CHALLENGE
In the cutthroat world of consumer electronics ecommerce sites, Newegg.com has carved out a stunningly loyal customer base.

By last May, roughly 75% of the site's half a million daily visitors typed in the URL directly rather than coming from a search engine, third party ad, affiliate or other hotlink.

"It's not just the product we sell at a competitive price," explains Vice President Howard Tong. "It's the experience of being able to get the information they need from our site, plus our logistics are second to none. We'll get product to you faster than anybody else. Our customer service is ranked number one, so they know if there are any issues, we'll take care of it. In the online world, there's a lot of notorious or shady people out there. You have to be extremely reputable."

In fact, the management team began to think of site management as an extreme sport -- how could they be extremely customer-conscious? Anything that made shopping more frictionless might raise sales.

They had already experimented with offering PayPal as a payment option in addition to major credit cards. 5%-6% of transactions came in on PayPal (note: that's transactions not revenues).

Next they wondered, how could they offer even more payment options without confusing shoppers, losing money or laying themselves open to fraud?

CAMPAIGN
The team selected a deferred billing vendor (link below) who was able to offer bill-me services in a very similar way to credit card orders. Key points:

- Same amount (or more) of fraud protection as credit card processing

- Same type of merchant costs as credit card processing (in fact, with a bulk deal, the costs were a bit lower of a percentage per processed order than credit card processing would be)

- Same speed of payment to Newegg.com as credit cards -- although the customer didn't pay for up to six months, Newegg.com received its cash within a few business days

Most critical: for customers, using the deferred billing was almost as easy as using a credit card. They didn't have to fill out long forms, wait for more than a few seconds for authorization or even give out their entire social security number.

When the customer ordered, they would receive an invoice via both email and postal mail. Then, depending on the payment option they chose, they had 20 days to six months to pay it off. Most importantly, their goods were shipped just as speedily as if they had paid using more conventional payment methods.

The team decided to test four different differed billing offers: (link to FAQs for all below)

1. Standard Bill Me Later: order now and pay within the month

2. 90-day offer: available for orders over $250 only, order now and pay in 90 days

3. Preferred Account: a private label credit card

4. Preferred Account Six Month Offer: no payments for six months on purchases over $50.

The program began with careful testing in the early summer of 2005. "We haven't just slapped up promotions," says Tong. "We moved the offer and icons around based on customer feedback of understanding the program."

The revised site included a highly noticeable "Bill Me Later" graphic on many pages' top right corners, plus automated notes such as "This purchase qualifies for Preferred Account billing" within the cart itself.



RESULTS
As a result of various site upgrades (including the payment options), aggressive outbound marketing and a growing customer base, Newegg.com increased revenues 30% last year to hit approximately $1.3 billion in 2005. Of the site's average 20,000-25,000 orders per day, Bill Me Later orders accounted for 2% of revenues and Preferred Account sales were 8% of revenues by late January 2006.

While no one knows if these customers would have bought even if the special payment options were not available, Newegg.com data indicates these buyers' cart sizes are substantially larger than typical shoppers. Increase in average cart-size: Bill Me Later overall - 82.26% increase; Bill Me Later 90-Day "Same As Cash" offer - 141.25% increase Preferred Account overall - 267.35% increase; Preferred Account Six Month Same As Cash offer - 434.68%.

During the December 2005 holiday season, Preferred Account users had an average cart order size of $490, while those who used the six-month offer had an average order size of roughly $1,100 per transaction.

In addition, the team noticed the Preferred Account customers tended to be far more frequent shoppers than average customers. That said, they might have been anyway. On the other hand, whatever makes your most frequent, big-ticket customers happy also generally makes your bottom line happy.

When deferred billing first launched, declines spiked higher than normal mainly due to fraud attempts, then they lowered to a steady "normal" rate. Although we don't have Newegg.com data specifically on this, roughly 20%-25% of declined consumers on other sites will return and make the purchase using a different payment method.

Next, the team hopes to add a business version of the Bill Me Later to the site in 2006 so IT departments and others buying large quantities for business can use the service.

Overall, they expect deferred billing accounts to grow steadily as more online consumers are educated about the opportunity.

Useful links related to this article:

Creative samples from Newegg.com: http://www.marketingsherpa.com/newegg/study.html

I4 Commerce - the financial services firm that Newegg.com relies on to power its deferred billing options: http://www.i4commerce.com

Note: I4 focuses on working with ecommerce sites with annual revenues above $20 million. If you’re a smaller site, keep watching MarketingSherpa for Case Studies on alternate vendors.

Loyalty Lab Inc - the CRM service Newegg.com uses to power email and other customer loyalty programs: http://www.loyaltylab.com

Endeca Technologies - powers Newegg.com's internal site search for shoppers: http://endeca.com

WebSideStory HBX Analytics - the web analytics software Newegg.com uses: http://www.websidestory.com

Newegg.com: http://www.newegg.com