E-Commerce Basics:
The 10 Rock Bottom Essentials
for Online Stores

by Dr. Ralph F. Wilson, E-Commerce Consultant

Note: This is a very basic article. If you're way beyond this, I understand. In that case, why don't you share it with a friend who's trying to understand your world.

Web Commerce Today, Issue 14, September 15, 1998

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This article contains older information. Go here for newer information on ecommerce and selling online.

What are the basics of selling products online? What are the essentials? What separates the successful stores from the also-rans? I've distilled the ten vital elements you must get right to have an online success. Ignore one of these and it'll come back to bite you -- hard. Here they are:

USP Developer Payments Security Software

Maintenance Hosting Fulfillment Customer Service Marketing

1. USP

The first requirement for an online store -- any store, physical or cyber, for that matter -- is to develop a Unique Selling Proposition (USP). It's especially important on the Web. You don't have to be too unique to open "Stamp Collector's Paradise" in suburban San Jose. Just find a location with a lot of stamp collectors, rent a storefront, hang out your shingle, and let people know you're there. It's unique because there's no other philately shop around and you have a built-in market. But the Web is a different story. I counted 137 stamp collector shops on Yahoo, all of which list and sell hard-to-find stamps. When you're shopping on the Web, geography is meaningless. Your uniqueness must be more than location.

What makes you stand out is your Unique Selling Proposition. Before you build a Web store, look at your competition long and hard. Ask: What can I offer that they don't? What new twist can I put on my store that offers added value? Maybe you decided to set up a Philatelist's Chat Room or a bulletin board on your site where collectors can compare notes. Maybe you offer free searching for the exact stamp they're looking for through your network of dealers around the world. Maybe you have an especially attractive way of displaying stamps that draws collectors back. Maybe your purchasing system is the easiest to use. Maybe you offer free shipping by priority mail. Preferably, you'll develop a collection of excellent features.

Next, you must highlight your Unique Selling Proposition so it's crystal clear for shoppers to grasp: "Easiest Shopping, Lowest Prices!" "We'll find you any stamp on the face of the Earth!" "Stamp Chat -- Your Home Away from Home." Capsulize the unique vision you have for your store and put it out there in front. Your visitors need to know immediately what sets you apart or they're likely to click off into cyber-oblivion.

2. Developer

The second step is to locate a website developer who specializes in online stores. Now I must admit to a bit of prejudice here. But I've found that most business people begin a cyber store with little understanding of its special requirements. They learn by mistakes -- just like developers do. But hopefully, your developer has already made those mistakes, and help you avoid them in your store. Securing a developer is important to

1. Guide you through the maze of decisions and preparations,
2. Save you from costly design errors,
3. Give a professional look and feel to your online store,
4. Get you online and selling faster, and
5. Develop a sales interface that compels people to complete their orders and finalize the transaction.

Good developers cost money, but they'll save you many more dollars than they charge. The alternative, of course, is to do it yourself, or to task one or more of your employees to learn the ins and outs of selling products online. In any case, time is money.

Whether or not you secure an outside developer, your goal must be to bring the online store expertise in-house so you can maintain the store. Be sure you have an employee who can be trained to carry on after the developer completes his work. Beware of a developer who resists passing on knowledge to you or your employees.

3. Payments

Now that you've got a developer and/or a staff member on the project, you'll have some help making several additional decisions that are closely related. One of the first is to decide the methods of payment you'll offer. In the United States and Canada, credit cards are the most obvious choice, since a large percentage of the populace carries one or more cards, and credit card companies take care of all currency exchange matters. But in other countries you may want to offer other choices -- bank transfers, online checks, purchase orders from companies with accounts among others. See how catalog sales companies exchange funds and use those methods.

Assuming you select credit cards as one of your payment methods, you'll need to set up a Merchant Credit Card account at a bank so you can accept credit cards. Before you do this, however, determine whether or not you need real-time credit card authorization. You can get a credit card authorized online when your customer finalizes her order. But depending on how soon you are able to deliver your goods, you may not need that level of automation, especially in the beginning. True, real-time authorization saves the step of entering card numbers and amounts for authorization offline, but real-time authorization can be quite complex to set up.

If you decide on real-time authorization, you're wise to delay getting a Merchant Credit Card account until you determine what Internet "gateway" service you'll be using to connect your store software to the credit card processing service. Some of the more popular programs are:

• CyberCash http://www.cybercash
• PaymentNet http://www.paymentnet.com
• Anacom Merchant Services http://www.anacom.com

Each of these companies uses its own proprietary method of connecting your site to your bank's processing service. You'll need to determine which gateways your store-building software can support, and which provide processing through the processing service your bank contracts with. Shopping for services and integrating these with the other elements of your store will take some time, so get an early start. In your search, don't neglect the availability of anti-fraud services that protect merchants against stolen or non-existent credit card numbers. Credit card authorization may not catch these -- and won't protect you adequately against fraud. Some gateway services also allow you to accept online checks, which could be a plus, so shop around.

4. Security

While fraud against merchants is the real problem, your customers are gravely concerned about giving out their credit card numbers on the Internet. The media did an over-effective job of warning the public. Now you must reassure them that their card numbers are safe with you. For most stores, you'll be concerned with three security features.

SSL (Secure Sockets Layer), which runs on your Web hosting service, allows your customer's Web browser to communicate securely with the order pages in your store. It uses a sophisticated exchange of public keys to encrypt credit information very securely.

But no matter how secure the front of your store is, all that trouble is wasted if the merchant doesn't receive orders in a secure manner. If the Web server is in-house there's no problem. If you pick up your orders with a secure Web browser from a secure URL, that's fine. But if you receive the order via e-mail it's no longer secure (unless you encrypt the e-mail en route using PGP or another encryption system). You customer may never know, but you know. If you're a person of integrity, you'll secure both the front and back doors of your store.

A Digital Certificate verifies to your customer's Web browser that you are a legitimate business. Without a valid digital certificate, your customer's Web browser will flash a warning that something is wrong -- certain death to sales. Some Web hosting services are configured so you can use their digital certificate without having to purchase your own. This can save $125 to $350 per year. Two primary companies issue digital certificates to merchants: VeriSign (http://www.verisign.com) of Mountain View, California, and Thawte (http://www.thawte.com/) of Durbanville, South Africa. VeriSign costs substantially more, but provides several advantages to merchants, and as of September 1998 seems worth the extra cost. Securing a digital certificate can be a hassle, so don't put off starting this process.

SET (Secure Electronic Transaction) is a standard developed by the major credit card companies to ensure security. Using this system, the customer's credit card number is encrypted in a Web browser "wallet." When the customer offers the credit card to make an online purchase, the merchant never sees the actual card number, but passes it on directly to the processing service which decrypts the number, checks the card, and sends back an authorization. SET is just now becoming available. Though it may take a year or two to be fully implemented by both customers and merchants, it will improve confidence in online shopping, and eventually you'll want to offer SET transactions in your online store.

Is this level of security really necessary? Probably not. Your credit card number is already more secure on the Internet than it might be in a restaurant where you hand it to a minimum-wage waiter. But that's not the point. It's customer perception of security that drives sales or impedes them. So the security is necessary to your selling success after all.

5. Software

If you're going to compete for customers on the Web you've got to make shopping simple. I was amazed when I went searching for Civil War belt buckles how few such online stores had an adequate system for taking orders. These days you'd be foolish to build a store without the infrastructure of store-building software that:

• Allows shoppers to place items in a "shopping cart" for purchase later,
• Calculates shipping and tax, and totals the order,
• Provides a secure interface for both shopping and picking up orders, and
• Enables the merchant to make easy changes, additions, and deletions to the products for sale.

Some store-building software packages provide much more than that, including sophisticated statistical and tracking packages to let you know which sections of your store a customer visited, how he got to the store, amount of purchases, etc.

You'll find three main tiers of software available for your online store (though they don't all fit neatly into our classification system):

1. Beginner stores can be set up quickly by the merchant. They usually include hosting for a monthly fee that varies based on the number of products in the store. (Beware of malls that want a percentage of your sales in exchange for help setting up your store.) Some examples are Yahoo! Store (http://store.yahoo.com/) and iCat Commerce Online (http://www.icat.com). There's usually no set-up charge. But while set up is quick, these stores severely limit the degree of customization possible.
2. Smaller stores allow a medium amount of customization. You'll find some excellent software for stores up to about 500 products. One of the finest is Open Market's ShopSite Manager (http://www.shopsite.com). This type of store can often be installed on a Web hosting service for under $50 per month.
3. Larger stores that run on industrial strength databases can be scaled up to tens of thousands of products, with a few able to handle millions. Three of these are quite popular: Microsoft Site Server, Commerce Edition (http://www.microsoft.com/siteserver/commerce/), Intershop Online (http://www.intershop.com), and iCat Electronic Commerce Publisher (http://www.icat.com). Each generates catalog pages directly from the database as shoppers request them. These products can be customized to do about anything, though customization requires strong (and expensive) programming skills. The relational databases require specialized hosting services that charge in the range of $250 to $500 per month and up, but if you need these tools you may be needing an in-house server.

Selecting the store-building software appropriate to your store is one of the most important decisions you'll make. Don't let your choice be guided by a developer who has limited experience and uses the only thing he knows. Make sure the software you choose is suited to the scale and budget of your project, and can grow with you. I strongly recommend against letting your developer write a shopping cart program for you from scratch. You'll be forever locked into using this developer. Make sure the basic software comes from a major e-commerce software company likely to be around a couple of years from now when you need to upgrade your site. Your developer may have moved to Malibu by then.

6. Maintenance

I'm convinced that a retail store of any size needs to be updated often to keep product information current. Having built more than a dozen stores for clients, we've come to realize that building the store is the easy part. We must also transfer to the merchant the ability to maintain the store herself. While the developer should still do major design and navigation changes, the merchant needs to be able to add products, delete products, change prices and copy, etc. The store-building software needs a simple Web browser interface where the merchant can make these changes. Of course, merchants must invest some time to learn how to make those changes and to manipulate photos needed for new products. An online store without this in-house ability is doomed to marginality and won't survive the intense competition for customers.

7. Hosting

We've mentioned Web hosting already, since it's integral to several of the decisions you need to make. The software you select will only run on certain operating systems. Choose your hosting service after you've selected your software. Your Web hosting company needs to:

• Provide an SSL secure server (preferably with a digital certificate you can use),
• Offer connectivity for real-time credit card authorization gateways supported by your Merchant Credit Card's processing service, and
• Offer expertise in hosting the store-building software you've selected to build your store.

Selecting the right Web hosting service is important, since moving a store is no fun.

The larger and more active your store is, the more you'll need an in-house server, but small stores shouldn't even think about it. Costs include a T1 connection to the Internet, a dedicated computer, server software, and personnel trained in Internet security and database hosting.

8. Fulfillment

A recent report that indicated the fierce competition for online book sales between Amazon.com and BarnesAndNoble.com would be won by the company that develops the most cost-effective order fulfillment system. An online store provides an order-taking front end. But the profit margin depends on how efficient the entire business is.

Entrepreneurs dream of Web stores that automatically take orders that are dropped-shipped by manufacturers or handled entirely by fulfillment houses. But drop-shipping and using fulfillment houses add significantly to cost of doing business. I understand the dream. It's the ancient longing to make money without working for it. The truth is, however, that many products just cannot be sold competitively without a lean and carefully designed system to procure the product, pick it, pack it, and ship it to the customer. Check out the fulfillment houses, but make sure your remaining margin allows you a profit.

Related to a smooth fulfillment system, of course, is integrating your online orders into your company accounting, order tracking, and inventory system. Small stores seldom try to integrate and automate all these systems. It's just too expensive and complex to do unless your business takes off. Nevertheless, start with plans to automate this when the number of orders justifies this major expense.

9. Customer Service

The key to success in an online store doesn't lie in getting the first order from a customer. It's getting order numbers two and three and four. Your cost in advertising and promotion to acquire a customer can be steep. So when he needs to purchase again, make sure he's had an excellent experience with your company.

Customer service includes

• Providing presale information on products as well as ordering and shipping policies and guarantees.
• Order confirmation and shipping notification
• A system to correct problems that inevitably occur and still keep the customer happy.

Too many sites have no easy access to e-mail addresses or phone numbers to contact customer service personnel. Your online store plan must include a system to meet customer's needs.

10. Marketing

We've listed marketing last, but when you think about it, we really began with it -- a Unique Selling Proposition which underlies all your marketing. Unless you market your Web store aggressively it won't succeed, even if you've done everything else perfectly. Aggressive doesn't have to mean expensive, though the larger your budget, the more people will visit your store. One rule of thumb is to plan to spend as much on your store's initial marketing as you did on developing the store in the first place. We've treated Web marketing extensively elsewhere (http://www.wilsonweb.com/wmt/), but we'll mention a few obvious methods of store promotion.

Affiliate programs pay a commission for purchases made in your store by customers who came from a link on another website. Though they're complex to administer well, affiliate programs usually cost a lot less per sale than banner advertising. Some store building software packages even include methods of tracking customers by the URL of the referring page (such as Yahoo! Store and ShopSite Pro). Let's say your food processor product line averages $50 each. What does it cost to get a purchaser?

Banner ads are usually sold on a CPM (cost per thousand) basis. Say a banner ad costs $20 CPM and gets a 1% click-through rate. It costs you $20 attract 1% of the 1,000 people who saw your ad. In other words, it costs $20 to get 20 visitors to your site, or $1 per visitor. If you have a 5% "conversion rate" (the ratio of purchasers to shoppers at your site), then 5% of those 20 visitors -- i.e., one person -- purchase a food processor. Thus those banner ads cost you $20 per purchaser. (You can see why repeat orders are vital to your success.)

An affiliate program, on the other hand, pays a commission only when a sale is actually made. Let's say you pay a hefty 15% commission to your affiliate. That's only $7.50 paid to an affiliate vs. $20 paid for banner ads. Sweet? Yes, sweet, but difficult to administer well. You probably need to plan a mix of banner ads, an affiliate program, and e-mail advertising to bring customers to your site.

Your real VIP, however, is the person who's already purchased from you. E-mail him occasionally, letting him know of sales and special promotions. Since you've already built a trust relationship with him, he's much more inclined to purchase a second time. So don't neglect plans to market to your growing list of satisfied customers.

This list of ten essential online store requirements begins and ends with marketing. Of course, this doesn't exhaust everything you have to know to set up a Web store, but it does tell you what to focus on. Include eight or nine of these and you'll still sell some products. But master all ten and you're on your way to real success.

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