Amazon showed us the way: “Welcome back, Arthur. If you’re not Arthur, click here.” This is wonderful one-to-one marketing. Many companies have copied this method. They are finding that it works. It was what the old corner grocer used to do. He stood at the entrance to his store and said, “Hello, Mrs. Williams. How’s your daughter taking to Radcliffe?”
But personalization is hard to do. You have to use cookies. You have to collect information about customers and store it in a database. You have to be creative in calling the information up and using it on your Web site in ways that the customers like, without feeling that their privacy is being invaded.
So how can you determine the payoff from this kind of personalization? What are the measurement methods?
To answer this, you have to ask what the purpose of a Web site is. Before the dot-coms began to crash in March 2000, there was one answer: Web sites are designed to attract customers, show them advertising and sell them products.
Today, you know that that answer is wrong. It does not work. No Web site is making a profit solely from showing advertisements to customers. Almost none are making a profit selling products to consumers. Even Amazon is in trouble today. As a sales and advertising medium to consumers, the Web is a bust. The following are some reasons.
The problem with making money by displaying ads on the Web is that there are too many Web sites. If you own the Cleveland Plain Dealer newspaper, you can make money selling ads to people in Cleveland since you are one of the few games in town. It would cost millions of dollars to start a new paper in a large city.
But if you own a Web site like WashingtonPost.com or The New York Times interactive, you have a different situation. You have competitors not just in your own city. They are all over the globe. There are millions of Web sites. Anyone can start a new one for less than $10,000. With only a limited demand for advertising, and an unlimited supply of potential ad locations, the cost per thousand impressions has fallen close to the cost of putting up the ads, which leaves no room for profit.
Selling products to consumers on the Web has run into a similar problem. If you have a large store in a prosperous neighborhood, you can make money by selling products to people who live within driving distance of your store. It will cost a competitor $1 million or more to put up a rival store. So, you are safe until Wal-Mart comes to town.
On the Web, it is much different. Web sites can be located anywhere in the world. If you have a site in Cleveland selling vitamins, for example, your competition need not be located in Cleveland. Competitive Web sites can be anywhere in the United States. A respectable looking vitamin Web site can be put up for less than $100,000. Any Web site that seems to be successful will soon breed scores of competitors. Again, limited demand and unlimited supply results in driving prices down to close to or below the break-even point.
So the Web, which seems to be and is so promising from a consumer’s point of view, is very discouraging from a supplier’s viewpoint. How can you make a profit from the Web?
The answer is by changing your approach to the Web. The Internet is not a profitable consumer advertising or selling medium. But it is an excellent information and ordering medium. Increasingly, consumers turn to the Web to get answers to their questions and to find obscure things. Instead of letting their fingers do the walking in the Yellow Pages, millions let their mice do the scampering on the Web. They look up the price of airfare, credit card rates, books, information and driving directions. They find obscure items on ebay and bid on them. I have been looking for “Cautionary Tales” by Hilaire Belloc for the past five years. I turned Amazon down when it said it could get me a copy for $265. I found one on ebay for $8.
But how can you make a profit by providing free information and selling obscure items in small quantities? There is a way. It involves changing your expectations for the role of the Web.
Most large companies today are spending millions of dollars on customer service. Hundreds of customer service representatives are answering customer questions and selling products. Many of the CSR functions can be performed by a good Web site. Look at the work of a CSR. She takes scores of incoming calls per day. She has a computer linked to the company’s main server. As customers ask her questions, she manipulates her mouse and her keyboard to get the answers on her screen. Then she reads the answers over the phone to the customers. She gives information and she takes orders. A typical call to a CSR costs $6.50. In most cases, a really good Web site can replace a high percentage of the CSR function. The method is to give the customers the same access to the company server that the CSR has. Here is what is happening now:
We have eliminated the CSR and the telephone call. Instead, customers using the Web site see the same information that the CSR used to see. They place the same orders, using the same credit cards. One company is spending almost $50 million per year on CSR functions. A consultant estimated that if it could shift only 30 percent of its CSR work to its Web site over a three year period, assuming a 15 percent annual growth rate, it could save more than $20 million per year in three years. That is the promise of the Web. These are numbers that go right to the bottom line.
Profits like this can come about only if customers will use the Web instead of calling a CSR. How can you get them to do that?
• The Web site has to be as good as or better than the services provided by a CSR. Study what your CSRs do and say. Design your Web site to do the same thing, but then go one step further. Provide the customers with lookup functions that are more sophisticated than anything that a CSR could do.
• The Web site has to be publicized so that your customers know about it.
• The Web site has to be personalized. It has to have the same friendly personal relationship that a good CSR has. Amazon says, “Welcome back Arthur” not just because it is a neat thing to say. Amazon says it because it keeps Arthur coming back.
• The Web site has to have a live agent function. Studies show that 74 percent of Web shopping carts are abandoned at checkout. The reason is that at the last minute, people have questions that the Web site does not answer. You have to put a button near the checkout that provides a text chat with a live agent. CSRs can handle four text chats at once. This software is provided by several companies, including www.liveperson.com.
Once your Web site is as good as a CSR, you can measure your success by the percentage of your customer service and orders taken on the Web versus those by a live agent.
The Web is not a panacea. The Web will support but never replace direct mail, catalogs, retail stores, malls, brand names, television, newspapers, magazines, radio or books. It can be a very important channel, but only if the company already has other profitable channels for sales that the Web will supplement. You can profit from the Web, but you have to look in the right place.
