E-Commerce As A Strategic Initiative

Lessons from Online.

Time was, you could go to a National Welding Supply Association (NWSA) spring management conference or national convention and swap stories and ideas with your friendly competitors from around North America. A guy from Vancouver could compare notes with a gal from Baltimore. A distributor from Miami could give a fellow distributor from Los Angeles a few pointers on hazmat compliance. Our association was the best of open competition and mutually beneficial cooperation. That was then. This is now.

In this brave new 21st century world, the guy from Portland, who always used to be in your foursome at the convention golf outing, just sold a cutting outfit to your customer down the street in St. Louis below your cost! The gal from Tucson, who served with you on the GAWDA Safety Committee last year, just shipped a plasma cutter cross county to Buffalo and beat the local welding distributor’s price by 10%!

The Internet dissolved territorial boundaries and has taken once distant competitors and thrust them into a face-to-face, hand-to-hand struggle for market share. The Internet has allowed our customer to choose not from three or four different local welding supply distributorships but from literally dozens of suppliers spread out across the continent.

While disturbing, none of this should come as a surprise. Our association and our vendors were preaching the coming of the Internet revolution as many as ten years ago. But ours is a mature industry with immature attitudes toward technology and new trends. “I’ll believe it when I see it,” has been the mantra of many of us over the years, and now that the Internet age is in full bloom, we’re finding it hard to believe what we’re seeing. The Internet is here to stay in welding supply and gases distribution, and our market landscape is changing every day.

Company Size Is Irrelevant
J.W. Goodliffe & Son has been in business for 68 years. We have one location with 17 employees. We are a small company, and our customers, for the most part, are small companies.

A few years ago, like many distributors, we watched as The Home Depot, Lowe’s and American Hardware took away all of our small MIG sales. Every one of them. “Let’s go and get them back,” we said. And that’s what we did.

Four years ago, we set up a Web site for e-commerce. Today, sales on that site represent 65% of our company’s total revenue. And while we have not gained any of that business from our local Home Depot store, we have taken it back from such super stores all across the country. Our small company, with its 17 employees and one location in Linden, New Jersey, now has a strong presence on the World Wide Web and does business in 50 states, Puerto Rico and Canada. We’ve taken it back. Our company’s e-commerce Web site, www.cyberweld.com, is our strategic weapon.

Customers
Our site is fairly low tech and very easy to use. I built it myself, and we manage it in-house.

The site is not geared to our local customers. In fact, we have not publicized to our local customers that we have a Web site because the prices on our Internet site are very aggressive. Web site customers know that when they purchase a machine it will arrive in a box without being touched.

The Web site is targeted toward the hobbyist, the farmer, the guy restoring a car in his garage. While it does attract professional welders and fab shops, by far our biggest customer profile is the individual with a welder in his or her garage just for knocking around on the weekend.

Shipping
Customers do not pay for shipping, though we do factor some of that cost into the price. Anything under 115 pounds is shipped from our store; heavier equipment is shipped directly from the manufacturer.

Every shipper—FedEx, UPS, DHL—has hidden fees. Often there are fuel surcharges. When the customer puts an incorrect number in the address form and the shipper must do an address correction, there is a surcharge. If the delivery address is a residence, rather than the intended business address, there is a surcharge. When you’re setting your Internet prices, you can easily believe an item will cost $7.95 to ship, based on the shipper’s forms, when in reality it costs $10.00.

Warranties
We made a conscious decision to represent one brand with the best warranty, policies, representation and support around the country. It is so critical that the equipment and supplies we are selling online are high quality, because we simply cannot afford to have the equipment we send out fail within the first ten days of a customer having it. If the machine fails within ten days of the customer getting it, it can be returned unconditionally. I’ll take it back and replace it, no questions asked.

If something goes wrong beyond the ten days, we work it through the local warranty station or through the manufacturer. If we have had a bad experience with a manufacturer regarding their warranty policy or getting satisfactory warranty service at a remote location, we simply don’t sell those products on our site.

Avoid Credit Card Fraud
From experience, I know that it is easy to be a victim of credit card fraud. No matter how good you are at protecting your company, there are people out there who are going to beat you. However, you shouldn’t make it easy for them, and there are some things you can do.

When we first started taking orders online, we thought it was safe to ship the order to the same address as the billing address on the card. Wrong. One of the most common practices in fraud is to watch patterns. A person who steals a credit card will be able to find out your address. They’ll watch when you go to work, when you come home, and they’ll order things to be shipped to your address where they’ll be waiting to pick them up. It can happen over and over before you know it.

Be wary if a customer requests that you not ship with signature required. Sometimes they specifically write that they want the driver to drop the package off on the back porch under the awning. They’ll wait for the truck to pull up to your place, and as soon as the delivery driver drops off the package, will walk over and pick it up. They know you’re not there because they already know your pattern. If a customer asks us to drop off a delivery without signature, we will turn that sale away. If they don’t want to sign for it, we’re not going to ship it to them.

Once a FedEx driver left a “signature required or you can go to the service center” note at a delivery address. Someone took the call tag out of the mailbox, went to FedEx, signed for and picked up the package. We have agreements with every shipper that under no circumstances are any of our customers allowed to come down and pick up packages from the service center without written permission from us.

We used to use the verification code on the back of the card only if the item was shipping to an address other than a billing address. Now we use the code for everything. A customer must have their security code to place an order with us.

Pricing
It’s important to know and understand the real costs of your e-commerce business before you set your price policy. If all of us are educated about our real costs going in, we can be more educated competitors, and ultimately we can be better competitors. (See sidebar on page 65)

Over 600 items are listed on www.cyberweld.com. Remember, the Internet is extremely resistant to price increases.

We must not be irresponsible with our Internet pricing, putting so much pressure on the manufacturers we represent that they will pull the plug on some of their programs, like direct-ship, that allow us to do business on the Internet. We must make sure that we don’t destroy the margins and the market for local distributors. If we understand what our true costs are, then our prices won’t seem so lagging.

Cooperate and Compete
I firmly believe that I can still benefit from a relationship with the GAWDA member who sits across the aisle from me at a business seminar, and I believe he or she can benefit from me. We can accomplish much together.

Here is just one of many examples: A distributor in a Northern California territory may not have an e-commerce site, or may not be doing many retail sales through a Web site. Online, my company may be selling 15 machines a month in his territory. Those are 15 gas accounts, 15 consumables, and those customers may never have gone into his store. Now he’s purchased something and if I can send him to a local distributor in Northern California whom he can trust and has good prices, he’ll never go to The Home Depot again! We can be cooperative and competitive at the same time.

The Internet blew away the boundaries. The way that we protect ourselves is through our reputation, through word of mouth, through taking care of customers so they become repeat customers. With no boundaries, the entire market is wide open, and you must differentiate yourself. You have to give customers such a positive experience, they’re going to come back, plus they’re going to tell other people about you.

The Internet is changing our industry. We don’t have to just face the forces of change; we can be a force of change with a powerful, strategic advantage.

The TRUE COSTS of E-Commerce

Factoring costs into your e-commerce site is not a simple equation of Cost of Product + Shipping Costs. Here are some other costs to consider:


Monthly Hosting Fees – Your own or someone else’s.


Ongoing Maintenance – This cost covers not just adding new items, but making sure all the existing images, information and pricing are up to date. Either you are going to adjust those prices in house, or you are going to hire someone else to do it.


Portal Payback – If your site is on a hosting service and you’re on a portal that is sending business your way, i.e., Yahoo Shopping, AOL Shopping, MSN Shopping, you will owe a percentage of gross revenues from the customer sent directly to you, or they may have a pay-per-click set up.


Credit Card Transactions – You pay for someone to verify and process your transactions.


Shipping Costs – Watch out for surcharges. Factor in damaged equipment or your own errors, i.e., the customer ordered a red, white and blue helmet and you shipped a black one, and it has to come back, resulting in additional re-boxing and packaging charges.


Credit Card Fraud – No matter how good you are at protecting your company, there are people who are going to beat you.

Gases and Welding Distributors Association



Robert Goodliffe Meet the Author
Robert J. Goodliffe is president of J.W. Goodliffe & Son, Inc., located in Linden, New Jersey, and on the Web at www.cyberweld.com.