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An e-commerce primer

An e-commerce primer
Contents
INTRODUCTION..............................................................................................................................................3 YOUR OFFERING ............................................................................................................................................3 WHAT PRODUCTS ..............................................................................................................................................3 EXPAND YOUR PRODUCT RANGE WITH DROP SHIPPING ......................................................................................3 PRICING.............................................................................................................................................................3 SERVICE ............................................................................................................................................................4 RETURNS ...........................................................................................................................................................4 WHAT YOU NEED TO DO ....................................................................................................................................4 MARKETING ....................................................................................................................................................4 ORGANIC SEARCH ENGINE TRAFFIC ...................................................................................................................5 PAY PER CLICK (PPC).......................................................................................................................................5 RETURNING CUSTOMERS ...................................................................................................................................5 TRADITIONAL MARKETING ................................................................................................................................5 DESIGN NAVIGATION AND CONTENT .....................................................................................................5 SITE STRUCTURE AND NAVIGATION ...................................................................................................................5 SEARCHING AND INDEXING ...............................................................................................................................6 THE PRODUCT PAGE – CLOSING THE SALE .........................................................................................................6 THE PURCHASING PROCESS ......................................................................................................................6 THE SHOPPING CART .........................................................................................................................................6 CHECK-OUT.......................................................................................................................................................7 PAYMENT ..........................................................................................................................................................7 RETURNING CUSTOMERS ...................................................................................................................................7 ABANDONED SHOPPING CARTS................................................................................................................7 WHY ABANDONED ............................................................................................................................................7 REGISTRATION BEFORE SHOPPING CART............................................................................................................7 ORDER PROCESSING.....................................................................................................................................8 ORDER REVIEW .................................................................................................................................................8 PICKING AND DESPATCH....................................................................................................................................8 INTERFACE TO BACK OFFICE ..............................................................................................................................8 PAYMENT PROCESSING...............................................................................................................................8 WHAT IS INVOLVED IN CREDIT CARD PROCESSING?...........................................................................................8 AUTHORISATION ...............................................................................................................................................9 CAPTURE ...........................................................................................................................................................9 CHARGE BACK...................................................................................................................................................9 AVS & CSC......................................................................................................................................................9 OTHER PAYMENT METHODS ..............................................................................................................................9 SECURITY ISSUES ........................................................................................................................................10 WHY IS THE INTERNET DIFFERENT?.................................................................................................................10 SECURE SOCKET LAYER (SSL) .......................................................................................................................10 BEYOND THE PADLOCK ...................................................................................................................................10 PAYMENT GATEWAYS ...............................................................................................................................10 HOSTED SERVICES ...........................................................................................................................................11

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NON HOSTED ...................................................................................................................................................11 TALK TO YOUR BANK.................................................................................................................................11 YOUR KEY RELATIONSHIP ...............................................................................................................................11 INTERNET MERCHANT ACCOUNT (IMA).........................................................................................................11 BUREAU SERVICE ............................................................................................................................................11 MEASUREMENT............................................................................................................................................11 MEASURING PERFORMANCE ............................................................................................................................11 SITE TRAFFIC ...................................................................................................................................................11 CONVERSION ...................................................................................................................................................12 PAY PER CLICK ................................................................................................................................................12 SALES REPORTS ...............................................................................................................................................12 ABANDONED SHOPPING CARTS ........................................................................................................................12 NEWSLETTER ..................................................................................................................................................12 CONCLUSION.................................................................................................................................................13

Textor Webmasters Limited 10 Barley Mow Passage London W4 4PH T +44 (0)20 8400 6115 F +44 (0)20 8742 0010 E sales@textor.com www.textor.com

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Introduction
This document outlines the basic issues that will come up in the course of planning an e-commerce project. This is a complex area and if you have any questions please talk to us. Before you start make sure the following issues are planned. • • • • • • • Your project – any specific objectives, timescales and organisation Your offering – what will you be selling and why will customers buy Marketing – how will the site be marketed The web site – how the site will work Pricing and handling money Other operational issues Measuring performance

We have a questionnaire which covers most of the questions that need to be asked when planning an ecommerce site.

Your offering
What products
The planning process begins with identifying what you will sell on the web site. You may decide to: 1. Sell the most profitable lines only on the web site to keep the size and cost of the site to a minimum 2. Sell all the products you stock 3. Sell a wider range than you currently do. The cost of adding a single product to the web site is zero. Of course, if the number of products grows to be large, then at some point the site needs more organisation, more complex searching and so on. So the cost increases as the number of product increases, but in steps.

Expand your product range with drop shipping
Adding products you currently do not sell can be expensive if you have to carry extra stock. However can you get a supplier to deliver straight to the consumer? This may allow you to add more products which can be cross-sold to your customer basis at very low cost. This is called drop shipping Issues • • • Returns will still come back you to of course. If you have several drop shipping suppliers, customers may find orders are delivered in more than one package with different branding. You may also have problems reconciling different shipping cost price lists.

A variant of this is for suppliers to deliver to you a daily shipment of orders placed the previous day. You simply repack them and ship them on. You are still not carrying stock, but you have to pay for an extra shipping run each day, and delivery time increases by a day. The benefits can however outweigh these small disadvantages.

Pricing
• • • Will you quote your normal prices, or will you quote a lower price on the web where price comparisons are easy for your customers to make. Will you be giving a discount to trade customers? Will you give special offers – maybe give out offer codes as part of a marketing campaign?

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Service
You need to offer excellent after-sales and pre-sales service. Your phone number should be obvious on the web site and you should be prepared to man it. It may look good on paper to not offer telephone support (or hide it) but your customers need to be reassured that there is someone to call if there are problems of if they need advice. I recently vowed never to buy something form a very well-known site simply because they took their phone number off the web site and I had no way of contacting them when I had a problem.

Returns
Can you handle returns? These will be more of a problem in some markets than others. For example in clothing returns will be quite a high percentage.

What you need to do
Think through your product line and your market. • • • Research the profitability of your product range to see if anything stands out as a product area to focus on. Find out if there are products you can cross-sell on your web site, maybe drop-shipping to avoid warehousing costs. Start thinking about how to organise the products into product areas

Marketing
We have written a white paper on the subject of building site traffic. Please download this as it is essential reading. There are four really important ways of getting your customers to the site: • • • • Search engines from normal searches (organic traffic) Search engines from pay per click (PPC) Returning customers Traditional marketing

Organic traffic is from customers that search for something on one of the search engines and find it in the body of the search results (circled in red in the following diagram). Pay Per Click are users who click on one of the sponsored links (circled in blue).

Sponsored links

Organic Traffic

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Organic search engine traffic
Organic traffic has one big advantage – it is free. In our white paper in building site traffic we give a lot of information on how to get the best results in this area. However it has one very big disadvantage; it is out of your control. Rely totally on organic traffic and one day you could drop from the listings with no warning and be in serious trouble. This can and does happen. Nobody can control their placement on Google (although it can be influenced) and the method it uses for ranking can be and is changed on an unpredictable basis. Sites that rely 100% on organic searches can see their business totally decimated without notice.

Pay Per Click (PPC)
In many areas of business, PPC has a massive effect on the level of sales. The main advantage is that you control it. You control the wording and you control the placement (bid more money for a higher placement). It is very important that you measure the effectiveness of your PPC campaign in detail. With the right instrumentation you can ‘crank the handle’ and generate business which you know will be profitable. More on this later. PPC works better in some markets than others. This is a specialised and quite technical area. We have consultants who can advise. If you are planning an ecommerce site, PPC should always be reviewed as part of the planning process.

Returning customers
Once you have a customer always try and retain them. They found you through Google, next time they want to buy something they may just do another search and go somewhere else. So make sure: • • • Your service is first class. React well and generously if you are at fault. Handled well, a problem can cement your relationship with the customer, handled badly and you will never see them again. Keep in touch with them. One really good way is an email newsletter. Keep it interesting with articles and special offers, and you will find business jumps after each issue.

Traditional marketing
If you already send out a paper catalogue, then feature your web site to create interest. Maybe you can send out a mail shot to your existing customer base (a letter or even a postcard).

Design Navigation and content
Your web site must • • • • • • Look professional, and give prospective customers confidence that they are dealing with a first class organisation Be consistent with your brand as expressed in other media Be appropriate to your customer base Lead customers clearly to the product they wish to buy Give the customer the information they need clearly Be search engine friendly

The designer is the key to getting this right. Make sure you work with a designer who understands ecommerce and has experience of on-line catalogue design.

Site structure and navigation
The customer must be able to easily find the product they need without going through endless levels of indexes or menus.

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Don’t forget that many, even most customers who come to the site via a search engine are likely to arrive at an interior page, not the home page. Make sure they can orientate themselves and get to where they want to be quickly. Most people only read a fraction of what you present on-screen so keep text short and navigation intuitive. In the ‘snail mail’ world of marketing you are told “tell more to sell more”. In the Internet it is not so simple. The details have to be there, but only when your customers ask for it. While they are browsing to find the right product they have a short attention span and want to find what they want quickly.

Searching and indexing
Unless the number of products is small, your web site will need a search program. If you expect the web site to supplement the printed product you may want a search by catalogue page number or product code. If the number of products is very large you may need several levels of indexes ad well as cross links to related products.

The product page – closing the sale
Once the customer has arrived at the product page, the information must be comprehensive as it will be the basis for a purchasing decision. One of the advantages of the Internet is that you can give much more information than in a paper catalogue. Provide pictures and diagrams, and provide a download of product specifications.

The purchasing process
The shopping cart
When the catalogue is small (say less than 20 items) a simple order form will often do the job. However on larger sites the customer will flag products during this browsing session to be added to an electronic ‘shopping cart’. At any point the customer can review the contents of the cart, the cost and so on. This makes it easy for the customer to browse the site selecting products as they go. The shopping cart will total the cost of the shopping cart so there are a few things you need to add to the cost of the goods: VAT On a consumer site the prices will often include VAT. On a business to business site and some consumer sites, you will want to show VAT separately. Don’t forget that some goods are nonVATable such as books. Also if you are selling to other EEC countries you should not charge VAT, provided you get the customers registration number. Your ecommerce software should do this. Shipping Make sure you have a clear policy on shipping that can be implemented on the web site. ‘Overseas shoppers call this number for cost of shipping’ is just not going to work in an on-line environment. You need to be able to compute all the shipping costs for all your products to every destination you serve in a computer program, so all the rules have to be clear. Offer codes and trade accounts You may want to set up offer codes which work like electronic coupons. Such a code would be entered in the shopping cart so that the correct value can be computed. You may also have trade accounts. Once someone has identified themselves as a trade account customer by logging in their discount should be shown in the cart.

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Check-out
When the shopping session is complete, the customer clicks on a hyperlink which takes him or her to the checkout page. The customer can then add shipping instructions, name, address and so on. If the customer is a returning customer you will want to identify them and present their previous information so they can just confirm it is still correct. Normally we ask for email address and password to provide identification.

Payment
The customer is normally given a range of payment options, and some of the more common are discussed in more detail below. The most common is to use a charge or credit card, where the customer enters the card number, name on the card and expiry date. At this stage the web site should switch to Secure mode. The technology normally used is called SSL (Secure Socket Layer). This means that all communication with the server is encrypted in such a way that eavesdroppers cannot (without disproportionate difficulty) steal the credit card information. We shall discuss this further later, but it is important for customer confidence that the site switches to secure mode as soon as credit card information is requested. More on security later.

Returning customers
Returning customers are very valuable and you want to look after them. The site should have a ‘my account’ section which will allow users to check their previous purchases and change their contact details. On some business to business sites you may find that customers need to build a shopping cart, then put the order on hold while they get authorisation and a purchase order number. Then (maybe days later) they will need to return and resurrect the shopping cart to complete the purchase. Both these functions will need the customer to have a password. Normally they will log in with their email address and password.

Abandoned shopping carts
Why abandoned
A high percentage of shopping carts which are started are never completed. The customer simply goes away from the site. Sometimes this is because the customer never really planned to purchase but is simply building the cart to confirm the total price before comparing with another supplier. Sometimes the shopper was your competitor checking out your prices and your system. Sometimes however there is something on the site that is giving people second thoughts. This is almost impossible to resolve without talking to your customers or carrying out usability tests. But don’t panic; remember that on the best sites there will be quite a high percentage of these.

Registration before shopping cart
On some business to business sites we have found it effective to ask customers to log in (if returning) or register when they try and start a shopping cart. This sounds as if it might put customers off. But: • • We only ask for very simple details on pre-registration; name, country, email, telephone password. If someone is serious about making a purchase they will have to give us this information eventually anyway.

The benefit of this approach is that any abandoned shopping carts can be followed up by phone, and very often converted to a sale. If not, we gain valuable information about why the customer did not complete the order, which helps us in developing the site.

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Order processing
Order review
You will need to set up a process for reviewing orders, looking out for obvious frauds (e.g. multiple sales to Moscow on the same day) and any other possible issues. This is particularly important if you have outsourced fulfilment. A large fulfilment house may simply fill such orders without question. The Internet Crime Complaint Center published an annual report on fraud. The last report listed the following countries as being the top ten for fraud attempts. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. USA Nigeria UK Canada Italy China South Africa Greece Romania Russia

Previous years have featured Indonesia, Ukraine, The Netherlands and Australia.

Picking and despatch
There will then be a picking and packing process. If you already have a mail-order operation of course this will already be in place.

Interface to back office
If you have a warehouse system in place, the ecommerce system should ideally link into it to make the processing simpler. Such a link will: • • • • Upload product details and prices Upload stock levels Download customer information Download order information

Payment processing
What is involved in credit card processing?
Credit card payments are made in two steps: 1. Authorisation where the money is reserved for this purchase but not actually transferred from the cardholder’s account. 2. Capture when the money is transferred from the cardholder to the merchant. These steps will often be combined, but capture should not be made until the goods are delivered, or at least until early delivery is certain. For example when you check into a hotel the authorisation step is made. When you check out the capture stage actually debits your card. This is why they swipe your card when you check in to the hotel – they are not taking any payment from you, just making sure you are good for the money when you check out.

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Authorisation
The merchant must first obtain authorisation for the charge from the merchant’s credit card processing company. Authorisation simply means that the card has not been reported stolen, and there is sufficient credit on the card. It results in the customer’s credit limit being temporarily reduced by the value of the transaction. There are two ways in which authorisation may be obtained: 1. Manual: The merchant downloads details of the sale from the computer that is acting as web server. The merchant then requests authorisation using their normal method such as a point of sale (POS) terminal or PC program. 2. Automatic: The e-commerce system communicates directly with the credit card processing company computer and arranges authorisation on-line. This is the normal method.

Capture
The final stage is for the credit card to be debited. This can happen at the same time as authorisation provided the merchant guarantees that delivery will take place within a certain fixed time. Otherwise capture should take place when the goods are shipped.

Charge back
Regretfully there is sometimes a further stage where the customer is dissatisfied and arranges for the transaction to be cancelled. Because many Internet sales are made to overseas customers many banks perceive that there is an increased risk of charge backs. It has been reported that some merchants will not accept orders to Russia because of the frequency of charge back. Note that the fact that a payment has been authorised by the bank does not provide any protection against charge-back.

AVS & CSC
Two security methods are: • Address Verification System (AVS) When you pass the transaction to the bank for authorisation you also pass a post code. If the post code matches the billing address of the card, the AVS check is passed. Card Security Code (CSC) This is a three digit code on the back of the card. It provides some assurance that the person making the transaction actually has the card.

•

In both cases the transaction is authorised whether the test is passed or not. However you get the option of confirming or not depending on your policy. Note that the AVS will only work for UK addresses.

Other Payment methods
The discussion above has concentrated on credit card payments because they are the most efficient for most purchases. However there are a number of alternatives. Pre-pay: Whereas credit cards are fine for significant purchases, they are not efficient for a purchase of only a few pence (a micro payment). You might need to set up a pre-pay system where the customer makes a significant payment which is drawn down as items are purchased. Electronic cheques These are quite possible and are in use in the USA. Purchase orders For business purchases a purchase order would be appropriate if you know the customer.

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Security Issues
Why is the Internet different?
There is a widely perceived risk attached to payments made via the Internet, and this perception is in some circumstances justified. This is not like making a phone call or sending a fax. The information sent from the customer to the web server may pass through many different stages before being delivered. The information is in digital form, and at any stage an unauthorised individual may scan every message looking for credit card numbers (which are easily identified). The difference between this process and a telephone call or fax is that the scanning process can be automated. It is as easy to check every message as to check a single one.

Secure Socket Layer (SSL)
It is therefore essential that traffic is scrambled (or encrypted), and the standard SSL protocol developed by Netscape provides a high level of protection. Browsers indicate that a secure session is in progress by showing a padlock symbol on the screen. This technology is widely used and quite well understood by Internet users. Most articles on ecommerce rightly emphasise the need for customers only to give up confidential information in a secure session, and users will look out for it. We believe that it is essential.

Beyond the padlock
Even if the customer is protected by SSL technology, it is clearly important that the information remains secure. Once stored on the web server, and before being passed to the merchant, the information is at risk from someone breaching security on the server and examining the files. Protection from this can be provided by either: • • Encrypting the information stored on the server Using a ‘firewall’ to protect the information. A firewall is a device (or a piece of software) which limits access to a server to specific types, such as ‘web traffic only’.

The further stage of sending the information to the credit card processor, and to the merchant must similarly be protected. The padlock is therefore no guarantee of total security, and the reputation of the merchant (or the payment process) is also important.

Payment gateways
You may need authorisation to be made on-line: • • • Because you are delivering the product immediately over the Internet and want the payment to be fully processed before you give access to the product. Because you want to bypass the manual effort of keying the information into your bank terminal. Because you want to protect yourself from fraud. Much credit card fraud happens at the Merchant, if the computer handles the credit card information, the chance of in-house fraud is reduced.

Generally speaking, connecting your computer directly to the bank is a very expensive option. You can however go through a number of payment gateway services. These services interface with your web application in some way to create the link to the bank. Companies that we have dealt with are for example: • • • Netbanx (http://www.netbanx.com) Worldpay (http://www.worldpay.com) Servebase (http://www.servebase.co.uk)

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If you are using shopping cart software then it has to be interfaced to the gateway. This is never going to be a straightforward thing to do and it is important that when signing up to a gateway service you are sure that they can interface to the software you need.

Hosted services
The most straightforward way of linking to the payment gateway is for the shopping cart software simply to make a link to a secure page on the gateway web site. This would be appropriately branded to be reasonably transparent to the user. When the payment has been made the user is routed back to the original catalogue site. The advantage of this approach is that you do not need any sort of secure web pages on the catalogue site; just generate a link to the payment gateway. However you do have to make sure that the page created by the gateway company is branded consistently with the rest of the site. There is of course a cost from the gateway company associated with this.

Non hosted
If you want much closer control over the transaction, for example to add extra fraud protection, then the software on the catalogue site can do most of the work, but communication with the payment gateway ‘behind the scenes’ to get authorisation. This requires that your web server supports secure socket layer, and you will need to purchase a certificate.

Talk to your bank
Your key relationship
The key commercial relationship you have is with your bank. Your ecommerce system and the payment gateway are just passing the data on. You have to recognise that the bank is bearing some credit risk when it gives you an account. If you go to the wall, your customers are going to want (and be entitled by law) to a chargeback. The bank will have to meet this obligation if you are bankrupt.

Internet Merchant Account (IMA)
Most banks will insist on a separate merchant account for Internet-based e-commerce. In supplying this account they will place restrictions on what type of system can be used, and may supply a long and very technical questionnaire to fill in. Expect this process to take 6-8 weeks, and you may be refused if you are not an established company.

Bureau service
Some payment gateways offer a bureau service whereby they are the merchant collecting payment on your behalf. This will not be cheap, and to protect against fraud the company may hold on to your money for a significant amount of time, however this can generally be set up in 10 days or thereabouts. Refusal is much less likely.

Measurement
Measuring performance
Once the site is up and running it is important that you keep on top of how it is performing. There are a number of things you can measure:

Site traffic
How many visitors come to the site and how long do they spend on the site. What routes do they take through the site. We address this with an analytics solution. Important measures are: • • • Page impressions (the number of pages viewed) Visitor sessions (the number of visits) Unique visitors (an indicator of the number of different visitors you received)

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• • •

Average visit length Search engine referrals Key phrases used in search engines

You may hear people referring to ‘hits’. However this is a technical measure of no practical importance. It is often quoted because it is normally quite a large number and frequently misunderstood.

Conversion
The conversion of site visitors to buyers is the most important issue to understand. The web site analytics program should show you the funnel leading from the product page through to the final purchase. You can see how many people drop out at each stage of the process. If a lot drop out at a particular stage, look very closely at it.

Pay per click
If you are paying for every click you want to make sure you maximize your results. But not all key phrases are equal. For example someone searching for Flip Flyer ( a kind of Frisbee) probably wants to buy one. Someone searching for Frisbee may want to buy one, or may be looking for design ideas, possibly competition results. Someone searching for Birthday party give-aways probably wants to buy 30 items. The pay per click reports produced by Google only give a partial set of figures. Our ecommerce software is capable of recording keywords on a sale by sale basis. There are third-party products which can give very useful analyses. You should know (if the site and the PPC campaign have been set up correctly) for each keyword: 1. 2. 3. 4. 5. 6. The number of clicks over a given period The cost of those clicks The number of sales resulting from those clicks and more importantly the value The raw profit from that volume of sales Deduct the cost of the clickthroughs to compute the profitability of the PPC campaign.

If number 6 comes out negative – drop that keyword or reduce your bid. If it is positive, consider increasing your bid to make your ad more prominent and get more business from it.

Sales reports
Sales reports give further information on sales by date and product and as mentioned above by key phrase.

Abandoned shopping carts
It is impossible to say what is a reasonable percentage of abandoned shopping carts for you particular market, but if the percentage suddenly goes up – see if something on the site has changed.

Newsletter
If you elect to run a newsletter you can get a ballpark figure for opening rates. There are technical reasons why you can’t get an accurate figure. Try changing the format of the newsletter and see if the opening rate changes, some words in the subject or body (like ‘free’ or ‘special offer’) might be catching a spam filter and perhaps a lot of people are not even seeing your mail.

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Conclusion
The technology underlying the market is quite complex, and will become more so as new payment methods and web technologies come on stream. The marketing approach is also new and different. The key to success is to find innovative ways to use that technology to attract customers and build This paper is intended to give an overview of the most important concepts in electronic commerce. We can help newcomers to this field develop this exciting new sales channel.

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