The number of American households shopping on the Internet is increasing every month. In the month of February, 13.5 million households shopped online compared to 13.3 million in January. Per person spending increased from $228 in January to $308 in February (Enos, 2001). Old Economy companies have taken notice and are moving quickly to embrace this new sales channel. These companies realize that the use of the Web will help to cut costs, find new customers and keep the ones they have (Schoen, 2001). A recent survey by InformationWeek Research found that 65% of respondents say the percentage of their company’s total revenue being generated by E-business grew in the past twelve months (Murphy & Heun, 2001). Developing a company website can be expensive. A small site with 25 pages can cost more than $200,000 and larger sites with hundreds of pages can easily exceed a total of $1 million (Jarvis, 2001).
This does not even include costs to handle customer service, product fulfillment, marketing, transaction security, payment services, and site maintenance. To save money, many of these companies are outsourcing their E-business activities to New Economy companies called Commerce Service Providers (CSP). One particular CSP that I feel is the leader at helping companies grow online sales is called Digital River based in Eden Prairie, Minnesota. This term paper will show how Digital River is so effective in helping Old Economy companies market and sell their products over the Internet. DIGITAL RIVER SERVICES. Defining what a CSP does is becoming more difficult as these companies continue to add to their offerings and change their scope. A general definition of a CSP is a vendor that supplies the system and services to establish the infrastructure for E-businesses. This can include processing secure transactions; collecting payments and issuing e-mail receipts; managing customer relationships; and fulfillment processes (Nesdore, 2001). Digital River is one of the best examples of a CSP that has extended its reach.
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To gain an understanding of what services Digital River offers, I have included the following paragraph from Digital River’s website. “Digital River, Inc. is a Commerce Service Provider, providing over 8,000 companies with e-commerce solutions. The Company’s front-to-back E-commerce services include site development and hosting, order and transaction management, system integration, fraud screening, product fulfillment, e-marketing, and customer service…The Company was incorporated in 1994 and conducted its first online sale through a client’s Web store in August 1996. Digital River’s proprietary commerce network server (CNS) technology serves as the platform for the Company’s solutions. The CNS incorporates custom software applications that enable Web store authoring, electronic software delivery, fraud prevention, export control, merchandising programs, and online registration, and features a database of more than 100,000 software and digital products”(DigitalRiver.com, 2001).
As one can see, Digital River offers many E-business services. I will discuss two specific Digital River services that help grow a company’s online sales: digital and physical fulfillment services; and merchandising and analytical marketing services. I will also discuss how Digital River is handling increased public concerns about privacy issues with online shopping. DIGITAL AND PHYSICAL FULFILLMENT. Online product fulfillment costs tend to be large and will create major cash flow headaches to those companies who have not already built the infrastructure nor have a core competency in this area (Mahoney, 2001). Digital River has spent millions of dollars over the past few years building such an infrastructure. Digital River simply rents out the use of and the expertise in operating this advanced infrastructure for a fee much lower than what a company would spend using an internal IT department. The burden and cost of constantly upgrading the system are on Digital River. If the company decides to end its E-commerce activities, it can walk away without having spent a large amount of upfront money.
PRODUCT FULFILLMENT. Digital River handles the entire product fulfillment cycle. They streamline the interaction among a company’s manufacturers, distributors, resellers, dealers, and retailers into entirely online processes and will manage any third-party fulfillment providers. They also have the ability to meet all customer’s unique needs with a pick, pack, and ship functionality or bulk shipping if desired. This whole process adds to the quality of service that companies must offer their customers. PRODUCT RETURNS. Synonymous with product fulfillment is the handling of returned products. A key to customer retention is customer service (Mahoney, 2001). The ability to easily return an unwanted product is part of the entire customer service experience. In my own personal experience of online shopping, I find it difficult to understand the return policies of Web sites. For the return policies I do understand, I find the procedures complex. On the other end, companies find it difficult to manage product returns. Digital River simplifies this process by a system that provides a “returns information sheet” to customers via a server-based Java servlet, which approves or rejects returns based on manufacturer information.
The system can provide a shipping label and bar code to ship materials back to a receiving port, which scans the code to log the return (Nelson, 2000). As one can see, this managed returns system is a value-added service that companies desire to identify to their products. DIGITAL DOWNLOADS. Digital River has made its name on being the largest provider of software downloads over the Internet. Digital delivery eliminates many of the costs that exist in the physical distribution chain, such as manufacturing, packaging, shipping, warehousing, and inventory costs. These reduced costs increase margins for the software publishers and online retailers. Digital downloads also solve the shelf space problem which can constrain product availability and sales. The adoption of broadband technologies such as fiber optics, cable, DSL, T1 lines, satellite, and wireless will increase the market size of users of digital downloads. Today ten percent of all Internet users utilize broadband technology and this number is growing at a robust rate (Gosselin, 2001). The cost savings of digital downloads is one most companies will look to use in the future as broadband usage reaches critical mass.
E-MARKETING. The rise of the Internet has resulted in the largest paradigm shift in marketing since direct marketing one-upped mass marketing in the 1970s and 1980s (Wilson, 2001). The Internet shifts control from the marketer to the consumer. Internet users choose what they want to see and how long they will see it. New technologies capture data on consumer preferences and habits in order to build profiles of individuals. That allows marketers to serve up the right product at the right time to the right person, instead of forcing the consumer to surf through a site to find items of interest (Wilson, 2001). This results in marketers moving from push marketing to pull marketing. Digital River offers expertise in Internet marketing that helps companies address this problem.
DIGITAL RIVER’S E-MARKETING SERVICES. The E-Marketing service of Digital River helps their clients manage the risks associated with E-commerce. Manufacturers are good at making products but are lousy at most forms of E-commerce (Leibs, 2000). Digital River helps manufacturers and software developers to develop online sales plans, then build, and execute programs that meet agreed-upon growth objectives. Typically, clients using Digital River’s E-Marketing Services show increases in revenue up to four times over non-users of the services (Business Wire, 2001). To get the best results, Digital River recommends that companies combine offline-marketing tactics with a variety of online tactics. Some of the online tactics Digital River has expertise in and how they help the company’s online businesses will be discussed.
E-MAIL MARKETING. E-mail is a strategic tool for driving website traffic, facilitating transactions, attracting new customers, and retaining existing ones (DigitalRiver.com, 2001). Digital River helps with the development and execution of the e-mail marketing campaign. They help analyze buyer information and help develop specific offers to those buyers. They handle the deployment of the e-mail campaigns and then analyze the response rates to these offers via their Enterprise Campaign Management (ECM) system. ENTERPRISE CAMPAIGN MANAGEMENT (ECM). With ECM, Digital River helps a company target the best performing segments of their market. A Web-based interface allows the client to define, create, and submit their campaigns entirely on their own time. The client can target the best offers to their high-performance segments and then sample the effectiveness of this campaign. The ECM service tracks e-mail delivery statistics such as bounced messages, gross circulation, and “buy” and “no buy” responses. Follow-up campaigns can be automatically launched based on pre-defined consumer action. All this allows a company to have tremendous flexibility when designing and executing an online marketing program.
AFFILIATE MARKETING. With affiliate marketing, Digital River enables a companies Weblink, such as banners and text, to be added to a select group of sites. Visitors to those sites can then ‘click through’ to access specific areas on the company’s site. Digital River currently has an affiliate network of over 500,000 sites in which to link a web address. This gives the companies products and services greater marketing exposure to a larger buying audience. Jupiter Communications predicts that by 2002, 24% of all E-commerce revenues will be derived from affiliate programs such as Digital River’s (DigitalRiver.com). CROSS-SELLING AND UP-SELLING. Salespeople are trained to maximize revenue by suggesting complementary or enhanced versions of products that customers may not otherwise request or purchase. Online, the absence of a salesperson might result in wasted sales opportunities. Digital River’s proprietary, rules-based cross-sell and up-sell solutions help maximize sales by automatically presenting customers with applicable complementary or upgraded products. Digital River even gives companies the option to extend cross-sell and up-sell products beyond their own inventory. This service enables companies to not miss revenue growth opportunities.
PERSONALIZATION. One characteristic of online selling is that face-to-face customer interaction is missing. This interaction is critical in relationship marketing. To accomplish this customer interaction, individualized communication must be performed. Digital River achieves this by using customer purchase histories and cross-selling opportunities to communicate special promotions to the customers that want them. This lets the customer know that a company values their business, understands their needs and that the company’s products can meet the needs. This practice of relationship marketing helps develop loyal customers, which leads to increased revenue. Even with all the success of these E-Marketing programs, CSPs still face pitfalls when it comes to privacy issues associated with online marketing.
ONLINE PRIVACY ISSUES. Companies that perform marketing activities over the Internet have come under fire recently for a practice called “profiling”. This practice is the tracking of Web users as they move from site to site to determine individual interests (Roberts, 2000). Many shoppers appreciate the personalization marketing they receive when they visit e-commerce sites but are disturbed that marketers are documenting their every move online. The concern is what happens to this personal data after it is captured. Is it sold to unscrupulous marketers who will inundate their e-mail box with spam (Roberts, 2000)? How companies handle the publics’ concerns is key to making Internet shopping a positive experience.
SPAM. The term spam is bandied about a lot when it comes to e-mail direct marketing. Spam is the indiscriminate sending of e-mails to a large number of people for the purposes of advertising. Few people like spam because it wastes their time if the message is of no concern to them. E-mail marketing doesn’t have to be spam if the message is not intrusive. Many list brokers use opt-in lists. Consumers only receive ad e-mail if they request it. Response rates for e-mail direct marketing messages are higher than those sent by snail mail (Harris, 2001). Currently, a number of bills concerning unsolicited e-mail and privacy bills related to e-mail marketing and e-commerce are being considered in Congress (Goldstein, 2000). Digital River has adopted an e-mail marketing policy that I feel will not infringe on public and congressional concerns and will remain an effective marketing tool.
SUMMARY. In order for companies to succeed in online selling, a solid Internet infrastructure must be used and core competency in online management must be achieved. Old economy companies who do not have the resources to accomplish this have a choice. They can outsource their online activities to Commerce Service Providers. I have presented the justification for choosing one particular CSP called Digital River that I feel is the best. By offering digital and product fulfillment and E-Marketing services, Digital River helps companies grow their online businesses to maximize revenues while eliminated risks that non-outsourcing companies assume. As more and more business is being performed over the Internet, companies who are aware of and then utilize Digital River’s services will survive.
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