The winning formula for e-tailers in the less than four weeks until Christmas boils down to doing four things well: differentiated and integrated marketing, online merchandising, customization, and customer service.
Within my coverage universe, there are four companies that can guide the sleigh to the top of the roof to deliver on the promise of this e-holiday based on the above criteria: Amazon.com, Ashford.com, Barnesandnoble.com and eToys.
At issue is not whether these stocks provide a good or bad value at their current trading level. Rather, the focus should be on successful execution this e-holiday, which is critical for longer-term success, as the stocks appear to be trading on the catalyst of Christmas rather than on valuation.
Customers have long memories, and when the score cards are tallied, they will not issue a mulligan for a slice or a hook that does not get the right product to the right place at the right time. Don't get me wrong--a focus on valuation and discounted cash flows is imperative, as it provides a starting point for framing what the future is worth and the possible scenarios that may play out in an uncertain world. But what's more important today for the success of tomorrow is execution, satisfying the customer and, ultimately, the investor.
Differentiated and integrated marketing
Marketing is the key to driving traffic to sites and building longer-term brand awareness. It is obvious to anyone who watches television or listens to the radio that marketing spending by ".com" companies is at an unprecedented level this season. Therefore, it is critical that a marketing effort be integrated and differentiated to break through the noise of so many advertisers.
By having a consistent, integrated message in each element of a marketing campaign (television, radio, print, direct mail and online advertising), a company maximizes the effectiveness of the marketing effort, as all cylinders hit at the same time.
The second, and more important, point is that the message must be highly but clearly differentiated to get the customer to associate the message with a specific brand name.
Several e-tailers have paid millions in media dollars to drive traffic and awareness, but they are mistakenly communicating a generic selling message, which is more likely to drive awareness of a product category rather than a specific brand. Therefore, these commercials will likely drive category sales but not necessarily the sales of the e-tailer that funded the advertisement.
eToys' marketing campaign provides an example of a differentiated message that clearly communicates a promise and a reason to believe that it can uniquely help shoppers find the best ideas for children. The message tells shoppers that eToys can a) deliver a rational benefit by providing a convenient way to buy children's products, and b) deliver an emotional benefit by helping them find the best gift, so that both the giver and the receiver are satisfied with the choice.
In contrast, many other toy e-tailers' advertising messages focus on products and price, which are not compelling, differentiated messages in this category. Most leading toy e-tailers are not different based on product availability or price. A Furby is a Furby, and customers can pretty much figure that out on their own.
The eToys message of providing an emotional and rational benefit via its "Where great ideas come to you" campaign should break through the clutter. Seventy percent of customers claim that they "stress" when deciding what gifts to buy for friends and family (Amazon/Harris Interactive). eToys' marketing message communicates a solution to this problem, which differentiates its advertising message to drive awareness and traffic for eToys.
The ability to effectively use online merchandising techniques to convert traffic to sales is the second required element of the e-holiday 1999 formula for success. A joint Goldman Sachs/PC Data weekly qualitative study of online shoppers said that more than 65 percent of shoppers go online without knowing what they want to buy. The ability of an e-tailer to convert shoppers to buyers through the use of online merchandising techniques will separate winners from losers.
The essential merchandising elements for the holiday season and beyond include: depth and breadth of product availability, abundant information from multiple sources to reinforce the purchase decision, clear and simple presentation techniques such as branded boutiques and feature shops, shopping by age, product recommendation lists, wish lists, and product suggestions.
Amazon, Ashford, Barnesandnoble.com and eToys effectively deploy a variety of these techniques, with gift and idea centers standing out as a common element. Gift and idea centers help uncertain shoppers make the best purchases for the holiday and increase the odds that e-tailers can provide a solution for shoppers before they decide to explore another site. Barnesandnoble.com's recently launched gift center is the latest example of the ability to match a customer's interests with the most appropriate gift.
Clearly, online shopping from home provides greater convenience than a trek to the land-based store. Custom features such as gift wrapping, electronic cards, optimum battery offerings for each toy, and shipments to multiple locations from one order increase the convenience of shopping from home. These features can be difficult to execute and are therefore provided by only a few leading e-tailers.
All four e-tailers listed as likely winners this e-holiday have focused on these features, which are clear differences that increase the value for the customer. Interestingly, customers recognize the greater convenience of gift-wrapping online than in stores, for example. According to a recent survey, 9 percent of shoppers online prefer gift-wrapping, compared with only 2 percent on land (Amazon/Harris Interactive). This is likely because customers do not want to wait in line for gift-wrapping at traditional brick-and-mortar stores, which defeats the point of saving the time of not wrapping a gift themselves.
Success in customer service hinges on having competent customer service representatives, a Web site that doesn't crash, and order fulfillment and product returns. Each of the e-tailers noted above have gone to great lengths to overplan the support needed in these areas to ensure that the highest level of customer service is provided.
Specific initiatives include: significantly increasing customer service representative staff to quickly respond to inquiries via online chat, telephone or email; increasing technology capacity to ensure site functionality in anticipation of high traffic levels; establishing system control centers to provide 24-hour monitoring of Web site performance and catch early warning signals of technological problems (many e-tailers determine a site problem after a customer calls to tell them); providing backup Web-hosting facilities in the event of technology failure; and building or sourcing additional fulfillment and inventory capacity in the event that demand significantly exceeds expectations.
Superior execution in all of these areas will decrease the number of shoppers who get frustrated with an attempt to make a purchase. It also builds trust and credibility with the customer, so the company is more likely to retain a customer.