Commentary: Fulfillment is the real key to e-tail success

Although better Web design and a wider selection of products offered online are important, the keys to e-tailing success lie in understanding the factors that drive revenues and the ability to fulfill on Web orders.

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Overall revenues are driven not by simply offering products via the Web but by creating a hybrid sales model that uses the Web and other channels, such as phone sales and brick-and-mortar stores, in a synergistic way to maximize profit from different customer models. The ability to fulfill requires a strong infrastructure, both in terms of computing systems and traditional stocking, warehousing, picking and shipping.

Retailers need to start with an understanding of what will generate the most revenue and profit for them across electronic and "real world" channels. The emphasis in many e-commerce initiatives has been to remove the "friction" from the sales process to cut costs, but that may not always be the best solution. However, e-tailing Web sites should not be seen as totally independent of other channels.

For example, we witnessed one company using an e-tailing system to streamline sales of an expensive consumer product. But they discovered that these Web sales were several hundred dollars lower than sales made over the phone. The reason: sales consultants were able to get consumers to buy higher-end systems over the phone. This company has now redesigned its site to provide places for customers to interact with a sales consultant.

Good Web design enables the kind of sales process that best fits the customer's and retailer's needs and offers strong navigation, good site performance and a well-designed user interface. Companies will never achieve e-tailing success without navigational structure that is self-evident. They must offer easy search and help functions. This is extremely important and complex and more of an art than a science.

Front-end success also requires good pricing because it is easy for Web customers to comparison shop. A $2 difference in the retail price of a DVD can have a large impact on sales volume when the competition is only one click away.

Once the retailer has designed its process to take advantage of the real sales opportunities instead of simply focusing on reducing costs, it must build a strong infrastructure that supports on-time delivery of orders and handling of returns. Last year's highly publicized e-tailing disasters were typically not driven by bad Web site design. Rather, they were caused by the inability of several prominent e-tailers to deliver the goods in a timely manner. It was often the link between the Web storefront and the companies' traditional back-end computing systems and real-world distribution systems that caused the problems.

For this reason, companies offering their goods via an e-commerce site must realize that e-tailing requires much more than a pretty Web face. E-fulfillment--the ability to get the goods into consumers' hands--will determine success in this market, as it is a part of a company's earnings.

The bottom line is that e-tailers must be able to execute a full range of services to engage, transact and fulfill Web orders. Catalog companies, for whom the Web is just a variation on the telephone sale, are generally best positioned to succeed in this market. Pure e-tailers and others without existing infrastructure must either build a complete set of services in-house or outsource some or all of them; however, they must get all these services right. If they do not, no amount of fancy Web site design will matter.

META Group analysts Dale Kutnick, Peter Burris, Val Sribar, David Cearley, Gene Alvarez, and William Zachmann contributed to this article.

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