour, they’re lucky if they receive a reply within one business day, according to research. 4. Live online customer service will soon be demanded by shoppers at every Web site as will 24/7 customer service coverage. 5. Hybrid companies also face the challenge of providing group interactivity among their customers. Creating customer communities can strengthen the bonds of loyalty between a hybrid company and its customers. Online communities provide the additional benefit of adding stickiness to a Web site.

Warehousing, Shipping, and Handling Returns

11

J. Jill Group Inc., a women’s direct mail clothing company based in Massachusetts, took a cautious approach to its expansion into multi-channel selling in 1998. It began with a complete overhaul of its warehouse and fulfillment facilities. It deferred a detailed design of its Web site and its stores until the strategy for receiving, shipping, and returning a high volume of orders was tested and ready for implementation. Delayed gratification of this nature is a rare discipline in the dot-com era. J. Jill warehouses could adequately process catalog orders, which require reasonable delivery times phased over periods of weeks or months. It operated four of its own semiautomated distribution centers in New Hampshire, but its processes wouldn’t automatically fastforward to Internet speed. Returns, for example, were a particularly slow process. The company had the foresight to anticipate how online sales and returns would drastically change the nature of its business. Anything less than instantaneous shipping would be deemed too slow, and there would never be a moment to catch its breath, so an overhaul of the distribution process began. J. Jill’s separate warehouses were consolidated into one fully automated major fulfillment center. Software systems were installed to tie shipping, product storage, warehouse management, and real-time

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product inventory systems together and make them accessible to all sales channels. Today J. Jill successfully operates through an e-commerce Web site, a chain of stores, and a catalog. Its systems are synchronized, and all of its sales channels operate from the same order, inventory, and shipping information. Returns can be received and reshelved and recomputed in less than four hours. The company now reports revenue in excess of $48 million, more than 20 percent higher than expected. Its success is largely attributed to overhauling the warehouse and fulfillment systems to support its new multi-channel structure. Now its ready to look into personalization, up-selling, and cross-selling.

Transition Issues for Hybrid Companies Hybrid leaders face the pick, pack, and ship challenge of processing items in two different ways: bulk quantities for shipment to their stores and small quantities for delivery to their catalog and Web site customers. The order fulfillment disasters of the early dot-coms raised caution signs for bricks and mortars that opened online shops. If you couldn’t deliver your product intact and on time, all the pizzazz on the Web site wouldn’t save your miserable neck. Now that multi-channel companies are older and wiser, there has been an opportunity to decipher many of the messages of early e-commerce companies to learn which strategies ultimately work best in hybrid corporations. When should order fulfillment be outsourced and when should it be handled in-house? Financial resources play a major role in decisions about outsourcing, although many major corporations claim that a more significant factor is quality control of customer service. Some hybrid companies choose to finance and control the end-to-end process in-house. The steps include stocking all items; tracking and reordering inventory; selecting and packaging orders; shipping and tracking the status of orders; handling returns; dealing with customer questions and problems; and restocking inventory. Accomplishing each of these steps requires warehouse facilities, call centers, shipping capabilities, and

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tracking methods. In-house order fulfillment, hybrids believe, keeps their customer service levels at their peak, building a rapport with their customers and obtaining feedback that helps to fine-tune their processes. Other hybrid companies handle part of the work themselves, such as warehousing, and outsource other portions, such as shipping. Companies such as UPS and FedEx have recognized this growing potential to serve hybrid companies and have redesigned their offerings to include more back-end processes. Finally, a rising number of companies have elected to outsource the whole sequence of steps, using one of a rapidly increasing number of fulfillment firms to handle everything for them. This chapter covers the separate functions of warehousing, shipping, and returns, as well as the comprehensive service offerings of the new breed of fulfillment companies. Depending on the first channel of sales, hybrid companies face different problems about warehousing and fulfillment when they expand to additional channels but similar challenges in timing, inventory selection, location, and staffing.

Clicks First When Internet pure-plays get started, they immediately need to decide between building their own warehouses and fulfillment centers (like Amazon.com) and outsourcing the whole process (like Bluefly.com). Pure-plays that survive to become hybrid companies have the advantage of having solved this problem and to some extent have mastered the mode of shipping huge volumes of small orders extremely quickly. When they make the transition to bricks and mortars, they immediately need to adjust to new demands to predict seasonal trends. Their stores, after all, must be properly stocked. They also need to adjust to shipping items in bulk quantities, a different process than sending out individual orders to customers. It may add or change the equipment in their warehouses and the staff required to meet demand.

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Bricks First Traditional retailers have the biggest adjustment to make of any hybrid company model. Their distribution centers are equipped to ship hundreds of items to a handful of locations (with minimal time pressure) rather than a handful of items to hundreds of homes (with extreme time pressure). Old distribution centers have to be retrofitted to handle different sizes and quantities of orders when bricks add clicks. To their credit, however, traditional retailers have the distinct advantage of having a better grasp of the end-to-end process of order fulfillment than do clicks first, because in theory the process is virtually the same from bricks to hybrids. As long as traditional retailers can adapt to the time and quantity demands of e-tailing, they’ll make headway quickly.

Catalogs First Many mail-order companies begin their expansion to a hybrid structure with a real estate expedition or a Web site design. They’re quickly contemplating personalization, up-selling, and cross-selling strategies. Somewhere in the middle of this whirlwind of activity, however, is a half-hearted attempt to shore up their warehousing and distribution channels because, after all, that should be the easiest part. In fact, catalog companies should have the edge in the warehouse scenario. They’re already equipped for sending out small shipments to many locations. The biggest shock for catalog companies is usually not the complexity of the fulfillment process but the shock of the huge increase in their volume of orders as soon as their Web site is operational. A secondary surprise hits when they expand to bricks and have to cope with the variation in product demand from one region of the country—not to mention the globe—to another. Not all items sell everywhere, and a standardized store inventory won’t work over the whole country. Black clothing, for example, which is a staple in New York City, fades to gray somewhere around Philadelphia.

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Warehousing Warehouses have become prime real estate property in many suburban locations as dot-coms seek space to store massive amounts of products. The huge new demand for warehouses stems from a combination of hybrid companies, traditional retailers, e-commerce companies, and fulfillment service providers. Today’s vibrant economy has fueled confidence in building warehouses near major transportation arteries, both on demand and on speculation. Older warehouses are being upgraded or ditched in favor of new, larger facilities that enable a company to consolidate operations and achieve economies of scale. The demand for larger buildings now exceeds supply in some parts of the country. By “large,” we’re talking about 500,000 square feet and bigger—that’s a lot of football fields and a helluva heating bill. Inside these megastructures are mechanical systems for high-speed product movement that resemble a combination of the Great American Scream Machine and Medusa. Working on the warehouse, waiting on the Web site—that’s the approach Kohl’s Corp. took, just like J. Jill. It built a 525,000-squarefoot (with space to grow) distribution center in Ohio, and worked to get its operations in synchronization so that Web sales, store sales, and catalog sales could be processed smoothly. Other examples of hybrid leaders follow.

Gap. Gap has leased 424,000 square feet of warehouse space in Ohio and is working on another warehouse twice as big. A firm believer in the customer service connection, Gap handles everything itself. No outsourcing, no plans to outsource. Nordstrom. The Nordstrom fulfillment center in Cedar Rapids, Iowa, is a state-of-the-art fulfillment center with high-level, experienced executive leadership. The heart of the technological support comes from Retek Inc., which provides retail software and guarantees sensitivity to customers.

Home Depot. Home Depot has taken a unique approach by using its stores as giant warehouses and fulfilling Web orders from

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the stores. With each store averaging 108,000 square feet of space, Home Depot is in a good position to pull off this unique strategy. The obvious advantage is that it provides distribution points all over the country and can handle returns, track inventory, and offer a dedicated customer service staff in every location. In the meantime, Home Depot is adding its Web services one location at a time, as discussed in Chapter 5. Its biggest challenge will be to keep pace with demand for constantly changing inventory and variations in seasonal product lines.

ConsciousMedia.com. ConsciousMedia.com also handles everything in-house. Its distributors send books directly to its fulfillment center in Virginia, and the company sends the books to its own customers. As far as the customer knows, all contact is with ConsciousMedia—no middlemen.

RadioShack. RadioShack handles its own distribution for its stores and Web site, its own customer service, and its own returns. It currently has separate distribution centers for its stores and for its Web site. RadioShack ships more than a million cartons monthly from its own 11-store distribution centers. Its efforts are focused on improving how it handles fulfillment in-house rather than on outsourcing. It is working to integrate information channels among its stores, Web site, and different distribution centers. Customer support deals with technical questions, service requests, and direct sales requests from the catalog and Web site, a function that clearly is so core to RadioShack’s mission that it is not likely to outsource. Neither can one envision outsourcing returns and exchanges, which are handled by local stores and thus strengthen its customer bonds.

Dell. Dell has six manufacturing plants in both the United States and other countries, but no stock, no preassembled computers, and an inventory that turns over every seven days. Streamlined procurement, manufacturing, and distribution processes keep this company moving quickly and highly responsive. Dell’s signature is personalized service, and it tightly controls the process from end to end. This is the heart of its business, its core competency.

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Vermont Teddy Bear. The indication that this little company was headed for the big time was its major expansion into larger manufacturing and distribution facilities. Its 180,000-square-foot expansion project helped it meet rapidly growing demand. Today, customers can track their orders through the Web site, and the company handles customer service and returns directly. Its plans today indicate that everything will stay in-house as it plans to expand its physical plant and staff. L.L. Bean. The L.L. Bean state-of-the-art Order Fulfillment Center processes 27 million items a year and sends out about 12 million packages for its catalog, Web site, and stores. An award-winning manufacturing facility near Brunswick, Maine, produces 300 products and also handles repairs and reconditioning. The Customer Satisfaction Department takes calls around the clock all week long. This company is headed into its second century with every indication that it will retain tight control over all of its processes from end to end to ensure that there are no slips.

Coldwater Creek. Coldwater Creek is working to upgrade its technology on both the front end and back end in anticipation of future growth between all three channels. It has concentrated its warehouses in locations where its highest concentrations of customers are located, an arrangement best suited to its distribution and shipping needs. East Coast customers, for example, are served by a distribution center in West Virginia. Current expansion efforts are expected to allow customers to more easily order across channels.

Shipping When I meet with entrepreneurs who are interested in creating dot-com or hybrid companies, we often start with a self-assessment checklist, “Can Your Business Profit from the E-Commerce Explosion?” that first appeared in E-tailing (Dearborn, 1999). Four questions directly relate to shipping and often generate the need for additional research by and for the client:

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1. Can you be ready to ship your product in 24 hours or less? 2. Can you ensure that your product will arrive fresh (if it’s perishable) and safe (if it’s breakable)? 3. Can you arrange for efficient product shipping? (If your shipping costs will seem outrageous to the consumer, this could inhibit sales no matter how hard you try to seek out low-cost mailing options.) 4. Do you have the resources (in-house staff or personal patience, if you are starting solo) to handle customer service and other sales follow-up activities with customers? Shipping small quantities of items hardly prepares a business to handle the response to successful online sales efforts. But knowing the basics ahead of time helps. And a few practice runs with small quantities will expose most intrinsic design flaws. The founder of an emerging dot-com once told me that shipping was the least of her problems, and she wasn’t worried about it. Not content with her confidence, I probed for clarification. Her products, she explained, would be designed to fit into standard-size U.S. Postal Service Priority and Express Mail boxes. Because she could control the quantity packaged in a single unit, she could control the size of the containers. She was, after all, not only the Web site designer but also the manufacturer. No problem arranging for the IT and production staff to reach agreement here. She decided to select packaging containers that could easily slip into these free boxes, including bubblewrap packing materials. It’s an understatement to say that not every mail-order or Web site product to be shipped has such a straightforward solution. But the optimistic fact is that all the major couriers are delighted to compete with one another for your business, so they have worked to make life easier for you and less expensive for your customers. Some shipping companies, including UPS and FedEx, have branched out to offer extended services to hybrid companies, such as warehousing, supply chain management, and call centers. This is a powerful combination: technology, delivery infrastructure, staff, and global capability. While they are aggressively moving into the territory of fulfillment service providers, these well-known transport com-

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panies are in a strong position to dominate the market with their powerful financial strength, fleets of trucks and aircraft, and expertise in dealing with international regulations.

United States Postal Service <www.usps.com>. The U.S. Postal Service boasted that its Shipping Online™ software would be like “having a post office that’s open 24 hours a day, 7 days a week inside your personal computer.” The service is in trial markets now and available on only a limited basis. When it is fully launched, Shipping Online will take care of payment for postage, shipping labels, shipping supplies, tracking, and delivery confirmations. The Postal Service has created a stir with the announcement of its intention to join forces with FedEx’s air operations. Match the FedEx fleet of almost 700 aircraft that absolutely get (even small) packages anywhere overnight with the Postal Service’s ground shipment network and you make the competition nervous. Partnerships with Airborne Express create even more potential.

United Parcel Service (UPS). UPS has aggressively marketed UPS e-Logistics, Inc., a wholly owned subsidiary, as a solution for not only shipping but for a compilation of back-end services to manage e-business supply chains. E-Logistics is the UPS pick, pack, and ship answer for e-commerce. In addition, this service provides access to the UPS network of distribution centers, customer call centers, returns’ management, and more. Its value-added services include gift wrapping, labeling, tagging, and packaging in branded boxes. The UPS Logistics group will also “design, re-engineer, and manage all or any part of your supply chain.” Empowered by years of experience and embedded in solid financial ground, UPS has expanded end-to-end offerings that equal or surpass specialty fulfillment centers. Its target market is mid- to largesize companies with upfront costs in the range of $50,000 and higher to provide warehouse and distribution services. E-Logistics has plans to open a new 400,000-square-foot facility in Elizabethtown, Kentucky, that will serve as a multiclient distribution center. It will provide warehousing, inventory management, order fulfillment, and supply chain management services.

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For small to midsize companies, UPS has special shipping software that enables even a start-up operation to ship a large volume of orders daily. This online shipping, pick-up scheduling, and tracking capability provides small companies with the capability of operating in the big leagues.

FedEx. At its simplest level, FedEx provides traditional shipping services for hybrid companies at the highest level of technology. FedEx eShipping Tools, for example, offer Internet, desktop, and traditional mailroom methods to handle product shipments. EShipping Tools facilitate Web-based national and international shipping, including preparing shipping labels, pickup and dropoff, and tracking packages (FedEx interNetShip and Ship Manager Software). FedEx has enhanced services that move into the e-commerce realm, with FedEx eCommerce Tools and eCommerce Builder. ECommerce Tools are packages that handle not only shipping but also return management for high-volume companies. ECommerce Builder helps small to midsize companies set up Web sites, including e-commerce capability and full catalogs.

Airborne Express. Airborne’s Internet shipping program will print U.S. shipping labels, personalize shipping information, handle international shipments, and perform traditional delivery functions. Airborne Logistics Services (ALS) provides customized warehousing and distribution. ALS is coordinated from Airborne’s headquarters, which is next to its privately owned airport in Wilmington, Ohio. ALS offers logistics and outsourcing nationally and internationally. Its hub-based warehousing is designed for “distribution-intensive” companies that allows clients to lease, staff, and operate distribution facilities from Airborne’s network with immediate air and trucking capacity.

Handling Returns Returns are part of hybrid reality, with click, brick, and catalog orders headed back by way of the mail or the mall. From the customer’s point of view, the ability to return an unwanted item quickly and

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effortlessly is just as important as the purchase. It doesn’t matter to customers how they bought the product; they want to return it by the most convenient channel at the moment. If size is an issue, an item purchased online might be returned to a store so that it can be tried on. If the item isn’t suitable at all, a shopper may want to browse in person to come up with another inspiration. And if there is no store near you nor a sense of urgency to obtain a replacement or a credit, snail mail is still a popular option. E-commerce companies were the most unprepared in their early days to handle high volumes of returns that correlated with highvolume purchases. Hybrid companies that start with bricks or catalogs know that returns are just another dynamic of doing business and the customer is always right. The same major carriers that handle shipping also provide for returns, each with subtle differences. The U.S. Postal Service has Returns@ease, which handles returns but doesn’t track the way other carriers do. FedEx’s return service has the standard FedEx package pickup and tracking capability, but the company is working on enhancements. UPS is rolling out a new electronic return system that may outpace the others and handle large volumes of returns for large and small companies. With the new UPS system, customers can print merchant-approved labels on their own PCs and drop off the return at an approved UPS pickup location. Each package can be tracked by these labels.

Fulfillment Services Although in theory the idea of handling fulfillment in-house seems terrific, and it is difficult to argue against the additional benefits of building customer loyalty, it can be disastrous for understaffed and underexperienced hybrid companies. Many online companies, for example, are shipping about 400 orders a day, and that can be far too many to handle on their own. Fulfillment service providers can free a hybrid company from the angst that accompanies acquiring warehouse space (How much? Where? What goes in it? Who runs it?); shipping and tracking (What

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packaging? How quickly? What cost? Where the hell is it?); and returns (answer customer questions about it, repackage it, restore it, reshelve it, recount it). Following is a partial list of companies that have successfully provided fulfillment services for hybrid leaders. You’ll no doubt recognize many of their clients.

Hanover Direct. Hanover Direct developed its fulfillment services as an offshoot of its core e-tailing business. As it became a master of technological innovations, it built its credibility as a fulfillment service provider. Its distribution centers are state-of-the-art as are its common platform for telemarketing, order and credit processing, fulfillment, and inventory management. Through Keystone Internet Services, Hanover provides three 24/7 call centers, product fulfillment and distribution centers, information technology systems, and other services. Clients include Mercata, Inc., Kbkids.com, The Dress Barn, Inc., Fogdog Sports, and Oxygen Media.

Fingerhut Business Services, Inc. <www.fingerhutbusiness services.com>. Fingerhut has one of the most expansive warehouse spaces of any fulfillment service provider with more than 4 million square feet of space. It can ship 19 million packages annually as well as handle telemarketing, data mining, and product returns. Fingerhut, a division of the direct marketing company Fingerhut Companies Inc., works with Internet pure-plays and hybrid companies of every channel combination. Like Hanover, Fingerhut built its expertise from years of successfully handling fulfillment for its own direct marketing companies for over 50 years. Today, it serves the very large e-commerce sites.

Manhattan Associates <www.manh.com>. Manhattan Associates works with the full gamut of hybrid and pure-play companies, from start-ups through major conglomerates. It ships over $200 billion of merchandise worldwide every year. Its PKMS solution can handle extremely high volumes of orders for the complete end-toend process. This processing allows for client customization, such as gift wrapping, packaging with catalog copies inserted, personal messages included in orders, and more. Manhattan Associates uses the

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U.S. Postal Service, UPS, FedEx, Airborne, and other carriers for shipping. PKMS provides a routing guide to help clients determine the best way to ship based on route, weight, volume, and the like. Timberland and Wine.com are clients of Manhattan Associates.

Exel <www.exel.com>. Exel handles B2B and B2C e-commerce fulfillment through Exel Direct. Exel built its experience on 30 years of delivering home furnishings, and today has the technology available to handle customers on a dedicated basis or through a network. It operates over 57.6 million square feet of warehouse space worldwide. Dedicated service customers, such as J.C. Penney and Levitz, have their own support system. Network service customers, like Maytag and 1-800-Mattress, are served by multiuser hubs located throughout the United States. Within specific industries, Exel provides more customized services that fit unique needs, such as automotive subassembly and chemical blending. Exel’s e-Shop Fulfillment software reduces errors in picking and packing by electronically checking bar codes from the retailer to the warehouse. Its Electronic Driver Administration System (EDAS) scans orders as they are loaded for shipment and provides tracking. Exel has its own rail and road, air, and sea freight services for global coverage, a competitive advantage in its overall supply chain management offerings. Submitorder.com. This fulfillment service was created just to handle e-commerce companies and operates a 700,000-square-foot distribution center in Memphis in addition to two smaller facilities outside Columbus, Ohio. Submitorder.com handles inventory, fills orders, operates call and e-mail centers, ships, and tracks order status. It claims to be able to process an order from start to finish in less than seven minutes in its automated warehouse. Submitorder.com handles fulfillment for Zany Brainy, Bluelight.com (K-Mart), and the Museum Store.

3pf <www.3pf.com>. This unusual name derives from Your Total 3rd Party Fulfillment Package and has a slogan that claims it provides

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“the shortest distance between you and your customer.” Its distribution centers are located in Columbus and Wilmington, Ohio. The Wilmington facility is located on Airborne’s Air Park for added speed and efficiency, but both centers are also accessible to UPS and FedEx hubs. In addition to the sensible location near major carriers, 3pf has negotiated reductions in freight costs for its clients. It is continuing to add new distribution centers, which will also offer all logistics services for B2B and B2C clients. The 3pf Essentials software offers online management reporting—real-time information that permits clients to monitor activities from warehouse to customer. RedEnvelope outsources most of the items it sells to 3pf in the company’s Wilmington distribution center.

GENCO Distribution System <www.e-genco.com>. Genco, which has more than 100 years of expertise in the fulfillment cycle, handles warehousing through returns for manufacturers, retailers, and e-commerce companies. It operates three fulfillment centers across the country, each designed to handle multiple clients and offer regional convenience for distribution, and has about 11 million square feet of space altogether. Its Reverse Logistics Management Services offer programs to help companies handle their returns more efficiently. The e-genco service is designed to focus on building lasting relationships with customers.

Strategic Decisions Hybrid leaders handle the fulfillment process in one of three ways: in-house, combined in-house and outsourced, and completely outsourced. Hybrid companies that handle a portion of fulfillment processes in-house (such as warehousing) and outsource other components (such as shipping and tracking) can benefit from the expertise of industry leaders like UPS and FedEx, which now provide a variety of back-end processes to support their core competency of international shipping.

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Chapter Summary 1. Hybrid leaders integrate two different order fulfillment needs: process bulk quantities for shipment to their stores and handle small quantities for delivery to catalog and Web site customers. 2. The end-to-end process of order fulfillment includes stocking all items; tracking and reordering inventory; selecting and packaging orders; shipping and tracking order status; handling returns; dealing with customer questions and problems; and restocking inventory. At a minimum, the fulfillment process requires warehouse facilities, call centers, shipping capabilities, and tracking methodology. 3. Hybrid companies with the financial resources to build fulfillment services in-house (including building or leasing warehouses, providing for call center functions, etc.) accrue the additional benefit of maintaining tight supervision of customer service quality and building customer rapport. 4. A growing number of hybrid companies are turning to fulfillment centers to outsource the end-to-end process. Fulfillment centers can handle every aspect of acquiring warehouse space, inventory control, shipping and tracking, handling returns, and dealing with customer service issues. Use of a fulfillment service provider frees the hybrid company from activities that are outside the realm of their core specialty and enables them to focus on product design and marketing. 5. Experience indicates that hybrid companies that outsource all or part of the fulfillment process have the greatest success when they do not completely abdicate responsibility for customer service but closely monitor the level of quality contact with their customers.

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With your midpriced SUV locked in park and idling in the McDonald’s drive-up window line, a flashing signal on your PDA catches your eye. A message on your screen reads: “I don’t think so, you Weight Watchers drop-out. Why not try something completely different? ShopRite has Slimfast on sale by the case at 40 percent off. You can even buy it in chocolate flavor and cut out the trip to HäagenDazs that you planned for your next stop. Save yourself that excess poundage before you weigh as much as this vehicle you’re driving. Here are directions to the store nearest your present location. And, by the way, while you’ve been sitting in this take-out line, your son invited eight underage friends over and they’re drinking beer in your backyard. It’s Budweiser, but did you know that Coors Lite is on sale at Bottle King . . .” The technology to send a message like this exists today. Fortunately, corporate advertising campaigns have not begun to take advantage of it. Even though we’ve cheered technological advances that enable us to track consumer behavior, and we now expect personalization and mass customization, some experts warn that we may be going too far. How much information is too much? At some point, you begin to estrange instead of endear your customer. How can a hybrid corporation guard against pushing beyond the limits?

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Privacy versus Personalization Technology has taken us to the level where virtually every online movement, message, chat, and keystroke can be monitored. Hybrid companies face the challenge of deciding how to weigh their investment in personalization against potential violations of individual privacy. Personalization software enables e-commerce companies to create Web site content that fits each individual’s interests, based on data accumulated about previous browsing activities. The process uses cookies inserted on consumers’ personal computers to track their activity (more on this in a moment). Inherent in its very design is a violation of privacy, although widespread descriptions attribute only positive results to the technology. Privacy versus personalization is one of the hottest debates in e-commerce today (aside from the true value of technology stocks and who owns the sock puppet) and no hybrid company can avoid dealing with it. The debate is fueled by technological advances, such as location-tracking mechanisms; by government regulations, such as the intervention of the Federal Trade Commission; and by consumer outrage, such as the responses from many of us when we hear another announcement like DoubleClick’s flagrant abuses of technological power and Amazon’s blatant disregard of its own privacy policy.

DoubleClick’s Disaster DoubleClick is one of the largest Internet advertising placement companies along with 24/7 Media and Engage. These companies basically act as brokers for advertising on Web sites. Behind the scenes, they also accumulate tons of information about all of us, such as what sites we go to, what links we check out, and what we buy. For hybrid companies, they act as the coordinator of online and offline marketing campaigns, attempting to achieve a balance. The balance was publicly thrown for the first time by DoubleClick. DoubleClick crossed the line between tolerable data collection endeavors and consumer abuse when it began to use confidential records for profit. The word got out when DoubleClick bought Aba-

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cus Direct’s detailed records of 90 million households. These records contained offline buying data accumulated from direct mail companies and traditional retailers across the country. DoubleClick merged its data about consumer online behavior with Abacus data about offline behavior, matching names and addresses. Privacy advocates were infuriated by this database linking, and the Federal Trade Commission stepped in. Anonymous tracking of click trails was one thing; matching clicks to people went too far. The amazing thing about DoubleClick was that it bypassed annoying and dove right into abuse. Although it claims to have offered consumers the ability to opt out, or withdraw, from data collection efforts, before the onslaught of publicity most consumers didn’t have a clue who DoubleClick was, much less who its clients were. DoubleClick eventually retreated from the decision to use the information it accumulated from the merger of databases until judgments are rendered about what is okay. But in the court of public opinion and marketing demand, a judgment on DoubleClick has already been rendered. Abacus’s core business experienced a serious slowdown, and DoubleClick failed to realize the demand for data that it expected and is still reeling from the privacy backlash.

Consumer Criticism We appreciate a personal greeting when we return to a favorite store. We’re comfortable when a friendly sales associate refers to a previous conversation we’ve had. But if she ever seemed privy to confidential information about us, we’d bolt from the store emptyhanded. The biggest consumer issue is control: we want to be in charge of how much information people have about us. And we’re positively appalled when we find out how much data DoubleClick could double-trick with. Today, most of our online activities are tracked unless we specifically ask that our data be withdrawn. Privacy advocates would like it to work the other way around. Track us when we ask; let the norm be not to track. Everyone who ever shops online is affected. Perhaps that’s why personalization versus privacy is such a personal issue, not just a the-

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oretical one. When I shop online at CDnow, for example, I am representing at least four different music genres. My husband and I are the keepers of the credit cards and do all of the online ordering for the family, which includes three teenagers. In any given month, we cross over from In Sync to Dave Matthews to Mobb Deep to anything circa 1969. And we both order from the same screen name. Imagine the customer profile compiled on me, as all these purchases are in my name. Try drawing psychodemographic inferences from that schizophrenic history. Not all past behavior predicts future purchases, according to consumers like me, although marketers tend to disagree. I am not what I buy; I am not a soundbite; I am an independent thinker, we protest. We don’t like stereotyped snapshots of our personality to be formulated from bits and pieces of incongruous and irrelevant data. For my part, all I know is that I don’t want an e-mail every time a parental advisory rap CD goes on sale, but I do appreciate occasional 20 percent discount offers from CDnow.

Creating Consumer Behavior Profiles The assortment of software and other technology that enables personalization and customization changes frequently. A brief summary of a few key components follows.

Cookies Cookies are electronic files that monitor our behavior on the Web. Cookies are small files sent by a Web server, like DoubleClick, to a Web browser, like the one on your hard drive. The browser then manages the cookie, saving and sending information back to the server whenever you return to that Web site. Cookies do not contain personal information like names and phone numbers. They simply serve as a way for Web sites to recognize returning customers so they don’t have to reenter the same information over and over. They also enable you to store items in your “shopping cart” and on your wish

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list. Cookies make it possible to customize Web pages to contain select information for you based on your past activities. Log-in and registration information, online shopping carts, and survey results are stored in cookies and returned to the server to be used for personalization. When the server receives a request from the browser, the cookie information is passed along. This is the information that enables Web sites to greet you by name or offer targeted marketing ads. This is the technology that enables hybrid companies to establish the appearance of personal contact with their customers. The most objectionable aspect of cookies is that they have a reach beyond most consumers’ comprehension. When a banner ad is placed on a Web site, for example, and a customer clicks on the banner, the advertising company places a cookie on the customer’s hard drive. Yeah, that’s right. Every one of those advertising companies. When a company like DoubleClick places a cookie on your browser, it is representing thousands of companies that you may never have even heard of. So when a company tells you in the fine print of its privacy policy that it cannot be responsible for the actions of other companies with whom it has Web site links, it’s giving itself a lot of leeway. The common belief has been that at least the cookies represented anonymous data when it was aggregated, but we now know that isn’t necessarily true. The ingenious ways in which these “anonymous” cookies can be correlated with offline data to discern a customer’s physical identity are virtually limitless. Sponsor a contest—have people fill in their personal information. Ask for registration information for a sweepstake. It isn’t brain surgery.

Web Bugs Web bugs are images intentionally embedded in the software code of Web pages or HTML-enhanced commercial e-mails for the purpose of transmitting information, usually to a marketing company. Web bugs count how many times individual Web pages have been visited. They contribute to online customer profiles by providing

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demographic data that can be combined with offline data to present a complete demographic picture of income level and shopping patterns. Web bugs have become controversial because of the sensitive nature of the information that can be derived from them. For example, when it was revealed that Toysrus.com used Web bugs to create customer profiles, shoppers went nuts and the practice was reportedly discontinued.

Opt In/Opt Out The option to choose whether to receive information from e-tailers supposedly self-regulates online businesses. Consumers can opt in, which means they agree to remain on a mailing list to receive followup e-mails, sales promotion materials, newsletters, sweepstakes notices, and on ad infinitum. Consumers can opt out, which declares that they withdraw from all these lists. Sometimes the opt-in option is listed below your credit card information as the last step before completion of a purchase. “Would you like to receive additional notices by e-mail of special offers?” you might be asked. “Yes” is usually prechecked for your convenience. Detailed opt-out information is seldom presented in as prominent a location on the Web site and is usually listed in the company’s privacy policy. Consumers need to be encouraged to read the opt-in/opt-out section of the fine print in privacy policies for their own protection. They may choose to opt out of all kinds of things they probably didn’t even know they were in to begin with.

Location-Finding Technology The biggest challenge for location-finding technology is curtailing it. It is possible today for tracking systems in car navigation equipment, cell phones, and other handheld devices to determine where you are, give or take a few hundred yards. Federal law now requires that cell phones be installed with caller location identification for 911 emergency responses, so location tracking will become com-

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monplace. The same location-tracking mechanism has marketing as well as safety implications. To date, wireless companies, advertising agencies, and individual merchants have held back on taking full advantage of tracking for their customer programs out of legitimate concern about a backlash. Won’t consumers resent the intrusion? TRUSTe is working on guidelines for wireless applications to deal with the issue of privacy. When TRUSTe draws the line, there may be at least a basic guiding principle to work from. Check its Web site at <www.truste.com> for updated information.

Consumer Access to Personal Data If a company can track a customer’s behavior, why not let the customer know everything that has been accumulated about him or her? And if data have been compiled across a number of different Web sites by a company like DoubleClick or Engage, why not give customers all the information? And when you give it to them, shouldn’t they be able to update it or delete it? The advertising networks have collectively hollered “No way” and most other companies, hybrid and dot-coms alike, have followed suit. Why the negative reaction to access? Isn’t it only fair? Fair? Maybe. Possible? Possibly. Expensive? Positively. Collecting the data is one thing. Digging back into massive databases to tag an individual’s shopping history and present it on a report for the customer—most companies are not equipped to do it, and it would be a prohibitively expensive proposition.

Achieving Anonymity The Internet has thrived in an aura of free-flowing information, and to a great degree the information exchange is anonymous. Online discussion groups operate as open and vociferous forums—no exchange of identities but lots of dialog. The major portals and Web sites promise their customers that their identity will never be revealed in

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these forums and throughout their site unless there is government or legal intervention. Sounds like a fair promise for any hybrid company to extend to its customers, too. Now there’s a catch. As the Internet has grown exponentially, so has the number of subpoenas. America Online alone receives hundreds of subpoenas every year, all trying to identify users who have posted anonymous messages. When AOL receives a subpoena, its standard procedure is to send an overnight express mail letter to notify the individual of the subpoena. The individual is told that AOL will reveal his or her identity in 14 days unless the individual legally objects. How many of these subpoenas are legitimate in an attempt to stop genuine libelous online communication, and how many are attempts to squash all criticism of an individual or organization? Many are borderline.

Support Organizations Civil liberties groups like Public Citizen and the Electronic Frontier Foundation are working diligently to prevent the loss of Internet anonymity. Part of their mission has been to guard against misuse of legal authority to subpoena confidential records. Anonymizer.com is one of many intermediaries that will act on behalf of consumers to remove names and e-mail addresses from messages before they’re sent. A complete list of companies like Anonymizer, which are called “remailers,” is available from the Electronic Privacy Information Center <www.epic.org>. The Privacy Foundation in Denver, Colorado, was created to scrutinize privacy policies and to research fair practices. This foundation has taken a strong position against the use of Web bugs and has proposed that all uses of Web bugs be made known to consumers. It suggests icons or other readily identifiable marks on Web pages that will also allow Web site visitors to opt out of any data collected by these bugs. Consumers also have individual ways to limit the use of their personal information. They can choose to delete cookies, for example, or to engage the services of an “infomediary.”

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Delete Cookies All consumers can delete the file on their computer where cookies are stored for any or all of the merchants or advertising companies that have installed them. What are the repercussions? Nothing worse than inconvenience. Because the cookies transfer the data needed to provide a personal greeting, customers are no longer welcomed by name. Most can live with that. Because shopping carts depend on personal information, forget that time-saver too. One-click checkout? No way. Can a hybrid company’s customers live with this inconvenience? There is no reason for hybrid leaders to make assumptions one way or another. Provide consumers with the opportunity and instructions to delete cookies if they want to and explain the impact this action will have. A company called Junkbusters.com <www.Junkbuster.com> works with businesses to create “consensual” marketing approaches. It provides detailed instructions on its Web site for turning off cookies and disposing of banner ads.

Infomediaries Infomediaries gather information on behalf of consumers and present the information anonymously as needed. The big question with services like these is how this is any better than giving your information directly to a retailer. What if the infomediary goes bankrupt? Aren’t these customer records an asset? Incogno is a service that can be installed by retailers to protect the confidentiality of data collected about their customers. Incogno places itself as a shield between retailers and customers, gathering customer data and distributing them only as needed. UPS, for example, really needs only a name and address, so that’s all it gets. PrivateBuy.com is a service of Ecount, an e-commerce payments company. Like Incogno, PrivateBuy.com serves as a broker between consumers and retailers, preventing detection of personal identity. Enonymous, PrivaSeek, and YouKnowBest.com provide similar services.

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Platform for Privacy Preferences (P3P) P3P is a new software standard backed by Microsoft, IBM, AT&T, America Online, the Center for Democracy and Technology (an online civil liberties group), and other technology providers for protecting consumers. P3P will inform users when they have entered a Web site without a privacy statement and will give a warning when a Web site is seeking marketing data so a consumer will have the option to leave or opt out. The primary objection voiced to date about P3P is that it could give consumers a false sense of security. And in order for it to work, millions of Web sites have to buy into it and create privacy policies that can be read by P3P-enabled software.

Attempts to Protect Consumer Privacy Company privacy policies are a first step toward educating consumers about how information on their Internet activities will or will not be used by your company. In addition, consumers need to understand how to protect themselves against encroachment on their rights. At the corporate level, hybrid companies have a responsibility to protect their customers through the definition and enforcement of clear, defensible policies. Enforcement of company privacy policies has become the responsibility of a new breed of chief privacy officer (CPO), independent auditors, better business bureaus, and organizations like TRUSTe that act as independent agents on behalf of both consumers and companies.

Chief Privacy Officer (CPO) The creation of the position of chief privacy officer (CPO) is a concrete manifestation of the priority of privacy. In the aftermath of escalating lawsuits for invasion of privacy, the CPO joins CEOs and other “Cs” at the upper level of the corporate organization chart to

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defend and enforce corporate policies. The huge impact of intense public scrutiny on giants like DoubleClick, Microsoft, telecommunications providers, and insurance companies demanded an immediate reaction. CPOs are drafted to write and enforce privacy guidelines, gain internal corporate support, lobby for external credibility, and ensure that the company stays on track. The initial consumer reaction to the creation of this position was exasperation, believing it represented another meaningless gesture to give the appearance that privacy was elevated to a higher level. In fact, the only thing elevated, consumers seemed to think, was one individual’s salary. In truth, the CPO is rarely a window-dressing position. The incumbent acts as a combination attorney and public relations liaison, interacting with legal advisors, government regulators, clients, and consumer advocacy organizations as well as all departments within his or her own organization. Two prominent CPOs today are Jules Polonetsky of DoubleClick and Richard Purcell of Microsoft. It is indeed appropriate that these two companies are among the first to give serious attention to this role, given the attention drawn to each within the past few years. Watch for a growing number of this executive position.

Independent Auditors Financial services firms are contracting their services as online auditors for some of the largest Web companies to authenticate adherence to publicized privacy policies. During the independent audit process, both online and offline company behavior is subject to scrutiny to ensure that privacy policies are strictly enforced by all personnel. The online lending company E-Loan claims to be the first to hire an independent auditor—PricewaterhouseCoopers—for its firm, earn a successful review, and post results on its Web site. Hundreds of other companies have also followed this lead, but few have agreed to publicize the results. PricewaterhouseCoopers’s contract terms, for example, require companies to post even an unfavorable audit on their Web site while corrective action is under way.

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Microsoft’s travel site Expedia.com was also audited by PricewaterhouseCoopers as an attempt to increase consumer confidence that privacy is as important to Microsoft as to the consumer. Expedia now displays a PricewaterhouseCoopers seal and a statement confirming that this Web site will not sell or share customers’ personal information with third parties unless it is part of the actual transaction.

TRUSTe TRUSTe is an independent, nonprofit agency sponsored by AOL, Microsoft, Intel, and other major companies that grasped the seriousness of consumer concerns early on. TRUSTe certifies the privacy reliability of e-merchants by conducting an investigation of their practices and soliciting consumer feedback. It works for the benefit of both the merchant and the consumer, “building a Web you can believe in.” Reputable merchants can benefit from the TRUSTe seal of approval that indicates they have passed a strict oversight and compliance review. The compliance review certifies the collection, use, protection, and distribution of data gathered by merchants about their online customers. TRUSTe also produces an excellent “Privacy Resource Guide” for merchants that can help any hybrid company create its own Web site privacy statement. Consumers have an ally when they need one for personal advice or support. TRUSTe Watchdog, for example, is an online dispute resolution tool geared to consumers. Articles and tips like “Consumer Do’s and Don’ts” outline specific actions that protect privacy online and offline, from removing cookies from your PC to opting out of Web marketing programs or your local phone directory.

Better Business Bureaus The Better Business Bureau System works with about 24 million consumers and businesses annually in the United States. Self-regulation and consumer education are the foundation of this 88-year-old organization. Its seal of approval applies to online and offline businesses, and indicates that a company has met the highest standards of review by an independent third party.

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For hybrid companies, the Better Business Bureau (BBB) also offers articles and tips, like “E-Commerce Guidelines for Merchants,” that are practical and immediately applicable. Its BBB Code of Advertising spells out the exact meaning of terms like sale, up to savings claims, and list price, a helpful tool for the new merchant and Web site designer alike.

Recommendations for Hybrid Companies Hybrid companies ensure their success by being critical of the data they collect, ensuring that consumers know what information is being gathered, and remaining vigilant about use of the data. The TRUSTe-suggested format for a company’s privacy policy is an excellent guideline for hybrid companies to be safe in using customer information. These recommendations are related to Web site protection of data. In addition, hybrid companies have the more complex issue of identifying and enforcing a policy that makes sense for both their online and their offline information. Whether or not the hybrid company has integrated and synchronized its databases, the privacy policy should reflect consistent support for privacy protection across all channels, both when the business is thriving and when it isn’t. Today there are loads of discrepancies: • How to opt out of marketing e-mails is often straightforward on hybrid Web sites, but how to opt out of catalog lists and other mailings may not be so direct. • Mail-order lists are often rented or sold to third parties. While some Web sites offer a statement in their privacy policy about how to opt out of e-mails, few catalogs offer a similar statement of how to opt out of having your name and mailing address removed from lists rented or sold to other companies. • Credit card information is guarded, and purchase patterns are generally aggregated for sales analysis. However, any information could be correlated with other information about individual consumers if a company chose to change its policy.

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• Notification of privacy policy changes should be immediately forwarded to customers. Not all companies are adamant about ensuring this occurs. Hybrid companies need to ensure that their privacy policies are enforced across all channels: Catalogs • Allow the option to correct or delete catalog information by any medium (phone, e-mail, etc.) • Clearly identify if catalog lists of names and addresses are rented or sold to other companies. • Make it simple to delete a name and address from rental/sale lists. E-mail • Allow the option to correct or delete e-mail information by any medium. • Allow the opt-in/opt-out opportunity. • Clearly identify if e-mail addresses are rented or sold to third parties. • Make it simple to delete a name and address from these rental/ sale lists. Other Snail Mail • Provide the same options for any newsletters, promotional notices, coupons, and the like that the company offers.

Sample Privacy Policies A BizRate survey of commercial uses of private information revealed that 79 percent of respondents do read Web site privacy policies. About 59 percent actually like to receive e-mail from companies that have offered them an opportunity to opt in or opt out.

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Following are a few examples of how hybrid leaders have formatted their own privacy policies to work within their customers’ expectations. These policies, by the way, are not buried deep in the heart of their Web site but are easy to find and access.

L.L. Bean. L.L. Bean is also TRUSTe certified under the same licensee terms. It requests information at several points in the shopping process, including checkout, catalog requests, a personal account/address book, online Visa applications, LLB-mail, and live help, to name a few. It also uses cookies with the explanation “to make it easier for you to use our site and to help us customize your experience.” Cookies are also used to measure marketing efforts. L.L. Bean advises visitors to also check out the privacy policies of the Web sites that are linked to its Web site. And while they admittedly “share” customer names and addresses with “other companies whose products we think you might be interested in,” e-mail addresses are sacrosanct and never passed along to third parties. However, customers can opt out of the lists that are rented to other direct mail companies by sending a snail mail note to L.L. Bean. This paper-andpen routine seems somewhat inconsistent with the ease of communication incorporated into every other aspect of this hybrid company. List rentals must be lucrative. Home Depot. The Home Depot displays both the BBB and the TRUSTe seals. It participates in the BBB’s Online Reliability Program, which means it must conform to BBB standards. As a TRUSTe licensee, it meets TRUSTe’s strict standard as well. This standard doesn’t mean the information is never used; it means that consumers will always be told how their information will be used and by whom at the moment they provide the data. Personal information, survey responses, and other details about purchases are not traded, rented, or sold to any other company. E-mail information will also never be passed along without the customer’s permission. It is simple to opt out at any point by e-mail. Use the site for fraud or illegal activities, however, and you’re at the mercy of the law enforcement agency that’s hunting for you. At most, customers are invited to register with Home Depot if they would like to receive notices of interesting products and services, but

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they can elect to opt out at any point later on. Home Depot also gathers survey information from its Consumer Advisory Council to improve the Web site, but participation is strictly voluntary. As you’ll find with other BBB and TRUSTe Web sites, Home Depot is very clear about its use of cookies (providing a definition of what a cookie is and does), its policies regarding children’s information, its commitment to post any changes to its privacy policy immediately, and other significant details to enhance consumer confidence.

Vermont Teddy Bear. This privacy policy is short and to the point (no TRUSTe seal as of this writing). In bold print, it states unequivocally, “We do not trade, rent, or sell e-mail addresses to any other parties.” If you would like to have your name removed from any list, including the catalog mailings, simply e-mail, call, phone, or write to let Vermont Teddy Bear know. The statistics it gathers are reportedly only for sales, traffic, and related site analysis. Nordstrom. Nordstrom, too, does not display a TRUSTe seal but promises up front not to “rent, sell, or exchange e-mail addresses.” E-mail addresses—makes you wonder how many companies are renting out our physical addresses as so few companies offer not to do it. At least Nordstrom makes it easy to opt out of third-party catalog mailing list rentals via an e-mail message or telephone call. The most noticeable difference between privacy policies formulated with TRUSTe and others is the amount of detail presented. Although Nordstrom and Vermont Teddy Bear promise privacy, for example, they don’t lay out their plans in the detail you find endorsed by TRUSTe. After reviewing a few TRUSTe-certified Web sites, you may agree that there is comfort for the consumer in the details and in the third-party objective oversight. RadioShack. RadioShack promises not to sell any customer lists or information, e-mail or other. In fact, unless it’s shipping something to you, it doesn’t even ask for such information, although it will share information in joint marketing programs with other companies. It also specifically addresses the collection of any information from children under 13 and will help parents delete such informa-

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tion if it should be gathered without its knowledge. The BBB’s “Children Advertising Review Unit” (CARU) serves as the guideline. Because RadioShack cannot control the activities of Web sites it links to, it also suggests that customers review the policies of these sites as well. The company makes this simple for its customers by listing the linking Web sites and their addresses.

Staples. Staples opts for simplicity: “Yes, any personal information that you submit to the site will remain safe and secure.” You can almost hear the audible sigh of the writer. Of course, it will only use this information to make each customer’s Web site visit more convenient. If customers would like to opt out of e-mail, they simply need to indicate their preference by e-mail. To opt out of mail, let Staples know by mail. Fair enough.

Customer Files as Dot-Com Property When an Internet company faces bankruptcy, is its database of customer profiles resellable? When a mail-order company went bankrupt, mailing lists of customer names and addresses were often sold off as assets, and unwitting consumers seldom (if ever) protested. In reality, few of us knew this was happening until dot-coms in distress began to follow the same pattern. We just wondered why every time the postman arrived, we seemed to be on another mailing list. Silence didn’t necessarily imply consent. The Federal Trade Commission (FTC) has prevented dot-coms from including their customer databases in the liquidation process. After all, when consumers sign on to a Web site and read a privacy policy that promises their data will not be shared or sold to a third party, they believe that agreement holds to infinity and beyond. The liquidation of ToySmart.com has provided a challenge to the FTC’s ruling. As part of its bankruptcy proceedings, ToySmart.com advertised the sale of its customer database in the Wall Street Journal, raising the wrath of more than 40 state attorneys general who accused the company of deceptive trade practices. In a settlement, it was agreed that the data could be sold with the Web site with customers’ permis-

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sion. The issue has been left hanging, pending the sale of the company, along with the delicate issue of balancing customers’ privacy rights with creditors’ rights to fair compensation for losses. Which loss would be the greater, however? Violating customers’ trust for the explicit purpose of overflowing their e-mail in-boxes with promotional notices seems self-defeating. Perhaps opting out is the best solution in these cases too. Amazon.com pushed the matter even further with a brazen declaration that it would begin to sell customer information lists to third parties, thus changing its privacy policy. Amazon.com justified the change based on its growth strategy, with an implicit challenge that consumers “live with it.” Two separate organizations, the Electronic Privacy Information Center (EPIC) and Junkbusters, didn’t find that logic strong enough to change a policy midstream after customers had forked over their personal data. They appealed to the FTC to block the dissemination of customer data without positive consent, demanding that customers be given the option of deleting all information about themselves and their purchases. A London group called Privacy International concurrently petitioned the United Kingdom’s government to pull in the reins on Amazon’s UK affiliate in support of the U.S. action.

Security Online security has become a high-priority international issue as the spread of denial-of-service and e-virus attacks has increased on companies like Amazon.com and Yahoo!. Among the most common online security breaches for hybrid companies are denial of service, theft of intellectual property, fraud, and the spread of viruses. The frightening reality is that law enforcement officials estimate that almost 60 percent of computer break-ins are done by employees. Once a disgruntled employee has access to a corporate network, any aspect of the business can become a target. Worse yet, the tools to assist them in their break-ins are easily downloaded from the Internet, so it isn’t even a difficult operation.

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Every hybrid company needs to monitor its computers to ensure that they are not unwitting partners in cybercrime through the launch of a virus or denial-of-service scheme. American corporations have spent as much as $4.4 billion in a given year on Internet security software, and it has been projected that this will rise to $8.3 billion by 2003, according to International Data Corp. Should the government be involved in direct action regarding online security concerns? The Organization for Economic Cooperation and Development (OECD) pointed out in the 2000 World E-Commerce Forum in London that joint government intervention may be precisely what is called for to curtail cybercrime internationally and increase global confidence in e-commerce. Hybrid companies need to enforce formal security policies with their employees, update their software frequently, search for hacker opportunities within their own systems, and stay current on security issues. Security has to be addressed as a constantly changing process, one that needs close attention and monitoring throughout the lifetime of any company. Formal security policies should be distributed to all employees, specifying how to report a suspected problem, when to change passwords, and what to do in case of an attack. Updated software is most likely to have the latest security patches to lock out hackers. Hacker opportunities can come in the form of backdoors (undetected easy entry points into a corporate system), Trojan horses (programs that exploit vulnerabilities in software), logic bombs (malicious instructions in a computer program), and other tricks of the trade. In order to stay current on security issues, security has to remain a top priority of the hybrid company. As systems change and the company expands, every potential security breach needs to be readdressed to reduce risks.

Credit Card Fraud Consumers continue to express concern over the potential theft of their credit card information, but in reality the bigger risk is to merchants. Credit card fraud is not covered for merchants with the same $50 liability limit offered to consumers. Brick and mortars have the

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advantage of a signature or request for additional identification to confirm a credit card purchaser is authentic. Online transactions can verify the credit card number but not the identification of the individual using the card. One potential source of help to merchants may be to increase the penalty for credit card fraud to identity theft, a federal felony that could be more threatening to potential cybercriminals.

E-signatures The Electronic Signatures in Global and National Commerce (ESIGN) Act, signed into law by President Clinton in 2000, was a major step for online transactions, giving digital signatures the same value as paper-based signatures. The E-SIGN Act enforces the legal validity of electronic contracts, signatures, notices, and other records. With the E-SIGN Act in place, it was no longer necessary for business transactions to switch from electronic information exchange during planning and design activities to a manual paper mode at the closing stages, when approvals and signatures are required. Legally binding contracts can be executed online. Time and cost savings can be realized immediately, as photocopies of contracts and other documents no longer have to be manually prepared and distributed to all parties. Fully automated contracts can be completed more quickly, regardless of the location of the participants. When a hybrid company makes the decision to accept digital signatures, one of its first actions is to contact a certificate authority to acquire a digital certificate, the public-private key technology. The certificate authority validates and authenticates individuals in secure e-commerce and other transactions. All documents and information associated with the processes that lead to contracts then need to be formatted for the Web, in XML (Extensible Markup Language) format. For the digital signature process to be efficient, it should fit into existing systems and databases so that a transition to a paper format is never needed. For the protection of the consumers and organizations that will use digital signatures, the E-SIGN Act calls for the following provisions:

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• During signing and for the life of the agreement, the document must be secured against tampering. • There must be a permanent document signed by all parties, with independent verification of the validity of their signatures. • There must be an online audit trail for legal, accounting, and financial purposes.

Intellectual Property Protection The legal field of intellectual property protects products that are created by the human intellect, including designs, inventions, ideas, and written works. Intellectual property laws cover copyrights, trademarks, trade secrets, and patents. Hybrid companies have extraordinary intellectual property assets in their logos, slogans, catalogs, products, and Web site. Protection of these assets is as important as establishing a secure financial foundation. The Internet has made “borrowing” intellectual property tempting to individuals and corporations. Cutting and pasting is just too simple. But unless designs or content or information is considered in the public domain, it is protected and can be used only with permission. Hybrid companies have two dimensions of intellectual property to monitor: illegal use of their own copyright, trademark, or patented material and the use of property belonging to others without permission. Protecting intellectual property requires vigilance and a serious attitude about enforcement. If trademark infringement, for example, goes unchallenged once, it is difficult to enforce the mark later because a precedent has been set. The step of obtaining permission is more of a challenge to supervise when a company expands into multiple channels. Pictures, images, photographs, videos, or anything that depicts individuals and could be used in any form of promotion or advertising in print, video, or on a Web site requires their permission, for example.

Web site content. Content is often handled by a third party, such as a consultant or the company that has been hired to create the Web

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site. Web site content requires a clear definition of who owns it. A work made for hire, as defined by the Copyright Act, states that if a company or individual does not have a written agreement to indicate otherwise, the work belongs to the creator. Marge Chertok, an attorney with Pitney, Hardin, Kipp & Zuchup in Morristown, New Jersey, advises: “Even if content is provided by a company employee, there should be clarification in writing that anything the employee creates while working for your company belongs to the company.” Just to be on the safe side.

Who owns the Sock Puppet? When Pets.com bit the dust, the company’s assets were sold off in the usual manner with one exception: the Sock Puppet. The issue became convoluted when it became clear that the advertising agency that created the Sock Puppet campaign felt the puppet was its property; Pets.com believed it owned the puppet because it paid for the creative advertising work; and buyers of Pets.com could have easily thought that the Sock Puppet was an asset that was part of the sale of the company and ownership would transfer to them. Although Pets.com is a distant memory, perhaps the Sock Puppet will someday be resuscitated.

Napster What strange bedfellows the Napster case created. When Metallica championed the cause of intellectual property rights of musical artists, drummer Lars Ulrich rocked the U.S. Senate Judiciary Committee hearings on the regulation of digital music dissemination over the Internet. Lars and the Recording Industry Association of America (RIAA), seeking legislative intervention, went head-to-head with Napster to stop the spread of music properties. Metallica sued Napster for copyright infringement. So did Time Warner, Sony, Bertelsmann, and others that are part of the RIAA. The attempt to shut down Napster’s music-swapping service was the first major confrontation between the online music industry and the recording industry. Napster, which has over 20 million users who download 14,000 songs every minute, was accused of permitting indi-

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viduals to steal copyrighted material. Napster maintained it simply facilitates music sharing, and that it helped the music industry by allowing people to sample new music. Napster supporters claimed that this service increased CD sales by enticing people to buy more. Other studies supported by the recording industry have presented contradictory results. Napster operates from a centralized directory that enables the exchange of music from person to person. The technology, not the company, was the issue here. The recording industry wanted—and has finally achieved—protection of copyrighted material. The court ruled that information can be shared only by permission of the copyright holder. In the meantime, a New York federal judge found MP3.com in violation of copyright law because it copied thousands of CDs and let users listen to them on its Web site. MP3.com settled and agreed to pay multi-million-dollar licensing fees. How did other P2P music sites—Freenet and Gnutella—get off the hook? Neither service uses a centralized directory of music like Napster and MP3.com do. Freenet is a general purpose file-swapping service in which users pass files along to other users. Files are moved from computer to computer, never through a centralized source. Gnutella software lets users locate other Gnutella users on the Internet and send one another requests to download MP3 files. Files are passed from user to user by requests, again never passing through a central location. Gnutella is also very difficult to track because it uses HTTP, just like most browsers, so Gnutella requests blend in with other data. Where will music legally play, for free or fee, across the Internet? Some experts are predicting that subscription services will become the norm. But considering that the strong dose of free music had an irresistible appeal, subscription services will have to be priced as low as possible to be enticing. Subscriptions could offer access to music catalogs, but considering the huge range of possibilities available under Napster, these would have to be monster catalogs with unlimited use. The music industry supports the Secure Music Digital Initiative, which is a new copyright standard, and other alternatives are in exploratory stages. Major recording studios have yet to come out with significant developments on their own. At best, it is safe to say that the best business model for selling music on the Internet is still evolving.

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Application of Copyright Law The Napster case has been viewed as having strong implications for other intellectual property like books, movies, articles, Web site content—you name it. Just about any digital file is subject to potential abuse. Word has already leaked out about the “Napsterization” of Hollywood as new movie releases make it onto the computer screen far too soon. Strangely enough, Napster’s executive team steadfastly defends intellectual property in other matters. Dare to sell a T-shirt with a Napster logo and you’ll bring down a fast cease-and-desist order, as the band Offspring learned. Try to find out about Napster’s software code and the word “sharing” vaporizes from its vocabulary.

E-book publishing. The future of e-books may have ground to a temporary halt when Stephen King decided to stop writing The Plant to focus on other projects (like the ones that make money). He began this e-book endeavor on an honor system—if 70 percent of the individuals who ordered his e-book paid up, he’d continue to write and release one chapter at a time. Although the release of the first few chapters and the positive response from eager (and paying) fans met with great fanfare, the subsequent drop in payments was barely reported. Anyway, the project is on hold indefinitely. E-books are still relatively scarce, which may have more to do with copyright issues than anything else. Like the spread of MP3s, what’s to stop individuals from passing along electronic copies of books to their friends? It’s cheap, fast, and easy to do. Publishers haven’t jumped into e-book production with particular speed or enthusiasm. The Digital Millennium Copyright Act may offer some hope of copy protection for e-book publishers. For hybrid companies that produce e-books as their core business, or use e-manuscripts as content to enhance their Web site, this is an area to watch.

Trademarks Trademarks are used for things like brand names, logos, product packaging, and slogans. In the hierarchy of intellectual property,

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trademarks don’t have quite the cachet of patents, but they hold equal weight. For every hybrid company competing in today’s global marketplace, they are crucial. Trademarks are either inherently distinctive, or could acquire distinction over time and take on specific meaning in the mind of the public. Trademarks, by definition, point distinctly to the origin or ownership of merchandise to which they are applied. Trademarks are legally reserved for the exclusive use of the owner as maker or seller. Trade dress refers to a product’s shape, design, or configuration, which can also be protected. The combination of trademark and trade dress is often used instead of patents for creations that don’t fit the specific definition of “invention” but are truly creative works of intellectual property.

Domain names versus trademarks. The Internet Corporation for Assigned Names and Numbers (ICANN) created a mandatory procedure called Uniform Domain Name Dispute Resolution (UDRP) that attempts to resolve disputes between trademark owners and domain name holders. Although the group has consistently favored trademarks, it does not carry the weight of a federal court. Trademarks have critical importance on the Internet, where brand name recognition and retention can drive traffic to a Web site. Cybersquatting, or registering a domain name similar to a brand name (that belongs to someone else) and holding on to it, has finally been addressed officially. The U.S. Congress passed the Anticybersquatting Consumer Protection Act that puts power in the hands of trademark owners over domain name holders. The trademark owner needs to demonstrate that the domain registrant acted in bad faith, which may sometimes be difficult to prove, but this legislation is a move in the right direction.

Patents A patent secures an inventor’s exclusive right to make, use, or sell an invention for a term of years. The concept of patenting business processes that don’t qualify as inventions is new and spurred by the Internet. Awarding patents to methods of conducting e-business is

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going too far, many experts believe. The federal Patent and Trademark Office, however, is standing firm on its authority to grant patents to digital business practices. Patents gained prominent public attention when Amazon.com patented its one-click shopping technology. Amazon sued to keep Barnesandnoble.com from using similar technology, and it won. Priceline.com has sought a patent on its name-your-price business model, even though this is a method that could be easily duplicated. Priceline claims that Microsoft is improperly using its reverse-auction technology. There is a patent pending for computerization of the international trade process that is broad beyond belief and could require the likes of IBM to pay licensing fees to the originator of the process. Egghead.com has secured a patent for its method of online auctions. Patents make sense for any hybrid company that has developed an innovative method or technology it thinks has a value to others and may be replicated. It usually takes about 3 years (and roughly $10,000 to $15,000) to get a patent, and the patent has a 20-year life. Considering the cost of Web site design and implementation, the patent process may seem like a sound investment.

Legal Issues Hybrid companies have a host of issues to deal with that have nothing at all to do with their online activities: leases, ownership of physical property, in-house counsel, land use, real estate, contractual agreements, adding new product lines. In addition, there are international law issues connected with import/export activity. Finally, state laws govern select activities that can affect each of your sales channels in a different way. Lemon laws, for example, differ from state to state. They are fairly easy to track when you know where all your physical stores are located, but when you sell online your customers could be anywhere. “A failure to monitor traffic on your Web site to see where you’re selling could place you in a precarious position regarding consumer protection laws, which are enacted state by state,” said attorney Marge Chertok. She cautions hybrid business

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owners: “As things change in your business, you need to take a leadership role to protect your interests. Be on top of all new developments in your company and in your industry.”

Chapter Summary 1. When hybrid companies begin to conduct business online, they face the challenge of weighing their investment in personalization technology against potential violations of individual privacy. The placement of cookies on a customer’s hard drive is a common method used to track data. The data are retrieved for personalization of information when the customer returns to the company’s Web site. Some privacy advocates believe that even this widespread technique for data gathering goes too far. 2. Hybrid companies need to consider the issue of consumer control over the use of their personal information. Many customers are completely unaware of how much data have been gathered about their online shopping and browsing patterns. By providing clear explanations and instructions about how to opt in or opt out of data collection processes, hybrid companies give their customers some degree of control. 3. As new technology evolves, like location-finding technology, hybrid companies need to evaluate the impact it may have on their customers and avoid the use of features that may annoy or alienate people. 4. There are a growing number of techniques, businesses, and organizations focused on defending consumers’ right to privacy. Hybrid leaders must stay tuned into the pulse of these organizations and address potential customer fears immediately. 5. The creation and publication of a company’s privacy policy enables hybrid companies to clarify for their customers and their business partners exactly how they handle all customer information, including the exchange, rental, or sale of infor-

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6.

7.

8.

9.

10.

mation to third parties. Privacy policies should be intelligible, easy to find, accurate, and enforced. If a privacy policy changes, customers should be notified immediately and must have the ability to delete any information they no longer want to share. Hybrid companies have the burden of responsibility to ensure that they handle personal information from every sales channel confidentially. Customers should have the opportunity to opt in or opt out of marketing information gathered at each channel, including catalog mailing lists, store records, and Web site data. Privacy policies of hybrid companies that are audited and endorsed by objective third-party review, such as TRUSTe or a Big 5 accounting firm, have the greatest opportunities to build consumer confidence and trust. Hybrid companies have the responsibility to monitor intellectual property from two perspectives: illegal use of their own copyright, trademark, or patented material; and the use of property belonging to others without permission. Protecting intellectual property also requires vigilance and a serious attitude about enforcement.

The Future of Hybrid Companies

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In the year 1999, we eagerly proclaimed that e-commerce had mainstreamed. In 2001, hybrid companies mainstreamed in the United States. By 2003, hybrid companies will be a global phenomenon. Every aspect of our lives will be affected by the synergy of hybrid companies, but the changes will be incremental and so subtle that we won’t know until we’re totally immersed that things are different. It won’t be a big decision to make a purchase, for example—we can do it while we’re on the phone, during a conversation, watching television, in bed, cooking dinner, anywhere at the office, on the run. The process will be so fast and effortless that our boss, dinner companion, or significant other will never even realize we briefly tuned out to close a deal. We’ll be able to track anything from anywhere—our stock portfolios, our kids’ homework assignments, our horoscopes, our biorhythms, sales at our favorite retailer, specials at our favorite restaurant. Everything we need will be available on demand. An outfit for a meeting in two hours, a catered dinner for eight at an afternoon’s notice, a book for the commute home on the train—a click and a pedicart away.

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Electronic marketplaces will be part of every company’s sales strategy, whether B2B or B2C. There will be security in numbers.

Globalization Forrester Research has predicted that the global Internet economy will reach $6.9 trillion in 2004. Europe is expected to account for about 22 percent of this total, or $1.5 trillion. Asia and the Pacific Rim region should reach $1.6 trillion. Latin America is projected to account for $82 billion. Jupiter Media Metrix predicts that European e-commerce will beat U.S. e-commerce spending on consumer products by 2002. How will international e-commerce expand and in what forms? Globalization issues affect virtually every hybrid company from the perspective of opportunities for growth in the European, Asian, and Latin American markets.

Advertising Dominance Global advertising is headed to about $27 billion by 2005, with almost $16.9 billion coming from North America, according to Jupiter. Jupiter has also pegged the United States as the current and future leader of global advertising, spending about 75 percent of the total. Europe is expected to rise to $5.3 billion in 2005. Asia will grow to $3.3 billion and Latin America to $1.2 billion in the same year. Australia and New Zealand are projected to reach $462 million, and other markets combined will total about $578 million. Incredible numbers.

Where Are We Headed? The hybrid companies that value customers’ privacy, understand their needs, cater to their unique desires, sympathize with their lack of patience and time, and pull them out of their cocoons and move them into the future will gain loyalty forever. Make customers look

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younger and feel healthier, and they’ll viral-market you into the next millennium. Take care of your customers anytime, anywhere, and they’re all yours.

Conclusion 1. The most successful hybrid companies operate with three channels: clicks, bricks, and catalogs. Two channels constitute a hybrid company; however, in every hybrid model, the e-commerce channel is imperative. The most profitable hybrid companies demonstrate a deliberate, step-by-step expansion from channel to channel, mastering one mode and rapidly expanding to additional channels. 2. Business models based on quick public offerings were reevaluated after the first dot-com shakeout occurred in spring 2000 and overvalued technology stocks reached more realistic levels. Secondary rounds of financing became more difficult to secure for Internet pure-plays that failed to show a profit quickly. Hybrid companies gained favor. 3. The most successful hybrid companies exhibit a set of seven characteristics that encompass financial, technological, and human resources, discussed in Chapter 3. 4. The most powerful advantages of traditional stores when they expand to multi-channels include high visibility in brand name and image; expertise in merchandising and dealing with vendors; a physical and personal connection with customers; easier access for returns; and customer loyalty. 5. Factors that contribute to the success of catalog companies when they add the e-commerce channel include an existing customer base; expertise in distribution and delivery; dedication to consistent sizing and quality; and a trained telephone customer service support team. 6. Successful hybrid marketing strategies present a comprehensive approach that integrates online and offline marketing, sales, advertising, promotions, and public relations efforts. A

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7.

8.

9.

10.

11.

12.

comprehensive marketing strategy helps a hybrid company achieve its business objectives and maximize the merger of marketing and technology. Knowledge management involves every stage of a hybrid company’s information manipulation, from acquisition through dissemination. Synthesizing knowledge to generate new knowledge creates an invaluable hybrid company asset and can result in increased profitability. The need for human contact prevails for customers in every channel. Customers seek the personal touch found in traditional retail stores when they shop by catalog and through an e-commerce Web site. Successful hybrid companies maximize in-person, telephone, and online personal contact with their customers to build loyalty. The fulfillment process requires at a minimum warehouse facilities, call centers, shipping capabilities, and tracking methodology. Hybrid leaders integrate two different order fulfillment needs: processing bulk quantities for shipment to their stores and handling small quantities for delivery to catalog and Web site customers. Hybrid leaders handle the fulfillment process in one of three ways: in-house, combined in-house and outsourced, and totally outsourced. When hybrid companies begin to conduct business online, they face the challenge of weighing their investment in personalization technology against potential violations of individual privacy. Hybrid companies need to consider the issue of consumer control over the use of personal information. The global Internet economy is projected to reach $6.9 trillion in 2004, with Europe and Asia taking on a stronger role and Latin America following closely behind. Global advertising is expected to reach $27 billion by 2005, with almost $16.9 billion coming from North America. Hybrid companies are poised to take advantage of this tremendous opportunity for growth. Hybrid companies that prioritize privacy, understand customer needs, and move customers into the future will gain loyalty forever. Simply make sure to reach your customers anytime, anywhere.

Index

A Abacus Direct, 256–57 Aberdeen Group, 222 About.com, 67–68 Acquisitions, 17–19, 90, 131 Actfit.com, 190 Add-ons, 199 AdForce, 190, 191 Adlink, 183 Advanced intelligent networks, 218 AdventureQuest.com, 17 Advertising, 33, 201, 218 agencies, tracking and, 261 banner ads, 185–86, 259 BBB Code, 267 budgets, 69 extreme, 184 global, 185, 284 interactive, 184 magazine, 143 networks, 190–91, 202

new media, 184–85 PDA advertising, 186–88 print, 183 radio, 139 rich media banner ads, 186 television, 182–83 wireless Web sites and, 160 AeroXchange, 170 Affiliate marketing, 36–37, 196–97 Airborne Express, 249, 253 Airborne Logistics Service, 249 Akamai, 144 Alliance Builders, xviii, 2, 19, 44–45, 207, 208 affiliate programs, 36–37 bricks first, 87, 90, 93, 96–97, 100, 104–5, 108–9, 111–12, 115, 118

catalogs first, 125, 130–31, 133–34, 136–37, 140, 142, 147 characteristics of, 32 clicks first, 54, 55–56, 58, 60–61 defined, 36–37 shipping and, 248 Allstate Insurance, 61 AltaVista, 13 Amazon.com, 12–13, 29, 31, 55, 68, 69, 106, 196, 197, 242, 256, 272, 280 American Booksellers Association, 75 American Express, 108 American Red Cross, 142 America Online (AOL), 31, 54, 108, 115, 130–31, 136, 157, 264, 266 interactive TV service, 26 subpoenas, 262

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288

Index

America’s Most Admired Specialty Retailer, 102 Ameritrade, 13 Analysis research, 190 Analytical information, 218 Andersen Consulting, 181 Anonymity, 261–64 cookies, deletion of, 263 infomediaries, 263 P3P software, 264 support organizations, 262 Anonymizer.com, 262 Anticybersquatting Consumer Protection Act, 279 AOL. See America Online (AOL) ApartmentWorld.com, 60–61 Apex Supply Company, 104, 105 Application flow management, 153–54 Application service providers, 22, 24, 29, 164–68 advantages of, 165 Ariba, 14, 93, 208 Arthur Andersen’s KnowledgeSpace, 108 Ashford.com, 13 Asia, global Internet economy and, 284, 286 Association of National Advertisers, 188 AT&T, 22, 156 AtomFilms, 115 Auctions, 17, 29, 33, 153 reverse, 38 Audit process, 265–66 Australia, 284

Auto industry, 17 online auto sales, 14, 63 Avid Reader, The, 76 Away.com, 17

B B. Dalton stores, 106, 107 Babbage’s, 106, 107 Banana Republic, 86 Bandwidth capacity, 24 variety, designing for, 157–60 Banner ads, 185–86, 259 Barnes & Noble, Inc., 77, 106–10 barnesandnoble .com, 69, 195, 196, 197, 280 B&N University, 236–37 customer communities and, 232, 236–37 BCBG Max Azria, 100 Bean, Leon Leonwood, 140 Bear-Grams, 138 Beauty industry, 14 Bechtelsheim, Andy, 164 “Benchmarking Study of Electronic Customer Service,” 225 Bertelsmann AG, 13–14, 106, 276 Better Business Bureaus, 266–67, 269 Children Advertising Review Unit, 271 “Beyond the Blur: Correcting the Vision of Internet Brands,” 181

Bezos, Jeff, 69 Bidding process, 38 Billboards, 184 Billings, Hilary, 50–51, 52 BizRate.com, 3, 19, 35, 68, 178, 182, 268 Blimps, 184 Blockbuster, Inc., 113–16 Bluefly.com, 161, 242 BlueLight.com, 110–11, 216 BMB Entertainment, 14 Boeing, 137 Boo.com, 64, 158 Bookends (New Jersey bookstore), 74–76, 232 BookSense.com, 75 Boston Consulting Group, 24, 222, 225 Bots, 8, 68, 90 Bowman, Robert, 183 Boy Scouts of America, 142 Boys & Girls Clubs of America, 87 Bradley, Bill, 74, 75 BrainPlay.com, 147 Brand awareness/ recognition, 9, 185 Brand Builders, xviii bricks first, 86, 88, 91, 94, 97–98, 102, 106–7, 110–11, 113–14, 117 catalogs first, 129, 132, 135, 138–39, 140–41, 143, 145–46 characteristics, 32 clicks first, 51, 55, 57, 59 defined, 31–33 online strategies, 33 Branding, 181

Index Brand name trademark, 278 Bricks to hybrid, 74–122 advantages, 77, 78 Barnes & Noble, Inc., 106–10 benefits, 84–85 Blockbuster, Inc., 113–16 Charles Schwab, 87–91 customer contact, 223 customer interactivity, 121 Gap Inc., 86–87 Home Depot, Inc., 101–6 kiosks as channels, 79–80 Kmart/BlueLight .com, 110–13 manufacturers selling directly online, 80–83 marketing issues, 119–20 new opportunities, 121 Nordstrom, Inc., 97–101 proactive mall strategies, 78–79 RadioShack Corp., 116–19 Staples, Inc., 91–93 technical issues, 120 transition issues, 243 warehousing issues, 120–21 Williams-Sonoma/ Pottery Barn, 93–97 Broadband, 159, 173 B2B centers. See Business-to-business (B2B) centers

B2B Maximizers, xviii, 207, 208–9 bricks first, 93, 105, 109, 115–16 catalogs first, 131, 134, 137, 140, 142, 147 characteristics, 32 clicks first, 58, 61 defined, 37–38 Bureau of Labor Statistics, 16 Bus wraps, 184 Business applications software, 171 Business intelligence, 211 Business models, 39, 285 creating new, 39 of pure-plays, 67 Business Solutions, 108, 109 Business-to-business (B2B) centers, 17, 29. See also B2B Maximizers database integration and, 34 sales, 3 stability/funding and, 15 vertical growth potential of, 15 Business-to-consumer (B2C) centers database integration and, 34 funding, 15–16 Business Week, 86, 171 buytogether.com, 68

C Cable modems, 25, 157 Cable television, 182–83 Caldor stores, 112

289

Call centers, 160–61, 227–28 Call reporting data, 218–19 Carter, Jimmy, 74 Cash giveaways, 198–99 Catalog companies, 2, 3–4, 5–6, 10. See also Catalogs to hybrid privacy policies and, 268 returns and, 9 Catalogs to hybrid, 123–51 advantages, 44, 124–26 benefits of, 127–28 Coldwater Creek, Inc., 142–45 customer contact, 224 customer interactivity, 149 Dell Computer Corp., 134–38 Gateway, Inc., 129–31 Hanover Direct, Inc., 145–47 L.L. Bean, Inc., 140–42 Lands’ End, Inc., 131–34 marketing issues, 148 new opportunities, 150 technical issues, 148–49 transition issues, 243 Vermont Teddy Bear Co., 138–40 warehousing issues, 149 CDnow.com, 13–14, 18, 258

290

Index

Cell phones, 186, 260–61 Center for Democracy and Technology, 264 Certified Business Arrangements, 61 Challenges, of technology. See Technological challenges Chambers, 94 Channel-to-channel expansion, 10 Channel Synchronizers, xviii, 205, 206 bricks first, 86, 88–89, 91–92, 94–95, 98, 102–3, 111, 114, 117 catalogs first, 129, 132, 139, 141, 143–44, 146 characteristics, 32 clicks first, 51–52, 57, 59 defined, 33–34 Chaplin, Ian, 50 Chapter 2, 24 Charles Schwab, 13, 45, 77, 87–91, 154, 188–91 PocketBroker, 159 Chase H&Q, 89 Chat rooms, 232, 233 CheetahMail, 195 Chemical suppliers, 17 Chertok, Marge, 209–10, 276, 280 Chief information officer, 155 Chief privacy officer, 264–65 Children Advertising Review Unit, 271 CIO Magazine, 88 Cisco Systems, Inc., 172, 229 Cisco Collaboration Server, 161

ClearSight, 215 ClickAction, 195 Clicks to hybrid, 43–73 benefits of expanding, 48–49 Boo.com, 64 from clicks to catalogs, 43–45 from clicks to bricks, 45–46 clicks-to-hybrid advantage, 46–49 ConsciousMedia .com, 56–59, 245 customer contact, 224 customer interactivity, 71 E*Trade Group, Inc., 62 eZiba.com, 54–56 Gazoontite.com, 66–67 IdeaForest and Joann.com, 62–63 lessons from pureplays, 69–70 marketing issues, 70 marketplace exchanges, 63 new opportunities, 72 Pets.com, 64–66 RedEnvelope, 43–44, 50–54 successful pureplays, 67–69 technical issues, 70–71 transition issues, 242 UrbanRealtors, 59–61 warehousing issues, 71 Client relationships, 130 Clinique, 194

Clixnmortar.com, 78–79, 80 Cnet.com, 18, 190 CNN, 153 Cobranding Web sites, 188–89 Coca-Cola, 82 Cohen, Jeff, 102 Coldwater Creek, Inc., 142–45, 221, 246 Collaboration, 212 Collectibles, 14 Columbia House, 13 Comarketing alliances, 197 Combinations, of channels, 6 Comer, Gary, 131 CommerceOne, 93, 166 Communication News, 154, 218 Communication automated interactions, 16 improving customer, 224–26 technology and, 204 Communications services, 15 Communities in Schools, 87 Company Kids, 146 Company Store, The, 145 Compaq, 82, 118 Comparison shopping, 4, 77 Competition competitive advantage, of hybrid companies, 3–4, 11 dot-coms and traditional sales venues, 1 Complaints, 10

Index Component Knowledge, 17 Comprehensive crossanalysis, 203 Computer break-ins, 272 Computer hardware industry, 14 Computer Science degrees, 16 Computer World/ Smithsonian Award, 133 Computing Research Association, 16 Comverse Network Systems, 163 Conaway, Chuck, 112 Confirmation, of order, 8 ConsciousMedia.com, 56–59, 245 customer communities and, 238 Consolidated Stores Corp., 147 Consumer behavior profiles, 258–61 Consumer online spending trends, 1, 3 Consumer privacy, 264–67 Better Business Bureaus and, 266–67 chief privacy officer, 264–65 independent auditors, 265–66 TRUSTe, 266 Contentville, 75 Control, as customer concern, 20 Convenience, as customer concern, 20

Convergence, 24–25 Convergys Business Rules Decisioning Engine, 211 Cookies, 216, 256, 258–59, 262, 263, 269, 270 CoolBoard, 234 Copyright, 21–22, 275, 278 Napster, 276–77 Corel, 131 Corio, 165–66 Corporate roles, new titles for, 155–56 Correspondence, tracking, 208 Cosmos.com Inc., 229 Coupons, online, 9 Credit card fraud, 273–74 information, 267 Credit Suisse First Boston Corporation, 89 CRM assistance, 222 Cross-channel integration, 11 CrossCommerce, 163 Cross promotion, 9, 57, 232 television to Web, 182 Customer(s). See also Customer Centric; Customer communities; Customer service accruing additional, 30 base, existing, 285 concerns, primary, 20 data, 35 determining profitability of, 218

291

expectations, 19–20, 222 files, as dot-com property, 271–72 interactivity, 149 loyalty, 9, 215 needs, knowledge of, 47 profile databases, resale of, 271 profiling tools, 216–17 relationships, 155–56 returns, 34 surveys, 237–38 Customer Centric, xviii, 206, 207–8 bricks first, 87, 90, 92, 95–96, 99–100, 103–4, 107–8, 112, 114, 117–18 catalogs first, 130, 133, 135–36, 139, 141–42, 144–45, 146 characteristics, 32 clicks first, 53, 55, 57–58, 60 defined, 34–36 Customer communities, 230–39 Barnes & Noble, 236–37 building, 230–34 ConsciousMedia, 238 Home Depot, Inc., 235–36 Staples, 237–38 Customer Relationship Management (CRM), 163, 203, 214–16, 220 electronic, 208

292

Index

Customer resource management technology, 34 Customer service, 34, 69, 124 call centers, 36, 160–61 customer loyalty and, 215 integrated databases and, 34 personalization of, 35–36 online customer support, 161–62 personal contact, importance of, 35, 286 software, 171 Customization, 217 Customized Internet applications, 22 CyberCorp, 90 Cybercrime, 272–75 Cybersquatting, 279

D Daily Deal, The, 164 Daimaru, Inc., The, 100 DaimlerChrysler, 38 Dartmouth College, 20 Data aggregators, 67–68 Database integration, 33–34, 205 linking, 257 marketing, 192 Datamonitor, 36, 161 Data warehousing/data mining, 210–11 DB2 KnowledgeX, 213 DB2 OLAP, 211 dealtime.com, 68 Delia*s Inc., 125–26

Dell Computer Corporation, 24, 134–38, 245 Dell, Michael, 134, 153 Demographics, of online shoppers, 178, 179 De-motivators, 19, 20 Denial of service, 272, 273 Designers, online, 82–83 Desius, LLC, 147 Dial-up service problems, 157 Differentiation, 31. See also Brand Builders Digital certificate, 274 Digital credentials, 163–64 Digital Impact, 195 Digital Millennium Copyright Act, 278 Digital PocketNet, 22 Digital subscriber line (DSL), 24–25 Digital television. See Interactive television Direct mail, 191, 193 DIRECTV, 114, 119 Discounts, 77, 124 vs. trust, awareness, branding, 9 volume, 34 Discussion boards, 233–34 Domain names, versus trademarks, 279 Domestications, 145–46 Domino.Doc, 213 DoubleClick, 188, 190–91, 214, 256–57, 265 Doubleday Book Shops, 106, 107 Dress Barn, Inc., 147 Droog for Generation Y, 125

DSL, 157 DuPont, 17

E eBay, 16–17, 31, 33 E-book publishing, 278 eBook Store, The, 107 e-brokers, 13 eCards, 107 E-commerce channel, 152–74 application flow management, 153–54 application service providers, 164–68, 174 bandwidth variety, designing for, 157–60 Cisco Systems, Inc., 172 dial-up service problems, 157 IBM, 172–73 moving to clicks, 153 new titles for, 155–56 Oracle Corp., 170–71 outsourcing relationships, 155 performance measurement, 169 performance testing, 168 placement of, in organization, 154–55 security, 156 selecting services, 160–64 Siebel Systems, Inc., 171–72

Index ECommerce Tools, 249 E-commerce Web sites, 2 E-contact centers, 219 Ecount, 263 e-CRM products, 222 Egghead.com, 18, 280 Egreetings.com, 54 Electrifier Inc., 14 Electronic components industry, 17 Electronic customer relationship management (e-CRM), 208 Electronic Driver Administration system, 252 Electronic Frontier Foundation, 262 Electronic Privacy Information Center, 262, 272 Electronic publishing, 27–28 Electronic Signatures in Global and National Commerce, 274 Electronic surveys, 179 Ellison, Larry, 170 E-Loan, 265 E-Logistics, 248 E-mail, 204 automated responses, 217 customer service/ contact and, 35–36, 228 marketing, 193–94, 201 privacy policies and, 268 service providers, 194–95 E-Marketer, 188 Engage, 188 Engage Media, 190, 191

Engineering, vice president of, 15 Enhanced television, 26 Enonymous, 263 Enron Broadband Services, 115 Enterprise Information Portal, 212 Enterprise performance management, 215 EPIC Systems, Inc., 108 Epicurious.com, 96–97 Epson, 131 Ericsson, 23 Erizon, 145, 147 eSelling Intelligence, 216 e-Shop Fulfillment software, 252 E-SIGN Act, 274 E-signatures, 274–75 ESPN.com, 190 Estee Lauder Co., 17, 194 eToys.com, 197 E*Trade, 13, 45, 62, 183 Europe, global Internet economy and, 284, 286 Excite, 54, 147 Executive team, of Internet company, 15 Exel, 252 Exodus Communications, 99 Expedia.com, 266 EXPO Design Center stores, 101, 103, 104 ExpressResponse, 217 Extreme advertising, 184

F F.A.O. Schwartz, 27 FaceTime Communications, 54 Fashionmall.com, 64

293

FastFrog.com, 78, 79, 80 Fatbrain.com, 109 Fax, customer contact via, 228 Federal Trade Commission, 256, 257, 271, 272 Federated Department Stores, 31–32, 34 FedEx, 247, 248, 249, 250, 253 Feedback, on order, 8 Fiber optics, 25 FileNET Corporation, 117 Financial services, 10, 14, 265 FindMRO, 36 Fingerhut, 31–33 Fingerhut Business Services, Inc., 251 Fleming Companies, 112 FloNetwork, 195 Focus groups, 180 Fogdog Sports, 147 Food.com, 115 Forbes’ Best of the Web, 191 Ford, 38 Forecasting models, 203 Forrester Research, 18, 21, 24, 35–36, 79, 88, 164, 184, 186, 193, 226, 228, 284 Fort Point Partners, 216 Fortune magazine, 171 Fraud, 272 credit card, 273–74 Freebie, 115 Freenet, 22, 277 Free shipping, 124 Front office/back office systems, integration of, 154, 174 Fulfillment services, 250–53

294

Index

Funding, type of company and, 15 Future Focused, xviii, 206 bricks first, 91, 93, 100–101, 105–6, 109–10, 112–13, 116, 118–19 catalogs first, 131, 134, 137–38, 140, 145, 147 characteristics, 32 clicks first, 56, 58–59, 61 defined, 38–39

G Gallery Furniture, 27 Galloway, Scott, 50 Gallup Organization, 113 GameStop, 106 Gap, Inc./Gap.com, 80, 86–87, 175–76, 197, 230, 244 Gap Foundation, 87 Gartner Group, 81 Gateway, Inc., 129–31 Gateway Astro PC, 131 Gateway Country Stores, 130 Gazoontite.com, 66–67 Gemstar-TV Guide, 26 GENCO Distribution System, 253 General Electric, 104 General Motors, 38 Georgia Lighting, 104, 105 Gilligen, Dana, 74, 76 Girl Scouts of America, 142 Glassbook Reader, 108 Globalization, 284, 286 Global online advertising, 185, 284

Global Solutions (IBM), 210 Gloss.com, 17 Gnutella, 22, 277 Go.com, 54 Gomez Advisors, 64 Government regulations, privacy and, 256 Grab.com, 199 Graduate school programs, 15 Greenfield Online, Inc., 180 Greentravel.com, 17 Grocery companies, online, 18–19 Gumps, 146 Guru.com, 15

H Hackers, 156, 272–73 Handheld devices, 23 Hanh, Thich Nhat, 57 Hanover Direct, Inc., 145–47, 251 Harvard Business School, 15 Hasbro, 131 Health industry, 14 Helmut Lang, 83 Herzberg, Frederick, 19 Hewlett-Packard, 24, 131, 197 !heyinc., 230 Hey Software Inc., 230 High-tech companies, 15 Hold Everything, 94, 95 Holiday sales, 1 Home Depot, 34, 101–6, 244–45 customer communities and, 235–36 privacy policy, 269–70

HomeGrocer.com, 18 hotbot.com, 68 Human infrastructure, 204, 205, 209–10, 220 Hybrid companies characteristics of, 4–6, 285 defined, 2, 10 development of, 10 early mistakes of, 6–10 future of, 283–86 privacy recommendations, 267–71 transition issues, 241–43 Hygiene factors, 19–20 Hyperlinks, 196

I IBM, 14, 24, 34, 137, 165, 172–73, 211–12, 213, 214, 229, 264 e-Business services, 92 e-commerce creation products, 172–73 Global Solutions, 210 IBM Start Now Business Intelligence Solutions, 217–18 Icontact.com, 230 ICSA/e-Satisfy.com, 225 IDC, 184, 210 IdeaForest, 62–63 Ideal customer profile, 35 Identity theft, 274 IEC-Enterprise, 108 Ikimbo Omniprise platform, 213 Image-caching, 144

Index iManage, 167–68 Improvements, 146 Incentives, 9 Incogno, 263 Independent auditors, 265–66 Industrial goods and services, 17 Infomediaries, 262, 263 Information technology, 17, 155 Initial public offerings, 13, 29 InMotion Pictures, 115 Innovation, 31, 91 funding of, 154–55 Integrated application service, 166 Intel, 266 Intelisys, 93, 108 Intellectual property protection, 21–22, 272, 275–80, 282 copyright law, 278 domain names, 279 e-book publishing, 278 Napster, 276–78 patents, 279–80 Sock Puppet issue, 276 trademarks, 278–79 Web site content, 275–76 Intelligent Miner for Text, 213 Interactive advertising, 184 Interactive programming guide (IPG), 26 Interactive television, 21, 26 advertising, 184 International Data Corporation, 22, 273 International Male, 146

International New Age Trade Show, 58 Internet Advertising Bureau, 185 Internet/Internet companies infrastructure, 135, 137 pure-plays, 5, 10 security software, 273 technical labor and, 16–17 usage data, 23, 169 venture capitalists and, 14–16 Internet Corporation for Assigned Names and Numbers (ICANN), 279 Internet service providers (ISPs), 157 Internet Tax Freedom Act, 28 Internet World, 157, 158, 191 Intuit, 131, 188–89 Inventions, patent of, 279–80 Inventory catalog companies and, 124 Dell Computer Corp., 135 just-in-time, 45–46 tracking, 8, 34 Investment bankers, 15 Investments emotion and, 13 e-tailers, 16 IPOs, 13 Island Data Corp., 217 iTurf, 125 IVentures, 82 iVillage.com, 54, 82, 188–89

295

J J.C. Penney, 81 J. Crew, 54, 230 J. Jill Group Inc., 240–41 Jaclyn Smith label, 111 Jacobson, James, 56 Jennings, Lynette, 101 Joann.com, 62–63 John Hancock Mutual Life Insurance Co., 186, 188 Junkbusters.com, 263, 272 Jupiter Communications, 3, 11, 26, 30–31, 168, 185, 193, 231, 284

K Kahn, Stephen, 126 Kana Communications, 195, 229 Kathy Ireland label, 111 Kbkids.com, 147 Keynote Systems, 168 Keystone Internet Services, 146, 147, 251 King, Stephen, 27–28, 278 Kiosks, 78–80 Kitchen & Home, 146 Kmart/BlueLight.com, 16, 34, 110–13 Kmart Solutions, 112 Knowledge management, 203–20, 286 benefits of, 204–5, 220 business intelligence, creation of, 217–19 CRM applications, 214–16

296

Index

Knowledge management, continued customer profiling tools, 216 data warehousing/ data mining, 210–11 human infrastructure, 209–10, 220 impact on success strategies, 205–9 technological infrastructure, 211–13, 220 tools, 222 Kohl’s Corp., 244 Kraft, 82 K-station, 212

L L.L. Bean, Inc., 124, 140–42, 195, 246 privacy policy, 269 Labor costs, 153 technical, 16–17 Lands’ End, Inc., 131–34, 161, 162 Lang, Helmut, 83 Language translations, instant, 212 Latin America, global Internet economy and, 284 Lauren, Ralph, 83 Layoffs, 16 Leasing, from ASPs, 164 Legal issues, 280–81 Lehman Brothers, 12 Lemon laws, 280 Levi Strauss & Co., 7–8, 81 Links, 37 Linux, 172 Lipstream, 25, 230

Liquidation, 31 Live events, 231–33 LivePerson, 229, 230 Location tracking, 187, 256, 260–61 Logic bombs, 273 Logos, 177 trademark of, 278 Longevity, 11 Long-term sponsorships, 188–89 LoopNet, Inc., 61 Lotus, 212–13 Loudcloud, 24 Lycos, 54, 108

M McLeary, Christopher, 166 Macy’s/Macys.com, 9, 34, 195, 230 Magazine advertising, 143 Magellan Corp., 61 Mailing lists, 124 Mail-order lists, 267 retailers, 131 Maintenance Warehouse, 101, 103 Managed service providers (MSPs), 24, 29 Management structure, funding and, 15 Manhattan Associates, Inc., 92, 251–52 Manufacturing time, 204 Market exchanges, 17, 29 Marketing, 148. See also Market research; Multimedia marketing trends affiliate, 196–97 comarketing alliances, 197

customer knowledge and, 35 e-mail marketing, 193–94 evaluating campaigns, 201 integrated online/ offline strategy, 176–77 reciprocal, 197 sole use of Web site for, 7–8 vice president of, 15 viral marketing, 195–96 MarketMAX, 95, 96 Marketplace exchanges, as clicks, 63 Market research, 178–81 branding, 181 focus groups, 180 panels, 180–81 questionnaires, 179–80 Martha Stewart label, 111, 112 MASS MoCA, 55 Material Logic, 36 Maytag, 7–8, 81 M-commerce, 29 Media Metrix, 30–31, 64, 106, 157, 169, 178, 180, 185 Mercata, Inc./ Mercata.com, 68, 147 Merchandising Masters, xviii, 205, 206 bricks first, 86–87, 89, 92, 95, 98–99, 103, 107, 111, 114, 117 catalogs first, 129–30, 132–33, 135, 139, 141, 144, 146 characteristics, 132

Index clicks first, 52–53, 55, 57, 59 defined, 34 Mergers, 17–19, 29 Merrill Lynch, 13, 45, 88 Message boards, 232, 233–34, 237, 238 Metallica, 276 MGM, 115 Microsoft, 54, 108–9, 118, 131, 188, 264, 265, 280 application service provider, 165 Expedia.com, 266 Internet Centers, 117 Microsoft Network (MSN), 118, 119, 231 Microsoft Reader, 108 MightyWords, 110 Miller, Nicole, 83 Miller Lite Beer Pager, 184 Minorities, technical jobs and, 16 Mistakes, 6–10 Mobile commerce, 23–24, 186 Mobile devices, 21 Modems cable, 25, 157 wireless, 159 Motorola, 23 MP3.com, 277 MSN.com, 108, 188 MSPs, 24, 29 Multi-channel business approach, 2 Multimedia banner ads, 186 Multimedia customer service, 161 Multimedia marketing trends, 175–202

marketing challenge, 176–77 targeting the customer, 177–81 Music industry, 276–77 demographics and, 178 Myers Group, 184, 185 MyPoints.com, 198 mysimon.com, 18, 68

N Napster, 18, 21, 276–78 National Blinds & Wallpaper, 101, 103 National Crime Prevention Council, 118 National Governors’ Association, 28 National Retail Federation, 3, 11 National Sheriff’s Association, 118 National Venture Capital Association, 14 NaviSite, 136–37 NetActive, 115 Netcentives, 198 NetMorf, 110 NetReps, 230 NetTracker, 169 NetTV, 184 Network society, 30 New media advertising, 184–85 New Moon, 164 Newspapers, and public relations campaigns, 200 News reporting, 153 New York Times, 13, 28 New Zealand, 284 NextCard, 64

297

NFO Interactive Inc., 222 Niche markets, 178 Nickelodeon, 131 Nicole Miller, 83 Nielsen/NetRatings, 64, 169, 180, 185 Nike, 82 911Gifts, 50, 52 Nokia, 23 Nordstrom, 97–101, 225, 244 privacy policy of, 270 Nordstrom, Dan, 97 Nordstrom, John, 97 North America, global Internet economy and, 284, 286

O Offspring, 278 Old Navy, 86 Olympic Job Programs, 105 Omniprise software, 213 OneLink Communications, 218–19 OneMediaPlace, 191 Online activities tracking, 257–58 analytical processing, 211 assistance, live, 229 customer support, 161–62 events, 232, 233, 235 marketplaces, 17 retailers, comparative shopping and, 4 Online Insight, 181 Onsale Inc., 18

298

Index

Onyx Software Group, 215 Open Site Technologies, 18 Opt in/opt out, 193, 260, 267, 282 Oracle, 14, 93, 165, 170–71, 215 Order confirmation numbers, 8 Order feedback, 8 Order fulfillment, 34, 163, 250–53, 286 Ordering, 34 OrderZone.com, 36 Organization for Economic Cooperation and Development, 273 OurHouse.com, 199 Outdoor Discovery Schools, 141 Outpost.com, 183 Outsourcing, 155, 241 live online assistance, 229 performance testing, 168 virtual private network support staff, 156 Oxford Express, 133 Oxygen.com, 190 Oxygen Media, 147

P Pacific Rim region, global Internet economy and, 284, 286 Packaging, 34 Palms, 23, 137, 159–60 Panels, 180–81 PaperExchange.com, 93 Partnership for Progress Award, 146

Patents, 22, 275, 279–80 Patent and Trademark Office, 280 PC products Dell Computer Corporation, 134–38 Gateway, Inc., 129–31 PDAs, 186–87 advertising, 186–88 clipping software or separate content for, 160 Peak calling times, 218 Peapod, 19 Peer-to-Peer (P2P) file sharing, 21–22, 29 People Helping Animals Helping People, 66 PeopleLink, 234 PeopleSoft, 165, 166, 215 PeopleSupport, 229 PepsiCo, 82 Perceptual Robotics, 27 Performance measurement, 169 Performance testing, 168, 174 Permission marketing, 193 Personal computers, sales trends of, 21 Personal contact, 221–30 challenge of, 223–24 e-mail, 228 exceeding expectations, 226–27 fax, 228 importance of, 35 live online assistance, 229–30 need for improvement in, 224–26

telephone contact, 227 Personal data, consumer access to, 261 Personal digital assistants, 186 Personalization, 35, 69, 216–17 database marketing and, 192 e-mail marketing and, 193 versus privacy, 256–58. See also Privacy services, 216–17 software, 256 technology, 286 Personify, 169 Pets.com, 64–66, 276 Pets.commitment Fund, 66 Petstore.com, 64 Physical presence, 2 Pictionary, 195 PKMS solution, 251 Platform for Privacy Preferences (P3P), 264 PocketBroker, 159 Polonetsky, Jules, 265 Portals, 189 Pottery Barn, 50, 52 Pottery Barn Kids, 94, 95 Pottruck, David, 88, 91, 154 PowerApp, 135, 136 Precision Response Corporation, 161 Preintegrated solution platform, 215–16 Premier Pages, 137 Price comparisons online, 68 pricegrabber.com, 68 Priceline.com, 68, 280

Index PricewaterhouseCoopers, 213, 265, 266 Pricing policies, inconsistent, 8 Print ads, 183 Prints & Posters Gallery, 107 Privacy, 256–72, 281, 286 anonymity, 261–64 attempts to protect consumer, 264–67 consumer access to personal data, 261, 281 consumer criticism, 257–58 cookies, 258–59, 263 customer files as dot-com property, 271–72 DoubleClick, 256–57 location-finding technology, 260–61, 281 opt in/opt out, 260 Platform for Privacy Preferences (P3P), 264 recommendations for hybrid companies, 267–71 Web bugs, 259–60 Webcams and, 26–27 Privacy Foundation, 262 Privacy International, 272 PrivaSeek, 263 PrivateBuy.com, 263 Proactive live assistance, 230 Process time, 204 Procter & Gamble, 81–82 Procurement services, 17

Procurement transactions, 152 Product demonstration, 34 forecasting, 34 lines, expanding across channels, 8–9 packaging, trademark, 278 Profiling tools, 216–17 Profitable hybrid companies, 10, 11 Promotion(s), 191, 198–99 budgets, clicks, 69 Protagona, 211 Public Citizen, 262 Public domain, 275 Public relations strategies, 199–200, 202 Purcell, Richard, 265 Purchase patterns, 267

Q QDI Strategies, 168 Quality, as customer concern, 20 Questionnaires, 179–80 QuickPlace, 213 Quill Corp., 91 Qwest, 24 Qwest Cybersolutions, 165 QXL.com, 33

R R. R. Donnelley, 134 Radio advertising, 139 RadioShack Corp./ RadioShack.com, 9, 82, 116–19, 226, 245 privacy policy, 270–71

299

Ralph Lauren, 83 Rangoni Organization, 100 Razorfish, 160 RCA, 119 Real-time chats, 212 Reciprocal marketing, 197 Recognition Systems, 211 Recording Industry Association of America, 21, 276 RedEnvelope, Inc., 7, 43–44, 50–54, 123, 253 RedSky Agency, 184 Reflect.com, 81–82 Remailers, 262 Repairs, 34 Retailers, traditional, 77. See also Bricks to hybrid Retail Services, 115 Retek Inc., 99 Returns, 8, 9, 10, 34, 240, 241, 249–50 Returns@ease, 250 Reuters, 67 Reverse auctions, 38, 280 Reverse Logistics Management Services, 253 Reward/incentive programs, 198 Rich media, 15 banner ads, 186 Riggio, Steve, 109 RL Media, 83 “Rock, The,” 74 Rocket eBook, 108 Romala Stone, Inc., 104 Roundarch, 215–16 Rouse Company, 100 Roy, Ashutosh, 164 Royal Ahold, N.V., 19

300

Index

RS Software, 147 RSW Software, 168 Rubbermaid Home Products, 7, 81

S Sales projections, 34 representatives, 155–56 trends, catalog industry, 124 Salomon Smith Barney, 13 Sametime/Sametime Everyplace, 212 Sara Lee, 82 SAS Collaborative Server T., 213 SAS Enterprise Miner, 210–11 SAS Institute Inc., 210, 213 Satisfiers, 19–20 Sato, Mike, 98–99 Scandia Down, 145 School Leadership Academy, 87 Schwab, Charles, 129 Schwab Technology Innovation, 89. See also Charles Schwab Sclavos, Scratton, 164 Scribner’s Bookstore, 106, 107 Scudder Kemper Investments, 14 Search engines, 20 Sears Roebuck, 80 2nd Nature, 97 Secure Music Digital Initiative, 277 Security, 156, 272–75. See also Consumer privacy credit card fraud, 273–74

as customer concern, 20 e-signatures, 274–75 formal policies, 273 Seibu Department Stores, 100 Service-level agreement, 156 Service Metrics, 168 Shipping, 34, 246–49 Shopping bot, 68, 90 Shop-with-a-Friend, 133 Siebel, Thomas, 171 Siebel Call Center 2000 Siebel Systems, 18, 166, 171–72, 215 Silhouettes, 146 “Silicon ceiling,” 16 Simon Property Group, 78–79 Simulcast, 232–33 SiteMorfer, 110 SiteSmith, 24 Sizing, 124 Sloan School of Management (at MIT), 9 Slogans, trademark of, 278 Snail mail, privacy policies and, 268 Sock Puppet (Pets.com), 65, 276 Softbank Venture Capital, 110, 164 Software Etc., 106 Software industry, 14 business applications, 171 for Internet industry, 14 performance testing, 168 security, 273 software development, 16, 22

systems, 170 Sony, 276 Spam, 193, 195 Speech recognition technology, 25–26, 162–63 Speed, 46, 47 Sponsorships, long-term, 188–89 Sprint, 156 Sprint PCS, 22 Staples, Inc., 91–93 customer communities and, 237–38 privacy policy of, 271 Starbucks Corporation, 108 Starwood Hotels & Resorts, 50, 52 Steel industry, 17 Stellar Mortgage, 61 Stewart, Tony, 235 Stock market, 12–14, 15 Stop & Shop, 19 Storefront retailers, 3–4. See also Bricks to hybrid Storybook Heirlooms, 125 Streaming media, 15 Style Ideas, 101 Subaru, 142 Submitorder.com, 252 Subpoenas, 262 Subscription services, 277 Success strategies, hybrid companies, xviii, 30–42, 285. See also specific success strategy Alliance Builders, 32, 36–37 assessing readiness, 40, 41–42

Index Brand Builders, 31–33 business models, creating new, 39 B2B Maximizers, 32, 37–38 Channel Synchronizers, 32, 33–34 characteristics, 31, 32, 285 Customer Centric, 32, 34–36 Future Focused, 32, 38–39 knowledge management and, 205–9 Merchandising Masters, 32, 34 parameters of success, 30–31 Sun Microsystems, 165 Super Bowl advertising rates, 183 Superstitials, 186 SuperTarget, 62 SUPERVALU, 112 Suppliers, access to global, 153 Supply chain management, 92, 152, 160 Support organizations, 262 Sweepstakes and cash giveaways, 198–99 Systems software, 170

T Takeout Taxi, 115 Tandy, Charles, 116 Tandy Corp., 116 Target, 45 Taxation issues, 1, 28 Technical labor, 16–17

Technical specialists, 155 Technological challenges, 20–28 Technological expertise, 47, 77 Technological infrastructure, 24, 204, 205, 211–13, 220 Technology stocks, 13 Teen People Magazine, 100 Tel@GO, 163 Telecommunications, 17 Telephone contact, 227 voice technology and, 25 TeleSmart Web services, 219 Television advertising, 182–83 TenantConnect.net, 78, 79 Terrace, Rachel, 43 Thom McCann, 112 Threepf, 52–53, 252–53 Time Warner, 276 Top 50 corporations, 30–31 ToySmart.com, 271 ToysRus, 260 Tracking, of online activities, 257–58. See also Privacy Trade dress, 279 Trademarks, 275, 278–79 Traditional stores, 5, 10 Transora, 82 Travel industry, 14 Travelocity.com, 67–68 Trivial Pursuit, 195 Trojan horses, 273 TRUSTe, 261, 266, 269 TSI Soccer, 125 Turner Broadcasting System, 153

301

Turning Point Project, 28 24/7 Media, 188, 190, 191 Two-Factor Hygiene and Motivation Theory, 19

U U.S. Trust Corporation, 90 UBUBU.com, 15 Ulrich, Lars, 276 Undergear, 146 Unicast Communications Corp., 186 Unified front, presenting to customers, 9–10, 11 Uniform Domain Name Dispute Resolution, 279 United Against Crime, 118 United Internet Technologies, 100 United Parcel Service (UPS), 247, 248, 250, 253, 263 United States, global advertising and, 284 United States Postal Service, 193, 247, 248, 250 Partnership for Progress Award, 146 United Way, 142 University graduate school programs, 15 UPS, 247, 248, 250, 253, 263 Upselling, 161, 229 USA Networks, 161 US West, 218–19

302

Index

Usinternetworking, 166 USA Networks, 161

V ValueVision Television, 62 Vendor relationships, 34 Venture capitalists, 14–16 Venture stores, 112 VeriSign Inc., 163–64 Verizon Wireless, 118 Vermont Teddy Bear Co., Inc., 138–40, 246 privacy policy, 270 Vertical portals, 189 Viacom, 112 Vice president of engineering, 15 Vice president of marketing, 15 Villager’s Hardware, 105–6 Vindigo, 159 Viral marketing, 195–96 Virtual private networks (VPNs), 156 Viruses, 272, 273 VitaminShoppe.com, 197 VJungle.com, 164, 166 Voice assistance, 229–30 Voice contact, 227 Voice technology, 23, 25–26, 162–63 Volume discounting, 34 Volunteerism, 87, 142 Vortals, 189–90

W W.W. Grainger, 36, 37 Walker, Jay S., 67

Wallin, Carl, 97 Wall Street Journal, 14, 271 Wal-Mart, 16 Warehouses/warehousing, xvii, 34, 149, 244–46, 250–51 Wave Communications, 56 Web bugs, 259–60, 262 Webcams, 26–27 WebMethods B2B, 93 Web site(s) cobranding, 188–89 content, intellectual property laws and, 275–76 customer loyalty to, 9 extending to wireless and PDAs, 158 links, 37 marketing-use only, 7–8 traffic information, 169 WebTrends, 169 Web Trends Enterprise Solutions, 201 Webvan Group, Inc./ Webvan.com, 18 Wedding List, The, 100 Whitman, Meg, 16–17 W Hotels, 52 Williams-Sonoma/ Pottery Barn, 50, 52, 93–97, 195, 226 Windows 2000 Deployment Conference, 153 Wireless application protocol technology (WAP), 22–23

Wireless companies, tracking and, 261 Wireless/wireless devices, 22–23, 186–87 designing for, 159–60 modems, 159 and VPNs combined, security issues, 156 Wireless Web, 22 Women.com, 54, 82, 190 Women, technical jobs and, 16 Work made for hire, 276 Workbench, 111 Workforce, technical, 16–17 Worth magazine, 88

XÐZ Xerox, 137 XOOM.com, 147 Yahoo!, 54, 55, 112, 217, 272 Yahoo FinanceVision, 159 Yankee Group, 3, 164 YouKnowBest, 263 Your Personal Model, 133 YourSherpa.com, 78, 79, 80 Your Total 3rd Party Fulfillment Package, 252 Yu, Soon-Chart, 66–67 Zany Brainy, 140, 252