Internet businesses that customise products have the opportunity to add dramatic value to their products. You could, for example, visit Barbie.com and design your own Barbie doll with its own name, hair and eye colour. Retailers who stock products in stores can not produce customised products as efficiently as a high volume, online, back-end make-to-order operation. If Barbie doesn't impress you, try buying a configure-to-order computer from Dell.com or your own selection of music on a custom made CD from CDNOW.
If the products businesses sell are currently sold from catalogues, there is a good reason to believe that they will sell over the Internet. However, catalogue selling has its limitations: with product lead times of over four months customers can be left disappointed when lines sell out. If the products don't sell, the retailer is left with excess inventory. Internet retailing has a number of distinct advantages for customers and businesses alike. The customer can be assured that products are in stock if the business has a near real-time inventory and merchandising system. The business can tailor prices to reflect inventory positions and maximise margins. Thus we have seen the emergence of new second-hand markets, and distressed inventory markets with 'when it's gone its gone' offers.
Products that do not require physical interaction between the customer and product are very suitable for Internet selling. Otherwise purchase over the Internet is a risk for the customer, who will only discover if the product is really suitable on delivery. If you need to try on (clothing), smell (perfumes), taste (food), or see (wallpaper and paint shades) the product before you can assess its quality, then buying over the Internet is a risk. People may be happy to do this, but expect product returns to be very high and the costs can be crippling. For perspective, the UK catalogue business generally offers a 14-day return policy and records return rates of over 30% on clothing and footwear. Footwear especially can easily exceed 50% return rates. Alternatively if the product is a generic commodity, it will sell well through the Internet. While the extent to which people need to interact with products is dependent on the customer as much as the nature of the product, there are some factors that can be applied to mitigate customer risks.
Trusted products/brands. Businesses that sell well-known brands such as Chanel No 5 will achieve higher looker/buyer ratios than those whose products are unknown. Businesses such as Drugstore and Tescodirect. co.uk are relying on repeat purchases, where the consumers have purchased the products before and trust is not a major issue. Oneswoop is an Internet-based European car trading service that is minimising the customer's perception of risk by associating itself with valuable brands. Thus it has registered the site with Verisign to assure customers that the site is safe, offers financial services from Marks and Spencer and insurance from 15 branded firms. It is also backed by well known equity firms and Andersen Consulting, the world's largest management consultancy.
Low risk trial packages. Another way of reducing risk is by offering samples first. Furniture. com's fabric sampling service is an essential element in achieving customer satisfaction and minimising returns of bulky and expensive sofas.
Guarantees. Returns policies are effective guarantees for people who purchase direct and are a requirement in most European countries.
Technology applications. There are now a number of technology and design applications which try to mimic the physical experience for the customer. Ipix.com's 360-degree viewing technology enables a prospective buyer to view a house almost as if they were there. Snowdrops.com, a Swedish beauty site, enables customers to scan in a photograph and experiment with different hair colorants and lipsticks. Landsend.com enables a customer to create a computer image with their own body measurements to see what different clothing combinations could look like. Goodhome.com's iDecorate enables a customer to see what their room would look like with different decorative styles and furniture. All of these applications decrease the need to see and touch the products before purchase.
If the products or services can't be cost effectively delivered when customers want them, then they are not suitable for Internet selling. Let's take each of these elements in turn to explore what this means for the Internet business.
Delivered when customers want them. If the product can be delivered against expectations, then it is suitable for Internet selling. Expectations are generally set by the offline equivalents. Consequently, it is difficult to imagine MacDonalds Corp selling hamburgers over the Internet, as hunger strikes quicker than hamburger delivery vans can travel. However, if it takes six weeks to deliver furniture offline, an Internet business that delivers in four may be an attractive proposition. Indeed, because it is easier to update your online catalogue, inventory can be better managed and the opportunity to deliver against your promise is greater. Businesses need to establish how quickly customers require the product, and how the Internet can be used to speed up delivery and manage stocks better.
If the product can be delivered immediately, it is a very attractive Internet proposition. A new set of eProducts have been developed that can be downloaded to satisfy immediate demand in a way that was never possible before. Check out the MP3 downloads of music as an example. Another is the development of Qpass as an Internet payment mechanism which enables individuals to download varied digital products ranging from news to software immediately and pay for them with one click of the mouse.
Online casinos have proven particularly popular, particularly as your money doesn't have to navigate through the credit card payments system for up to a week. Those seeking instant gratification can now sign up to TheGoldCasinowhere they use eGold to bet with. Here you can buy eGold, bet with it, win some more and then use your winnings to go to other eGold affiliated sites and buy a holiday to celebrate your new found wealth.
Delivered cost effectively. Fulfilment costs can account for up to 20% of gross revenues for many Internet businesses, although this is dependent on a number of factors. It is important to remember that the overall delivery cost is only relevant when considered as a percentage of profit. For example, upholstered furniture may be difficult to deliver because of its size and weight, and it may even have a high level of returns, but the margins and prices are high.
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