February 28, 2001, 12:00 AM

Missing the Mark

(Page 3 of 3)

There’s a lot to be said for experience-the observation of several industry-watchers who’ve pointed out that experience is something this young industry doesn’t have much of yet. With 30 years of equities research under his belt, Hill has been through the boom and bust cycle before. In the ’60s and ’70s, he saw company stock selling at 100 times earnings. “Computer peripherals companies, computer leasing companies, time share companies-all of these were going to be the new growth area, and most of them did not survive. Most got bought at a fraction of their highs and some went out of business. It’s going to be the same with the Internet,” he says. “Whenever these new waves come along, there’s always a concept phase, when the companies are going to get overvalued before they come back to reality. The ones that survive will grow at a good rate of earnings and be among the better performers.”


Winning metrics for e-retail

Handicapping the prospects of Internet-based retailers starts with the same core criterion, whether on Wall Street or in private research and consulting firms: a sound business model with opportunity for adequate margins. But as the dot-com failures of last year demonstrate, success or failure also rides on other factors, sometimes overlooked in a purely financial analysis. Here, Paul Ritter of The Yankee Group highlights seven make-it-or-break-it predictors of e-retail success. Is the web marketer:

- Selling products with sufficient gross margins? “Pets.com was paying for goods at a price at which it couldn’t even afford to sell them. Part of its customer acquisition model was to try to buy customers by offering lower prices and selling at negative gross margins.”

- Providing a tangible value proposition versus competitors and offline channels? “Furniture.com’s value proposition to get people to buy online was that you could speed up the time frame for getting it-maybe six to eight weeks instead of eight to 12 weeks. It turned out to be not that significant to buyers.”

- Pursuing innovative and cost-effective customer acquisition strategies? “EToys was spending upwards of $100 for customer, when its average sale was far less and its average net was $15 per sale (eToys reports a per customer acquisition cost of $40). It would have to have more visitors than Amazon just to reach break-even.”

- Providing an easy and enjoyable web experience for consumers? “You’ve got to make it easy for customers to find the products they’re looking for on your site and all the information they need when they need it in order to maker buying decisions.”

- Striving for high conversion rates as well as significant visitor traffic? “Money can be spent effectively to increase your conversion rates-that’s just as valuable as going from 1 million to 2 million visitors.”

- Providing efficient and effective fulfillment for products purchased online? “A lot of companies spent more time on fulfillment this year. Returns for the holiday season were more than twice the number and twice the rate of last years’.”

- Providing impeccable support via multiple contact channels? “That’s a critical factor, because if people can’t find what they want they’ll bail out and go someplace else.”

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