A Forrester report points out challenges faced by some business-to-business firms working online.
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Who goes there?
The site is largely a homegrown affair, Gordon says. Over about 10 months, employees migrated text and images from the catalog to the Internet. Today, the entire catalog is online, with the exception of products whose manufacturers restrict their sales online.
Microsoft’s NT operating system and e-commerce engine drive the front end. “We had a mail-order business prior to the Internet, and built a front end to it,” says Robert Carreras, AAFES vice president. The hardware hosting the system includes several IBM MIPS and Amdahl mainframes. To verify that a potential shopper is affiliated with the military, the shopper must provide identifying information, including a Social Security number and date of birth.
The AAFES system then electronically compares this information to a military database. “Because we’re part of the Department of Defense, we are permitted limited access to military databases,” Gordon says. Assuming the information checks out, the customer can create a user name and password.
The only outside help AAFES has used are freelance web designers, says Gordon, who won’t disclose the cost of rolling out the site.
To be sure, the site isn’t the glitziest. “For a retail site, it’s not as flashy as some,” says David Taylor, senior vice president of consultants Operon Partners LLC, Stamford, Conn. “The site isn’t technically competitive with the best-of-breed sites. But it’s practical.”
It’s also voluminous. Some 62,000 SKUs are online. The assortment of products offered via the web differs a bit from that found in the AAFES’ major stores and the catalog, Gordon says. “On the Net, items are more trendy,” he says. Giftware items, such as crystal, china and leather goods, are top sellers. Second in popularity are electronic items, including boom boxes, stereos, and digital cameras.
About 20,000 SKUs are exclusive to the Internet, Gordon says. Many are products that didn’t make it into AAFES’ biannual catalog. This year, for instance, scooters have been hot sellers online. In addition, Gordon and his team are using the web site to test acceptance of new products, before they purchase them in enough quantity to stock the AAFES bases. One example: high-end digital cameras first were offered on the web site. They became hot sellers, and subsequently were added to the catalog and stores.
In addition, the Exchange Service uses the Internet for clearance items. In fact, the closeout portion of the site is one of the most popular areas. In some cases, the service has consolidated small inventories from a number of sites as a way to boost exposure for those items.
Beyond K rations
Prices are nearly identical between the online and real-world outlets, Gordon says. The exception may occur when a local manager with an overstock marks down a particular item. To maintain price parity, the AAFES online store doesn’t charge for shipping and handling for the items that it warehouses. However, AAFES also offers products from concessionaires, or vendors that hook through the AAFES web site and then move customers to their own sites. Shoppers on those sites are liable for any shipping and handling fees.
Another benefit for online shoppers: those that hold AAFES’ proprietary credit card can view their statements and make payments online.
AAFES legally can advertise only to its authorized customer base. It prints the PX URL on receipts and on shopping bags. The service produces 500,000 to 1 million promotional tabloids a week that it distributes in stores and by mail. It also publishes two catalogs a year of up to 600 pages each. Circulation on those catalogs is 450,000. And it publishes five special holiday-related supplements to the catalog each year. Those supplements go to 150,000 customers. All promote online shopping as well as catalog buying.
The promotions appear to be hitting the mark. About 35% of shoppers who buy the Internet Items of the Week featured in the tabloids have not previously purchased online or through the catalog, Gordon says. “We haven’t seen any cannibalization. Our brick-and-mortar stores have shown no decline.” The only reasonable conclusion, says Gordon, is that AAFES is taking sales from other Internet retailers. How significant that share movement might be is unknown because the sales are so small.
While AAFES may have a natural target market, it still is vulnerable to competition. Gordon and his team keep their eyes on the national discount chains, such as Kmart Corp., Wal-Mart Stores Inc., and Target Corp., as well as the big-box retailers, like Best Buy. At every installation in the U.S., AAFES shoppers monitor the local competition. “Our mission in life is to provide goods and services to the military at a good price,” Gordon says.
That philosophy extends to the online marketplace, as well. AAFES analysts monitor prices offered by other online merchants. They also check out e-commerce trends and site features. Such attention to the competition makes sense, says iXL’s Berg, given the limited universe of customers from which AAFES can draw. “If they upset them, they don’t have another group of people they can go after,” he says.
Not every e-commerce initiative has been an unqualified success. AAFES deployed 17 kiosks in its retail locations in mid-1999. These allow service people who don’t have a computer to order online from within in the stores. Results so far have been mixed, Gordon says. “Customers don’t appear to be inclined to do that kind of shopping in a public place,” he says.
However, his team is trying to determine if some changes, which Gordon will not enumerate, will enhance results, and will test 15 new installations this summer.
The challenges notwithstanding, AAFES’ online business appears to be hitting the mark. Internet sales now nearly equal the catalog. By year-end 2001, online sales should eclipse the catalog, Gordon says.