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Aug 02, 2005
Case Study

How to Raise Ecommerce Sales By Refusing Orders (When to Tell Customers You Don't Want Their Money)

SUMMARY: Last fall Internet retailer eHobbies tested refusing pre-paid orders for any of their 70,000 SKUs that weren't in stock the split second consumers wanted to buy them. Instead, consumers could sign up to get an automated email alert when the item was ready for immediate shipping. Why would you turn away consumers who want to convert here and now? Surely possible future orders can't be as profitable? Discover eHobbies' test results and why CEO Seth Greenberg is happily keeping the turn-away program going.
CHALLENGE
With 70,000 SKUs, eHobbies' merchandise availability fluctuates continually. Unexpectedly popular items may be out of stock, or a new hot item might not be available for shipping quite yet. Or, worse yet, a supplier may discontinue an item without warning.

In the past, the Internet retailer tried to capture paid preorders or back orders for these items, promising the merchandise would be shipped as soon as available. But that practice is fraught with peril when you can't count on suppliers 100% of the time.

"You're creating customer contact situations, not necessarily in a good way, because supply is out of your hands," says Seth Greenberg, eHobbies co-CEO (along with Ken Kikkawa).

If a pre-ordered item is discontinued or totally unavailable for any reason, customers lose faith in the merchant, not in the manufacturer.

Greenberg wanted a way to allow customers to show interest in an item -- which would also help him gauge demand -- without requiring the level of commitment a formal pre-purchase requires.

CAMPAIGN
The team decided to test an automated email alert offer. Whenever an item was out of stock or not yet available, the site automatically replaced the "Add to cart" button with a button reading, "Out of stock: Click here to be notified when item becomes available." (See link to sample screenshot below.) The resulting outbound email system was automated and tied into the warehouse. The minute inventory was received physically in the warehouse and entered into the product management system, alert emails were immediately triggered for the appropriate customers.

For example, last Christmas, when a model train based on the movie 'The Polar Express' was expected from Lionel Trains, Greenberg decided to take email addresses and send an email notification rather than capture back orders.

Yes, this was definitely a considered risk. By not completing the transaction at the moment when the customer was most motivated to buy, eHobbies faced losing the purchase altogether. But the team hoped customer satisfaction benefits would outweigh this risk.

They also mitigated risk by removing certain items from the new system. If the merchandise was fairly high-ticket and eHobbies was very sure the inventory would appear (for example, an item being manufactured exclusively for the site), then the site continued to take back orders using the old add-to-cart button.



RESULTS

The new alerts system helped head off a potential customer satisfaction nightmare last holiday season for the Polar Express train. "We had over 6,000 consumers tell us they wanted to buy this," Greenberg says. "That's over a million dollars in business in demand."

However, eHobbies received significantly fewer than 6,000 trains from Lionel. "The notification let us get ahead of damage control. We said there were fewer allocated to us than we wanted, and linked to train sets that we had plenty of, with discount coupons."

eHobbies sold out of the inventory they had within two minutes of sending their email notification. Then, the marketing team swiftly changed the information on the site, saying the next shipment would be available in March.

"We got another email list of 2,000 people," he says. When the trains arrived in March, the email was sent to those 2,000, and "we had about a 25% conversion rate."

While that conversion rate is on the high end for eHobbies, it isn't unusual. Greenberg continues to see a 10%-25% conversion on all notification emails.

"Once we receive [an item] into our warehouse, we're so far ahead of anyone else who has it because most competitors aren't as quick as we are. Almost every single time, we're beating all our competitors out there," he says.

Three more lessons learned:

#1. Don't overorder

Requesting an email notification is not as high a level of commitment from a customer. They might enter their email address, look at two or three other suppliers, and buy it from whomever gets it first. "So you have to be careful. Say there are 100 people that say they want it. I have to make sure that my buyer doesn't go out and order 100 of them."

Instead, Greenberg looks at the availability of the product. "Are we exclusive on this? If not, we might want to buy just 10%-25%."

#2. Improve communications with manufacturer

"We can use this as a tool to communicate to the manufacturer that they have a smash hit on their hands," says Greenberg, referring to the Polar Express example.

#3. Preorders and back orders still have a place

With about 90% of products, Greenberg offers email notifications rather than back orders. But occasionally, capturing traditional back orders and preorders is useful. "When we get back orders, we can let [manufacturers] know true demand out there in the real world, so that gets us [product] allocated ahead of the curb. We can tell them to speed up or slow down [production] based on demand."

Useful links related to this article

Creative samples from eHobbies' ordering system: http://www.marketingsherpa.com/ehobbies/study.html

Note: eHobbies is a member of Shop.org, a forum for retailing online executives to share information, lessons-learned, new perspectives, insights and intelligence. More info at http://www.shop.org

See Also:

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