E-commerce 2.0 : Service providers move from implementation to optimization

First there was Amazon.com, then eBay, Napster and iTunes. And let’s not forget the Overstock.coms and Travelocities of the world. Yes, e-commerce is just part of the way we live our lives today, and increasingly, communications service providers have gotten in on the action by offering subscribers a way to order service and upgrades online. As the population at large continues to accept online shopping for everything from Omaha Steaks to the latest toy for preschoolers, service providers are looking to capitalize on the trend. And so, moving beyond the basic click-to-order functionality, providers are embracing e-commerce 2.0 — optimized strategies for driving ever more sales through this channel.

The 2006 holiday season saw e-commerce sales across all industries hitting new record highs — around $170 billion total, up from $122 billion in 2005. For telecom, e-commerce roughly is responsible for one in five of all subscriber additions for the industry as a whole, and the channel is expected to continue to grow at double-digit rates, as much as 34 percent compounded annually over the next five years, according to the Yankee Group. That’s good news for operators, which are feeling continued pressure to improve margins by decreasing subscriber acquisition costs through automation and self-care. Online commerce strategies provide up to a 50 percent lower cost per gross customer addition, and it’s more efficient for upsells and cross-sells.

And so, about five years ago, service providers began jumping on the bandwagon of e-commerce, and since have achieved critical mass, with large service providers generally reporting that e-commerce sales represent one in every four or five sales. However, that number can be deceiving.

“It’s no longer enough to just drive people to the Web site and encourage them to order there,” says Omar Tellez, executive vice president of marketing at Synchronoss Technologies Inc., which works with AT&T Inc., the new wireless division of AT&T, Cablevision, Clearwire Corp., Comcast Corp., Time Warner Cable and Verizon Communications Inc. Its ActivationNow platform manages multiple business processes across a host of disparate OSS and BSS systems to enable e-commerce. “Now, there are benchmarks. So out of every 100 customers that visit the Web site, how many complete the transaction? That’s a critical number. The industry average is 1.3 percent. Our customers see closer to 4.5 percent, thanks to optimization.”

Thus, while the overall indicators are positive, really capitalizing on the potential growth in e-commerce will take a second-generation approach that wraps in marketing, operations, network inventory, billing systems and more. Specific areas of improvement include the need for a robust inventory management system. “The backend systems absolutely need to be tied into the front-end applications so that you’re not recommending — or selling — a product where it’s not available,” says Tellez. “That’s the ultimate turnoff for a telecom customer.” Similarly, billing is integral to successful e-commerce, requiring real-time mechanisms behind the scenes to provide the system — and customer — with up-to-the-minute information on promotions, discounts, account status and balance to facilitate content purchases, cross-sells and so on.

And, in e-commerce 2.0, the aforementioned conversion rate is a clear metric of success. To bolster that, personalized marketing and shopping cart abandonment are two areas in which service providers are hoping to improve. “If 2006 was the year this channel achieved critical mass,” says Tellez, “in 2007 and 2008, providers will take it to a whole new level, with a mix of confluent optimization factors.” (See “Top 10 Reasons for Shopping Cart Abandonment” sidebar)

For one, service providers need to hone their knowledge about the customer. Operators have a tremendous amount of information available to them about their clients, such as which state they live in, whether they have bought before, what their communications portfolios contain today, and whether the account represents a family, business or a single person. The next step is leveraging the existing data, applying business intelligence to it, then creating a so-called “market of one,” with customized views, offers, discounts and more. Much like Amazon.com offers customers recommendations based on what’s in their shopping carts, service providers can present targeted offers that would be more effective than a blanket advertisement for DSL, for instance.

Central to this approach is the idea of segmentation. Service providers are used to going to market with a broad portfolio and a one-to-many marketing technique, and the idea of tailored messaging is still somewhat foreign. “People in California have different buying behaviors than people in Minnesota, and that needs to be understood better,” says Tellez. That also goes for “seasonality,” which is the concept of presenting interfaces, discounts and promotions depending on the holiday season, consumer electronics trends, news and other environmental factors that may affect buying behavior. This can be automated within the e-commerce system with rules-based engines.

A key factor in successful e-commerce is optimizing marketing spending. The service provider should “cross-tab” where its online ads are placed with actual traffic patterns — who’s coming in from which link — and sales. By mapping the money spent to the results, operators can do a predictive lift calculation, which looks at the X amount of money spent on Google AdSense, say, plus a percentage that represents any discounts for customers. Then, they can compare that number to the increase in sales the campaign generates from the baseline sales average, to arrive at a measurement of success.

“E-mail marketing returned a whopping $57.25 for every dollar spent on it last year, according to a DMA Power of Direct economic impact study,” says Thomas Harpointer, CEO of AIS Media Inc., maker of shopping cart technology and the Excerpo Mail solution. “In contrast, print catalogs generated $7.09 and non-e-mail Internet marketing produced $22.52. E-mail marketing (when properly implemented) can be a highly effective method in driving online sales.”

Once the marketing, the offers and the behind-the-scenes back-office engines have done the work of getting a person interested in making a purchase, an additional — and large — hurdle remains: shopping cart abandonment. “Throughout 2006, the guesstimate for shopping cart abandonment hovered around 20 to 30 percent,” says Harpointer. “In actuality, we found an average of 59 percent. That’s two out of three shoppers not completing the transaction once they started it. If that happened in a retail environment, there would be mass panic.”

Once a shopper makes it to the checkout page, the cycle time needs to be quick, before the person changes his or her mind. While other industries are adding calculators, wish list functionality and other advanced features to engage the customer and create added value for the e-commerce site, in telecom that has a tendency to backfire. “The more complexity in the process, the more likely the shopper will be to abandon the process,” says Harpointer. “We strive to make the most information as possible available, to minimize diversions or the need to look something up via Google [potentially bringing up competitor information], and to make it a seamless buying experience.”

Another key to mitigating abandonment is the use of analytics. The operator can say, “We know you were here for 30 minutes, we know you were interested in X or Y, your credit is good, and this is the page you bailed out on.” A sales reclamation process can take that data and use it to woo customers back to the site. For instance, an e-mail can be sent with a targeted promotion with an expiration date, followed potentially by a CSR call. Remaining in contact with customers that have abandoned the cart can turbo-charge the e-commerce strategy.

“Many folks use the shopping cart as a bookmark,” explains Harpointer. “They will come back later to complete the transaction. So it’s important to have a system that remembers you and what you have in the cart — Amazon.com will keep your cart items there for months, and it works. Service providers need to embrace these next-level functions too.”

Comverse Inc.’s recent acquisition, Netonomy, offers an e-commerce suite that integrates with operator-specific systems for features such as number portability and profile-based pricing for upgrades — as well as billing systems, CRM platforms, and provisioning engines for customer and service activation. Here is an example from the vendor of why back-office integration is so important for successful e-commerce.

If customers want to sign up with a mobile service provider, they need to decide between a prepay account and a postpaid contract. Also, they need to find the most appropriate rate plan for their predicted usage, and they need to choose a handset based on style, price, features, size and weight. They may want accessories such as a car kit, an additional charger or a headset, and they will want to select from an ever-increasing list of personalized services.

Beyond this initial complexity, each selection interacts with all the others. Prepay and postpaid offers will support different rate plans, the rate plan will impact the price and range of handsets, which will, in turn, determine the list, and possibly price, of appropriate accessories. And optional services will be affected by all of these choices — with some services themselves restricting the availability of other services.

Of course, the customer also will want to complicate the process. A single order flow isn’t sufficient — operators can’t impose their own conditions on how customers choose to buy. They may want to choose a handset first, or instead work out the best plan and contract type. They may want the option of browsing through all the handsets for certain manufacturers, or focusing only on handsets with particular features. And they may want to see how each selection affects their other options — so they can take a step back and change their mind.

Business e-commerce can add even more complexity. Business administrators and other authorized staff often want to repeat the same order again and again. Sometimes this means selecting the same rate plan, handset and accessories each time a new employee joins a particular department. At other times, it may mean subscribing to a new service, or purchasing a particular device or accessory for a whole group of users simultaneously. And some companies will want to select many different products and services for individual members of staff — and order them all from the operator at the same time. Business end users may be allowed to order online just like a consumer, but unlike consumers, orders may have to be routed through the company’s approval processes before they are submitted to the operator.

All of that takes analytics and back-office integration in order for a service provider to deliver on the e-commerce promise of accurate order management.

Online Variables E-commerce optimization requires the management of several variables. Here’s a rundown of the most important issues in the mix.
VARIABLE	ISSUES
Advertising Mix	Which advertising elements are most effective? Banner ads, Google AdSense, sponsored links from Yahoo!, etc.?
Predictive Lift and Promotion Management	What type of lift from baseline sales will a buy-one-get-one-free promotion generate, versus a 50 percent subsidy? What type of lift from baseline will a 50 percent subsidy plus an ad placement generate, versus just the subsidy? What times of the year do promotions have more lift?
A/B Flow	How effective are the flow changes implemented in the Web site? Does asking for the zip code upfront impair or improve the conversion rates?
Order Reclamation	How do you deal with 50 percent cart abandonment? What percentage of the carts abandoned can be reclaimed by reaching out for them in a proactive and targeted manner?
Segmentation	What handsets and programs sell best in various states? Should the storefronts be different in each one of those? Do people who buy X typically also buy Y, and if so, what should you do about it?
Seasonality	How should I allocate advertising and inventory throughout the week/month/year? What promotions work best at Christmas, or Mother’s Day?
Credit Check	Would the prepaid business benefit from a tightly coupled credit check flow? For example, credit-challenged people could be offered prepaid phones.
Predictive Inventory Replenishment	How do you run promotions predictably in a way that avoids inventory issues?
Source: Synchronoss Technologies Inc.

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