Overview

E-Commerce Tutorial

Lesson 1
Making a plan
Lesson 2
Sales techniques
Lesson 3
Handling online transactions
Lesson 4
Software solutions
Lesson 5
Attracting customers

So you want to sell your product online and get a piece of that multibillion dollar marketplace you've read about? Well, before your customers can point, click, and buy, you need to do a little research.

In just five easy lessons, this tutorial will show you how to generate a realistic e-business plan; create a site design that caters to your online customers; deal with things like credit cards, tax, shipping, and security; and decide whether you should build, buy, or rent an e-commerce solution to manage your site's transactions. You'll also learn how to attract new customers by refining your marketing programs.

Before you get your feet dirty, however, you'll need a solid plan of attack. So let Jarvis tell you everything you need to consider before beginning your snazzy new e-business.

Introduction

So you want to put your business online and get a piece of that multibillion dollar marketplace you've read about?

One of the most popular Internet myths claims that building an online store is easy: All the customer has to do is point, click, and buy! But in reality, successful e-commerce is far more complex and unlike any other Web site project you may have tackled in the past. Before that first cyberbuck finds its way into your bank account, you need to do considerable research and planning.

That's where this tutorial comes in. We'll help you jump-start your brain and get you thinking about all the issues that need addressing before you can put together a successful online business plan. You get all this in just five easy lessons!

Lesson 1: Getting Started and Making a Plan
When it comes to getting your e-commerce site started, don't just dive right into the deep end. Instead, get your feet wet with an advance plan.

Lesson 2: How to Sell, Sell, Sell!
To find out which online sales techniques best suit your business and products, look and learn from the different approaches employed by companies that have already taken the online business plunge.

Lesson 3: Transactions
Roll up your sleeves and get technical with the nitty-gritty of transactions, credit cards, tax, shipping, integration with fulfillment systems, and customer service.

Lesson 4: Build, Buy, or Rent?
There are lots of prepackaged e-commerce solutions out there. Before you decide which one makes the most sense for you, take a look at the technology issues related to doing business online.

Lesson 5: Building your Customer Base
Well, your site's built, but that doesn't mean your work's finished. Now you need to get paying customers to come in. Learn how to attract new customers by improving the effectiveness of your marketing programs and fine-tuning your site.

To get you started, let's take a look at an imaginary (yet all too real) company that suddenly decides to heed the siren call of e-commerce.

Getting Started
Say you're working for Computer Chip Corporation, the world's leading supplier of computer memory products. Your CEO is catching up on the past several months of business journals, when the light bulb switches on. Those screaming headlines just can't be ignored: "Consumer E-Commerce Will Jump to $26 Billion by 2002" and "U.S. On-line Business Trade Will Soar To $1.3 Trillion By 2003." More important, the competition is rumored to be working on its own e-business plan. So the big boss meets with the board of directors, and after a long, heated debate, they call you in to tell you they want to open CCC's cyberdoors in (gulp!) six weeks. That should be plenty of time, they insist. After all, the CEO's daughter (a sophomore at Berkeley) built her own online store in a mere three weeks, so she's selling enough Beanie Babies to put herself through college. "Surely we can sell our RAM computer memory chips for less? You know, direct to the customer?" the board chimes in unison.

Don't panic. Six weeks may sound a bit tight, but it's still not a hellish 24-hour turnaround. With the right planning and a little luck, you just might make it. So calmly say, "I'll get right on it," and then immediately register the domain name ramforless.com with Internic. (Actually, you'll have to come up with your own name since ramforless.com has already been grabbed for the purposes of this tutorial.) That done, take a deep breath and then read the rest of this tutorial in its entirety. By looking before leaping, you'll learn about all the e-commerce gotchas that can hit you unexpectedly. Planning ahead will not only save you quite a bit of redevelopment time down the road, it will also help you make educated decisions as you choose the right e-business solution for your company.

Page 3 — The Many Ways to Skin a Cat


 

Before you can select the right setup for your e-business, you must determine exactly what you need to be competitive online.

Most likely, you'll need some software to help you manage your products, your promotions, your customers, and their orders. You may also need some additional programs to handle the tax, shipping, and payment processing of your orders.

A number of popular off-the-shelf solutions have evolved over the past few years that give you these core features and allow you to plug-in other software modules to handle the complexities of taxation, the varieties of shipping options, and many of the popular forms of payment. Each option offers its own set of pros and cons.

Solutions like Intershop's ePages, iCat's Lemonade Stand, or Yahoo's Stores provide storefronts that are ready to go. Just pick a design and pop in your products: You are ready for business.

Other applications, such as Intershop 3.0 and iCat Professional, allow you to change standard templates that come with the packaged software so that you can customize the way your storefront will look and feel. These solutions also let you extend the standard features and behaviors contained in the templates - assuming you can "speak" their application languages.

And then there are solutions that act more like e-commerce application platforms. These include Microsoft's Site Server Enterprise, which relies on Microsoft's ASP (active server page) technology; Allaire's ColdFusion application engine and its popular CFML (ColdFusion markup language); IBM's Net.Commerce solution; and Pandesic's new 3.0 product release, which provides robust backend e-business processes that can be accessed through a standardized application interface.

Many of the above solutions rely on other e-commerce software from CyberCash or OpenMarket for payment processing, Taxware for tax calculations, and Tandata for up-to-date shipping information. (Note that we'll take a closer look at the plug-ins in Lesson 3 and software solutions in Lesson 4.)

But which is the right solution for your e-business? To figure that out, you need a plan.

The Best Laid Plans


It's hard to know which technology solution is right for you, until you have a detailed list of requirements against which you can compare the solutions. Therefore, before you can choose an e-commerce platform, you have to decide what kind of experience you want to deliver to your online customers. As you do this, think about where your company is going to be in one, two, five, or 10 years. If you set up your solution correctly now, when your company grows and expands, you can add on to the original foundation without tossing out your prior efforts.

Or, as many companies do, you can go for the quick fix today. This strategy may get you to market faster at a lower cost, but it will cost quite a bit more in the long run, since you'll have to rebuild from the ground up when your site grows (which at the rate things change online, could be as soon as a year from now). Either way, you still need a plan.

As you build your plan, the first thing you should do is generate a Requirements Document. At this stage, it's a good idea to get all the corporate departments involved. That way you can get everyone's input at the beginning, as opposed to later, when it's too late. You'll also have people who really know how long things take helping you come up with realistic scheduling and budgetary expectations. The other benefit of this summit approach is that it gets ideas and potential conflicts out on the table early. The last thing you want is Frank from Fulfillment telling you a week before launch that the product numbers you're sending him are three characters too long. Gotcha!

To avoid this kind of scenario, get everyone that's involved in a room for a "Day of Discovery." The information you need to gather can be modeled as a circle that represents your entire sales and marketing cycle. Each stage of the cycle can be a basis of discussion for your summit meeting.

Marketing Cycle Illustration

Sales and Marketing Cycle

Customer: Who are your target customers and what do they need?
Awareness and advertising: How will you get customers to the store the first time? How will you get them to come back?
Merchandising: What products will you offer and how will you position and display them to your customers?
Sales service: How will you answer customers' questions and solve their problems?
Promotions: How will you promote merchandise and services to give customers incentives to make purchases?
Transaction processing: How will you handle orders, tax, shipping, and payment processing?
Fulfillment: How will you pass orders to the fulfillment center?
Post-sales service: How will you provide customer service and answers to order-status questions after the sale?
Marketing data and analysis: What information about sales, customer, and advertising trends will you gather? How will you use it to make decisions?
Brand: How will you communicate with customers during each of these interactions in a way that reinforces your unique company image?

Play by the "Business Rules" Document

At your D-Day, talk through all the steps that come before and after a transaction. Gather ideas. Discuss constraints and get the raw information you'll need to develop your e-business plan.

To help keep the ideas flowing and your brain-storming on track, we've created a Business Rules document for you to use as you meet with your team. This isn't a check list - it's simply a compilation of the e-business issues that you should consider as you carefully lay plans for your e-commerce site. Print it out, put it on the OHP (overhead projector), stick it on the white board, and then use it to generate new ideas and spark innovations of your own.

After you have all the raw information you need, it's time to prioritize. It is not likely that you'll be able to implement all the things you want in the first release of the store because of constraints in budget or time or because you're the only person working on this project and you haven't slept for three days. Rank each of the features you want with a one for "must have," a two for "nice to have," and a three for "pipe dream." With your priorities in line, you can create your Requirements Document.

Requirements Document
Back at Computer Chip Corp., your CEO decides that it's better (read: more realistic) to have the first version of the project concentrate on building up the company's online customer base via the promotion of the www.ramforless.com service. Then once a minimum monthly order volume is sustained, the company will commit to putting resources toward automating the back office and fulfillment systems. "Until then, we'll just re-key orders," the employees are told. The fulfillment manager's eyes get large and he jots down a note to open several new data entry job requisitions. And you? You just breathe a sigh of relief, because, for now, you don't have to tap into that 1970s mainframe monster that handles all of the current order entry and fulfillment processes.

With those priorities in line, the ramforless.com preliminary Requirements Document (aka The Plan) is just about ready to go. (Note that yours will probably need to be a bit more detailed and will likely require a few revisions to get there.)

www.ramforless.com Requirements
Version 1.0

Displaying products

We want customers to be able to tell us what kind of computer equipment they have. Then we'll tell them what kind of memory chips work with their computers. If we know the make and model of their equipment, then we can recommend chips in 8-MB, 16-MB, 32-MB, and 64-MB flavors. Sophisticated customers may already know the model number of the memory chip they want, but these products are changing all the time. We'll need a tool where we can make changes to the products we offer in real time.

Order and transaction processing
Customers will want to buy more than one item at a time, so we'll need to let them build an order before checking out. Then we'll need to accept major credit cards and calculate tax, shipping, and handling charges. Plus, we'll be shipping within 24 hours of the order, so we'll need to verify the credit card information before we accept the order.

Attracting customers
We want to use a variety of lead-generating tactics, such as buying banner ads, registering with search engines, and sending direct email to get qualified customers to the site. We'll also want to know which of these tactics gets the most customers to our site so that we can figure out which advertising investments make the most sense.

Fulfillment and customer service
Orders that arrive on the server need to be relayed to the fulfillment center quickly so that we can pick, pack, and ship the memory chips before the FedEx truck shows up at 5 p.m. We also want to be able to let customers get the status of their orders so that they don't have to call us.

Software and hosting
We want to host the site with a third party. Staying up 24/7 monitoring servers is not our idea of fun. We've seen a number of e-commerce software packages on the market but are confused about which one is right for us. Help!

Once you've generated your own Requirements Document, you still have a lot of details to iron out, and there are many choices still to be made before you can open your doors in cyberspace. In the next lesson, we'll tackle the challenge of designing an effective sales and merchandising environment. Then we'll take a look at some existing sites that use these techniques.


Page 1 — E-Commerce Tutorial — Lesson 2


How to Sell, Sell, Sell!

How do you like to shop? Do you take all day and browse around until something catches your eye? Or do you march right up to the clerk and say, "I need a cheap widget with a whoziwhatzit. Got one?"

It probably depends on what you're looking for, right? I rarely find myself wandering through an auto supply store, trying out different spark plugs and seeing which ones strike my fancy. And only once or twice have I gone to the checkout stand at Safeway and said, "I'm looking for a brownish butter-like substance made out of peanuts - perhaps something I could spread on bread with jelly. You got any of that?"

See, the product that you're seeking often defines how you shop for it. This is an important concept to remember when creating your online presence. What exactly is your product? Who is your target audience? How will they want to interact with your company, and how can your site enhance this interaction?

Many Web-based stores allow you to search through their stock by category or by keyword. These methods are, for the most part, derivatives of the technologies that make the software work; databases and file systems are quite effective at categorizing things. But are the customers at your site going to find shopping by category intuitive? Is that the best approach for you?

Let's take a look at the different kinds of products that are out there and how actual companies are custom-fitting their Web sites for maximum effectiveness.

Page 2 — What Are You Selling?


 

There are many different ways to sell your product on the Web, but most techniques tend to fall into one of the following categories:

Gifts and Impulse Products
Sometimes you don't know what you want until you see it. Merchants who offer gift items are very familiar with this. If you're offering impulse buys, you may want to design a site that's easy and entertaining to explore; let them go Windows shopping. Garden.com makes its site as fun to explore as it is to shop. Many of its customers are hobbyists, who are always looking for advice and ideas.

Commodity Products
Everyone knows what a CD or a book looks like. They are pretty low-risk purchases since you don't have to worry about whether they're the right color or compatible with your system. What matters is that the seller has them in stock at a good price. Merchants who offer commodity-type products are differentiated by their products' price, selection, and availability. CDNow and Amazon are working hard to be the killers in this arena. But because competing on price alone would make their gross profits approach zero, these companies are focusing on adding value through personalized customer service and convenience. For example, music retailers have learned that many of their customers want to find albums based upon a half-remembered lyric. "You know ... the song that goes 'La la la la'? I want that one." So in response, they extended their search capabilities to include song lyrics. Now that's convenience! The better you can cater to your customers, the more business they're likely to do with you.

Considered Purchase Products
Some products require a lot of deliberation before a purchase is made. Expensive items that come in various models, each with different options and different pricing, require customers to consider a number of factors before they buy. We're talking about consumer electronics, cars, cellular phone service programs, and something you should be thinking about in the near future: e-commerce software packages. There are now a number of middleman services popping up to help consumers make their buying decisions. Sites like CompareNet and mySimon offer side-by-side comparisons of different products.

Configurable Products
Sometimes a product is all about the options it comes with. A case in point is computer workstations and servers. The basic components are the same, but you can choose how roomy or fast each of those parts will be. Computer manufacturers like Dell and Apple enable their customers to design their own products, blending one-on-one marketing with customizing mass-market products: Their motto is, "Tell us what you want and we'll build it for you."

But these techniques are now showing up in other fields. Take a look at pix.com. You can upload an image and have it placed on all kinds of merchandise to get a one-of-a-kind item.

Categorized and Indexed Catalogs
OK, I'll admit it. As much as I harp on the problems with the category/subcategory/sub-subcategory thing, sometimes that method of organization is convenient, especially when shopping for supplies. Office Depot's site does a good job of organizing things so you can get in and out quickly. Grainger, the industrial supply catalog, has thousands and thousands of items. For a company like that, categorization is a must.

Page 3 — Adding Value


In addition to the methods described on the preceding page, a number of companies have taken advantage of new technologies to deliver even better service and environments to their customers. These aren't storefront solutions in and of themselves, but they can work as excellent supplements to other systems.

Automated Answers and Advice
Brightware uses its 20 years of artificial intelligence knowledge to interpret natural language, magically allowing its system to answer customer questions. Brightware claims that, with some training, its system can automatically reply to 80 percent of common service and sales inquiries, regardless of how the questions are phrased. Brightware can then route the remainder of the questions to your customer service department for answering.

This technology has also been used by financial, mortgage, and health care companies to determine their customers' needs and then actively recommend a prepared solution. Say goodbye once and for all to door-to-door insurance salesmen.

Automated Recommendations
Net Perceptions and Firefly are purveyors of collaborative filtering, an automated merchandising technology that can cross-sell items to customers with similar purchasing histories. Say a customer wants to get caught up on his aquatic-adventure reading and buys 20,000 Leagues Under The Sea and Moby Dick. Meanwhile, someone else buys Moby Dick and The Hunt for Red October. These collaborative filtering tools will connect that information and recommend The Hunt for Red October to the first customer and 20,000 Leagues Under the Sea to the other customer. By using this system, you're basically letting your customers with similar interests make recommendations to each other. And the more they buy, the more accurate the recommendations will become. Pretty cool, eh?

These are just two examples of ways you can add value to your site and stand out in a possibly crowded field. But before you start adding bells and whistles, you may want to begin simply and locally. Start by talking to your salespeople. Your front line knows a lot about what your customers need and, more importantly, how best to communicate with them. Find out what your sales team is doing that works most effectively. Keep reading to see how this method worked for ramforless.com.

Page 4 — Your Hot Commodity


At ramforless.com things are moving along pretty well. You've sent out a survey to your top salespeople to gather ideas and learn more about your customers. Even the vice president of sales has some ideas:

To: E-commerce team

From: Steve in sales

Subject: Effective practices

In response to your email asking about our most effective sales practices, here's what I have for you:

Our customers' biggest concern is the compatibility of the memory chips with their systems. They never seem to know the SKU or model number of the chips they want, even if they've ordered with us before. Usually they'll tell us the brand and model of their computer and expect us to know what chips work with it.

Staying on top of this stuff is an ongoing process. There are more than 7,000 computer models on the market today, and new ones are coming out all the time. Last year I had Max in MIS put all this info into a database, and he turned it into a configurator application for our call center. This makes it easy for MIS to give advice and recommendations to our customers. Do you think you can use it?

The second major concern our customers have is cost. Computer memory is pretty much a commodity business. If the price is right and you can ship it, you get the order.

I train the sales reps in the call center to always up-sell. You know, if a customer calls in looking for 32 MB, we offer them 64 MB at a discounted price. We make better margins on larger orders. (That way they can afford my bonus commissions at the end of the year!)

-Steve

As Steve said, you're dealing with a commodity product like books or CDs. When it comes to memory chips, people just need to know that it works, that it's reasonably priced, and that it can be sent out immediately. This means you should strip your site of all extraneous information. It should quickly connect the customer to the correct type of chip and let them know how much it'll cost. (Don't forget to tempt them with discounts if they buy more.)

You forward Steve's requirements to Denise in the design department, and in a few days, she replies:

To: E-commerce team

From: Denise in design

Subject: 1-2-3 Buy Now!

Check out my recommended design for ramforless.com.

It's a configurator like the one MIS wrote for the call center. The difference is that this one is self-service; it automatically tells customers which memory chips are right for their types of computer. I wanted to make it look like a direct-mail postcard: very easy to use and blatantly obvious that we're selling memory at a great price.

The whole site consists of three pages. On one you choose the items you want to buy; on another you fill out your shipping, billing, and credit card information; and the third acts as a receipt. 1-2-3 Buy Now! It's fast and easy.

I also mocked up a few banner advertisements per Mark's (in marketing) request.

-Denise

P.S. Laura in legal: You need to send me that legal disclaimer stuff and our money-back guarantee for the policies section. I guess we'll have to expand the site to four pages. ;-)


Denise came up with a pretty slick design. Let's take a closer look at it on the next page.

 

Page 5 — The Design of a Storefront


Denise's design is clever and straightforward (you can see it for yourself at ramforless.com). The first part of the shopping experience enables customers to quickly find the products they want and add them to their shopping carts, right there on the front page. The second part processes the orders and securely sends them to the fulfillment center, where they're packed and shipped to the customers. The third section offers a summary of their orders and functions as a printable receipt.

Denise's first interface asks the customers about their equipment and then tells them which RAM chips they need, using the configurator:



The display is designed to up-sell and cross-sell the chips against one another by displaying all the options and prices at once and highlighting the savings the customers will get when they place larger orders. The shopping cart always displays what items are in the order. The same page is actually loaded into the browser again and again, each time with additional information. This results in a fast, smooth experience for users.

The second interface is modeled after an order form:



When customers click checkout, they see this page. All the items in their shopping carts are itemized and subtotaled. Billing and shipping addresses are captured first, allowing tax and delivery costs to be calculated and added to the bill.

The final costs are totaled and displayed, along with the warranty and guarantee policies from legal. Payment information is requested and then processed in the background. If everything is correct and acceptable, order confirmations are created, complete with your company's phone number and tracking numbers for the customers' reference:

As before, the site is cycling through the same page repeatedly so that users don't have to take time to find their way through a new interface every time the screen is loaded.

So ramforless.com is taking shape and looking good. The design team has put together a great interface that matches your requirements, and management loves the ease of the "1-2-3 Buy Now!" concept. (You may not be so lucky; most site design processes take quite a bit more discussion back and forth.) The next step is to implement the backend, making sure Denise's buttons actually work and customers receive the products they ordered.

You see, just because a site looks slick doesn't mean it works. A simple interface can hide a complex and powerful set of tools. So which tools should you use? In Lesson 3, we'll help you assemble your requirements for the more technical stuff and hook you up with the right solution for your particular needs.

You need to figure out what's right for your company and your products; not necessarily what's easiest to build. To be competitive, you need to understand how your customers want to work with you, what levels of convenience they desire, and what features they will value in your online store.

Page 1 — E-Commerce Tutorial — Lesson 3


Transactions

So your customers have shopping carts full of your widgets. Congratulations! But don't start counting your chickens: You still have some work to do before you make those sales. You can't send customers their products until you calculate the bottom lines. And more importantly, you still need to determine whether they have the funds to pay for their purchases. So before you accept those orders, you'll need to calculate tax, determine shipping costs, and securely process the customers' preferred methods of payment.

The good news is that a number of software companies have been hard at work over the past few years, making this part of the process as painless as possible. The bad news is that it may not be as plug-and-play as you had hoped.

The key is to figure out which solutions work well with your company and your customers and are also compatible with whatever e-commerce package or common application programming language you'll be choosing in Lesson 4. Since you may have to make some compromises with either the e-commerce package or the plug-in software solutions, your best bet is to examine all the options outlined in this lesson and Lesson 4 before unwrapping the cellophane on any software.

Let's get started with a look at the dreaded taxes.

Page 2 — Don't Mess with Taxes


In California, certain "necessities" like food are generally not subject to tax. Clothing, on the other hand, is. If you're doing business in New Jersey, however, and you're shipping a pair of designer jeans to the Upper West Side, then there's no tax - in New Jersey, clothing is considered a necessity and therefore is not subject to tax. Keeping track of these rules and exceptions is an ongoing challenge. But wait, there's more. You still have to figure out how much to charge.

There are hundreds of different sales-tax rates within California alone. First you have state tax. Different counties also have additional rates. And then some cities add a percent or so on top of that! In San Francisco, sales tax is 8.5 percent. Drive across the Golden Gate Bridge to Marin and its 7.25 percent. Across the Bay Bridge in Berkeley it's 8.25 percent. And each state is different.

If you're doing business internationally, things are further complicated by tariffs, customs fees, and other potential charges. Did you know that in one part of Canada, even tax is taxed? This must be where the people who fled Boston after the Tea Party settled.

Besides dealing with wildly varying tax rates, you also have a little thing called nexus to contend with. Nexus is a legal term meaning roughly, "where you have a presence doing business." In the United States, you are obligated to collect, report, and pay sales tax in states where you have a nexus. The important thing is that nexus is a legal term, so you should seek the advice of your tax attorney on this issue.

You should also work with your attorney to develop a tax policy. Of course, you can always do what Apple did when it launched its first online store: Just say, "Applicable sales tax will be added to your order" and then let someone else, usually a fulfillment center, figure it out for you using its preexisting taxing systems. But to make sure your customers can pay the full amount of the orders before you process them, you'll need to calculate the tax yourself. There are several packages and services that automate your tax calculations.

Both of these solutions have advantages and disadvantages, and they're always being improved upon and updated. So you'll need to do a bit of research on which option is the best fit for your e-business. Check out their Web sites for the features they offer and the e-commerce systems (covered in Lesson 4) they're compatible with. See whether their clients offer products or services similar to yours. You may even want to send an email to people at the companies that use these solutions to inquire about how satisfied they are with the products.

However you decide to deal with the tax hurdle, your next challenge is to figure out how to get your product to your customer and what to charge for the service.

Page 3 — Shaping Up and Shipping Out


One of the most important things to remember about shipping is that the cost of sending your product isn't necessarily the amount you'll want to charge your customer. Your actual costs may be more related to delivering convenient customer service.

For example, Naturalfoods.com offers free shipping on orders above a certain dollar amount as a tactic to increase the average size of orders. Yet other online grocers, such as Peapod, charge extra for the convenience of door-to-door delivery.

Many online merchants have adopted the best practices of the direct-mail catalog industry by charging fixed amounts for shipping and handling based upon the dollar size of the order and limiting customers' speed-of-delivery options to regular, faster, and fastest.

Which tactic should you use? Again, you'll have to research the approach that will work best with your customers. There are several packages and services you can review to help you decide.

Another important thing to remember is that shipping costs vary by weight. If you're selling more than one product, you must find a way to provide weight information about each product for whatever shipping solution the customers choose. So be sure your product database has a place to store a weight value.

You'll also need to provide the addresses the parcel is shipped from and shipped to. Make sure you let your customers know when P.O. boxes are going to be an issue, and don't forget to ask for their desired speed of the delivery. Your customers will appreciate that!

Page 4 — How Would You Like to Pay for That?


Options abound when it comes to payment. Credit cards? Debit cards? Purchase order? Customer accounts? But for the most part, e-commerce transactions are credit card-based.

Behind the scenes, credit card transactions are pretty complex. They involve a number of independent groups, including you (the merchant), your bank, the customers, the customers' banks, the companies that issued the customers' credit cards, and the large credit and debit "acquiring banks" who manage the whole mess. All these various groups need to work together before your customers' money can make it into your account. To make sure everyone remains happy along the way, there are quite a few things to consider.

The big issue is this: Don't charge the cards until the products are shipped or delivered to the customers. "Huh?" you say. "But I can charge the cards after they give me their numbers, right?" Wrong. Unless you've been in the mail-order business before, you're probably not familiar with this rule. Technically, you are not allowed to move money immediately into your account unless the product is delivered or shipped on the same day. In brick-and- mortar, real-world retail stores, delivery and payment happen simultaneously. Merchants charge customers' cards and then the customers walk out of the stores with bags full of goodies. But when you're selling products remotely, as you will across the Internet (unless you're delivering software or online content instantly), you can't debit the credit cards until you've completed the "pick, pack, and ship" fulfillment processes. So here's how most credit card transactions work over the Internet:

1. Authentication. It's a good idea to make sure the cards you are accepting have valid numbers, have actually been issued, and are not reported stolen.
2. Authorization. This process checks whether funds are available for purchases. If they are, you can put reservations on those funds. But hold on - you don't get the money yet.
3. Settlement. Once you've shipped the products or delivered them to the customers, then you let the banks know. The banks will release the funds that were previously reserved, and the money will make its way through numerous banks and intermediaries into your account.

That's how most Internet transactions are processed. But they can get a lot hairier. For instance, how will you process returns? How will you handle partial sales? How will you deal with back orders? How will you fulfill partial orders? Take these back-office issues into account when you select the solution to maintaining your payments.

A number of applications are on the market today. Most have evolved over the last several years and been tested under a variety of conditions. Additional information can be found at the Web sites of these vendors:

With all that money flying back and forth over the Internet, many customers and merchants worry that transactions may not be safe and that the proverbial hackers are stealing everyone's money. While many of the solutions listed above use the new SET (secure electronic transaction) standard, which contains extra security measures and antifraud technologies, there's a great deal more you can do to make sure your transactions are secure.

Page 5 — Security Blanket


When Netscape introduced SSL (secure sockets layer) in its popular Navigator browser in 1995, it paved the way for broad public access to online information security. SSL is an encryption technology that scrambles a message so that only the recipient can unscramble it, using technologies developed by RSA Security. URLs that begin with "https://" are using SSL. (Think of the "s" as standing for "secure.")

This is good for online merchants because it reduces online transaction risk and increases customer confidence. People are much more willing to supply their credit card information when they're sure that no one can see it but the intended merchant.

To implement this kind of encryption technology, you need to enable SSL on your Web server. But there's a catch. Even if SSL is on the server, it'll only work with other SSL-friendly browsers. These days, most browsers do support SSL, but some older versions of AOL's browser don't. You'll need to look at what kind of browsers your visitors are using in order to determine the best approach.

To get SSL working, you'll need a digital ID (also known as an authentication certificate) from a trusted third-party source that can vouch for your identity. Your certificate is kind of like your passport or driver's license. It's a form of identification verifying that someone reputable confirms that you really are who you say you are. You can get a certificate from companies like Verisign.

Once you have your certificate, refer to your Web server's help resources for information on getting it installed and configured. If you are hosting with a third party, have your certificate sent to them or, if possible, use their certificate.

Once you're secure, you're just about in business. Now let's see which solutions the folks at good ol' ramforless.com opted for.

Page 6 — Back to Ramforless.com


The requirements for ramforless.com are pretty simple. Luckily, you decided to re-key the orders into the old-school mainframe system, which already calculated tax, added shipping charges, and checked credit cards. To keep your customers happy, however, you want to let them know exactly how much will be charged to their card. That means figuring out how to get the tax and shipping totals out of the creaky old mainframe and display them in real-time on the Web.

To make things more confusing, even though the Computer Chip Corporation is headquartered in Silicon Valley, the company has manufacturing facilities in California, New York, and Iowa, which is where the chips are stored and shipped from. Terry, the tax attorney, says you'll have to collect and pay taxes on any orders shipped to those states, regardless of where you're shipping from.

On the shipping and handling end of things, Frank in fulfillment wants to charge handling fees in addition to shipping costs. So he recommends that you keep things nice and simple with a flat-fee charge on orders with a certain number of items that need to be packed and shipped. Extra charges would be added for express shipping:

Shipping and Handling Charges

Fast Faster Fastest
1 to 4 chips 5.00 8.00 20.00
5 to 8 chips 10.00 14.00 26.00
9+ chips 15.00 18.00 32.00

Amy in accounting says that she can handle debiting the credit cards through her existing system, but you still need to find a way to make sure the credit card numbers coming in are secure and authentic.

So you have a variety of business rules to implement. Taxes need to be automated, shipping is totally custom-built, and credit cards only need to be partially processed. And you need to find a way to bring it all together. Most importantly, you need to do it for less than the reported $100 million that Barnes & Noble is putting into its Web site.

So you're in for a bit more work than simply opening up the latest e-commerce-in-a-box solution. You need to do additional research and then decide whether you should build, rent, or buy an e-commerce solution. Don't fret, though. I'll walk you through all of these options in Lesson 4. Soon enough, you'll be up and running.

Page 1 — E-Commerce Tutorial — Lesson 4

OK. You've waded through your requirements for taxes, payment, security, and shipping (all covered in Lesson 3). You've established how your site will have to work in order to please everybody, from the CEO to the legal department to the design team to the customers. You finally have a clear idea of what needs to be built and have determined what software plug-ins (Taxware, Tandata, etc.) best meet your requirements. Now you're ready to shop around for an e-commerce package to juggle all of this for you.

Ideally, you'll find an e-commerce package that's compatible with the tax, payment, security, and shipping solutions you've decided to use. But you may not be so lucky. In that case, it would probably be a good idea to take all of your various requirements for the operation of your site and rank them. What's the most important feature? What features could be compromised? Does the site have to automatically calculate state tax on the fly or can you get away with just saying "applicable state tax will be added"? You don't want to skimp on anything, of course, but you should know where you have room to manuever. That way, if you find a solution that meets all but one of your needs, you'll know if you can live with it or if you'll have to go with your second choice. This kind of planning and flexibility will keep the potentially tricky experience of finding the perfect e-business solution as simple as possible.

So grab that inch-thick stack of e-commerce advertisements that have been cluttering up your desk for months. Look at those catchy slogans: "E-commerce in a box!" "Instant storefront!" "Try it; you'll like it!" Yikes! Is this software or a new kind of breakfast cereal that works with that other breakfast technology? Let's cut through the hype and break it down real simplelike.

Basically, you have three options:

  1. Buy a ready-made solution.
  2. Rent space in a network-based e-commerce solution.
  3. Build the system from scratch with components and parts.

It's sort of like buying a car. You could buy a new one and, depending on your budget, get some additional options configured the way you like. But it could get outdated eventually, and you'd have to drop more cash for another one. Or you could lease one for a few years, but then you couldn't paint flames on the side since you don't own it. Or if you really wanted to, you could build your own dream hot rod, but you'd better be a good mechanic to get that fuel-injected machine to run smoothly.

Let's take a closer look at your options and figure out which will work best for you.

 

Page 2 — Buy, Lease, or Build?


Option 1 Buy a ready-made system that closely matches your specifications.

This approach will give you a standardized set of e-commerce features with a few additional business rules built in as a bonus (like the options on a new car). If your business needs closely match what the package offers, buy it! This will save you money and a good deal of time. If the system is lacking some of your prioritized features, however, you may want to think again. The solution may be a good fit right now, but will likely become obsolete as more and more features become necessary later on in development. Trying to add these new features may mean custom work and training in the software down the road. Be sure to budget for this ahead of time, if you're considering this option.

Also count on shelling out additional bucks if you want to automate payments, tax, and shipping. You'll need to buy additional products and get them installed, configured, and integrated. Luckily, it's fairly easy to install plug-ins into most of these types of systems. Ready-made interfaces are often included for payment, tax, and shipping applications such as CyberCash, Verifone, Tandata, and others. But always be sure to confirm that your required programs are supported. Again, ranking your features beforehand will help you at this stage.

Solutions to review
Take a look at Intershop 3.0, iCat Pro, and IBM Net.Commerce for starters.


Option 2 Rent space in a network-based, e-commerce solution.

These solutions are frequently inexpensive and include many common features. They're fast because the whole store is administered through the Web. You don't need to install any software; you just pick a look, configure some settings, and pour in your product information. Then you're ready to go: instant storefront.

The downside is that these services may not support the features or look and feel that you want. They can shield you from having to deal with the complexities of installation and configuring, but that's because they only offer a couple of ways to do these things. That's great if there's a good match between what they provide and what you need, but otherwise, you'll end up frustrated and searching for a new solution before long.

Solutions to review

Try Intershop ePages, iCat Commerce Online, and Yahoo Store for some plug-and-play examples.


Option 3 Build the system from scratch to your specifications.
This approach will give you the exact solution you need but will require expertise, time, and a sizable budget to pull it off. The advantage is that you can build the features and functions you need to be unique and competitive in the marketplace. So if you want to offer discounts every second Tuesday of the month, you'll need to take this approach.

There are a series of application engines out there to help you get these features, but you can create a commerce program in almost any programming language. Many early Web-based business interfaces were created in Perl or C++. More recently, a lot of work has been done with Microsoft's Active Server Pages and Allaire's ColdFusion development environments. Also, Pandesic has released a new platform based upon a suite of e-commerce objects accessible through Active Server Page technology.

When taking this path, you'll need to design databases from scratch and then integrate tax, shipping, and payment processing software modules with the main application. ASP and ColdFusion have been designed to work with popular third-party solutions to help you streamline your transaction processing requirements, but be sure that you're comfortable developing applications on this level. If not, you can hire a professional e-commerce systems developer (like, ahem, eMergingMedia) to help get you up and running.

Solutions to review
Check out Allaire ColdFusion, Intershop Enterprise Edition, Microsoft Site Server Commerce Edition, and Pandesic 3.0.

 

Page 3 — Chart Your Course
When evaluating these various solutions, you should not only consider the cost of the package but how much it will cost to customize it to suit your individual needs. Often what looks like an inexpensive setup at the outset can end up eating away at your budget as you try to add new features or redo the design.

This diagram surveys the solutions we've mentioned so far, charting them according to initial cost versus the additional expense of customizing them. Those products in red are the standardized off-the-shelf solutions, those in green are the rented Web-based solutions, and those in blue are the commercial application platforms for building your own system.

As you can see, while Yahoo Store and iCat Commerce Online are fairly cheap to get going, there's a pretty steep cost for configuring them to work and look the way you want. Meanwhile, something like Pandesic 3.0, which costs a pretty penny upfront, is customizable enough so that hidden charges won't keep cropping up down the road.

So what about ramforless.com? Which solution will meet all of its requirements?

Page 4 — Ramforless.com: Buildin' It So They'll Come
Using your handy Requirements Document, you search high and low for an off-the-shelf package that can meet ramforless.com's needs. But one thing is missing, a critical, top-priority feature that you gotta have: the configurator. This is the gizmo that will figure out what type of RAM chips your customers need once they plug in the kind of systems they have. No system has a configurator as part of its standard features, and you can't go forward without it. So like it or not, it seems that building an application from scratch is going to be the best way to go.

You talk to the MIS people about the technology they originally used to create the configurator. It turns out that all of the configurator information is stored on a SQL Server 6.5 database. You dig through your notes and discover that Allaire ColdFusion can pull data from any ODBC data source. That's a big plus, but you need to see how ColdFusion addresses your other requirements.

Displaying Products
Denise's design and Mark's configurator give you the information you need to drive the front-end experience. ColdFusion's ability to pull data means that you can leverage Mark's past work with Microsoft's SQL Server. And because you can easily place ColdFusion CFML tags between HTML tags, you can make the pages look exactly the way Denise wants.

Order and Transaction Processing
ColdFusion does not come with a shopping cart, but the ColdFusion guidebook you bought has some shopping cart examples in it. Meanwhile, payments can be handled through ColdFusion's ready-made interface with CyberCash, and taxes can be handled with its interface with Taxware. You'll have to come up with your own shipping algorithm, but with ColdFusion's extensive application language, that shouldn't be too big a deal.

Attracting Customers
You shouldn't use ColdFusion to place your advertisements; there are other products out there that do a better job of this. But you can use it to track people's responses to your ads. You can embed media codes in each ad and then use ColdFusion's application language to detect the incoming source codes and add them to customers' histories or even to the orders they place. This means that you can tie the source codes to the sales they generate and figure out which ads are actually making you money. (More about this can be found in Lesson 5.)

Fulfillment and Customer Service
You don't want to build a new fulfillment system: The one you have now works well enough. It runs on that mainframe from the '70s, and you don't want to get bogged down with that thing. For now, the fulfillment department will have to reenter orders manually and handle customer inquiries about orders through the company's 800 number. It's not the slickest plan, but it'll work for now, and ColdFusion is flexible enough to accommodate improvements in the future.

Software and Hosting
There are a bunch of top-tier hosting services that support dedicated NT hosting environments and also offer leased line access. ColdFusion works great with NT, but it's also available for Solaris if you decide to change over to a Unix OS at some point. If you needed to scale, you could set up a single Unix database server that feeds a series of NT application servers. That way, you could add additional application servers and not worry so much about data replication.

Allaire's ColdFusion application engine seems to be a solid match. You can set up the configurator without too many headaches, and it supports most of the extensions you need. With Frank in fulfillment's "flat-rate" scheme (described in Lesson 3), your shipping and handling is covered - for the time being, at least. You're saving the creation of a more flexible and customizable shipping solution for the next redesign.

So you're set. All the planning and research has finally paid off, and you now have a solution that meets your needs with minimal compromise. The site's going to take some significant work upfront, but you'll be happy in the long run when it continues to do all that you require, even as your company grows and evolves.

Some time later, after the application of a lot of elbow grease, your site goes live. The industry is abuzz, customers roll in, everyone gets a raise, and you take off for a well-deserved vacation.

Not so fast. It ain't that simple. Like a bratty baby, an e-commerce site requires constant attention. In order to attract customers and keep them coming back, you need to have an effective marketing strategy and be able to monitor which advertising techniques are successful. In Lesson 5, you'll learn what you need to know about tracking your ads and how to get your business to stand out in the crowd.


Page 1 — E-Commerce Tutorial — Lesson 5

Building Your Customer Base

So your online store is finally up and running. Good work! Unleash the confetti and champagne corks - you deserve it. But once you're finished celebrating, there's still work to be done. Now you need to get your customers to actually visit the site.

If your company is willing to spend the big bucks, you can get the word out about your site by using traditional advertising venues, such as billboards, bus ads, direct mail, radio spots, or even television commercials. You can also place banner ads on other Web sites that cater to your customer base. If money's an issue (as it so often is), there are ways to drum up Web traffic on the cheap. Some of these advertising techniques will work better than others, depending on what you're selling and to whom.

How do you know if your advertisements and marketing tactics are working (i.e., making you money)? To be truly effective, your advertising needs to do more than simply attract visitors to your site: It needs to attract customers who buy your products. To pinpoint which of your marketing tactics are working and which aren't, take a look at your log files.

Page 2 — Use Those Log Files


Log files can give you valuable information about the shopping and surfing patterns of your customers, telling you how they found your site, which pages they visited, and who bought what. With careful tracking of the data generated by your log files (especially over the long-term), you can figure out which advertising and marketing tactics are the most successful with your customers. Information like this is valuable because it can tell you where to reinvest and how to change your media-investing tactics based upon what's performing and what's not.

One popular way to determine what marketing leads customers to buy your products is to track the sources of your sales leads all the way through to the order. Direct marketers have been doing this for years, long before the Web came into being. You'll find source codes on almost everything they send out: postcards, coupons, the backs of the glossy catalogs, and that "address your letter to department ZX321" thing they do. By assigning a unique code to each coupon or postcard, marketers can keep track of which placement yielded the most customer interest. ("The coupons we ran in Young Miss did much better than those in Concrete Monthly.")

You can do the same thing on your site. If you know the source of the lead, the customer who responded, and the orders that customer placed, then you have a gold mine of data with which to determine your ROI (return on investment). More important, you can improve upon it by fine-tuning both your marketing and site design.

Do users stop clicking once they hit a certain page? Perhaps that page needs to be simplified, rewritten, or even repositioned to make it easier for your customers to get to the key part of your site: the bottom line.

To make sure you're using the most cost-effective marketing for your site, you must not only determine which ads are generating the most orders but also quantify a return on that investment. You may find that your direct-mail campaign is bringing all kinds of visitors to your site, but they're not buying anything. At the same time, a banner ad may attract only a few visitors, but those that do come to your site via the banner ad tend to make purchases. Which form of marketing is the most cost-effective? To find out, take a closer look at how much money your site's making and how much you're spending.

To evaluate the cost-effectiveness of specific advertising, let's take one last look at our beloved ramforless.com.

Page 3 — Cost-Effective Advertising


The ramforless.com site has been up and running for several months when a request comes in from Mark in marketing. It appears that he's placed five of Denise's banner ads, and now he's looking for a way to track their progress.

To: E-commerce team
From: Mark, vp of marketing

Re: Measuring ROI

Team:

Hits and pageviews are important, but hey, the site is only three pages long! Let's focus on real marketing numbers:

number of impressions distributed at source
number of leads from inquiry source
number of orders resulting from that source
cost of distributing impressions at source

With this information you can determine:

cost of generating a lead for each inquiry source
cost of sales for each inquiry source

Then we can test different media across a variety of inquiry sources and determine which advertising tactics are putting us in the black and which are producing red ink. This analysis can work not only for online media but also for print ads and postcards that drive customers to www.ramforless.com. We just need to make sure people enter their "savings codes" so that we know how they found our site.

If we can get these basics in place for the next release of the site, we'll be able to show the top brass what return we're getting on the company's investment in e-commerce and online marketing. And then we can get a bigger budget for the project next year.

- Mark

The Web sites that are running your banner ads are giving you clickthrough reports, showing you how many people came to your site during certain time frames. But you still need to figure out which advertisements actually make money. It's a good thing you picked an open application architecture for the site, because now it looks as though you have an additional requirement: You need to start tracking.

Page 3 — Cost-Effective Advertising
The ramforless.com site has been up and running for several months when a request comes in from Mark in marketing. It appears that he's placed five of Denise's banner ads, and now he's looking for a way to track their progress.

To: E-commerce team
From: Mark, vp of marketing

Re: Measuring ROI

Team:

Hits and pageviews are important, but hey, the site is only three pages long! Let's focus on real marketing numbers:

number of impressions distributed at source
number of leads from inquiry source
number of orders resulting from that source
cost of distributing impressions at source

With this information you can determine:

cost of generating a lead for each inquiry source
cost of sales for each inquiry source

Then we can test different media across a variety of inquiry sources and determine which advertising tactics are putting us in the black and which are producing red ink. This analysis can work not only for online media but also for print ads and postcards that drive customers to www.ramforless.com. We just need to make sure people enter their "savings codes" so that we know how they found our site.

If we can get these basics in place for the next release of the site, we'll be able to show the top brass what return we're getting on the company's investment in e-commerce and online marketing. And then we can get a bigger budget for the project next year.

- Mark

The Web sites that are running your banner ads are giving you clickthrough reports, showing you how many people came to your site during certain time frames. But you still need to figure out which advertisements actually make money. It's a good thing you picked an open application architecture for the site, because now it looks as though you have an additional requirement: You need to start tracking.

Page 4 — Keeping Track of Everything

To track your customers, you need to assign each banner ad a specific code and use that code in the referring URL that links your site to the ad. The URL in the link looks like this:

http://www.ramforless.com/index.cfm?MC=WM001

To see an example of how this can be used to track customers, visit http://www.ramforless.com/advertisements. If you click around, you'll see that the site keeps track of where you came from. That's because MC=WM001 is a media code set up specifically for inquiries that will come from this Webmonkey page. The media code is tracked throughout a customer's session on the site, and if the customer places an order, that code is attached to the order for later reporting. You can embed unique media codes just like this in banner advertisements and outbound email messages.

At ramforless.com, all of the information about customers, orders, and advertisements is stored in a single database designed to make it easy to report on different data that management wants to track.

 

"Cost of Sales" Report
Sources Sales Cost Sales/$1 Cost % of Sales
111111 2,176 1,000 2.18 45.96 %
222222 2,046 1,000 2.05 48.88 %
333333 3,160 1,000 3.16 31.65 %
444444 10,690 1,000 10.69 9.35 %
555555 3,150 1,000 3.15 31.75 %
WM001 2,934 1,000 2.93 34.08 %
direct 18,238 1,000 18.24 5.48 %

This report shows total sales for orders placed as a result of sources linked to specific media codes (111111, 222222, WM001, etc.). Note that "Cost" refers to the amount of money (in dollars) it takes to place a banner ad, email, etc. "Sales/$1 Cost" is the Sales number divided by the Cost. This tells you how much revenue was generated for each dollar invested in a specific venue with a specific advertisement. "% of Sales" is the inverse of the Sales/$1 Cost; essentially it's a summary of cost-effectiveness expressed as a percentage.

So for every dollar earned in sales from ad "11111," 45.96 cents went toward the placement of the ad. If your cost of sales is 45.96 percent, you'll probably have a hard time staying in business. On the other hand, advertisement "44444" had a cost of sales of 9.35 percent of the revenue it generated. You can probably make a good profit continuing to advertise through that venue.

You can also track customers that come directly to the site without the help of any specific ad. In this example, the media code "direct" shows that word of mouth is still the best resource for generating low-cost sales.

But that doesn't mean you should abandon all advertising and rely solely on word of mouth to keep your online business thriving. One fatal flaw of using log files to track user activity is that they make no allowances for customers who follow an ad simply to learn about your products and then, after doing some comparison shopping, return to your site to make a purchase. The tracking system will report this scenario as an advertising failure and a word-of-mouth victory, and that's just not the case. When it comes to site promotion, things usually aren't all or nothing. Usually, the most cost-effective marketing for your site involves finding the right combination of a variety of advertising methods.

 

 

Page 5 — Staying in E-Business


 

To find the most cost-effective marketing for your site, experiment with your advertising while keeping a sharp eye on your sales. Try new things: Implement innovative banner ads, play around with things like affiliate marketing, consider sponsorships - and see how your sales are affected.

And keep at it. Your online storefront, like your business itself, must continue to grow and change to accommodate the evolution of your customers and products.

This flexibility is key to keeping your e-business viable. Even if your products don't change much over the years, you need to constantly reevaluate and update your online presence. The quick and ever-changing nature of the Web can be daunting, but it can also bring customers, connections, and opportunities that never would have been possible otherwise.

As you set out to create your own e-commerce site, keep in mind all that we've discussed here. With planning, hard work, and careful observation, you can build a site that's flexible enough to keep up with the ever-changing needs of your customers. And then you'll really be in e-business.

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