The Seven Deadly Sins of E-Commerce
Many doomed e-tailers failed to make sure that goods were in stock - or at least that customers were informed when the company was sold out of a particular item.
03/27/02 6:34 PM PT
E-commerce companies made a lot of mistakes in the early days, and the same errors torpedoed hopeful e-tailers over and over.
The Web is haunted by the ghosts of those failed dot-coms, but at least the ones that have survived now have a good understanding of what not to do.
Pride Goeth Before a Fall
"The first deadly sin is to believe that you can sell anything over the Internet," Giga Information Group analyst Andrew Bartels told the E-Commerce Times.
That attitude led to e-commerce disasters like Pets.com, Furniture.com and Living.com, which were trying to sell things that did not make economic sense on the Web. "Product selection is one of the key success factors," Bartels said.
Some companies just had poor business models that would have failed online or offline, Lori Iventosch-James, director of e-commerce research at Harris Interactive, told the E-Commerce Times.
Some businesses were "poorly run, not well thought out or not the greatest fit for an online market," Iventosch-James said.
Gluttony for Growth
The second deadly sin was thinking that e-commerce companies could look forward to skyrocketing growth for the foreseeable future.
Because they thought online sales would keep growing by 100 percent or 200 percent year after year, many companies rushed to set up shop on the Web and just as quickly learned the error of their ways.
"Except for EBay and Amazon, first-movers by and large have not been successful. It has often been the second- or third-movers who have been able to learn from the mistakes of the first-movers," Bartels said.
Channel blinders were an unfortunate accessory worn by many failed dot-coms, according to Iventosch-James, who cited Circuit City and Best Buy as examples of companies that have an integrated channel strategy.
"It's clear that one of the things e-commerce companies have learned is that they have to integrate their online and offline operations," she said.
"If they don't have a comprehensive channel strategy, they are really missing the boat. That is one of the lessons that was learned early on -- online is just one piece of the whole picture."
In some cases, e-tailers simply ignored other channels, which Bartels said was a huge mistake. Those companies failed to recognize the value of other marketing channels, including paper catalogs and physical stores. "A growing number of successful retailers have now learned," he noted.
Lust for Customers
A common but deadly sin was not paying enough attention to customers. "People are learning that good customer service is really critical in this particular environment," said Iventosch-James. That is one reason why catalog companies like Eddie Bauer are doing so well online while some more traditional companies like J.C. Penney and Bloomingdales have struggled.
Part of the customer service equation is customer fulfillment, and many e-tailers failed to make sure that the goods were in stock -- or at least that the customer was informed when the company was sold out of a particular item.
In other words, companies did not "[make] sure that the promise of the online sale was met by the reality of the delivery," Bartels said.
Another key aspect of e-commerce that many companies neglected was user experience on the site.
According to Bartels, "Good sites did this well. Bad sites lost customers they may have enticed with marketing by failing to make the experience a satisfying one."
Greed with the Green
One of the deadliest sins committed by e-commerce companies was turning a blind eye to costs. "A lot of the ones that failed burned through an incredible amount of cash in a very short time -- think of Blue.com," Bartels said.
Caught up the Web whirlwind, many companies spent gobs of money on facilities, parties and perks -- and their carelessness led to many an e-commerce downfall.
Some firms did it right, however. According to Bartels, NetBank is famous for its penny-pinching president, who mandated the purchase of used computer equipment and low-rent office space. As a result, the company is one of the most successful Internet banks.
Deadly sin number six involved e-tailers' single-minded focus on low prices, ignoring other value propositions like information, good service and unique products.
"The problem with being a low-cost provider is that you're constantly in danger of being beaten out by the next guy," Bartels said.
"Amazon does not usually have the lowest price, but they compensate with superb execution, and they have a lot of information that people can use to make educated buying decisions. That gives them more loyalty," he added.
And that leaves just the last sin -- anger. That shows up after all the other sins have been committed, when e-tailers realize they have done everything exactly wrong and that they have no one to be angry at but themselves.