Forrester Research estimates that a company spends at least $US25 to $US50 million to develop and market a major e-commerce site. But the way those millions are spent varies widely from company to company. Some simply hand over the reigns to their IT department, some tap the intuition of the company's more innovative minds, and some rely on turnkey solutions and advice from out-of-the-box solution providers. Joe Gagnon, the senior VP of e-strategy at Massachusetts-based Mainspring, says retailers who want to be heard above the din as they begin hawking their wares on the Web need to develop a whole new "e-strategy".
Gagnon's Mainspring - and other e-business strategy consultancies such as Agency.com, Interactive Knowledge Online (IKO), Scient, Sapient, USWeb/CKS, Proxicom, Viant and iXL - claim to help companies all along the way to e-ness - building an online business model, choosing and using customer-facing technologies, defining the solution architecture, and even branding and marketing the product.
Gagnon talked with CIO about some of the obstacles faced by many brick and mortar retailers as they attempt to develop an e-strategy.
CIO: Why do retail companies shifting "from bricks to clicks" need to develop an e-strategy? What's wrong with simply building an e-commerce site and operating in the same manner?
Gagnon: A retailer understands his industry quite well in the traditional model. But the e-business world has brought along a new set of business models that the retailer may have little experience in - and his organisation may have little competency with.
Companies often do not go far in the e-commerce realm without a strategy. They think that by building a site and assigning new responsibilities they've gone far, but in fact their perspective is so biased by what they've been doing before. They can't follow a traditional approach because the competition created by the Internet demands that they move smarter and faster.
CIO: What exactly is an e-strategy?
Gagnon: An e-strategy covers three dimensions. The first is to develop the business model, or define how you will make money. The second is to determine the "customer experience" because you have to learn how to interact with your customers online - which is a new concept because the things traditional retailers know about their customers are based on the traditional "in person" model. And the third is assessing your technology options, because you must know which technologies will best bring your Internet strategy to life.
CIO: Why should a brick and mortar retailer hire an e-strategist?
Gagnon: Because the stakes are so high on the Internet, a traditional retailer needs insight from experts who understand all of the implications of doing business on the Internet. Retailers need to know what does and doesn't work for their customers, where the market segments are moving right now, what the emerging technology trends are, what online business models actually work and who has proven them. Many traditional retailers often do not have the internal resources, capabilities, or time to conduct that research, but an e-strategist does. Ultimately an e-strategist helps companies to leverage their core business on the Internet.
CIO: In developing an e-strategy, is one of the three components - business model, customer model, technology - more important than the others?
Gagnon: Yes, the business model is first and foremost for a strategist. It leads and it is the centre point. Building the model takes around 60 per cent of the effort, and determining the customer experience and technology are each about 20 per cent.
The thing to note on the technology side is that it's crucial to focus on technology that will enable and extend your business capabilities rather than serve as only a back office function.
CIO: Other than defining an e-strategy, how else have you seen brick and mortar companies approach the Web?
Gagnon: One method is to just build an e-commerce site through the copycat approach. A retailer tries to copy sites he's seen and then learn by experiencing it. But he's not putting a lot of design or thought into implementing out-of-the-box solutions.
Another approach I've seen is for a CEO to take an employee in the past who has taken on big challenges, and give him an Internet leadership position. He then pulls together a team, looks at the market opportunity, executes a traditional approach, tests it out, and tries it. The challenge with that approach is that it takes a long time to get done.
CIO: What is the biggest obstacle that retailers have to overcome in building an e-strategy?
Gagnon: They have to overcome their misguided expectations about the implications of e-commerce on their organisations. They think they can just implement a Web site that will support buying and selling and be done with it.
But there are many strategic factors they have to consider. They may not understand, for example, that if they sell their remnant goods or off-season merchandise over the Web at reduced prices, they could destroy their brand. Or that they can't just leave their customer service the same such that their return policies are ineffective across the Web. Retailers must marry their online and offline channels.
They have to understand that the Internet is not just a new distribution channel. They need to appreciate that they now have this incredible opportunity to transform their business.
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