Targeting Tech

In an uncertain economy, e-retailers are taking sharper aim at technology investments. They’ll still spend— under certain circumstances.

Technology spending plan for 2009: Think it over hard, take two aspirin, give it another look in the morning, then spend wisely. Just ask Drugstore.com Inc.

Coming off two years of substantial investments in technology, the web-only retailer is being much more selective this year. It’s passing on some bells and whistles to focus on projects it’s sure will quickly improve the online customer experience and increase conversion rates.

“While we want to have newer whiz-bang things on our platform, we also have prioritized profitability and cash flow,” says David Lonczak, who as chief marketing officer plays a direct role in planning technology projects.

What’s on hand

Instead of investing in new blogging and other social networking applications, for example, Drugstore this year is investing in taking advantage of functionality in its recently deployed Microsoft ASP.net e-commerce platform, Endeca site search and navigation system, and Omniture web analytics. “It would’ve been great this year to get into blogging and do more community applications on our sites, but we want to generate more revenue out of our past technology investments,” Lonczak says.

Drugstore, which is also scrutinizing applications it figures can bring immediate payback such as product recommendation technology, isn’t alone in taking a harder look at technology choices in light of the economic downturn. Several retailers of different types and sizes say that while they continue to invest in e-commerce technology to leverage the relative strength in the online channel, they’re taking extra steps to figure return on investment and ensure they’re choosing the best options among applications and vendors. Sometimes the best option is making better use of technology already on hand.

“This year has been more challenging,” says Melissa Rothchild, vice president of CPA2Biz Inc., an online retailer of professional and educational products to accountants. Before deciding to go with new applications this year, she adds, CPA2Biz spent more time in contract negotiations and took a harder look at expected ROI than in the past.

There’s simply less room for experimentation, retailers say. “In years past, we had more of an R&D cushion to try new technology,” says Steven Conine, chairman, chief technology officer and co-founder of CSN Stores Inc., which does more than $200 million a year through more than 200 niche web sites that mostly sell home furnishings, a category hit particularly hard by the fall-off in home sales. “Now if we’re doing something, it has to pay off quickly. We’re trying to improve our conversion rates and average order ticket.”

Eye on online growth

While many companies are examining technology spending requests more closely, few are cutting e-commerce technology budgets, says Brian Walker, senior analyst for e-commerce technology at Forrester Research Inc. In a survey conducted last December, Forrester found that 72% of companies said the economic downturn had not led them to alter their e-business technology investment plans, and that more than half of business-to-consumer companies said they planned to increase their budgets for e-business technology.

Companies are still bullish on e-commerce technology investments because they recognize the power of the online channel, Walker says. Forrester estimates that online retail sales will grow 11% this year over 2008, far faster than total retail sales, then grow at a more robust clip next year. Others are less optimistic, however. For instance, comScore Inc. estimates e-commerce sales will grow in single digits in 2009, roughly in line with the 6% online sales growth comScore estimates for 2008.

But e-commerce investments are not being driven solely by online sales, Walker says. He says successful retail e-commerce sites have become crucial to successful store retailing. Although direct online sales account for only 6% of total retail sales, 75% of consumers routinely research products on retail web sites before making offline purchases, and by 2013, 40% of total retail sales will be initiated on the web, Forrester predicts.

“E-commerce managers still don’t have a blank check to buy technology, but for most companies e-commerce technology is not an area to be trimmed,” Walker says.

The best metrics for determining a positive return and measuring customer satisfaction, Walker says, are shopper-to-sales conversion rates and average order size. “It all comes down to orders,” he says.

Easier integration

Indeed, that’s what Drugstore expects to achieve by continuing to invest internal resources into developing its Microsoft ASP.net e-commerce platform, Lonczak says. When looking to upgrade the Microsoft platform it had used since 1998, Drugstore considered major commercial platforms but decided that it could get the kind of customization it needed more cheaply by migrating to the new-generation ASP.net technology, which is designed to make it easier to integrate with new applications.

Part of Drugstore’s growth strategy, for example, is continuing to build out its number of SKUs with new products like its new Bare Escentuals cosmetics line. And one of its key methods of generating orders, Lonczak says, is offering a gift-with-purchase feature that can offer a gift from sources other than Drugstore itself—for example, a free Yoga DVD from Zenzations with the purchase of a Yoga exercise mat. Another feature effective at driving orders is a 5% cash-back offer that shoppers can apply to future purchases on Drugstore.com or its sister cosmetics site Beauty.com.

Such features require the flexibility to customize that Drugstore has in its existing ASP.net platform. “When we assessed the capabilities of commercial platforms, they were great, but when we looked at the customization work we’d need, we could easily spend tens of millions of dollars,” Lonczak says.

At the same time, Drugstore is working with other technology suppliers to improve various aspects of its e-commerce operations. It’s continuing to develop personalized product offers through Omniture’s Test & Target application, deploying online video with image management tools from Liveclicker, and seeking to better serve foreign consumers with E4X Inc.’s FiftyOne application, which renders Drugstore.com’s prices in the local currencies of 34 countries and handles international order fulfillment and shipping. It’s also testing two versions of product recommendation engines.

Enhancing its web sites while keeping a close eye on costs has helped Drugstore meets its financial performance goals. Despite the industry-wide fall-off in the online sales growth rate, Drugstore recorded its first profitable period in last year’s fourth quarter.

Ensuring site performance

CSN Stores is also taking steps to shore up its e-commerce infrastructure, to ensure a consistently reliable shopping experience across its more than 200 online storefronts, Conine says. “One of our biggest beliefs is that our sites have to be fast and consistent, regardless of whether we’re attracting new customers or bringing back old ones,” he says.

Although CSN is also looking into technology from providers like Liquid Pixels and Adobe Scene7 for more rich media displays, which have proven effective at converting furniture shoppers into buyers, the retailer is mostly focused this year on ensuring reliable site performance.

“When our marketing group plans a promotion to increase customer loyalty, it can cause traffic to hit our server farms in different ways, and it can all be for naught if any of our sites don’t perform,” Conine says. “So we’re making sure we have sufficient infrastructure and a solid enough system in place.”

Among CSN’s recent investments is a backup data center to cover power outages; new network switching technology from Cisco Systems Inc. to increase security; and site-monitoring technology from Coradiant that identifies problems in online shopping sessions.

In addition, CSN is continuing to upgrade the software code underlying its ASP.net e-commerce platform and migrating toward the Microsoft SQL Enterprise Edition database platform. Now, instead of occasionally running into traffic bottlenecks that can slow site performance, CSN’s database system can more consistently handle simultaneous requests by shoppers for product content.

Boosting conversions

At CPA2Biz, the strategy this year is to build on the Blue Martini e-commerce platform from Escalate Retail installed in 2007. “We have seen a 20% increase in visitor-to-purchaser conversion rates year over year,” Rothchild says.

Rothchild chalks up the increase to several improvements CPA2Biz has made within the past two years. In addition to the Blue Martini e-commerce platform, which is being rebranded as Escalate e-Commerce, the retailer has also deployed site search and navigation technology from Endeca Technologies Inc., Salesforce.com as a customer relationship management application, and web analytics from Coremetrics. Earlier this year, it deployed a Bazaarvoice customer ratings and reviews application.

“We now have more value-add information on our product detail page, such as customer reviews and excerpts from other product pages, that help customers make easier on-the-spot buying decisions,” Rothchild says.

Still, deciding to deploy new technology this year has been tougher than usual, Rothchild adds. As an example she points to the retailer’s careful examination of Salesforce.com as a customer relationship management tool.

“We really scrutinized if it was necessary, including finding out what other retailers had paid for a similar deployment, as we considered if this was just a nice-to-have or something we had to have to build customer relationships,” says Mike McCarthy, vice president of engineering for CPA2Biz.

Before it makes more sizable technology investments, however, CPA2Biz will work on deploying more of the functionality in its existing applications to ensure it’s getting the most bang for its buck in the economic downturn, Rothchild says. In the Escalate e-Commerce platform, for instance, it will work with the vendor and its own I.T. staff to deploy a Relationship Management module that will provide shoppers more personalized offers.

“Rather than just cross-selling by showing ‘customers who bought this also bought that,’ we’ll be able to make a special offer, such as for a particular customer once she buys more than $500 in the past month,” she says. CPA2Biz is also considering the use a new Page Builder application within the Endeca software suite, which is designed to make it easier to pull in multiple types of content, including videos, to develop merchandising pages.

Customer experience

Improving the online shopping experience within a tight budget is also a key focus this year at 1-800-Flowers.com Inc. After noticing the economy starting to slow down in the fall of 2007, the floral, food and gifts retailer developed a three-part growth strategy: Taking care of existing customers, reducing operating costs, and pushing ahead with innovative retailing technology and processes, says president Chris McCann.

That meant choosing the right technology partners, and only after making a strong business case, he adds. 1-800-Flowers, which has long operated its multiple web sites on a homegrown e-commerce platform, began migrating to IBM Corp.’s WebSphere Commerce platform last fall, starting with The Popcorn Factory in its food and gifts group. It plans to eventually deploy WebSphere Commerce for all of its more than 12 retail web sites, providing a common shopping experience with robust customizing capabilities for its staff of more than 150 I.T. professionals, McCann says.

For a relatively short-term gain, it recently deployed on its flagship floral retail site 1-800-Flowers.com live chat from LivePerson Inc. and a consumer-generated ratings, reviews and stories platform from Bazaarvoice. The live chat application has already helped to improve conversion rates, and has attracted positive comments from customers who say they appreciate having the service available even if they haven’t yet used it, McCann says.

Bazaarvoice is supporting an innovative marketing promotion for Mother’s Day, the site’s biggest sales generator, says Vib Prasad, the retailer’s senior director of web merchandising. The promotion, Spotlight a Mom, lets customers compete to win free vacation trips by submitting stories about what makes their mom special. Winning stories are shown on the retailer’s home page, and anyone who views one of the stories can also use on-site applications to forward them to Twitter, Facebook and other social networking sites.

As valuable as the LivePerson and Bazaarvoice applications have proven so far, however, 1-800-Flowers only agreed to test them after each vendor agreed to favorable terms. “They worked with us to make sure our cost to test their products was reasonable for us,” McCann says. He adds that the vendor also offered assistance in getting the most value out of their applications, such as the most productive times during shopping sessions to launch a live chat window. Too soon can overwhelm shoppers; too late doesn’t help, McCann says.

Such help can ease the decision process, he adds. Economic downturn or not, Internet retailers can still benefit from a plethora of technology and service offerings. The hard part is choosing the ones that best address a retailer’s most pressing needs without exceeding closely watched budgets.

paul@verticalwebmedia.com

Coffee retailer gives tech vendors a wake-up call

When it comes to the technology behind selling coffee online, Ben Kirshner wants the best of both worlds. For his basic e-commerce platform including the shopping cart, he likes having direct control over the software code, and so goes with technology developed by his in-house programmers on Microsoft Corp.’s ASP.net platform.

But because it would take too much time for his staff to build all the features he needs to operate CoffeeForLess.com, Kirshner, CEO of parent company CoffeeServ Inc., has also deployed several commercial applications in such areas as live chat, customer reviews and site security.

Before installing an outside application he puts it to the test. “I like to pre-classify all technology applications as things that lift conversion rates,” Kirshner says. “We’ll test different models of each application and see which gives us the better bang for the buck. It may cost extra time and resources, including a beta test fee, but it’s worth it because the one we choose we’ll have for a long time.”

Beta test fees can run thousands of dollars but vary widely and are generally offered to testers at a discount off the deployment price.

In recent years, CoffeeForLess has chosen several technology vendors, in most cases after putting their technology up against that of competing vendors. In some cases, it went with high-end systems like site search and navigation from SLI Systems Inc.; in others, it chose relatively low-price alternatives after realizing they produced conversion rates comparable with more costly applications. Among its lower-price choices have been site performance testing from AlertBot, security certification from Starfield Technologies Inc. and Google Analytics.

CoffeeForLess.com also offers live chat from LivePerson Inc. on every product page; Sitebrand behavioral targeting personalization software; McAfee security certification, and PowerReviews customer ratings and reviews.