Date: June 6, 1999

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The "eRetailing '99" conference was held
May 16-18 at the San Francisco Marriott
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Dear Readers, Clients, Partners, Friends:

Welcome to our continuing series of reports (this one #4) on the eRetailing '99 conference, which was held May 16-18 at the San Francisco Marriott. (Earlier reports are posted at our web site.)

But before I get started, I just have to tell you my favorite restaurant name from this trip to San Francisco: "Pizza Orgasmica" (with the tagline "The Original Sin"). That one almost made me laugh as hard as my favorite from LA the month before: "Genghis Cohen" in Beverly Hills. My cabbies must think I'm an idiot--sitting in the back seat laughing my ass off every few blocks, taking notes as I do. Man, these trips are fun. Or....work, I mean. Hey, this Internet conference circuit is serious business! So back to it....

These highlights are from the first conference session on Monday morning, a panel discussion featuring Terrell Jones, president of Travelocity; Cliff Sharples, CEO of Garden.com; Judy Neuman, VP of Eddie Bauer; Kevin McSpadden, Commerce Program Director at Levi Strauss; some VP of Compaq who sat in at the last minute, whose name escapes me (he runs their online business); and Paul Gaffney, Sr VP of online for Office Depot. The moderator was Andrea Williams, Internet analyst at Volpe Brown Whelan.

* Opening question: Is online advertising living up to claims?

-Travelocity: Our customers told us they trusted brands that advertised offline.

-Garden.com: Since we were starting a virtual company, we had to do online promotion. Then we went to print and our own magazine....and we've been overwhelmed with success. With online advertising, it's all about what the customer wants today. [Ed: In contrast to the longer life of offline advertising, and certainly a magazine.]

-Eddie Bauer: Only about 15% of our advertising is intended to drive sales. [Ed: Meaning the vast majority is image advertising or getting people to just go see the site.]

-Levi's: Even less than that for us.

-Travelocity: Less than 40% of our business can now be traced to our advertising on portals. [Ed: Implying that's gone down over the years.] We've been online for 13 years, so we've learned a lot about partnering. It works if your partner's brand is willing to contribute to your brand, and if they're willing to listen and cooperate.

-Office Depot: I think there are enormous opportunities in online advertising. Our people in San Francisco work very hard on it. [Ed: They chose to locate people there because it's such a cultural and power center for the Internet.] But it's amazing how much manual work you have to do in this area--the media and ad networks need to step up here! I think the number-one unexploited opportunity in online advertising is highly targeted offers, which the economics of direct mail just don't allow. The Web takes away that problem!

-Travelocity: We do highly targeted offers with big sucess, selling last-minute fares.

* The discussion then drifted away from advertising per se into what many people equate it to in the Internet world, "customer acquisition":

-Garden.com: We share customer acquisition costs with our partners. If they can acquire customers at lower cost than us, great! But our heaviest investment is in human capital, which we're working diligently on.

-Eddie Bauer: [in a comment for new online retailers] Know your objectives up front. We were early in focusing on ROI and metrics, and it's made a difference.

-Office Depot: [adding to the advice] Be as fiercely competitive as you've always been. Drop supplier partners that aren't adding value. If you're just taking orders, it's not a viable business.

-Levi's: Partners must sheperd each other's brands. We look at that real hard before we look at "reintermediating"--letting other people sell our products.

* On the subject of "Who owns the customer?" in a partner situation:

-Travelocity: That is *the* most difficult part to negotiate. Our position is if we're paying to acquire them, we do.

-Garden.com: We're not too worried about AOL and the other big guys. We worry about how best to service the customer--that's who will win.

-Levi's: It's about loyalty. Is the customer getting something out of the experience every time they come back?

* Question: Regarding data base technology investment--what are you learning from all your data?

-Office Depot: The leader seems to be Capital One, who has about 200 kinds of Visa cards, for every conceivable type of customer. You can give advantage to your customers if you work hard to anticipate their needs."

-Travelocity: We just launched a magazine. When a customer books a certain location, they automatically get a magazine in the mail soon after--customized as a guide to that city. In our test, 75% of our customers took the magazine on the trip with them!

-Garden.com: Our data base is always iteratively learning about the customer. But the gathering of this data must always be perceived as a win by the customer.

-Compaq: One thing that bothers me is that many companies are now talking about doing CRM [customer relationship management] on the 'Net, but they don't yet do it with their traditional channels. That's not right.

-Travelocity: Many of our travelers go to the same location 2 or 3 times a year. They love it when you know that and help them with their next trip.

* Question: On the subject of hiring, how hard is it to find good people, competing for them with Internet startups and the stock options they offer?

-Eddie Bauer: The equity issue is huge--I can't do that.

-Levi's: We emphasize that we're an R&D group, a learning environment, an opportunity to change the way of doing business, around the world.

-Travelocity: We get people who've done the startup thing and gotten burned, or burned out.

-Office Depot: You can't solve the problem by trying to be something that you aren't. We ask ourselves, What does the applicant want? Some are just more comfortable in a larger, more stable organization.

* A question from the audience relating to product mix:

-Eddie Bauer: You won't find anything online that we don't sell offline. But, as far as our organization, we have separate merchandising people for our online business, for every category of merchandise.

-Office Depot: [Ed: I also asked a similar question of Paul Gaffney between sessions, "Have you ever offered anything on the site that you don't have in the stores?"] No, not yet, but we're looking at that possibility, for special promotions or purposes.

-Levi's: Our online product mix is focused on our classic assortment. But we also bring in *some* exclusive merchandise, such as items we recently featured from our Japanese unit.

-Garden.com: For fast response to updating our merchandise mix, when we first started three years ago, we thought we could simply interface with our suppliers via email. But we quickly learned that just wouldn't scale, so we built an extranet--which works very well for us, to keep up with always having the right merchandise.

-Office Depot: We've exploited the front end quite well [the online store, the buying experience]. Now we're deploying that to our call centers [to make buying easier for more people].

Compaq: We're now in the business of massively customizing our products.

*Question: How do you deal with fulfillment?

-Eddie Bauer: Well, to tech or services vendors who say they have a turnkey solution, I say you're either stupid or a liar. You need middleware.

-Office Depot: Scalability is the tough part. You can make anything work when your numbers don't have commas in them. I always say, tell me what happens when you put a couple commas in.

-Garden.com: Our products are shipped from 70 locations, so the challenge for us is to make it look like it all comes from the same place.

*Question: What about cannibalization, or channel conflict?

-Office Depot: If you take an existing profit stream and move it to another channel and *increase* it, that's good business. The problem is sales force compensation, which I often say is the root of all evil.

-Travelocity: We still have a lot of channel conflict. They're mad at us, but not furious.

-Levi's: It hasn't come to us. We share our power base with consumers. And our online site has driven more sales to retailers than before.

-Eddie Bauer: As far as competition within the organization, I now have more advocates than before. We've made it so others within the company can "own" portions of the online business.

-Compaq: I look at my business unit as a franchise.

*Question: Will online overtake bricks & mortar?

-Garden.com: No, bricks & mortar will stay dominant, because it has a unique value proposition. Online, however, has the potential to bring back, on a scalable level, the one-to-one experience.

*Question: What's the best customer acquisition technique?

-Garden.com: None to single out.

-Office Depot: No one answer. [Hey, they were getting all talked out by this time...]

-Compaq: Offering an incentive for Internet access! Every one of our PCs is now sold with an ISP account.

*And the final question: What method do you use to track customer feedback?

-Garden.com: Email, including personal followup to a purchase. BizRate [an online buying consumer rating service] has also been helpful.

Stand by for additional reports on the "eRetailing '99" event, as well as more of my personal insights and experiences from this great trip to the Bay Area.

best regards,
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Graeme Thickins, Founder & Principal Consultant
GT&A Strategic Marketing Inc.
*Twin Cities *LA *San Francisco *Seattle
Voice Mail: 612/944-1672  Fax: 612/944-1673
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