June 28, 2007, 12:00 AM

Technology tools help retailers trim costs and improve revenue

Merchants face an expanding array of new applications among core technologies.

Online retailers have an abundance of technologies from which to choose to improve their processes and profitability. The downside: They have an abundance of technologies from which to choose.

Depending on their needs, most retailers piece at least some systems together and then must ensure the systems can communicate with each other. The technology is out there and better than ever. The tricky bit for retailers is deciding first what they want, then how to get the applications talking to each other, says Kasey M. Lobaugh, head of the retail direct-to-consumer practice at Deloitte Consulting LLP.

“If retailers choose best-in-class systems they need to tie them together,” Lobaugh says. “But change is happening so fast, retailers who invested in their first e-commerce technology three years ago need to figure out-especially if they are growing at 25% per year-how to keep up with new business capabilities, not just how to manage the web site.”

Looking for robust systems

Retailers need to manage merchandising on their web sites, for instance, but are finding that 3-year-old systems “don’t offer robust merchandising capabilities. So they’re left to figure out how to scale technology. They might have to piece together various small vendor technologies to make it work,” Lobaugh says.

At the top of the e-commerce technology food chain are larger systems that manage the online sales channel, says Scot Wingo, president and CEO of ChannelAdvisor Corp., provider of e-commerce technology and marketing services. The online sales category includes search, comparison shopping, affiliates, advertising and e-mail technology. “These are what drive most e-retailers’ revenue. The primary function of this tier is to acquire and monetize customers,” he says.

Newer to the e-commerce technology scene are what Wingo terms conversion enhancers. Technology in this group includes rich media, multivariate testing and web analytics. Even a small change in conversion rates can have a major effect on revenue and the channels retailers participate in, he adds, so these tools hold great potential.

Getting the right e-commerce technology in place is a trial, but the real issue for direct marketers is managing data, says Matthew Ehrlich, president and CEO of ProfitCenter Software Inc., a company that specializes in web browser-based retail channel management.

For web-only retailers, the task is fairly straightforward, at least when compared with merchants who got their start in direct mail, stores or catalogs. “The challenge for most of them is to add selling through the web and 99% of these companies create a separate channel for web business,” Ehrlich says. “With different prices, costs and other factors, that creates a data maintenance nightmare.”

Consolidating the data into one application to control products and prices should be the goal of multi-channel retailers, Ehrlich adds.

Seeking partners

E-commerce platforms provide the backbone that online retailers use to manage e-commerce, whether selling in one or more channels. And while many e-retailers have developed and maintain these platforms in house, some are discovering partnering with a vendor is a viable alternative, says Mike Wachner, general manager of e-commerce at platform developer Junction Solutions.

“At least 50% of e-retailers today doing over $10 million in sales still do platforms in house,” Wachner says. “And they are finding it difficult to keep up with technology.” Many e-retailers in this category, who also are Junction Solutions’ customers, realize their in-house platforms are rapidly aging. To introduce features to their platforms, some retailers are buying technology from best-in-class software vendors or looking at third-party service providers for complete platforms, he says.

The reason self-developers can’t keep up? “It used to be more trivial to create an e-commerce platform, now it’s complicated. E-retailers aren’t technology companies. They should focus on marketing and rely on tech tools vendors develop,” Wachner contends.

Similarly, some e-retailers that traditionally have purchased and managed different e-commerce technologies now are looking to vendors and service providers to host applications on the web, says Curtis Hampshire, general manager of e-business at USinternetworking Inc., a web hosting company. “A few years ago retailers wanted to be good at managing systems and do it themselves. Now some retailers are seeing it’s better to bring in experts in different fields and allow themselves to focus on what they want to do, rather than run the site from day to day,” Hampshire says.

More e-retailers today have an idea how to differentiate themselves in the marketplace and they approach service providers to help them execute these ideas, he adds. Such strategies pay off for e-retailers because they don’t have to keep up with technological changes or the changing lineup of vendors in the marketplace.

Blocking the criminals

For some e-retailers, keeping up with fraud protection is taking up as much time as managing applications. The need to validate a potential buyer as a customer rather than one bent on mischief is motivating e-retailers to verify as much of a customer’s data as possible up front, says M. Gregory Smith, president and CEO of Accudata Technologies Inc., a service company that validates addresses with telephone and mobile phone numbers and Internet protocol locations.

Most of the largest e-retailers have some level of validation, usually done by a third party, Smith says. Once a transaction is flagged with a potential problem, “it’s up to the retailer to accept the transaction, decline it or do something else, like making a phone call to verify the customer,” Smith says.

When the order is set, web retailers turn to fulfillment technology, one of the back-office tools required to get orders moving to customers. Fulfillment systems play an increasingly pivotal role as customers’ expectations of fast delivery and receiving products in pristine condition are now the norm. Meeting these expectations plays a huge role in customer satisfaction as well as e-retailers’ profitability.

As Internet retailers look to sustain the double-digit growth many have enjoyed in the past several years, a new market beckons: Canada. “They see your TV, know your stores and brands, and have similar tastes,” says Lorne Taylor, general manager at fulfillment company Canada Post Borderfree. “It’s a relatively easy market to reach.” At least until online retailers try to ship products over the northern border. Then duties and shipping costs conspire to bog down orders, or worse, poison their arrival with a C.O.D. charge.

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