The company responded by launching product extensions such as 1-800-Candies, 1-800-Baskets and other brands, but soon pulled back because the expense of extra catalogs—the only way to reach customers directly—was too high. It did, however, leave some of those non-floral gifts in its web offerings, then listed on CompuServe and later AOL.

Over the years, customers of those products turned into the company’s most valuable customers. The dawn of e-commerce allowed the company to spin that customer loyalty into gold with the launch of its own URL in 1996 and the gradual addition of non-floral gift lines ranging from gourmet popcorn to fine china. Today, the web, at $218 million, nearly half of last year’s total sales of $495 million, is its fastest growing channel.

The web is more than simply a less-expensive marketing or order-taking vehicle for the company, however. It’s also become a key means of bonding with customers. An online gift reminder service, for example, puts the company in a dialogue with customers not just at major holidays but year-round. “We used to do it offline, but once we moved it online it took off,” McCann says. “The response from our customers is tremendous. We have an interactive relationship with them now.”

Jupiter Research Inc. analyst Julie Deeks credits the company’s fulfillment operation, which depends on an internally built extranet linking it with thousands of suppliers, for part of its success. “One of the things that has given them staying power is fulfillment accuracy,” she says. “They’ve been astute at anticipating and delivering on demand around holidays, a challenge for all retailers, but especially those in the gift business.”

This year, the company has used the web to bring more customer involvement into merchandising and marketing, expanding its use of online surveys, focus groups, online sweepstakes and contests. “The web has provided us with our growth engine,” says McCann. “It’s enabled us to change our business model from being leader in floral gifting to leader in overall gifting.”

American Greetings
Log on and drop me a line

American Greetings Corp. has been a greeting card publisher for decades, but the web has extended its reach far beyond paper cards. The company was online as early as 1995 and experimented with various business models. Today, AmericanGreetings.com operates a network of e-card sites that includes acquired former rivals BlueMountain.com and Egreetings. Sales for the year ended in February were $24.4 million, a 69% increase over the previous year. Though almost all of that is in ad sales rather than merchandise, American Greetings has created a fun and functional web site that uses the online channel to leverage a decades-old retail brand in an entirely new way.

“The company recognized from its offline relationships that distribution was important. They knew there was an opportunity on the Internet,” says Sharon Schneider, senior vice president of marketing at AmericanGreetings.com. In launching its own site, the company first settled on a free model supported by advertising, but, like other publishers online and off, has seen a decline in ad sales. So last December it launched a new model on all three sites making some online cards available for free and others available only to paying subscribers. And since then, it’s done what many industry watchers believe is near impossible: gotten users accustomed to free content to pay for it. One year into the hybrid model, the subscriber base numbers about 2 million, a significant portion of the estimated 10 million to 15 million monthly visitors across the e-card network.

“They’ve been successful in migrating consumers to a pay-for-content model,” says Mary Brett Whitfield, senior vice president at Retail Forward Inc. “While they’ve left enough of the site free that they will draw traffic to justify the site as a place for advertising, they’ve also made it attractive and low-priced enough to convert a lot of customers to paying customers.”

American Greetings entices subscriptions with member benefits such as a reminder service, address book, the ability to save favorite cards in a personalized online scrapbook and other features. While working to build its subscriber base, it’s also working with its parent to develop marketing programs to monetize that online traffic in the offline world, and vice versa. The company has a rotating roster of offers that blend free subscriptions with partner offers, and it’s looking to expand merchandise on the site. “We’re continuing to build brand awareness between the online and offline worlds as we grow our distribution in both places,” says Schneider.

Blue Nile
Clear sailing on the Blue Nile

Forget Halloween. Buying an engagement ring can be one of the scariest experiences of a man’s life—but it’s less so if it takes place where he’s probably comfortable already: online. Blue Nile Inc. came up with that brainstorm and executes it with consumer education, interactive tools for diamond selection, world-class customer service and prices up to 40% below retail.

The core of BlueNile’s business and more than 50% of its revenues are from sale of diamond engagement rings. In focus groups sponsored by the company, men faced with the prospect of buying a ring reported feeling like “a deer in the headlights,” says CEO Mark Vadon. “They said they didn’t even know what questions to ask in a store to get started. So in that environment, their reaction is to go online for information.”

BlueNile offers customers interactive tools that guide selection in a process not unlike configuring a PC online. “We offer men a chance to learn all they can learn,” Vadon says. “We have 13,600 certified diamonds on the site, 70 ring settings, and once they make their selection we show them visually what it will look like. Then we manufacture exactly the ring they want and deliver it to them in about four days. It’s the same kind of customized, just-in-time manufacturing process Dell would use.”

Though Mary Brett Whitfield, senior vice president of consultants Retail Forward Inc., views product customization as still only a niche application on the web, she says BlueNile’s model makes perfect use of it. “Blue Nile’s ability to create your own engagement ring is exactly the kind of application that the Internet is uniquely suited for,” she says. “You can do that in a store but for a lot of men it’s very intimidating. To do it in a more anonymous way online is probably a godsend for them.”

Self-service selection tools on the site are so effective that usability tests show they take customers from more than 13,000 stones down to 10 possibilities in only a few minutes. Even so, with the average customer viewing more than 300 pages, more than half of them at some point phone the call center. Staffed with diamond experts to answer questions and offer advice, it’s busy all day, but that’s fine with BlueNile, which features its toll free number on every page. For a key part of its strategy is to get the engagement ring buyer back for birthdays, anniversaries and other gift-giving occasions. “If we build a customer relationship over an engagement purchase, it’s such an important relationship that with that one purchase we feel we can hold onto the customer for a very long time,” Vadon says.

Guild.com
If Van Gogh had e-mail

Medieval artisans had trade guilds to represent their interests; today, all they’d need is the Internet and Toni Sikes. Sikes, the founder of art publishing house Guild Publishing, launched Guild.com in 1999 as a way to increase consumers’ exposure to the artists Guild’s sourcebooks present to professional designers. Today, Guild.com is one of the largest online aggregations of original artwork for purchase, spanning disciplines from sculpture to jewelry and showcasing the work of some 800 artists—and some of the most beautiful gift objects on the web.

“Art and marketing have never gone together very well. As a result, consumers have so little access to the huge amount of talent out there,” Sikes says. “But I’ve always been convinced that if people could just see this wonderful work, they’d want it.”

Cybergallery Guild.com is out to make that happen, serving up 10,000 works by contemporary artisans in a sleek and easily searchable online offering. The multiple options for searching and browsing change by discipline as relevant. Shoppers can view the entire collection of paintings, for example, or segment it by price range, size, theme, or even color. Move to the jewelry category, however, and search options include material, jewelry type and price.

Guild drops more than 2 million catalogs a year, but they show a much smaller assortment than what’s online. The holiday catalog, for example, contains at most 300 products. “Catalogs would not be valuable if we did not have the web site because they drive people to the site,” says Sikes. “When we drop a catalog, not only do sales of what’s in the catalog increase, but so do other pieces by the same artists.”

The site’s front end is all about beauty but the back end is all business. Guild doesn’t have a warehouse and drop ships orders from the artists. It tracks inventory availability and order status with an extranet that networks all the artists it represents. “We don’t do business with artists who don’t have e-mail,” says Sikes.

When a customer orders either online or by phone, the system automatically generates and distributes a purchase order to the artist. Guild’s customer service staff can immediately see data on which items are ready for shipment or how many more the artist is willing to make of an out-of-stock item. Guild asks its artists to check e-mail several times a day.

Art site Guild.com becomes a gift site with the holidays, as the customer base broadens. “We get a greater number of people who may not consider themselves art buyers but who appreciate beautiful things and are looking for a wonderful gift,” Sikes says.

Ice.com
A girl’s best friend

Internet jeweler Ice.com knows that buying a bauble is a favorite way for women to reward themselves—and it’s put together a stylish web site that makes that easier and less expensive than doing it at the mall. Three-year-old Ice.com knows its audience—mainly, women willing to spend $50 to $250 on an impulse purchase. And it’s assembled an online assortment of about 700 products at up to 70% below department store prices that serves up just what these shoppers want.

Customers can search by stone, by jewelry type and by price, but a key part of Ice’s success is in on-target merchandising. It knows that many shoppers don’t come to the site initially to search for a specific item, but to browse, so Ice sets out to spark ideas with collections such as “Cool Picks,” “What’s New” and “Bestsellers.”

And then it makes it easy to buy. This year, Ice.com added a multi-pay option that lets shoppers break up payments over several months. Research told the company that spreading out payment could boost sales significantly in its core audience.

“People like our 30-day money-back guarantee, but if they have to lay out $300, even if they really like the item and know they can return it, there is sometimes a psychological barrier,” says Pinny Gniwisch, vice president of marketing and co-founder. “If they have to lay out only $75, or $50, they’ll take the chance. Plus they still get the 30-day guarantee.”

Gniwisch says 40% of Ice’s customers use the multi-pay option, which he estimates has been responsible for 30% of a doubling in sales for the company since last year, with sales now reaching about $1 million per month. Ice hopes to further boost sales with a pay by check option it plans to add shortly.

Ice does a good job of communicating credibility to shoppers, says Retail Forward senior vice president Mary Brett Whitfield. The near-constant display of the “why buy Ice” message throughout the checkout process as well as on the home page and free shipping, free gift box and 30-day return guarantee are winners. “If a customer gets hesitant about purchasing, those reminders are constantly there,” she says. “That shows a good understanding of what your customer might be needing during the sales process.” Whitfield also praises the search functionality that lets shoppers choose materials, item, and price in any combination, calling it, “one of the best across multiple categories, not just jewelry.”

“Great prices, beautiful navigation simple checkout that reassures customers,” is how Gniwisch sums up the site. Since customers have voted with their pocketbooks, it’s safe to say that’s the combination that makes Ice sparkle.\

Red Envelope
It’s all about the experience

RedEnvelope.com is nothing if not consistent and focused. Two years ago, the retailer of upscale gifts said corporate gifts were the next logical extension. Today, RedEnvelope has completed a move to a new 200,000-square-foot distribution center in Columbus, Ohio—four times the size of its previous facility—that will give it room to fulfill corporate gifts next year. Two years ago, the company re-designed its web site to emphasize simplicity. Guess what—it just tweaked it again. “Our approach has not changed,” says Hillary Billings, chairman and chief marketing officer. “We’ve always tried to create as entertaining, interesting and inspiring an experience as you can get online.”

Another thing that has not changed at RedEnvelope is its stellar merchandising. “The pictures are beautiful, the screen layout will fit anybody’s screen and product names are carefully chosen,” says Duif Calvin, San Francisco-based retail analyst. “They do an outstanding job of using merchandising to drive sales.”

RedEnvelope was established as a high-end gift site three years ago. And it’s gone even more upscale since then. As it changes merchandise most additions push the price boundary higher. “As customers get to know us and trust us, the demand for higher-priced gifts expands,” Billings says.

The average customer—40s, 60% female, two-wage-earner, $75,000+ household —buys two or three times a year from RedEnvelope. But the average customer gives 20 to 50 gifts a year, so part of the focus next year will be on increasing frequency. Although the company hasn’t settled on an approach yet, Billings says a loyalty program is likely to take the shape of free gift wrapping. “Our most loyal customers order gift wrap often,” she says. “It’s an important part of our brand.”

Indeed, gift wrap fits nicely into the RedEnvelope experience. “It’s really not about the product,” Calvin says, “it’s about the experience of getting the product. It’s about how the product will fit into your life or your recipient’s life.” RedEnvelope also is planning to boost frequency by expanding its gifts for everyday occasions, such as birthdays, weddings and new babies.

RedEnvelope’s main marketing channel is its catalog, which it has had since early 2000. Today, the catalog drives 50% of orders, although half of those come over the web. RedEnvelope also has deals with MSN, Yahoo and AOL. And it recently launched its first affiliate marketing program, using Performics Inc. and LinkShare Corp. The affiliate initiative is a natural move, analysts say. “They’ve got great products, presented well, with good service,” Calvin says. “The challenge now is in reaching a wider audience.”