Finding the money is today’s biggest challenge, CEO panel says
The biggest challenge that a panel of CEOs at eTail 2003 East identified as facing today’s online retailers came as no surprise to most attendees--no money for new projects. What may have surprised some was the candor that some CEOs used in addressing the issue. “We want to continue to grow our business 100% year over year and it’s hard to do that while maintaining employee morale and commitment,” said Jon Nordmark, president, CEO and chairman of eBags Inc. “We are asking for that growth and telling people they aren’t going to get resources to do it.”
The issue is particularly vexing since many CEOs believe the technology exists to help them improve their web sales, but they are having difficulty taking advantage of it. “The biggest challenge,” said Irene Pedraza, CEO of CheetahMail, “is how to make use of the tremendous amount of technology out there. The resources just aren’t there to implement all of it.” Added Ken Seiff, CEO of Bluefly Inc.: “There are a limited number of projects that can be done and a large backlog.”
One area, though, where more companies are willing to invest is in understanding the customer experience. “We are spending more money on usability studies,” said Mark Vadon, CEO of Blue Nile Inc. “The greatest return on our investment is in research about what improves conversion. A couple of years ago we were forced to cut back on research, but now we are starting to spend more on research.” One immediate benefit of that research was to identify search as a site weakness, an eye-opener to management. “We thought search was one of the strengths of our site. It turned out to be one of our weaknesses,” he said. As a result of usability research, Blue Nile improved its search function, which leads to higher sales.
The greater caution in spending has also led to smarter marketing, panelists said. “We raised $30 million in 1998 and 1999 and we blew huge chunk of it in offline advertising,” Nordmark said. “We found that no matter how much money we spent on it, our control cell was almost the same in terms of sales, no less than 10% difference.” Added Vadon: “Offline promotion is hard for web-only businesses. We are a national business and that’s our greatest strength, but it’s also our greatest weakness when it comes to offline promotion. We just do not have enough penetration in any one market to make it work. We blew a lot of money offline and it really didn’t work. Today we are much more focused on online promotions.”
The CEO panel addressed a wide range of issues raised by the audience:
• On conversion rates and customer value: “One of the biggest questions is how do I get my conversion rates up and figure out which customers are worth most to me and which I really want to get rid of,” said David Carlson, president of marketing analytics company Go Toast. “The biggest challenge is customer value management.” He added: “I find it shocking that a lot of people in our business do not know what marketing works and what doesn’t because they aren’t able to measure it.”
• On personalization. An audience member asked if personalization is a thing of the past. “It’s much more important to acquire new customers and spending a lot of money on personalization is not important at this point,” Vadon said. But his was almost a lone view. “I haven’t seen anything as powerful as personalization in our business,” Seiff said. “We sell 1,000 different styles of women’s pants. You have to be able to sequence them (present them in a certain order based on past purchases) to the customer. It’s very important.” Said Bill Ness, president of Road Runner Sports, “Allowing customers to profile themselves and create their own site on our site is key because the customer just doesn’t have time to navigate throughout a site. You have to make it easier for them to drill down to what they want and personalization can help you do that.” Vadon was backed up by Nordmark, however: “We’ve dabbled in it, but it’s not a high priority,” Nordmark said. “It’s not where we’re putting out resources.”
• Should pure-plays open stores, an attendee asked. “Every time we look at this we always find better ways to spend $200,000 online than to open a store,” Ness said. “We have addressed it many times but never found a good justification for opening 20 stores.” He noted that no three-digit Zip Code accounts for more than 0.5% of Road Runner’s business. “We can grow sales faster by doing things online,” he said.
• Which metrics should a retailer measure, someone else asked: “We believe that the fewer metrics you use the better,” Seiff said. “We use three metrics: number of new customers, the number of new customers who place a second order and customer satisfaction.” He added” “Customer satisfaction will be the single metric we use for the long term.”
• On the importance of catalogs: “We are sending out catalogs and they work,” Nordmark said, “but we will never be a catalog company,. We just use catalogs to augment the web site with offline support. We’re a dot-com and we’ll always be a dot-com.”
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