E-Commerce 101

E-COMMERCE 101
The things you always wanted to know about
E-commerce but where afraid to ask.

Paul Lepa, CEO, RedStores.com

Agenda
• Introduction
• Things that you will learn
• Fundamentals of selling
• Real stores – how they work
• E-stores – how they emulate real stores
• What makes E-stores works
• Ecommerce Team
• Suitability of ecommerce for your business
• Getting Started
• Lessons from the field
• Questions and Answers

Founders Background

• Electrical Engineer with Computer Minor from Canada
– Postgraduate work in Digital Filter Theory
• Valmet Automation
– Started as a Programmer/Analyst in automation arena
– Shortly moved into Sales/Marketing Support Role
– Support Sales Department at tradeshows, technical solution
coordination
• Founded Just For Fun Compatibility at age 24
– sold 2000 copies of the software
– Direct Mail campaigns to 20,000 schools in US and Canada
• Moved to Koch Oil
– Project Manager
– Executed large pipeline software automation project - $3MM budget
– Executed number of pipeline expansion projects - $3-5$MM

Founders Background
• Recruited by Valmet Automation
to enter the sales team
– Became Senior Account executive in charge of large pursuits
– Assembled pursuit teams from cross-company
– Solution focused selling to Fortune 500 companies (BP, Chevron)
– Over 4 years, sold over $40MM of automation projects
– Worked with top level Fortune 500 companies – C level
• Recruited by ABB to headed
up a Global Pipeline Solution Unit
– Responsible for solutions for the pipeline automation worldwide
– Multi-country team
– Relocated to Mannheim, Germany in 2002
– Relocated to Beijing, China in 2003

Founders Background
• 2003 – Recognized opportunity for trade out
of China to the western countries
• 2004 - Resigned from ABB
• 2004 – 2006
– PearlsOnly grows from $40K to $3MM USD in sales
• 2007 - Begin process to convert
PearlsOnly into scalable system
– Focus away from Pearls into scalability
– Invest in R&D and high level of automation
– Invest in high level of Business Processes
– Goal of scalability
– Invested over $500K in systems and scalability processes
• 2009 – RedStores.com transformation completed
– Ready to run

Things that you WILL learn

• Learn a ‘big’ picture of eCommerce
• Make you aware of all the areas of eCommerce
• Give you ideas where to look for more
specific information – will show you books
that had influenced me
• Give you some ideas for your own venture
• Open up your imagination
• Make eCommerce „accessible‟ through knowledge
• Inspire 1 or 2 of you, to go and DO IT!

Fundamental Concepts
We are born with inherent
ability to sell.

Lemonade Stand
We are born with inherent
ability to sell.

Customers
Location
Draw the costumer

Product to sell

Store Design

Staff
Cash Register

Fundamentals of Selling Anything

Commerce:
Success is about 2 things

• Traffic –
Getting enough customers
• Conversion Rate –
Getting those customers to buy

What is traffic?
• Traffic is people
visiting your store
• Traffic is the
simple
relatively easy
to get

What is Conversion Rate?

Numbers
of Sale
(CR%) =
Numbers
of Visitors

Key Focus

Numbers of Sale
(CR%) =
Numbers of Visitors

This is our focus –
getting this person to
buy. Everything we
do from now on is
focused on him and her.

Interesting Fact
????
• Conversion Rate in Retail world is 20%
• Conversion Rate in ecommerce is 2% ????

Welcome to the E world
We must think different

Suitability of Ecommerce
When does eCommerce make sense for your
business?

Causality
• Success in physical space <> success
in ecommerce
• Success in ecommerce <> success in
physical space

Ecommerce and Retail

Retail eCommerce
Very different types of business

Ecommerce vs Web presence

• eCommerce is:
– Transacting
– taking orders
– working with customers
• Web Presence
– a web site with company info
– Office directions
– store hours
– product catalog
• eCommerce <> Web Presence
• Some businesses need only Web Presence as extension of
their marketing – not ecommerce

Brick-and-Mortar eCommerce

Customers Traffic (page views)

Location Server (hosting), cart

Draw the costumer Marketing – PPC and SEO

Product to sell Photos, Description

Store Design Site Design (Skin)

Staff Customer Care

Cash Register Payment Gateway

We have unlimited traffic
• In Retail traffic –
we only get traffic within a
certain radius and volume
the venue draws
• In eCommerce we can bring
millions of people –
there is no limit on people
• BUT can we can convert them
economically.

Differences
• Corporate site is to provide information
• eCommerce website is designed
to „convert‟ a customer right there
and right now
– Every element on a page ha a purpose
to help with conversion
– If an element is on a site – it MUST
have a purpose.

Structure of a Site
• Core Commerce Structure
(only 5 pages)
– Home Page
– Landing Page
– Catalog Page
– Product Detail Page
– Checkout
• Optional Trust Building Pages

Trust Building Pages
• About Us
• Education / Information
• Customer Care
• Policies
• References

Elements of Design
Difference between ecommerce
site and a corporate site

Purpose of Site Elements
What is the purpose of
this Element? Why tell them how many
hours?

People want it FAST – we
Being VERY specific build
want to let them know
trust
this right away

Purpose of Site Elements
What is the purpose of
this Element? Why tell them savings?

If others have done it, I must People go to internet
be ok to do it too. Sheep for savings. Specific #
effect. help trust.

Trial and Error
• There is no hard and fast
RULES for an ecommerce
design
• Must UNDERSTAND your
customer to design a site
for THEM
• Psychology of consumer
key

Moral of Trials
• EVERY element has to be analyzed
– Testing with A/B trials
– Assumptions are good – but must be tested
– Gut hunches are often counter intuitive
• Ecommerce site HAS to be designed
for Conversion.
• EVERY little element makes a difference.
• EVERY little element makes a
difference.

Factors influence CR%
• Testimonials from • Phone Number for
Customers Customer Care on site
• Reviews • Chat function
• Site Colors • High Quality Descriptions
• Trust Factor • Speed of Site
• Free shipping • Ease of use of cart
• Site navigation • Price of product
• Education Pages
• Photo Quality
and Quantity

Understanding Buyers Psychology

Sourcing – Customer View
• Needs Quality Product
• Wants to know if the
item is in stock
• Wants it YESTERDAY, but will
settle for TOMMOROW.
• Needs to find what she needs
– and it should be in stock
– NOW!

Logistics – customer view
• He wants to know
that what he ordered
will reach him.
• He want to know where it is
• When will I get it.
• How fast will it ship
• What if it gets lost.
• I WANT it NOW!

Traffic – customer view
• Take me right to what
I want to look at.
• Guide me, step by step –
don‟t make think too much
• Show up on Google,
so I feel more safe
• Let me see your site in at
least 7 difference places –
I will trust you then

Traffic – customer view
• Show up in the place
where I am looking
• Show up at the time I‟m
looking to get something
• Remind me what your site
name is again –
I can only remember last
10 minutes

Customer Care – customer view
• To buy things, she wants an answer NOW!
with no hassle. Knowledgebase.
• If there is a question that is NOT answered on
the site – customer experience already reduced –
because now we added complexity.
• BUT, if there is a CHAT she may ask a
question right there or maybe CALL.
• She may EMAIL – and be ok to wait for an answer
– but now our chances of sale are down by 60%.
• Attention span of 15 seconds.

Web Servers – customer view
• My attention span is 5 sec –
your site better show up FAST
or I will go somewhere else.
• If your site is down, I will just buy
somewhere else.
• I don’t want to see anything
that would worry me –
like a warning message about
security, or a broken link.

Payment – customer view
• I want to pay by a way
that is easy for me.
• Don‟t you steel from me
• I want to fill out as little
as possible on a form.
• Is my card going to be safe?

Marketing – customer view
• Does the site look nice
• Do you make it easy for
me to find things
• Do you help me make a decision
• Am I comfortable at this site
• Do I trust it
• Are the descriptions inspiring
• Can I get help if I need it?

IT Infrastructure – Customer View
• She would like to see tons and tons of
photos of HER product.
• Tell me ALL the little details about the
product – so I don‟t have to ask you.
• She needs to READ a LOT to help her
buy the item.
• All this info on the site better be 100%
correct – or Customer Care costs go up.

Bridging the Gap – CR%
SALE

Do you have Site makes Will I get it Will they
what I want me FAST? deliver
comfortable
Can I find it I like the Why should I
easily Do I have all pictures buy now?
info I need to
Is it in stock buy now This site sure Can I pay
loads fast easily
Price?

IT Infrastructure Sourcing

Payment Gateways Logistics

Ecommerce is:
Website Infrastructure Traffic

Marketing Customer Care

Sourcing


Ecommerce is:


Sourcing for eCommerce
• Has to be repeatable and consistent -
because of photos
• Has to be managed – ideally in real time
avoid out of stock situation – otherwise
high Customer Care Costs
• Available for FAST shipment
• Need to have minimum quantities –
otherwise to expensive to photograph


Logistics

Ecommerce is:


Logistics
• Label Printing
• Tracking numbers – needs to integrate
with website
• Backorder Management
• Invoice generation
• Shipping Documents
• Personalization – certificates, letters, VIP
• Communicate back to the customer



Ecommerce is:
Traffic


Traffic Sources
• Google
• Yahoo
• SEO
• Blogs
• Social Media
• Repeat Business

Traffic
• Use Google and Yahoo and others –
create landing pages to take customers
right where they want to buy –
its cheaper to advertise
• Show up consistently,
build trust through predictability
• Natural Search Engine results give credibility
• BUT PPC and SEO buyers are
different segmented
• SEO success does not mean PPC
can be stopped

Return Traffic
• First time to acquire customer can be
from $20 to $100.
• 2nd time – its $2-$3.
• Methods to keep them coming back:
– Loyalty programs
– Newsletters
– Social Marketing
– Product rotation



Ecommerce is:

Customer Care

Customer Care
• Requires strong set of
Policies and Procedures
• Phone support good for high ticket (VIP)
customers – otherwise expensive
• Email is very good – requires a strong
Customer Care Ticket Management System
• Knowledge Base – focus to reduce Customer Care
costs by constant improvement on site and FAQ
• Return Handling – easy,
traceable and care free

Customer Care
• Online Chat is good – requires
higher Customer Care People
• Outsourcing to India – yes – but
need to be a big size – and have
VERY strong SOP‟s



Ecommerce is:

Marketing

Marketing
• OnSite Marketing - images
• Traffic – getting people to visit
• Pricing – compelling prices
• Product Selection – sufficient not to loose
traffic
• Return per customer (loyalty)
• Analytics - looking at the numbers to
understand behavior

Marketing
• Everything to do with user
experience
• Colors, photos, descriptions, spe
cs, ease of use, etc.
• Loyalty programs and CR%
focus

Reporting Tools
• Poor performing product
identification
• Total Sales
• Sales by Category
• ROAS (Return on Advertising Spent)
• Cost per order
• Profit Per Order
• Historical performance – with tuning

Analytics
• Core purpose: to allow you
to ‘see’ your site.
• No true equivalent in “real world‟
• Your eyes and ears on a site
• Primary tool for „tuning‟ a website
• Person ‘tuning’ a site begins
the site ‘through’ numbers



Ecommerce is:
Website Infrastructure


Web Site (Cart)
• Server – owned, hosted or cloud
– Backup of server
– Redundancy
– Security Patches
– Performance very important
• Shopping Cart Software
– 1000’s to choose from
– Choosing one depends on features,
cost, ease of maintenance

Payment
• Need to be able to accept
payment
– Paypal
– Google Checkout
– Amazon Checkout
– Many others
• Require integration with Cart
• Each payment method means
higher Customer Care costs

Payment
• Chargebacks –
fraudulent charges
• Fraud Detection –
you are responsible
• Banking to accept payment –
especially challenging in China

IT Infrastructure


Ecommerce is:


In-house IT Infrastructure

• Product Management
• Order Fulfillment
• Inventory Management
• Reporting

Product Management
• Product Management
– Pricing tools
– Image Management
– Integration with Web Servers
– Description management
– Specification Management

Sourcing

IT Infrastructure Logisticst

Payment Gateways Website Infrastructure

Traffic Customer Care

Customer Care Marketing

Ecommerce Team
• In startup stages its possible
to find a person that can handle
multiple functions
• However in general, most people
tend to be SPECIALIST
• Some positions only require 10-20%
of a person – hence the challenge
of large overheads and under
utilization of resources.

Suitability of Ecommerce
for YOU
Do YOU have the rights skills
If not, can you hire the right skills:

Online business ideas
• Retail Goods –if you are saturating local
physical market, or not able to expand physical
territory.
• Services – booking a driver, cleaning, translation, etc.
– can replace office with online office.
• Restaurants – enable delivery and market
reach since restaurant ‘radius’ is small.
Requires AMAZING execution – 100%
reliability.
• Consulting – moving services traditionally delivered in
real space into virtual space.

Skills Sets
Physical Space eCommerce
Sourcing YES YES
Store Design Designer Graphic Designer
Store Construction Building Contractor A whole team
Product Visual cues – Depend on analytics
Merchandising use your eyes and numbers

Inventory Out of Stock Not there – cannot sell it Need to have good inventory
management system

Photography Not required MUST – and must be good

Descriptions Not required MUST – and must be good

Specifications Not required MUST – and must be good

Skills Sets
Physical Space eCommerce
Staff Yes – need training Yes – need training – must
be computer able

Store Security Yes – physical Yes – virtual – hackers

Payment Yes – if cash low risk, credit Yes – higher risk
card also lower risk

Advertising Just being there If you don’t promote
gets traffic. no chance for anyone to
show up

Getting Started
Boot Strapping Scenario

Options to get started
• Entry Level – Amazon Market
Place, Ebay, PayPal, Amazon Shops,
other low cost carts. No identity
• Mid-level – better carts – more features.
Identity hard to establish
• High level – Miva, open
source carts, etc.
• Expert-level – grown your own
(Amazon level)

One Time Costs
Entry Level Mid-Level High-level

Cart Software $0 $500 $200
Help Desk Software $0 – email $0 - email $400
Order Tracking and Fulfillment $0 – part of offering $0 – spreadsheet, list, etc. $5000

Site Design $0 – minimal branding $1000 $20,000
Product Management Software $0 – web based $0 – web based $5000
Customer Care Policies $0 – wing it on a case by case $0 – wing it on a case by case $5000
Photography $0 – do it with your own camera $5/photo – $2500K $7500
Descriptions $0 – get creative $5/photo – $2500K $7500
Product Specifications $0 – bring out the ruler and scale $0 – do it yourself $5000

Traffic – setup Google, Yahoo Learn the basic in two weeks Outsource to India - $500 $5000

Stock Product dependent - but need Product Product
samples Dependent – but need samples Dependent – but
need samples
Project Management $0 -Its only you $0 – Its still only you $80K
Development Engineers $0 – no need $2000 – likely need some help $100K
Total $0 $8500 $325K
Expected Results Don‟t count on too much – price $100K to $200K/year in sales $1MM-$3MM/year
based marketing - $50K/year possible possible
What you can handle 5 – 10 orders a day 10-20 orders 400 order/day

Operating Costs
Entry Level Mid-Level High-level
WebMaster $0 – no need $500 $5000
Customer Care Staff $0 – its you $1000 $3000
Fulfillment Staff $0 – its you $1000 $4000
Site Changes (Designer) $0 – not really $500 $1000
possible
Product Changes (DB Manager) $0 – its you $0 – its you $1000
Reporting and Analysis $0 – its you $0 – its you $1000
Photography $0 – do it with your $5/photo – $200 $500
own camera
Operations Manager $0 – its you $0 – its you $3000
Marketing Spend Learn the basic in two Outsource – 15% of spend $4500
weeks - $500
COG Product dependent Product dependent Product dependent

Shipping Product dependent Product dependent Product dependent

Payment Processing 3% = $100 $3% – $500 $1500
Total $100 $4200 $25,000
Expected Results 80-100 hour week $100K to $200K/year in $1MM-$3MM/year
sales possible possible
What you can handle 5 – 10 orders a day 10-20 orders 400 order/day

Low COST site =JOB
• The $100-$500K in sales is a good job.
• You have to work at the site every day and do all the
work BUT
• You can probably manage 50%
Gross Margin ie. $50K to $250K.
• Low investment – 1 or 2 staff.
• Not really a 4-hour week –
still have to work JOB.
• Need some skills BUT not necessary to be expert

One Page Long Copy
• I’m a secret fan of one page
long copy sites.
• One product
• One Person
• Outsourced everything
• $5K to get started
• Could generate $500K to $1MM in sales
• Example: www.easywebvideo.com

Mid-tier Sites Challenges

• Cannot do it yourself anymore
• HR / people / management/ reporting / etc.
– all the business stuff comes into play
• Now you are not only a site operator
but also need to be a manager.
• High failure rate – 9 out of 10 fail.
• Choose to grow! –
don’t let growth happen on its own
• Know the risks – understand your own skills

Lesson from the field
• Its about two things – traffic and CR
• Ecommerce is 100% different than
retail
• The work is never done – ie.
This is not a one time project.

Version 1.0

Bootstrapping PearlsOnly

Version 2.0


Version 3.0


Version 4.0


Version 5.0


Version 6.0


Version 7.0


Lesson from the field
• Ecommerce is efficient at small scale -
$500K-$1M in sales – but it’s a job.
• The $1-$5M in sales – is awkward
time – teenage years – infrastructure costs
are high – volume not so high.
• $5M+ - infrastructure costs become
small compared to volume.
• Staying small in ecommerce space is not a
bad thing – its profitable

Questions
And Answers!
(hopefully)

Presentation
Available at paullepa.com

Example
• Baby’s supposed to increase
conversion rate on a site
• Picture of owner supposed
to be 2nd best
• 3rd best is a picture of
a smiling person
• Tried the PICTURE of OWNER strategy

Example of trial and Error

• We tried the owner ‘angle’ –
of featuring me on the site

Conversion Rate
dipped by a LOT

Suspected
Reasons:
- No smile
- Angle head on to
aggressive
- Too sexy for women
– got distracted

Trial one Learning

Conversion Rate
dipped by even
LOWER

Suspected
Reasons:
- Angle of face
“pushing” people
away from the page
- The Pearls not
flowing down
- Pearl Strand too long

Trial two Learning

Conversion HITS
BOTTOM

Suspected
Reasons:
- Smile looks little
angry
- Angle to direct
- Not playful enough

Trial three Learning

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