August 2000   

E-tailers have the same critical concern: if we build it, will they come? The jazziest Web site with top-of-the-line technology and excellent access to merchandise still needs customers to not just visit but also to stay and click on that all-important "Add to shopping cart" button. It can be more of a challenge for you as an e-tailer to get that first sale than for the brick-and-mortar store. "E-commerce can be even tougher than off-line commerce," says Annette Stroud, director of e-commerce for the Adidas product Web site. "Even with an established brand, you have to build infrastructure, invest in marketing and distribution. It might not be profitable for years."

Brick-and-mortar stores have the advantage of providing immediate gratification to their customers, who can take their purchases home with them when they leave the store. Typical members of an e-tailer's customer base, however, are nervous about a cyberspace retail venture and hesitate to purchase something that they haven't actually seen or held in their hands. More than a friendly home page is usually needed to overcome those concerns.

Money Talks

With such concerns in mind, many e-tailers have used the tactic of offering some form of cash incentive. That incentive can take many forms: a percentage or dollar amount off a first order, free shipping or overnight for the standard rates, discounts on multiple items, or gift certificates when a customer gets a friend to shop on a site. Some incentives are long-term, such as frequent-buyer points that add up to either free or discounted merchandise. Sites that have offered incentives of one kind or another include Barnes & Noble, which frequently gives $10 off a purchase of $40 or more, and Egghead, which sometimes offers free shipping or a flat shipping rate no matter how large the purchase.

This approach seems reasonable. After all, you're asking customers to trust you, and you're trying to make it easier for them to do so. But you may end up in the awkward position of "giving away the store," that is, giving such great discounts that you're losing money rather than making it. Even worse, you may be conditioning your customers to expect such discounts; when/if you have to discontinue them, customers may wander away in search of other bargains. "There's a danger of teaching consumers that online is really just a discount channel," says Stroud.

If you're sacrificing customer service because it's too costly in light of the discounted products you're selling, you may need to rethink your strategy. This issue is one of the trickiest in e-tailing: where do you draw the line? How do you even figure out what that line is?

To Discount or Not to Discount

Ed Sharpless, president of Sullivan Park, a consulting firm specializing in e-business development of online stores, says e-tailers should willingly offer discounts at first, but they should make it clear that the discounts are limited by time, scope, or both. "Offering incentives is an absolute must when an e-tailer first gets online. But I'm not sure how wise it is to offer those incentives for an extended period of time. The customers begin to assume those discounts will always be available, or if the discounts go away, it's only a temporary situation."

He notes that online shoppers fall into two basic groups. The first group is price-driven, and it's that group that might disappear when your discounts end. If the thought of losing any customers at all is frightening, keep in mind that customers who only buy when your profit margin is razor-thin are not the customers you want to keep indefinitely, anyway.

The second group of shoppers is the one that will try something for the discount, but stick around because they like the products and service. "Convenience and efficiency are key to that group," says Sharpless, "and they're willing to pay more for those intangibles. Once they've checked out your site, providing excellent customer service and follow-through is what will keep them coming back, even when you're not offering free shipping anymore." By offering an incentive to purchase something on your site the first time, you can keep these shoppers at a better profit margin if they're happy with the overall quality of your services.

If you're going to offer an initial promotion but don't intend to make it a permanent part of your site, be honest with customers. Let them know that an offer is good only for a limited time, or that it's only available on their first purchase. They'll appreciate your honesty.

Determining the Type of Promotion

Deciding what to offer as a promotion for your site may ultimately boil down to guesswork. But the first question to address is your discount threshold. What are you reasonably willing to risk to get someone to buy something? Are you willing to offer 50 percent off a first purchase -- and are you prepared to honor that offer if your site is deluged with thousands of shoppers, all hacking away at your profitability?

Once you know what you're willing to risk, you need to come up with ideas of how to implement that risk. "We brainstorm like crazy," says John Haskin, vice president of marketing for BabyGear.com. "We've analyzed our market and our competitors, but there's still a degree of trial-and-error involved. We'll test anything that seems feasible to get our name out there. Sometimes it works, sometimes it doesn't." One of his site's first promotions was free shipping, which he says brought shoppers onto the site. "But that initial strategy for customer acquisition ate into our margins," he says. "We're moving away from free shipping at this point."

Instead, BabyGear.com is about to launch an offline promotion involving coupons. When customers of predetermined grocery stores purchase such baby items as diapers or formula, they'll receive a coupon for BabyGear.com, printed on the spot. "What we're looking for is the ability to target pregnant women," says Haskin.

The Adidas online store had to determine how to avoid alienating the brick-and-mortar Adidas retailers. "We want to avoid annoying retailers," says Stroud. "We want to support them instead, deliver the customer to them. That's the end game." The issue for Adidas is being aware of brand recognition. "We have to be cautious of putting any kind of message out there that says, 'Here's the manufacturer's suggested retail price, don't buy it until it's $10 off.'" Adidas is striving for more product-oriented, value-added offers rather than free shipping or traditional coupons. A recent promotion provided customers with a $10 gift certificate for filling out a demographics survey. Another promotion, tied to the back-to-school shopper, offers a free tote bag with the purchase of shoes.

Intangible Benefits

But Stroud says that long-term thinking needs to focus on taking care of the customer in ways other than discounts. "We want people to think of us in terms of information, selection, and convenience," she says. "We don't want them thinking of us as a company that puts out banner ads offering 50 percent off."

Sharpless agrees. "It's fine to start with that limited discount or some kind of loss leader," he says. "But what will ultimately keep that customer is what you provide that will make the customer's experience pleasurable."

When offering a promotion, it's important to keep sight of those long-term goals. If you want to entice customers into taking their cyber carts to cyber checkout, a promotion is a good start. But keeping customers happy on a consistent basis will involve more than a few dollars off here and there.