dan-spellman.com

In the next few weeks I will be attending the Internet Retailer Conference in Chicago.   Each year, Internet Retailer puts out its Top 500 Guide, which lists the leading retail web sites.  For the last few years, Amazon.com has captured the top spot and will do so again this year. 

With an active customer base of over 76 million customers worldwide, Amazon remains the powerhouse to benchmark against.  With a product selection that is way beyond the initial “bookstore” mentality, inventory carrying costs could be a formidable burden for them.  However, “third party sellers”, reports Andrea James, “account for 30 percent of the units sold on Amazon.”

The art of drop shipping product “is a supply chain management technique in which the retailer does not keep the goods in stock, but instead transfers customer orders and shipment details to wholesalers, who then ship the goods directly to the customer.  The retailers make their profit on the difference between the wholesale and retail price.”

By engaging in this method of order fulfillment, retailers are able to increase their assortment of products and thus appeal to a larger base of customers.  Manufacturers are able to sell their products through a larger network of suppliers - and both parties are able to minimize their inventory carrying costs.

Entering the world of EDI communication can be daunting and if you want to know the difference between your EDI-850 and EDI-856 communications, Christopher Alexander gives a very good explanation in his recent article titled “What is EDI?”.  Ultimately, you are going to want to have a person dedicated to helping you not only set up your drop ship capabilities, but someone to manage it going forward. 

What does Staples, Sears, Kohls and Costco all have in common?  Along with prominent listings on the Top 500 Guide, they all use CommerceHub to help transmit and track their drop ship orders.  Finding the right third-party partner can be the difference between a small boost in sales versus having drop shipping constitute substantial component of your overall merchandising plan.

The web is built for companies like Amazon.  Being able to offer a broader selection to a wider audience are the defining characteristics of the Internet.  By leveraging your vendor’s inventory through drop ship processing, you can compete with the #1 retailer on the web.

Until next time,

Dan

(originally posted on www.Spellman.Typepad.com)

Tracking your web metrics is not enough - you also have to understand how to leverage the results.  Avinash Kaushik focuses his blog, Occam’s Razor, on how to understand and leverage these metrics.  As one of the leaders in defining “web analytics”, Kaushik’s latest post asks the question, “is conversion rate enough?”

The standard focus of your Marketing or Web Merchandising department is to maximize conversion.  But is this always the correct target?  Maybe not.

What if your goals did not always prompt you to maximize conversion.  At first glance, you might think I’m nuts.  But, if you’re trying to run a profitable web site, you need to factor in basic “margin management”. 

You will always have a stronger conversion rate with your opening price point (OPP) merchandise.  However, if you only use these products and, therefore, focus on driving your conversion rate, you will find your product mix will adversely affect your bottom line.

Developing a promotional strategy that finds the balance between driving conversion and maximizing margin is paramount.  You need to identify the differences in your customer base in order to do this.  Your acquisition strategy may lead you to promote a larger balance of your OPP merchandise to try-ers (see Defining Success), whereas your retention strategy will lead you to up-sell current customers to higher margin products.

Until next time,

Dan

(originally posted on www.Spellman.Typepad.com)

Increasing online sales can be driven via several different tactics.  You will always focus on bringing more people to your site in an effort to increase your customer base.  Maximizing paid search, optimizing affiliate marketing and leveraging off-line marketing are just some of the tasks that e-marketers face every day.  At the same time, the web merchant focuses on developing promotions, improving conversion and building up-sell opportunities.

Another required task is to focus on your key customer groups in order to increase their awareness of your entire product selection.  This approach, focusing on Category Penetration, attempts to increase the number of categories that your customer purchases from your site, and thus, increase their order total and lifetime value.

To be successful, you need to sell more stuff to every customer who comes to your site.  However, your greatest opportunity lies with your loyal customer base.  Everyone knows that retaining a current customer is always more profitable than attracting a new customer.  The same can be said for increasing the average order amount for these two groups. 

New customers are “try-ers”, and your focus should be on building a buying pattern with them to the point where you are “top of mind” for your product categories.  This may take 2 or 3 purchases before these customer move from “try-er” to “buyer”. 

Your existing customer base has already developed that buying pattern.  With this group you are focusing on expanding the selection of products that they purchase from you and increasing the frequency of purchases.  RFM (Recency, Frequency and Monetary Value) is the secret to success that we all learned in our 101 marketing back in college. 

Once you have developed an understanding of how your customers break down in the RFM hierarchy, you would want to determine the penetration by product category for each group to determine if additional promotional offers should be developed for different customers.

As you make these promotions available over time, you need to develop a method for understanding their effectiveness.  One method that I prefer is to calculate the Average Order Contribution by product category.  This metric is very similar to calculating the Revenue per Book ($/bk) that you have used in determining catalog effectiveness.

With $/bk, you are really determining the interplay between the catalog’s response rate and the average order amount.  Both of these metrics can be optimized independently, but in the end, you will find the Revenue per Book the key metric.

            Response Rate = Number of Orders / Number of Catalogs Mailed

            Average Order = Total Revenue / Number of Orders

            Revenue per Book = Total Revenue / Number of Catalogs Mailed

As you move from your print media to your web site, you will want to track the effectiveness of your marketing materials in a similar manner.  Here you may be reviewing your email or affiliate efforts.  You can calculate the Revenue Dollars per Delivered email ($ / Delivered) or the Return on Advertising Spend (ROAS) for your affiliate efforts. 

By digging deeper, you can gain an understanding of how each product category is performing overall.  This is where the Average Order Contribution comes into play.  When you are determining which products receive the premium spots on your Home Page and/or in your emails, you need to understand which categories perform the strongest and if these are improving or declining over time. 

By tracking how much each product category contributes to the total average order amount, you can gain insight to how effective past promotions have been for category.  Again, as with the $/bk calculation, the Average Order Contribution is a combination of two other metrics: (1) the Percent Penetrated; and (2) Dollars Penetrated.

            Percent Penetrated = Orders with Category (A) / Total Orders

            Dollars Penetrated = Category (A) Revenue / Orders with Category (A)

            Average Order Contribution = Category (A) Revenue / Total Orders

As you track the Average Order Contribution Trend over time, you will be able to identify those time periods where your marketing efforts have produced exceptionally strong results as well as when your efforts have fallen below the trend line.

Once you have identified these periods of interest, you can investigate the specific sources (or lack thereof) of sales.   Did the stronger results occur because you sold more products to your existing customers (you can identify this by tracking your Dollars Penetrated results) or because you expanded your sales to more customers (you can identify this by tracking your Percent Penetrated results).

These calculations will help you identify which promotional periods are succeeding and help you understand the related base components.  Once you understand these factors, you will be better prepared to determine which marketing messages are effective and which one are not. 

Until next time,

Dan

 (originally posted on www.Spellman.Typepad.com)

Alright - We'll try this again.  It's Halloween and the kids have been ringing the doorbell all afternoon.  We have seen a number of ninjas, witches and assorted goblins.  While you may be thinking, because they are all under 5 feet tall, how scary can this be?

Well, I'm just now entering the blogging community to offer my two cents.  I've finished my first entry only to find that I have lost it somehow.  Because I have never considered myself a prolific writer, I can feel my blood chill at the prospect of trying to recapture my initial blog.  The scary part is that although I have never written a blog before, I am a web expert.  With over 20 years in the customer direct business (web & print marketing), I've formed some viewpoints I'd like to share.

My kids will tell you that I'm always eager to share my opinion.  However, with one in high school and the other in middle school, my advice is not always held in high regard.  Therefore, rather than sharing my insights on parenting, I'll stick to business with topics such as:

Optimizing Your Contact Strategy
Leveraging Web Site Usability
Strategic Merchandising
Focusing on the Customer's Interests (Going Green, Hispanic Market, M-Commerce)
Driving Search Results (Paid, Natural and Internal)

While I can only assume that this blog won't see large amounts of traffic, it will help me organize my thoughts around how to drive stronger sales results - and I hope you find it useful as well.   But right now, I need to answer the door again.  The ghosts and goblins don't scare me, but I am a little worried that I might run out of treats before the night is over . . . You see, I've been sampling the candy as well.

Until next time,

Dan

(originally posted on www.Spellman.Typepad.com)