Is it Time to Reconsider Your Online Strategy?

Ten years ago, e-commerce promisde much, and companies were taking the first steps to its realisation. It is a natural progression to think that the organisations operating within the e-commerce space and their business models have matured and consolidated since then.

Therefore, it seems contradictory that the internet channel is not set up yet in many organisations, or it is in an infancy stage. Today, many organisations that have an established and embedded online transaction process are reconsidering and reviewing their present internet strategy, activities and set up. In short, e-commerce implementation has experienced a variable level of success.

As a management and IT consultant and an online payment expert for the Dutch e-commerce industry body, I have often been asked the question: “Can you help me with our online payments?”

During the consultancy process, it invariably turns out that every activity before and after the payment should be considered and weighed as well. Most underestimate the complexity of the whole payment system and the fact that all phases are deeply intertwined.

The scope of the question is often stretched to “Can you help me with our online strategy?” In other words, the whole value creation chain should be analysed and necessary actions taken in every part of the chain.

The Initial Question

There are many companies whose strategy for distributing their products and services is perfectly put into place. The channels work seamlessly together: strategy and e-strategy are aligned, channel decisions were taken, and creative solutions were developed to prevent channel conflicts1. These are the companies like Zappos, Amazon, Lycos or Asknet whose success stories are well articulated at conferences.

It is no coincidence that, in many of these successful companies, internet is the only channel. Major challenges lie within organisations that add internet as a channel to their existing channels.

To date, many companies – whether in fashion, consumer electronics or travel – are wrestling with the issue of expanding their business by means of the internet channel. From long-term strategy to day-to-day business, at every level and within all processes, tactical and strategic decisions will have to be made.

As an advisor, I am usually asked how a company can enhance its online processes, or make online transactions and subscriptions possible. Organisations that have already established an internet channel often say: “I want to pay less for my internet payments”.

A complex world is hidden behind these requests. To develop a solution, three ingredients are needed:

  1. A pragmatic approach.
  2. A thorough analysis of the issues.
  3. Co-operation between the business owner and the consultant.

The Approach

As with any complex solution to be embedded in a complex organisation, a thorough analysis of what needs to be done is indispensable for future success and an appropriate model that represents the actual situation will help2.

The process begins with a chief executive officer (CEO) or chief financial officer (CFO) expressing the company’s ambition to cut costs. Within the online channel, a major cost is derived from bank charges for internet transactions. These must be investigated thoroughly.

How do you begin analysing the online transaction process and its interdependencies with other processes? First, one should analyse the steps in the online transaction process: a person with a need or demand will initiate a search for an item or service, select the best offer, place the order and make a payment (see Figure 1). Thi seems quite simple, but every step has numerous interfaces and dependencies with other activities, systems or information streams. Therefore, the creation of an integral overview is crucial.

Figure 1: The Online Transaction Process

Source: Thuiswinkel.org

 

Diagnosing payment functionalities

After analysing the online transaction process and its relations with other processes, a company should identify what the channel needs to achieve and what it can add to other existing channels – why do we want this and how are we going to accomplish it? Therefore, the requirements should be listed. When it comes to formulating the requirements for the best possible payment engine, the next questions are relevant:

1. The required global reach

In which geographies do you want to be active? Every national or even regional area may have its own buying and payment behaviour.

2. The target groups

Who do you want to reach within these geographies? Holiday seekers, gamers, students, book readers and house owners all have different needs and characteristics.

3. Risk management and identity

It is important to be as sure as possible about a shopper’s identity. However, what information is obtained depends on the chosen payment method. For example, an online banking transaction is preceded by shopper identification at their bank. With a credit card transaction, it is the other way around: first the shopper chooses the payment method and then they provide their identity. Methods to improve the identification procedure3 have been introduced and rolled out, however the perfect solution is not yet found.

4. Interfaces/alignment of information sources

A company must transfer information on its webshop’s revenue streams to its financial administration and general ledger.

The Diagnosis: Branch-specific Remarks

The internet is a perfect channel for distributing products and services such as aviation, consumer electronics, online dating, gaming, or subscriptions for academic services. However, apart from the general functionalities that are the same for everyone, every sector has its own characteristics and, as a consequence of this, specific requirements need to be fulfilled for successful online trade. Some examples:

In gaming and gambling, the online casino or poker merchant should be able to pay out the winner’s money. This is a reverse payment – from a merchant to a shopper, i.e. the cardholder’s card. The payment services provider should support this requirement.

A shopper that makes an airline booking is usually offered the possibility to choose a seat. This information is attached to the cardholder information and should be transferred along with the other details, which requires an extra information field.

When analysing these requirements, a company can more clearly identify what functionality needs to be added. Figure 2 illustrates a breakdown of the payment engine’s functionalities within the online transaction process.

Figure 2: The Online Transaction Process with Different Functionality in the Payment Engine

Source: Thuiswinkel.org

 

After this analysis, a company will have an overview of the required payment methods. When making its choices, a company should have a high emphasis on geographical coverage and costs. It should determine the payment methods based on the characteristics of the target group(s) and required functionalities.

For example, a publisher with over 200 titles will have to offer an offline bank transfer to the readers of its ladies’ magazine aged 55 and over and offer credit cards to wealthy readers of its magazine on lifestyle and cars who are in their 30s.

Diagnosing Payments and Organisational Complexity

An organisation – and its IT systems – may be complex. However, an analysis will provide a clear overview as to which processes and departments will be affected. Figure 3 illustrates how activities in the online transaction process are intertwined with production and information systems.

Figure 3: The Online Transaction Process Interfaces with Many IT Systems

Source: Thuiswinkel.org

 

For example:

  • The enterprise resource planning (ERP) system and customer relationship management (CRM) system interface: the organisation can prepare and deliver the order and receive a payment afterward if the shopper is known and trusted.
  • The CRM and the debtor management system: before delivery the shopper should be checked for outstanding debts.
  • The debtor management system and risk management module should work together to filter out fraudulent transactions in an early stage. The risk management data should be transferred to the debtor management system.

Many other interdependencies and interfaces can be found in this overview. Please note that most of these systems are usually owned and managed by different departments. The CRM system is often found in the marketing and sales department, while the debtor management systems in the accounting department, etc. Therefore, a significant amount of effort will be necessary to align the activities of the departments and the people within the departments.

Channel Decisions

So far, this article has looked at building a new channel or improving the internet channel as a separate activity, apart from other channels. However, the relationship between all the distribution channels also should be defined. Any action in one channel can have an impact on another channel. But they can also be complementary, effectively reinforcing each other. Channel decisions are challenging.

The antagonism between channels, their interdependencies and overall contribution to revenue should be monitored closely. For example, a product description at the website should be similar to the description in the catalogue to prevent confusion and accelerate the buying process4. A company should plan how information flows from these separate channels into its IT systems.

For example, many web shoppers start a purchase but do not finish the process. This leaves the web merchant with orders in the ERP system without a payment. In 2007, a reputable home shopping company decided to call customers that did not finish their internet transactions. An agent contacts the customer in order to motivate them to finish the shopping process completely. To make it even easier, the agent sends a payment request that can be paid immediately when the shopper receives it. In this case the channels internet, telephone and e-mail reinforce each other (see Figure 4).

Figure 4: Overview of Distribution Channels

Source: Thuiswinkel.org

 

Soft Things are the Hardest: Commitment and Progress

Many organisations realise that (re)designing and establishing the internet channel requires the involvement of many parties. However, due to time pressure or a lack of resources it is tempting to assign the activity to only one department. Practice teaches that it will be a staff member (project management or marketing) that will be assigned to the projecy. In line with remarks made about interfaces and alignment in the previous paragraph, a company will need representatives from the following disciplines for a thorough and holistic approach:

Marketing
  • Redefinition of the marketing mix.
  • Decisions on new media: blogs, user generated content, etc.
  • Search engine optimisation: website structure, categorisation of search words, meta descriptions, etc.
Production and delivery
  • Processing the extra amount of orders generated by the new channel.
  • Readiness of production and logistics to process orders from the new channel.
Accounting
  • Allocation of the revenue streams generated by the new channel.
  • Integration of the order and payment information in the reporting systems.
IT
  • IT systems need to process new channel-specific information, i.e. branch-specific extensions (BSE).
  • Integration with CRM, stock management software, suppliers, etc.
  • Scalability

A thorough diagnosis will lead to actions in a natural way. Needless to say, the activities should be listed in a structured project plan, including all the control factors. Those assigned will have to have clearly defined mandates and room to make decisions and allocate resources. That is where the ‘soft side’ begins: a shared vision that should be communicated clearly and repeatedly, and the effort and commitment of well-equipped people that will take co-ordinated and planned actions.

Conclusion

It is not easy to set up or improve the internet channel next to other (already established) channels. Organisations tend to underestimate the complexity of the plan, and the interdependencies and coherence between the channels. In many cases, the procedure is reversed: cutting costs of internet transactions is the initial driver. This addresses the payment phase only, the one but last phase in the online transaction process. Businesses should face the fact that the complete value chain should be analysed. When a proper model for analysis is used and analysis of the required actions is completed in a structured manner, the plan can be effectively carried out.

1In many companies the introduction of the internet channel was postponed or even scrapped from the agenda of management teams for years to prevent conflicts with distributors or franchisers.

2‘The control of change processes’, ACJ de Leeuw, 1994.

33-D Secure technology under the brand names MasterCard Secure Code (MCSC) and Verified by Visa (VbV).

4‘The new rules of marketing and PR’, D. Meerman Scott, 2009.

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