By Stephen J. Morgan

Wharton Alums Offer Lessons from the Trenches

The good news about other people’s mistakes is that important lessons can be learned at a comfortable distance. Consider the dot-com mania of the late 1990s.

“Expectations were totally out of line” on the part of many entrepreneurs scrambling to establish presences on the Web, says Brett Hurt, WG’99. For one, people launched e-businesses simply to make money instead of identifying a market need and trying to meet it, Hurt says. Venture capitalists encouraged the frenzy by indiscriminately throwing cash at what they hoped would be the next big thing. Even worse, people who should have known better thought that the Internet had fundamentally changed the rules of business.

“I’ve had a lot of friends who started businesses that didn’t work out,” says Hurt, founder and chairman of Coremetrics, a San Francisco-based company that collects and analyzes data to help companies improve how they interact with online customers. “They had negative net margins. People assumed that was OK because they thought the Net changed everything.” One e-business, he recalls, sold goods below cost, figuring it could make up for the loss by selling online advertising.

With that kind of thinking, many dot-coms have gone by the wayside since the Great Shakeout of 2000 and 2001. And now the pendulum of opinion may have swung too far the other way, with e-business fever giving way to doom and gloom in the minds of some about the value of e-businesses. That, says Hurt, is a mistake that can be just as dangerous as too much optimism. “These days people say the Internet hasn’t changed anything, and that’s not true either.”

The truth is that while the Internet has not eradicated the basic rules of business, it has changed business a great deal. Hurt and other alumni and faculty say smart companies have come to realize that a Website is a channel – an essential channel – to reach customers. It is nothing more or less than that. Once they accept that premise, companies can focus on how to make their sites effective in attracting and satisfying customers, cutting costs, and getting the highest return from their online investment.

To operate a top-notch Website, companies must first understand what a site can do. Peter S. Fader, associate professor of marketing, says sites serve several functions.

“First, it’s a store shelf, but of course it’s more than that,” says Fader, who organized a conference at Wharton in the spring of 2001 on the topic of “conversion” (getting an online customer to purchase an item or engage in some other desired activity). “It’s also an advertising medium. It’s an automated customer-service interface. And it’s an internal device to be used by employers and employees. And what’s great is that it can be all those things at the same time. Companies that treated their Web presence as something different from their off-Web space made a big mistake. Some still are. A Website is just another customer touch-point.” In and of itself, a Website can never serve as a magic wand to conjure up easy profits, says Fader. “The Web is a distribution channel. How many companies can make money on a distribution channel? You make money on the products you sell.”

During the early, heady days of Websites, many thought the Internet would create relationships between companies and customers that had never existed before. “Companies thought people would come to the site and hang out there and converse with other people, and talk about products and services, and buy more stuff,” says Fader. “In many ways, the Web was supposed to revolutionize the way consumers behave and the way companies maintained contact with them. So, companies threw resources at Websites. But what they found was that customers are going to act randomly and not engage in conversations. Most of these community-building efforts failed.”

Fader and alumni say sites must be designed to achieve different goals for different companies, depending on the nature of the enterprise. The chief goal of a book and CD retailer is to sell books and CDs. By contrast, an auto manufacturer cannot expect to sell many cars online, but it will want to use the Web to drive customers to show-rooms. “It really depends on what the site is looking to achieve for the overall company,” says Katie Cheng, W’92, who developed and built, a cosmetics site, before assuming her present duties as director of marketing at, a clothing retailer. “For some, the purpose is to drive names and e-mail addresses to build contacts and eventually forge relationships. For others it’s a form of advertising to build awareness and brand presence. For still others, it’s a form of information for customers so they don’t necessarily have to call an expensive, live client-contact center for information.”

Cheng says the ultimate purpose of sites that are solely devoted to e-commerce is to drive sales and build loyalty. An e-commerce site should introduce customers to a brand, entice them to make initial purchases, bring them back for repeat buys, and attempt to ensure that they buy more from a company than they would have had the company not had a Web presence.

Cheng says research has shown that customers who buy from a company’s Website in addition to buying items at its stores will spend more money overall with the company each year. She says companies used to worry that online sales would only “cannibalize” their in-store sales, but this fear is unfounded because the site is just another channel. “Does it really matter where they spend the money, whether online or in the store?”

“Everyone is worried about cannibalization, but we don’t have any evidence that our site has been affected by that,” says Ann L. Meyer, WG’00, marketing manager at Zagat Survey LLC, a New York firm that publishes guides to restaurants in 45 cities worldwide, as well as guides to travel, marketplaces and nightlife. “We think our site has done more to inform people about the breadth of our products.”

Meyer adds: “In my mind, the Net has changed the way we all behave. A successful site changes the way we use information. Our books have mostly the same information as our site, but the site allows you to search for information in different ways. You can search for restaurants on the Upper West Side that take credit cards and are open on Sunday and are pet-friendly. That’s the kind of thing you can only do on the Internet.”

The alumni and Fader say successful consumer Websites have these elements in common:

  • Sites exist for a compelling reason and advance the company’s overall strategic plan
  • Sites provide clear, pertinent information; content and navigation paths are aligned with the site’s goals
  • Navigation from one part of the site to another is simple, almost intuitive
  • Customers can shop quickly and check out fast, with the fewest number of clicks possible
  • Prices and shipping costs are transparent
  • Customers’ questions are anticipated in frequently-asked-question (FAQ) sections or personally by e-mail
  • The site is secure and privacy is ensured
  • Sites do not include content that takes an inordinate amount of time to load onto visitors’ screens
  • Content is updated as frequently as necessary so that the site is fresh, but not so much that it confuses visitors
  • Companies get to know the people who visit their sites and identify those who will have the highest lifetime value to the company.

“Those sound like simple goals, but when you look at the Websites out there you can see that people still have quite a long way to go to make customer experiences good,” says Anne Estabrook, WG’93, vice president of marketing and corporate strategy at NetGenesis, a Cambridge, Mass. firm that analyzes e-metrics for companies. Estabrook says surveys have shown that most visitors are unhappy with their Website experiences. “User experiences,” she says, “are still evolving.” In the case of so-called “clicks-and-mortar” Websites – those operated by companies that also have regular retail stores – customers are “looking for a seamless integration with your traditional establishment, so that your site still seems familiar when compared to their offline experiences,” Cheng says. “That means product selection is comparable, prices are the same across channels, returns are accepted across channels, and the information and service you get are equal across channels, to the extent that it’s possible.”

Sharon Fordham, WG’77, has had extensive e-business experience. Before being named chief executive of in January 2001, Fordham spent nearly 20 years at Nabisco Inc. Among her titles: president of LifeSavers Co. and president of global e-business.

In the 1990s, Fordham and her team explored how they could best use the Internet, which was just beginning to be developed for commercial purposes. They decided not to create any sites that would be devoted to single brands because they felt the sites would not generate sufficient traffic to warrant the cost of their development and maintenance. Instead, Nabisco launched two sites, in 1997 and in 1998. The sites offer free online games, recipes and information associated with a variety of Nabisco products.

“We were trying to extend brand image and create brand awareness of products, which we believed would ultimately lead to the sale of products,” Fordham says. “We did tracking surveys, and frankly the jump in attitudes and brand awareness were tremendous. We did interviews before and after the sites went up and found that the changes in brand imagery were very positive. The increases were more significant than any offline test I’ve ever run in other media. That’s a bold statement but it’s true.”

Fordham says both sites went on to become “powerhouses” for Nabisco, with six million unique visitors and more than 100 million page-views per month. “It’s all branded content. When someone’s playing a game, it’s all with branded messages going on. When people say you can’t brand on the Internet, don’t buy that. It’s definitely not true.”

As companies transform their Websites from static brochure-ware to something more interactive, they need to know how to gauge their effectiveness. “E-Metrics,” a study published by NetGenesis and Target Marketing, of Santa Barbara, CA, found that even the best-run Websites “are inundated with data yet lack the necessary people, technical resources, standard definitions and domain expertise to extract much of the critical business value out of this data.”

Estabrook says many companies “raced to get a Web presence” in the 1990s. Only later did they realize that they had to take a structured approach to analyzing what their sites could achieve for them and “align” the sites to meet corporate needs.

These days, the sluggish economy is another factor in forcing companies to take a closer look at their sites. “All of a sudden people have to be more careful where their budgets are going,” Estabrook says. “Before, people would spend quite freely. They were doing Super Bowl ads on TV to drive people to their sites. Now they realize, ‘Gosh, I’ve got to quantify what’s going on here.’ They see the Web in tandem with more traditional channels and there’s a demand for a return on investment” from money spent on sites.

Estabrook says the core of NetGenesis’ business is “clickstream analysis” – understanding and collecting all clicks that occur on someone’s site and aggregating that into useful information. “We then take that a step forward to help businesses understand reach, conversion and retention.”

Fader points out that one of the frustrations of traditional bricks-and-mortar retailers has been their inability to learn much about individual customers. A woman who walks into a store and buys a pair of gloves is as anonymous when she leaves as when she arrived. Why did she choose your store? Did she do comparison-shopping at the store across the street before coming to see you? Has she ever visited your store before? The Web is beginning to shed much light on this subject.

“You can now measure clicks and the resulting behavior of customers rapidly,” says Estabrook. “You have behavioral data that you don’t have with the offline world. In the offline world you know someone bought something. But on the Web you know whether customers did comparison-shopping before they bought from you. You can also know if they came from a competitor’s site. This gives you the ability to segment and understand more about your customers. For some retailers, we can do great segmentation. We can tell them that black mock turtlenecks sell well in the East but not on the West Coast. That comes from being able to correlate all those clicks. That’s important not just in how you optimize your Web business, but also for how you’re touching customers in your offline channels.”

Hurt of Coremetrics became interested in e-metrics while he was studying for his MBA. He and his wife were running an e-commerce business that sold nutritional supplements and they had lots of questions. “I had no idea why things were sold online,” says Hurt. “So I built the initial technology” for e-metrics.

Coremetrics provides clients with what Hurt calls a “data warehousing solution” to e-business problems. “We grab and analyze all online behavior by customers and prospects,” he explains. “We deliver that as an out-sourced service for clients as opposed to an enterprise software solution. We can capture a client’s data in the most direct and comprehensive manner. We then provide the tools to analyze that data and the consultants to help clients interpret that data.”

Coremetrics helped one company figure out why many of the visitors abandoned its site without buying anything. “We learned, click by click, that a lot of people were confused,” Hurt says. “They kept hitting the back button. Something like 54 percent ended up not buying the product they were searching for,” which people in the e-metrics business call the “abandonment rate.”

The culprit? Poorly worded language on the search page that left people uncertain how to proceed. It took two days to change the text. After that, the abandonment rate fell to 18 percent and revenue generated by the search page increased by $20,000 a day. What changes do the alumni see taking place in the online world in years to come?

The increase in bandwidth in an increasing number of homes will enable customers to log on faster, download information more quickly and move from Website to Website more nimbly. “There is lots we could do if technology permitted it,” says Meyer of Zagat Survey. “We’d love to put better images on our site, but people with phone lines would curse us for that. But as bandwidth expands, we could have heavier pages (with photographs and other densely packed information). We could also use the site to collect more voter data (from visitors who cast ballots on the quality of restaurants and hotels) that would make our process more efficient.”

E-tailers will also refine the way they try to tailor their product recommendations to individual shoppers so that a customer who buys a one-time gift for a baby is not inundated with recommendations for similar purchases in the future.

“Personalization is a huge area that has not been adequately exploited,” says Meyer. Estabrook agrees: “People will get more savvy about the most important thing – knowing the customers who come to their sites – and tailor content and advertising to target segments and, perhaps to the extent it makes sense, to the individual. You can do that now (to some degree), but many people still don’t have a fundamental, segmented understanding of the prospects who are visiting their sites right now.”

The “E-Metrics” study says companies with Web presences are struggling today “to compete armed only with customer profiles that cover such minimal data as gender, zip code, number of visits, and a few preference elements. Tomorrow, we will focus more on the interaction rather than just the information delivered through the interaction. Customer profiles will include information on how much customers know and how they like to communicate.”

Moreover, privacy concerns will dissipate as more people grow accustomed to Web use, and the online world will encompass wireless technology to a greater degree. As time passes, online shopping, marketing and communication will become even more ubiquitous than it is today. Even now, for many people the Web is as commonplace as – dare it be said? – an old-fashioned, non-interactive telephone directory.

Says Fader: “Let’s not judge the impact of the Internet based on stock prices [of e-companies] or how much stuff has been bought and sold on it. Let’s base its impact on whether it’s being used like the Yellow Pages. It really is becoming ingrained in the fabric of our lives. That’s very hard to quantify, but it’s unmistakable.”