Never mind the profits, feel the branding

While internet companies are concerned with marketing and branding, many bricks and mortar organisations have moved on to the business of making the web profitable, according to a report - Getting to grips with ecommerce - published by analyst Neaman Bond Associates.

"Traditional companies understand retail, they understand systems and technology - and they aren't sitting back watching their business being taken away," said Graham Brown, director of Neaman Bond.

Branding is the top management issue for 91 per cent of dot coms, whereas 71 per cent of bricks and mortar companies cited profitability as their single largest concern. This difference in outlook is borne out by the balance sheets: internet based companies typically spend 76 per cent of revenues on marketing a website - the figure for old economy organisations is only 13 per cent.

Thanks to brand equity, epitomised by the fabulously successful brand building of Coca Cola, bricks and mortars pay less to acquire online customers.

Multi-channel retailers (those with both physical and virtual channels) spend $22 (£14) acquiring each new customer, almost half the $42 (£26) cost for pure internet companies, says research carried out in 1999 by Shop.org. For dot coms less than a year old, this figure rises to $108 (£68).

Marketing to the customer
Retailers such as Asda, Tesco and Nationwide performed particularly well in the Neaman Bond report. What differentiates these organisations from other bricks and mortars is that they are migrating their existing brand onto the web. "These organisations have the first layer in place - the ability to market a brand to the customer," said Brown. "What differentiates these companies from Gap or Marks & Spencer is that they have extended the functionality of their site."

But while bricks and mortar organisations have an important lead in e-tailing, there are areas where they are still vulnerable to attack. Some early attempts at online sales have yielded poor results, when retailers attempt to graft direct-to-consumer delivery onto systems designed for shipping truckloads of stock to stores. According to investment bank Warburg Dillon Read, the total average customer return rate for goods bought over the internet from European bricks and mortar companies was 11 per cent last year, compared to nine per cent for pure internet companies and six per cent for catalogue companies.

Bricks and mortar companies risk losing out when it comes to actually retaining the customers they acquire so cheaply. According to Neaman Bond, there are seven factors necessary to maximise customer retention, ranging from automated email responses to visitor identification. Some 50 per cent of pure internet companies can identify a returning visitor, but only 16 per cent of bricks and mortar organisations could do the same. Similarly, 69 per cent of dot coms can take orders online compared to 36 per cent of bricks and mortar retailers.

This explains their fear of more advanced US internet companies with the ability to recognise and market to individual customers. Only 10 per cent of traditional firms and 13 per cent of dot coms have implemented software which recognises returning visitors and have responded to them individually. Dot coms are also waking up earlier to the need for personalisation and on-the-fly changes to a site.

While two-thirds of pure internet companies could make changes to a site instantly, fewer than half of bricks and mortar companies could respond in 12 hours or less.

Customer retention
By not making these changes to IT systems, traditional organisations not only risk annihilation at the hands of US e-tailers, but face a gradual erosion of their advantage over European internet players, whose higher retention levels will offset the higher cost of customer acquisition. Some 60 per cent of dot com organisations surveyed were happy with levels of customer retention, compared to only 45 per cent of traditional retailers.

Bricks and mortar organisations willing to make these changes will be handsomely rewarded. It is simpler for a traditional retailer, with experience of complex IT systems and managing software rollouts, to integrate customer relationship management and personalisation packages into websites. Pure internet companies see systems complexity and a lack of skills as the biggest potential inhibitor to success.

So far, sheer geography has insulated the UK from the worst effects of the time lag in technology adoption, but this gap is narrowing rapidly. To combat this, UK retailers must invest in customer intelligence.