case study three

e-business effects on traditional organisations

Many retailers are apprehensive about publicizing their online presence for fear that it will eat into their real-world sales volumes. Instead of viewing your own Web site as a threat to business, you can use it as a powerful tool to enhance your services.

Online Presence: Will it Eat into Existing Business?

Picture this: You are a cosmetics retailer with a loyal customer base. Your customers keep returning because you have a great reputation for quality merchandise -- but they would be pleased if you improved your service and increased your product range. Now, you open up another store across the street, give it the same trusted name and advertise it amongst your existing clientele. The new store has a wider product range, is open 24 hours a day, seven days a week, there are no long lines at the checkout and customers can have a free consultation with a beautician without a prior appointment. What would happen to the sales volumes in your original store? They would plummet instantly - and that's why many retailers are afraid to go online.

To a consumer, a buck spent at a particular store is just that -- a buck spent at that store. Store location means little or nothing to him. Retailers, however, do not see it that way. Many of them view their own Web sites as competition, and worry that online purchases may eat into real-world revenues. It's called cannibalization, and if current trends are anything to go by, retailers may have good reason to be apprehensive about it.

According to a study conducted earlier this year by Greenfield Online Inc., online sales have already begun to eat into offline sales amongst Internet-savvy shoppers. The study found that 39 percent of those with access to the Internet prefer to shop online. They cite wide product selection and ease of shopping as their primary reasons for turning to the Web and shunning real-world stores. According to Rudy Nadilo, CEO of Greenfield Online Inc., "These results are significant to retailers, since Americans who use the Internet hold 60 percent of the buying power of the total U.S. population."

Bob Langdon, General Manager of Dealer Support Services in Syracuse, N.Y. scoffs at the idea that retailers may be holding back on promoting their online presence. "A sale is a sale," he says. "What do they care where it comes from? Heck, if all of their customers started buying from their web page instead of their brick and mortar store, they could cut their overhead drastically." A recent Merrill Lynch study titled "e-Commerce: Virtually Here" lends weight to Langdon's view: "Although all sectors will undoubtedly lose some market share to e-commerce in general, this market share loss could be small for many companies, and more than offset by their own e-commerce sites."

The study goes a step further, saying that traditional retailers who go online have a distinct edge over wholly Web-based enterprises: Synergy. The advantages are clear:

• Brick-and mortar retailers have more buying clout and are far more experienced with the entire buying process than most Internet startups, so their costs will be lower and mistakes fewer.
• Marketing costs are much lower for real-world retailers because publicity for their online outlets can piggyback on existing advertising material without increasing the marketing budget.
• Existing real-world stores can be used as pick-up centers, thereby tackling online buyers' biggest problem - the delivery issue -- head on. They can also be used as merchandise return or exchange centers - thus optimizing real-estate cost per transaction.
• Existing retailers already enjoy brand equity for their products, whereas e-commerce-only sites have to work hard and spend big to achieve it.

In other words, retailers should view the Web as an opportunity rather than a threat. Langdon points out that all you have to do is think creatively. "Smart retailers use a Web presence to attract their loyal customers into their store by posting articles on how to use their products," he says. "For example, a sewing-supplies retailer might post projects on their Web site, encouraging readers to come into the store to buy the materials they need to complete the project. They might even include a printable coupon. Retailers can also save on overhead by providing online customer service, via FAQs, instructions and user forums."

And the rewards are rich - according to Merrill Lynch, a Web presence gives retailers "the ability to broaden a store brand through Internet exposure, the ability to sell products in markets and countries not served by stores and the ability to increase the total market share of product category." Real-world retailers must overcome their apprehension - because far from eating into existing business, a well-thought out online presence can gobble up additional market share faster than you can say "Web."