As technology continues to evolve, so has the EC space.  Companies that survived the dotcom crash are not only surviving, some are thriving in the current environment.  Among the survivors are two consumer electronic business, www.buy.com and Crutchfield Inc.   These two companies sell similar products and offer comparable services, but are taking different approach to grow their business.  One is a pure e-tailer (buy.com); the other is part e-tailer which does a lot of business via traditional channel and through their web. I chose these two companies because both are dotcom pioneers and are thriving in today’s EC environment. Furthermore, there has been much debate on which business model is better in recent years. Is it better to be a pure e-tailer or operate both in the on-line and off-line world?

Crutchfield Inc.

Crutchfield Inc., was founded by Bill Crutchfield in 1974, and was one of the first electronics retailers to launch an e-commerce site (1995). Its catalog is mailed to about 7.5 million households. Crutchfield is one of the largest direct integrated marketers of consumer electronics products, encompassing catalog, call center, and Internet operations. Over the last 10 years, Crutchfield.com has built a solid reputation as the specialist in car and home audio/video products. The company is headquartered in Virginia where it also operates several retail stores (www.crutchfield.com).

The success of Crutchfield has been quite remarkable. This company started out as a hobby of Mr. Crutchfield.  His mission was educating the consumers about car stereos because he is a car enthusiast.  The popularity of his catalog quickly grew because consumer found the information to be easy to understand.  Today, the company is a household name to electronic enthusiastic consumers.  

Although Crutchfield financial data is not available because the company is private, we can reasonably assume the company is financially stable. This is evident in the fact the company chose to remain private, not needing public financing in order to expand business operation.

Crutchfield Inc. Marketing Strategies

The goal of Crutchfield is to differentiate itself by providing superior customers experience. The company’s price is not always the lowest, but the company does appear to offer more in terms of customer service, including installation assistance, product support and generous return policy. Furthermore, research indicates hidden charges and shipping cost as the top reason people abandon their online shopping cart. Crutchfield appears to understand this threat, so by not charging re-stocking fees and offering free shipping for most items, Crutchfield is removing two huge barriers. 

As a Click-and-Mortar with physical presence, Crutchfield does inspire confidence in the mind of the consumers. The brand recognition over the last 32 years has helped foster trust and loyalty.  To capitalize on this trust, Crutchfield is tackling all marketing channels. With over 7.5 million catalog subscribers, the company’s reach is quite deep. In addition to catalogs, Crutchfield Inc. is also embracing online advertising.  Crutchfield’s products are evident in the major search engines such as Yahoo! and Google.  For example, when potential customers search for electronic products, www.crutchfield.com is displayed in the sponsored results.  This helps drive traffic to Crutchfield.com. 

Crutchfield is also utilizing email advertising to help generate sales. Customer can sign up to receive newsletter and product promotions via e-mail in addition to the traditional catalogs via snail mail. Although e-mail marketing has been over shadowed by SPAM in recent years, this form of advertising continues to grow as it is less expensive and if properly deployed can yield a high return on investment. Furthermore, e-mail advertising allows Crutchfield to capture valuable data about customers that traditional channel can not offer. In short, Crutchfield’s marketing strategy is to utilize every available channel in order to help generate traffic. 

Review of Crutchfield.com

In browsing through Crutchfield.com, the richness of the content is apparent.  The site offers detail information about each product, including photos, features and manuals. The homepage is laid out in tabbed format, similar to other EC sites. By using a familiar format of navigation, Crutchfield does not re-educate their customers.  To assist shoppers in finding the right product, the site offers a search box. The search feature allowed users to find relevant product in a short period of time.  The one feature that is missing is search spelling suggestions. After entering an incorrect spelling for “stereo” intentionally no results were returned. This could translate into a lot of missed opportunities.

To inspire trust, a phone number is prominently displayed on every page.  There is also a live chat tool which can connect shoppers to customer service representative. Although the chat tool is available, I found it to be unreliable as it kept timing out. Towards the bottom of the page, there’s also a BizRate certification award in recognition of the customer excellence. My first impression of the site was positive as it re-enforce legitimacy of the company.

As previously mentioned, one of the major reason online shoppers abandons shopping cart is hidden cost, such as re-stocking fee and shipping cost (Turban et al., 2006) I was pleased to see the “free shipping” icon prominently displayed next to the qualified products. The return policy is also laid out clearly, “30 days money back guarantee”.  This helps increase the “stickiness” factor while eliminating uncertainty.

The site uses standard SSL via HTTPS to encrypt the transactions during check out. It requires users to enter their personal information (name, phone, address and etc).  I found the form in which to enter the personal information lacking. The form itself is not very user friendly; the page is cluttered with unnecessary text which appears confusing.  I was however glad to see a link on this page to their private policy.

The site’s performance can also be improved by reducing the size of the images. It is not noticeable if customers are accessing it via broadband.  For dial up customers, the site is extremely slow. Although broadband is gaining grounds, there are still millions of customers that is still using dial up.

Crutchfield.com does offer a professional looking web site. The design of the site emphasizes the physical aspect of the company; a live operator is only a phone call away. The overall experience of Crutchfield.com would be rated at eight out of ten.

Buy.com

Buy.com claims to offer over 2 million products to over 7 million customers. The company’s product categories range from computer hardware to software, from electronics to cellular, from books to movies, from music to toys, and more.  As a pure e-tailer, the store has no physical presence. 

Since the company’s inception in 1997, Buy.com has been through many changes and experimented with several different business models in an effort to remain competitive.  A brief history of the company; Buy.com went public in February of 2000. With newly acquired investment money, the company quickly expanded to the UK and Australian market. A year later, the company was forced to sell its oversea operations as the dotcom companies were failing.  Most startup companies started to run out of funds, but were still unable to sustain themselves. In November 2001, Founder Scott Blum decided to purchase the necessary shares of buy.com and took it private. As a private company, the founder was able to reorganize without the scrutiny of Wall Street. Today, the company is again trying to go public, but the IPO was delayed in December 2005, citing unfavorable market condition. A new date for the IPO has not been published. By streamlining operations, Buy.com has been able to reduce their cost structure. In the last two years, the company has expanded to other areas (http://www.buy.com).

In reviewing Buy.com latest financial data, as of fiscal year 2005, the company is close to breakeven. Buy.com sales reached $345.6 million compared with $290.8 million in 2004. The net loss for 2005 was $800,000, down from a net loss of $15.4 million the previous year (AP, 2005). This is a significant improvement no matter how one looks at it.  To come from a $15 million deficit to $800K is quite remarkable. This clearly indicates the company is heading in the right direction.

Buy.com Marketing Strategies

As a pure e-tailer, Buy.com has some advantages over traditional retailers, including 24/7 ordering availability, searchable product offerings, low overhead, unique and highly customizable sales promotions, and easily updated product descriptions (Turban et al., 2006) Although Buy.com product category is technology heavy, the company is making strides in expanding product categories by recently adding books, toys, home, music & outdoor. In doing so, the company appears to be headed towards a full blown war with Amazon.com.

One interesting program designed to generate traffic is the Buy.com affiliate program. Web site can join this affiliate program by displaying ads on their site. If shopper clicks on the banner ads and that shopper make a purchase, the partner is paid a commission.  It is unclear how much business comes through this channel, but this marketing strategy is quite popular in today’s EC environment.

Buy.com offers opt-in newsletter as a way to keep in touch with the affiliate partners and their customers.  Anyone can sign up for the service by submitting an e-mail address manually through the web site or during the account creation process. Partners can opt-out anytime through an “unsubscribe” link when the newsletter is received. The newsletter offers ideas on how to optimize web sites to better target potential customers as well as sales promotions.  Although affiliate programs are not new in EC marketing, the success of Google and Yahoo! has validated the effectiveness of this model. Portal sites such as Google and Yahoo! also receives a large part of their traffic through affiliates.

The most popular method of finding relevant information today is through search engine. Well known search engine such as Google, Yahoo! and MSN are helping people find information much faster. This technology is helping to drive EC sales.  Fortunately, Buy.com is fully engaged in this strategy. When users search for products that Buy.com carries, Buy.com is shown in the sponsored results.  The company pays for certain keyword to make this possible.

Through affiliate programs, e-mail marketing and search engines inclusion, the company is using whatever is necessary to get shoppers to their site. Buy.com marketing strategy appears to be on the right track.

Review of Buy.com

Browsing through Buy.com, it is apparent the company has done an excellent job in trying to connect with user’s psychological needs. On almost every page, the “free shipping” icon is noticeably evident on most items. To assist users in finding products faster, there is also a search box similar to Crutchfield.com. I was disappointed to find the search engine lacks spelling suggestion as well, but at least there were results from the search instead of no result when user entered a misspelled word. The product selection on Buy.com is much greater than Crutchfield.com. For instance searching for a common term such as “stereo” returned over 32,000 products, whereas Crutchfield.com returned a handful.

The site is laid out in a tabbed format much like the other EC sites. The look and feel however is more user friendly than Crutchfield.com. By using smaller image next to the products descriptions, the site loads much faster in the browser. Furthermore, the layout of the product appears clean. Another useful feature Buy.com which Crutchfield lacks is the user’s review. By providing a forum for customers to provide direct feedback about the products, Buy.com is building a virtual community where users support each other. As online shopper put a lot of weight on customer’s reviews, this is a smart move. 

Buy.com appears to be engage in a lot of cross promotions to help keep the price competitive.  During the checkout process, users are offered credit cards and other promotions. Further discount is provided if customer sign up.  Buy.com also attempts to up sell.  If buying a digital camera, it will also recommend other accessories such as chargers or memory sticks. This is good method to sell more products and help customers at the same time.  The checkout forms are very straight forward and easy to use. The term of use and privacy statement is easily accessible.  In terms of security and encryption, it is SSL over HTTPS (secure HTTP). 

My overall shopping experience with Buy.com was pleasant. The site contains comprehensive information as well as easy navigation.  The one major feature lacking is an alternative means of contacting Buy.com. There is no phone number or chat tool for users.  I would rate Buy.com experience at nine out of ten.

Threats

Among the many threats facing EC, one of the biggest is trust.  Does the consumer trust the site enough to provide personal information such their name, address and other private data? What is the privacy policy? If there are problems with the order, does the site offer alternative means of contacting the company? These are some of the questions that must be addressed by EC in order to help establish trust.   Price in many cases is secondary (Turban et al., 2006)

From the consumer's perspective, the perceived risk in e-commerce is greater compared to purchases that are made at Brick and Mortar retail stores. In e-commerce, typically, there is a temporal separation of payment and product delivery. As a result, the consumer must provide personal information (e.g., name, address and phone number) and payment information (e.g. credit card number) before taking delivery of the product. For the most part, the consumer can assess service quality only after the fact.

Gaining the consumer's trust is very important for the e-tailer to reduce the level of perceived risk.  Since consumers cannot see the outcomes of their shopping process ahead of time, they will judge an e-tailer based on cues that they encounter as they shop. For example, a consumer who may encounter a site that has broken links or grammatically incorrect language may well lose confidence in the ability of that e-tailer to deliver the necessary products on time.

To reduce the perceived risk, companies can obtain seals of approval from trusted third parties and display them prominently on their Web site (Turban et al., 2006).  An example of such a seal is that offered by TrustE or BizRate, an industry-sponsored non-profit organization focused on improving privacy practices in firms. The organization allows firms who meet certain requirements to post its seal on their Web site. Consumers who see the seal can then be assured that privacy will be ensured.

In addition to trust, Crutchfield and Buy.com face increasing competitions from other Click and Mortar such as BestBuy.com, CircuitCity.com and more.  It is difficult to name a major player in the consumer electronic industry that does not have an online presence.  To keep the current customers interested and satisfied, both companies need to find innovative means of customer retention as well as a cost effective ways of attracting new ones. There are various methods of online advertising tactic and data collection procedure in which EC companies can utilize in order to better understand customer’s needs and behavior.  A well adopted tactic is one-to-email e-mail marketing as it has been proven to work.  The explosion of SPAM has created an environment where advertising needs to be personalized. One-to-One campaign can help mitigate the perception of SPAM.  Other tactic includes creating a customer profile so a customize view can be displayed based on the user’s interests.

The last threat I foresee is “homogeneous” experience. Almost every EC site looks and feels the same.  To keep things fresh and exciting, both companies must continue to innovate.  This is not to suggest the company cut over to a new look over night, but through careful research.  To design a great EC site requires customer input.  One of the methods of acquiring customer’s feedback is through a web forum or user groups.  Other common method includes directing random number of shoppers to a series of test buckets to evaluate their behavior.  In short, EC site needs to continue to evolve in order to entice people to return.  The e-tailer that is able to best connect with their customer will win their trust and loyalty.   

Future

While we do not have a crystal ball, the future of EC as a whole appears to be bright.  In the case of Crutchfield, the company has built a solid relationship with shoppers and manufacturers. When people think of mail order consumer electronics, they think of Crutchfield. The catalog is a widely respected and influential publication (www.crutchfield.com).  In many respect, Crutchfield.com has already overcome the biggest EC threat, trust.  As online shopping era continues to emerge, Crutchfield is in an excellent position to capitalize on the consumer electronic market if they continue to innovate and take advantage of their strengths.

From an investment perspective, I have some reservations about Crutchfield. To continue its success, Crutchfield however needs to expand the current product categories.  Placing the future solely in the consumer electronic market could pose serious risks as competition intensifies.  Brand loyalty and customer service will only carry the company so far. At some point, lower prices could matter more to consumers. The high cost of staffing representatives to support the customer base is a major concern. In the long run, the high staffing cost could lessen the company’s ability to respond quickly to pricing pressure.  If these two items were rectified, I believe the company would continue to perform well and perhaps worth the investment.

Despite Buy.com setback during the dotcom crash, the company’s future also appears bright. The latest financial data indicates the company’s growth strategy of expanding into other growth area such as online music downloads are paying dividend.  Furthermore, as a pure e-tailer, the company cost structure appears to be lower than Crutchfield Inc. Buy.com is also gaining momentum as a trusted brand. This is an important achievement given the company short existence.

The outlook for Buy.com is good; however, competition is extremely tough as the company takes on other major players such as Amazon.com and Overstock.com.  There is evidence Buy.com is making progress.  In a recent study, Buy.com scored the highest in customer satisfaction while the other major e-tailer (Amazon.com, Overstock.com and etc.) satisfaction dropped.  The major reasons for the higher satisfaction was the perceive image of preparation and competitive pricing. During the 2005 holiday season, Buy.com did the best in terms of meeting the customer’s expectation.  By providing clear product description, easy navigation, suggestions of products, and competitive prices, Buy.com was able to score higher than their competitors (LeClaire, 2006).

Risk however remains high as the company remains unprofitable and competition intensifies. From an investment perspective, it is still unclear where the future will take Buy.com. For this reason, I would not yet invest in this company, but it is worth noting as a company to watch.

Conclusion

In this paper, we have developed a conceptual framework identifying some of the crucial factors to EC success.  One of which is to establish trust through well designed web site that eliminate user concerns.  This includes providing an alternative channel of contact, relevant tools and product to assist online shoppers.  We also touched on various marketing methods in which companies can utilize to help establish relationship with partners as well as customers. These includes search engine, affiliates marketing and e-mail marketing.

In conclusion, EC is here to stay and whether companies decide to become a pure e-tailer or part e-tailer, both models has an equal chance of success. The future success of these companies will depend not only on how well they can react to changes, but being able to predict consumer’s behavior and preferences through careful marketing research and analysis.

References:

Turban, King, Viehland & Lee, 2006.  Electronic Commerce: A managerial perspective.  Pearson International, New Jersey.

Buy.com Delays Initial Public Offering. (2005, December 19). Associated Press (AP). Retrieved February 19, 2006, from http://biz.yahoo.com/ap/051219/buy_com_ipo.html?.v=2

Sales up, losses down at Buy.com (February 8, 2006).  Internet Retailer. Retrieved February 20, 2006 from http://www.internetretailer.com/dailyNews.asp?id=17542

LeClaire, Jennifer (2006). Study: E-Tailers Disappointed Customers During Holiday Shopping Period. Retrieved February 20, 2006 from http://www.ecommercetimes.com/rsstory/48413.html