Thursday, October 14, 2010

eCommerce Laws: Conclusion

Your first reaction after reading these ten rules may be, “Yeah, sounds good in a world of endless resources and time!” We understand. In the early days of a young eCommerce business, you can only do so much. But we still encourage you to follow as many of these rules as you can and adopt more of them as you grow. Once you reach $10m of annualized gross profit, if you're ignoring more than two, we’ll bet you won’t make it to $25m.

We hope you benefit from these best practices we’ve gathered from dozens of talented eCommerce executives with whom we’ve had the privilege of collaborating over the years. If you have any thoughts, comments or suggestions, please share them with us (eCommerce [at] bvp [dot] com). We would be delighted to hear from you.

Lastly, I've embedded below a pdf of the full rules. Please feel free to download it.

Monday, October 11, 2010

eCommerce Rule #10: Keep it social, but keep your data too

Social media isn’t just for promoting and evangelizing. Sites like Facebook and Twitter now need to be considered a core part of any e-tailer’s sales and marketing strategy. People are spending an increasing amount of time on these sites—a recent study by Nielsen showed that people now spend 22.7% of their time on social networks, up from 15.8% just a year ago. Moreover, according to eMarketer, 41% of all U.S. Facebook members connect with fan pages to highlight their favorite brands.

An extremely connected and network consumer has allowed companies like Groupon to take off, and we expect there will be many new eCommerce models that will emerge to leverage consumers’ social graphs. But all eCommerce companies can benefit from social media, if done right.

That means more eCommerce execs are paying attention to “Like” buttons and corporate fan pages, which allow marketers to run promotions tightly integrated into Facebook’s feature set and social graph. Brands can also broadcast updates, like coupons and special promotions that appear in users’ news feeds. Quick tip: Studies show that Facebook users are more likely to engage with an offer presented on the site if they don’t have to leave the Facebook ecosystem to do so. Another best-practice we hear is that Facebook fan pages are most effective when the merchant starts conversations with its followers (e.g., by asking a question) instead of just “pushing” offers out to its fans. If you want to have a best-in-class fan page, check out 3rd party products like Involver (BVP portfolio company).

But beware: While it might sound like a great idea to add Facebook Connect integration and Facebook “Like” buttons to your e-commerce site with the hopes of attracting viral traffic from Facebook, proceed with caution. When your customers click that they “Like” a certain product on your site, Facebook records that data and then lets companies target those users with advertising. Essentially, you’re giving your competitors data they can use to target your customers on Facebook. Depending on what you sell and how competitive the market is, it might be worth the risk, but tell your employees to let you know if they notice that they are being targeted by ads from your competitors. If you see one of your competitors showing you an attractive offer, you’ll know why.

If you’re unsure how to best leverage Facebook and Twitter, don’t stress about it. Remember: However social-media trends play out, consumers will always, always want three things when they shop online: lower prices, more selection and better service.

Sunday, October 10, 2010

eCommerce Rule #9: Identify your best customers, encourage customer loyalty, and motivate the evangelicals

The rise of social-media services like Facebook and Twitter, and the explosion of niche blogs, means your customers now have very public microphones with which they can broadcast their feelings about you. This cuts both ways: Your disgruntled customers have a louder way to complain. But social media also means that your biggest fans (as discussed in Rule #2 and Rule #5) can be heard more, too. They can use social media to sing your praises all over the Internet.

Make sure you take advantage of this phenomenon. The first step is, identify your best customers. They are your most profitable customers, who come back to your site again and again. Work hard to keep them happy. You might try dubbing your most loyal customers VIPs, as Zappos does. This nomenclature may sound silly, but people are naturally proud of being loyal customers of services they like. Then make these customers realize you value them as evangelists or VIPs. Invite them to VIP-only events or sales, and send them special emails to get their feedback. This also serves to encourage their customer loyalty. But you can do more.

Consider Amazon Prime. With Amazon Prime, consumers must pay a fee to participate. But once customers sign up, they get free shipping on all their orders, not just those over a certain amount. This program is incredibly effective at turning repeat customers into truly loyal customers. The logic is that once you’re a paying member of a retail site like Amazon, you’ll always consider Amazon first when you want to buy a new book, or a movie or a backpack. You’ve got to get your money’s worth, after all, since you paid an initiation fee to get into Amazon Prime. Amazon’s goal with this program is for its site to become a daily habit for its customers. This is an incredibly expensive program to implement if you're not already at scale, and a huge barrier to entry Amazon has erected (though some retailers are now locking arms to try to offer a similar program and compete with Amazon).  Mobile apps are another way of encouraging customer loyalty. If you are able to get a customer to download your mobile app, you make it that much easier for your customers to find you again and use you when the urge strikes.

If you're at scale, yet another gambit is to create a loyalty-points system, as MooseJaw, an online retailer of outdoor gear, has done. This site’s program—akin to frequent-flier miles—gives customers ten points for every dollar they spend on regularly priced items, and five points for every dollar spent on discounted products. Customers can then use their accumulated points to buy products on MooseJaw’s reward site.

Now, motivate your evangelicals to sing your praises. In Rule #3, we discussed the importance of Net Promoter Score. To best leverage your NPS, make it as easy as possible for your Promoters (those that rated your service a 9 or a 10) to promote you. One way is through loyalty or incentive programs. These might be simple offers, like “refer a friend” to save money on a future purchase. But there are a number of new vendors that offer unique solutions to motivate users to share their purchases. The space is still very young, but it will evolve quickly. The higher your NPS, the better you’ll be positioned to leverage it.

Tuesday, October 5, 2010

eCommerce Rule #8: WWAD (What Would Amazon Do)?

Amazon was among the first online retailers to offer many of the elements so crucial to e-commerce today: obsession with customer service, affiliate marketing, product reviews, free shipping, a VIP service, on-site advertising and many others. When Amazon first launched many of these features, observers scratched their heads in confusion (e.g., why would Amazon let consumers say negative things about the products they sell?). But eventually other e-tailers followed suit.

Now, it’s tough to find any sophisticated online retailer that hasn’t implemented product reviews. In fact, companies like BazaarVoice help online retailers launch product-review functionality with minimal effort. It’s now widely understood that product reviews often increase conversion rates by a double-digit percentage.

The newest frontier is onsite advertising. Amazon clearly measures eGPV (see “Conversion Rate” under Rule #3), and every change Amazon embraces improves its eGPV. To this end, Amazon has been running a variety of online ads on its site for a few years now – including Amazon’s own pay-per-click advertising and third-party display ads. The thought of letting third-party sites advertise on your site, after you’ve spent so much money and worked so hard to get consumers to visit your site in the first place, might sound sacrilegious. But mark our words: This train has left the station. Onsite advertising represents a great opportunity to leverage manufacturer trade budgets to generate additional revenues for your onsite clicks. Companies like Hooklogic and Intent Media hope to be the BazaarVoice of onsite advertising and are already gaining traction with some of the biggest names in e-commerce.

Other Amazon best practices we admire:

Metrics-oriented culture. E-commerce is a low-margin business. To make a low-margin business work, Amazon has an incredibly metrics-oriented culture. Amazon isn’t the only one. Time and time again, the most successful e-commerce businesses we see share Amazon’s obsession with metrics. (We joke that it’s no surprise QuidSi’s CEO, Marc Lore, worked in a Wall Street risk-management group before becoming an e-commerce entrepreneur). Take this to heart. You just can't be successful as an online retailer if you're not similarly obsessed with metrics.  A/B test and optimize everything - every link, every call to action, every merchandising decision. As one successful eCommerce exec once told me, "If we don't have an A/B test going on, I get very grumpy."

Obsession with page-load times. It’s easy to be tempted to add JavaScript tags from different vendors to your Web pages to soup up the functionality on your site. But beware: These tags can slow down performance. And Amazon has long known that the faster your page-load time, the higher your conversion rates. In April 2010, Google took the step of incorporating page-load time into Google’s all-powerful Quality Score, which makes page-load times more important than ever.

Keeping “fit.” Each workgroup in Amazon must build a “fitness function”, a customized equation that incorporates the most important metrics for a particular group. When computed, the fitness function creates a single “fitness number.” This is the number each group presents to Amazon CEO Jeff Bezos. And if this all-important number isn’t going “up and to the right” consistently, the group is in trouble. Each group’s fitness function has to be approved by Bezos, and sometimes it takes months (if not years) for groups to arrive at the right function.

Keep it simple. Amazon has maintained its innovative, startup culture partly by avoiding the temptation to build large teams to tackle big problems. Instead, the company typically takes a problem and divides it into bite-size pieces, assembling small teams to attack each part of the problem. The rule of thumb for the teams is that they should be “no bigger than you can feed with two pizzas.” Most often, this means a team of three developers, a product manager, perhaps a shared designer resource and a manager.

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