Customer Service -- And Profits -- Key To Continued Success Online

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TWICE: Now that you've all enjoyed a stellar fourth quarter, what's next? How do you keep the momentum going?

SADOWSKI: I would say that the momentum is there. More and more people are going online, and a higher percentage of people who are online are choosing to shop online. That's a fact. So this is really our game to win or lose. And the key to how we manage this growth is going to be how we serve the customer.

Most of us at this table are largely responsible for the reputation of e-commerce and consumer electronics in the world of the consumer. There was a lot of negative press over Christmas about e-commerce sites coming apart at the seams, delivering very poor customer service, or having customer return policies that were confusing to the consumer and difficult to execute.

I think a dedication to that customer service function through fulfillment and accurate information is going to be key to maintaining our reputation as being responsible to the consumer. And if the general public believes that we're doing a responsible job of serving the customer, we'll be able to ride that momentum a long, long way.

At 800.com we're choosing a very personal approach to the consumer in terms of having product specialists on call for live support on a one-to-one basis. Not only by telephone but also with live online support. Most of us here are spoiled in that we don't have to disconnect the computer to pick up the phone and call in. But there are an awful lot of people who have to get offline, pick up the phone, call the 800 number, reboot, and get back online. So we feel that online interactivity is a key component of customer support going forward.

LAWRENCE: I'd say that the momentum will definitely be there for the next couple years.

TWICE: So this is more than just a novelty or fad?

LAWRENCE: Once they try it, they're more apt to do it again. We've all talked about customer service. If we're true to our word that that is the key to this thing, then, yes, it will continue to grow.

PAYNE: The single biggest thing that you can do to guarantee growth in Q1 has already been done, and that was how you performed in Q4. Word of mouth absolutely fuels growth in our business. And it is the brand, the trust, the customer service, and how you execute the promise you made that will fuel your growth.

JEANS: I agree about the importance of word of mouth. But the other thing we're doing by creating satisfied customers is that we're creating a bunch of customers who presumably should be more willing to come back and transact with us in the future. We need to be proactive in doing that.

If we're able to sell someone a home satellite system, and they're satisfied with the new world of video that has opened up to them, then they're going to hear from us about ways to enhance that experience, whether it's with a DVD player, a home theater system, or other ways to expand on the initial purchase.

HODGSON: The real challenge for many companies is how this can be done profitably. The only business that's going to matter is what's sustainable. There are ample examples of companies that are way overspending to acquire customers. That won't be sustainable. It appears now that the markets are starting to demand some responsiveness in terms of producing long-term value for the business at a profit.

GILBERT: To add to that profit quotient, what's also important is sustaining strong gross margins as well and making sure that you have a nice mix in your assortment so that you can sustain them.

HODGSON: At some level those margins have to be earned. In other words, it's up to us to deliver value to consumers so that we earn their business and they choose to buy from us.

GILBERT: Two years ago a lot of these so-called "at cost" models made a big splash. And we're already seeing that some of these lower margin businesses are taking a hit right now. I think the business models that will be able to sustain themselves on the Internet are the ones that can build some sort of brand exposure and do it in a cost-effective way, while also maintaining strong margins. It will be the ones that can create a business model that is almost like a traditional brick & mortar business model.

TWICE: Can e-commerce help lessen retail's over-dependence on the fourth quarter?

LAWRENCE: I think you'll see that fourth-quarter dependency flatten out as customers learn they can buy more and more products over the net.

The fourth-quarter dependency basically was created because of the type of product that was sold on the net, i.e., stuff that was UPS-able. Now, as customers get more educated about buying that type of stuff, they'll feel more comfortable about buying big-ticket stuff that has to be delivered and installed. So I think you'll see that flatten out.

PAYNE: There's always going to be seasonality in this business. But in the world that we've seen over the last four years or five years, the growth has flattened that out.

We've never had a sequential decline quarter over quarter. I don't know if that's going to continue. But in businesses like PC peripherals and software, those are huge Q1 businesses that are performing very well.

So there are obviously ways to flatten things out, but Christmas is always going to be there and there will always be seasonality in the business, no question.

JEANS: While I agree that seasonality is always going to be there, one of the advantages that we have with our own databases is that we can go back and remarket to customers to make sure that they become even more loyal.

HODGSON: Exactly. It's all about lifetime value: how much business you get out of the customer over the customer's lifetime. You'll do that by not only acquiring that customer, but keeping that customer. Customers have infinite choices today for buying the kinds of products that we're offering, and we have to earn that customer's present and future business.

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