The real money in e-commerce may not be in sales but customer service savings
As American industry has grown, companies increasingly have become separated from their customers. The old corner grocer knew his customers by sight and greeted them by name. That’s no longer possible for most American stores or businesses, which have thousands or millions of customers. They don’t know who their customers are and can’t provide recognition. As a result, loyalty has gone out the window.
In the last 15 years, computers have become so sophisticated it is possible to store in a database the kind of information the old corner grocer used to keep in his head, and to use that information to build relationships with individual customers.
In the 1980s, companies began offering toll-free customer service lines to strengthen those relationships. Millions of Americans called businesses to ask questions. To support their customer service representatives, companies built operational databases so reps would have vital information about products, technical specifications, delivery status, etc. As calls came in, the rep brought up the needed information on screen, which he or she would then read to callers.
When they caught on to what was happening, marketers linked this system with the marketing database so the rep could see who the buyer was and what had been ordered. Caller ID was added to bring the customer’s database record on screen before the call was answered. It was possible to have this kind of conversation:
“L.L. Bean. May I help you?”
“Yes. This is Nora Webster.”
“Mrs. Webster. So nice to hear from you again. How did your granddaughter like the sweater you sent her last October?”
Wow! L.L. Bean remembers! This is what the corner grocer used to do – and we can do it today. This is recognition. This builds a relationship. This brings back loyalty. How many companies are doing this? Probably less than 5%. But the practice is growing, and it works.
Customer service, however, is expensive. At a cost of $3 to $5 per call, with thousands of calls per day, companies have seen a serious drain on the bottom line. Customer lifetime value analysis must be used to determine whether the helpfulness and relationship building is worth the cost. In some cases, companies found that it was not paying its way. Most banks that have done profitability analysis discovered about half of their customers were unprofitable. A good part of the lack of profits can be traced to the expense of customer service.
Federal Express provided a shining example of customer support by having reps who could field questions on the exact status of every package shipped at any time. A couple of years later, United Parcel Service set up a similar system. But this came at a significant cost. If every customer called to learn the status of their orders, all shipments would cost at least $3 more than they do.
Enter the Internet
When people look at e-commerce, they complain that the value of products sold directly on the Web is still less than 1% of the value of products sold through other channels. They point out that few companies, including the likes of Amazon.com, are making profits from online sales to consumers.
This shortsighted criticism ignores the fact that the Web already is a highly profitable medium for reducing the costs of customer service. Instead of paying for a toll-free call and the cost of a customer service rep who is reading off a computer screen, companies are learning that their customers can look at that same screen on the Internet and get the answers themselves.
What’s more, people like it better. When Sears Canada put its big book on the Net, it found that 97% of online buyers had the paper catalog in front of them. The 800 number was still at the bottom of each catalog page, but customers preferred to place their orders online rather than call a live operator. What is the savings to Sears Canada? About $4 per order. Banks are also discovering savings from the Internet. Transactions made over the phone cost banks $1 or more. Those made on the Web cost about a penny each.
The big advantage, however, is derived from inviting customers to come into our companies to read the same screens our employees read. Customers become part of our company family. This is real relationship marketing.
Picture the situation of a company meeting planner setting up a two-day seminar for about 50 customers. The planner is looking for a suitable hotel near Fort Lauderdale, FL that has the facilities it wants at a cost within its budget. Let’s see what can be done by clicking on the Marriott.com Web site.
The site asks meeting planners to specify the number of guests and the features and amenities (golf, beach, skiing, etc.) they want nearby. The screen shows that there are seven Marriott hotels matching the specifications exactly. Clicking on the Fort Lauderdale Marriott North Hotel, we see the available meeting rooms and specifications. Another click brings up a picture of the hotel, and another a map of how to get there. This is just great marketing.
Marriott’s site was created in 1997. It provides information on 1,500 hotels whose annual revenue exceeds $10 billion. Think back to how you would have planned a meeting before all this was available. You had to call Marriott, or other hotel chains, on the phone. A customer service rep, looking at information similar to this on a computer screen, would attempt to describe to you what he or she saw. The rep would offer to send you an expensive packet of information on hotels in the Fort Lauderdale area that would arrive a few days later. In the meantime you would probably have booked a hotel somewhere else. Your call would have cost Marriott at least $10, plus the cost of fulfillment.
Right now, Marriott’s meeting planner Web site is way ahead of the other hotel chains, which likely are working hard to catch up. But this type of site is not just for hotels. Every business-to-business firm in America (or the world, for that matter) can profit by opening up its internal data and making that information available to customers on the Web because:
– The site will probably pay for itself through savings on toll-free calls and operator time.
– It may increase sales to new prospects (although that’s not a sure thing).
– It provides a way to recognize and build relationships with customers that will improve loyalty and retention.
What companies are doing this?
Customers use Dell Computer’s Web site to check their order status 50,000 times weekly. The same calls to Dell’s customer service reps cost the company $200,000 a week. Dell also saves several million dollars a year by encouraging some 200,000 customers per week to make their troubleshooting inquiries online.
But Dell has done something else: It’s created more than 20,000 Premier Pages for individual companies. Each page displays standard computer configurations and prices that have been negotiated in advance with the particular company’s management. A secure page linked to the Premier Page with a password provides account information for senior purchasing managers of the company placing the order, so they can track their organization’s computer acquisitions.
Amazon.com uses cookies (messages given to a Web browser from a Web server to identify site visitors) to greet customers when they enter the site with on-screen statements like “Welcome back, Arthur.” This is what the old corner grocer used to do. Now the Web lets companies do it too.
So when you hear people talking about how no one is making money on the Web, think again. They may be right. But what’s happening is that hundreds of firms are saving money and building customer relationships on the Internet.
In the long run, these two factors will be more important than the total amount of direct sales to new customers.
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