Five years ago, Sam Morgan wondered if his fledgling online auction site Trade Me (www.Trademe.co.nz) was going to make it. “It took two and half years to become profitable and there were times we doubted it would happen at all. We started with no audience and no fees,” says Morgan. Today, Trade Me is categorised by web monitor Nielsen//NetRatings as New Zealand’s most visited online shopping site (although to be accurate Trade Me sells auction services). In July, Trade Me attracted 952,244 unique visitors with 250 million page views or around 30 to 40% of all traffic on the co.nz domain.

Mark Ottaway, managing director of Nielsen//NetRatings, says Trade Me is “phenomenal” in terms of the traffic it attracts. “It is far and away New Zealand’s most successful online site. It’s a good kiwi success story,” says Ottaway.

So are there others? Nielsen//NetRatings is one of very few companies positioned to comment on that. Along with monthly monitoring of the unique page impressions clocked up by categories of New Zealand sites, NetRatings conducts a quarterly person to person survey to examine local online activity and trends.

Ottaway says from 3750 New Zealanders surveyed in the first quarter of 2004, 7.9% had shopped at local online sites and 5.9% at overseas online sites. While these numbers are modest, 22.6% used the internet to research information online within a four week period, and 19% had purchased online sometime in the preceding 12 months.

The most popular online purchases were travel, books & magazines, and entertainment & movie tickets. Small numbers purchased computer software and music. In August, a Massey University study (reported on the Stuff.co.nz web site) revealed the internet was proving successful in driving New Zealand men to shop online.

The study found men even enjoy shopping online more than women and are less concerned about online security. Massey researchers say the average New Zealand male online shopper is aged 21 to 39 and works as a manager, administrator, is self-employed or a professional. According to the study, men use the internet because it is convenient, saves time, offers competitive prices and has regular information updates. These observations back a Stuff web site snap survey.

On August 4, Stuff asked people what they purchased most often on the internet. By 11.20 am 532 or 28% of 1846 people said they used the net to buy travel; 10% books, 5% music and 21% said “other things”.  But 31% said they didn’t shop online at all.

It’s the Net Jim, but not as we know it
This reveals an interesting trend – while New Zealanders do purchase online, it is still in small numbers. Some of the reasons for this include worry over online security (more later) and a preference for researching on the internet but shopping in stores. Is this any different than what occurs in other countries?

Apparently not. In May 2004 The Economist magazine published a global analysis of e-commerce activity with some interesting parallels.

For example, The Economist noted that consumers are already connecting online and offline worlds by ordering goods online and then travelling to a physical store to pick them up. While this seems a little odd, The Economist reports it is surprisingly popular. “[It] could be because people can’t or don’t want to wait for a delivery van to show up, or they are in a hurry...or they just want to save on the delivery charge. At Sears, 40% of online sales excluding garments are now picked up in store,” said the magazine.

The report observed that while online retail sales in the US only accounted for 1.6%, or $US55 billion, of total retail sales; the internet was exerting a “monumental” influence on purchases carried out in the offline world.

“The internet is profoundly changing consumer behaviour. One in five customers walking into a Sears department store in America will have researched their purchase online... more surprisingly, three out of four Americans start shopping for new cars online even though most end up buying them from traditional dealers,” said the magazine.

The new e-commerce
All this might best be described as the “new” e-commerce. Five years ago people thought about e-commerce in terms of online retail or e-tail and online purchasing and payment. But in 2004, new and rising e-commerce is more likely to be about business to business (B2B) transactions such as customers pushing their suppliers to transact with them online; business to customer (B2C) services like online banking or auctions; or using the internet to thoroughly research purchases before buying them through traditional channels.

In July, an e-shopping article by journalist Diana Clement described the research dedication of Auckland woman, Jacki MacKay. MacKay likes internationally manufactured and reputable brands and researches online as to where they are and who has them at the best price. This includes ordering overseas magazines direct from the publisher’s web site at a significant saving.

For example, Oprah magazine costs around $15 from a New Zealand retailer, but MacKay gets it for $7.95 as an online subscription. She later sells the magazines for $10 each on Trade Me. Careful online research undoubtedly works for the consumer – but the emphasis is on the ‘careful’. It takes time to check through customs, freight, taxes and courier cost requirements, all of which differ for goods and services sourced from international e-tailers.

And for businesses, the growing trend of consumers using the net for online research will have a significant effect on both their business, and their online branding. The

Economist says web sites matter because a company that neglects its web site could well be committing commercial suicide.

“A web site is increasingly becoming the gateway to a company’s brand, products and services – even if the firm does not sell online. A useless web site suggests a useless company, and a rival is only a mouse click away,” the magazine warned. Many businesses need help to maintain web site content, tweak design and optimise it for search engines so it will be readily found. For advice on achieving these goals, see the side box below, Content Management.

New e-commerce at home
Leaving aside the use of the Net for online research and B2B transactions and communities, how are New Zealand e-tailers (the sites that sell and offer financial transactions) faring?

Ottaway says Neilsen//NetRatings monitors about 170 New Zealand sites and can tell a lot about what is going on in them. And he says e-tailers are holding their own. One example is babyonline.co.nz, the online channel for baby products retailer Waysoft New Zealand. In January, Babyonline received 560,000 hits; 85% from New Zealand visitors. It was sixth amongst the top 10 online shopping sites for June – a list which included the Woolworths and Foodtown sites,and the New Zealand Wine Society.

Gazwon Noori, director for Waysoft, says online sales account for between 30 and 50% of Waysoft revenue, despite the company operating 16 “bricks and mortar” stores and initially starting in 2002 with web sales that accounted for 4% of revenue.

He says Waysoft has also been approached to sell bulk baby products through its web site on behalf of competitors. “[Our competitor] Huggies realised internet sales were taking 10 to 15 per cent of their New Zealand market share so they asked us to sell bulk boxes of Huggies diapers through our web site,” says Noori. He says Huggies found it too expensive and non-politic to set up its own home delivery e-commerce business. “They want to keep the supermarkets happy so they give us bulk packs and them retail packs. Now they win both ways.”

Noori says that while Waysoft’s net channel is building faster than its retail stores; this hasn’t harmed the viability of the stores in any way. “The stores are still used by customers who have no access to the internet or who have limited resources and want to be able to buy smaller packs of nappies day by day.” The Economist report noted similar reassurance for ‘real shops’ in the US. “Nobody thinks real shops are finished, especially those operating in niche markets... but record shops and travel agents could be in for a tougher time,” the magazine opined.

Online travel purchases have certainly soared in New Zealand. In a June interview with the MIS Top 100, Alastair Grigg, chief information officer for Air New Zealand, says since the launch of its online Express Class service in November 2002, Air New Zealand internet bookings have grown from 4% of total domestic bookings to more than 40 per cent today. He says this has allowed the airline to deliver substantial fare benefit to its customers at reduced costs. “New Zealanders are now flying more than ever before,” says Grigg.

October 2004

By Vikki Bland

Multi-channel Retailing a Must
An Aberdeen Group global survey, conducted in June 2004, found:

44.7% of retailers have 3 channels of store, catalogue and Internet. (One-fourth have integrated their IT systems across channels.)
20% sell through catalogue and Internet.
19.5% sell through stores and Internet.
1.0% sell through stores and catalogue
7.0% are only online
2.0% are only catalogue or other direct, non-Internet channel
4.1% sell only through a store.
6.0% of store retailers currently operate in only one channel
The report states that the top challenge facing multi-channel retailers is the need to better integrate order and inventory management processes. Providing a single view of customer history and preferences to disparate sales, merchandising, and marketing organisations runs a close second.

Getting it right
Whether a business wants to use a web site as a marketing and brand awareness vehicle, an online store, or a place to conduct business from, success is far from guaranteed. So what are New Zealand’s online successes getting right? Morgan says Trade Me works because it focuses on the concept of online community. “We spend a lot of time making sure our sites are fun to use. We keep them fast loading and ensure we have a product that has broad appeal.”

He says having standards and knowing the law helps too. “We have had growth in the buying and selling of hunting guns or class A firearms. But we work with the Police and they are aware and happy with the way we operate.”

He says Trade Me has things it won’t auction for integrity reasons. These include recreational drugs, Nazi memorabilia, and animals. While online auction sites are generally an e-commerce winner, it is mainly niche players like online florists and souvenir shops, and consumer necessity industries like travel and grocery that make money as e-tailers.

A good example is Aucklander Natasha McGechan who by day develops reengineering processes for building supplies company Stevenson’s and by night is building a successful etail business selling pet food, toys, and pet health products.

McGechan’s site, pussnrover.co.nz, began trading last December, and now requires one full working day a week for web store administration. “I had no interest in building [a] web site; I just wanted to do [online] business,” says McGechan. She began by assessing e-store and accounting systems and settled on Marketeer from Dunedin developer E-Media and MYOB for bookkeeping.

McGechan then structured her e-tail business as a virtual brand-driven business with preferred relationships with suppliers who fill and courier orders for her using her own company’s shipping labels and packaging. She says she has little involvement in order fulfillment – notification of orders arrive via an SMS from her site to her mobile phone and are then routed to suppliers by email or phone. Goods are sent the same day.

While there are significantly larger pet supplies businesses with an online presence in New Zealand, McGechan’s says her e-tail business is niche as bigger suppliers are less willing to focus on branding and personal service and tend to push procurement and order fulfillment.

“My points of difference are convenience, home delivery; focus on quality products, and trying to find things that are fun, funky, and functional. For example, I go out of my way to make sure that toys won’t be murdered by the cat within 10 minutes.”

McGechan spent $8000 establishing her online business which included legal and accounting services, company registration, the Marketeer and MYOB applications, and a new mobile phone. She says PussNRover will remain an e-business to avoid the high capital costs of running a bricks and mortar pet store, and the need to be physically present to serve customers. “That business model doesn’t fit into my long-term lifestyle plans.”

Stephan Spencer, managing director for website developers and consultants NetConcepts (whose clients include Ecowool, Smoke CDs and Designer Exposure), says search engine optimisation is crucial to the success of a web site.

“The approach we take is to build the site with search engine optimisation in mind. There is a real opportunity for companies that realise they can get much better results from building search engine friendliness from the ground up.”

Spencer says everything from the use of breadcrumb navigation (which shows site users their path to their current location – see Fig 1.0 to the right) and the simplicity of the URL’s and where they are positioned in the website, affects how well a site will be picked up by a search engine. “Web developers don’t know what they don’t know and there are a lot of issues and learnings.” See the story Abandoned Carts Litter the Net.

Telecom Directories uses US-based Aptas to provide search and content services for its yellowpages.co.nz web site. Aptas leverages Yellow Pages print advertisements and web content for local search, navigation and content publishing. Roger Shipp, general manager of Telecom Directories, says experience taught Telecom Directories to pay close attention to keyword search services.

Online payments and buyer fear
While airlines, grocery chains and banks have managed to reassure many New Zealanders that their credit card details are safe online; and although online credit cards transactions are regularly monitored and covered by banks; as Waysoft’s Noori points out “a lot of people still either don’t like putting their credit card details on the net or don’t have a credit card.”

A July report from US based Forrester Research supports this, revealing 61% of consumers had privacy and security concerns that made them hesitant to give out credit card information online. Forrester says online businesses need to better educate consumers about the protections that are in place as well as implement more safeguards and be more vigilant and conscientious in maintaining them.

And its not only credit card fraud that can cause a site to be compromised. Trade Me’s Morgan says stolen goods sold through online auctions sites are difficult to identify “because they don’t have a big stolen sticker on them.”

However he says online visitors leave “deep” footprints and in five years of operation Trade Me has assisted the Police with several prosecutions.

“If we want to be successful, buyers need to be confident, so we invest a lot of effort in site safety,” he says. Nielsen//NetRating’s Ottaway says despite Noori’s observations, New Zealanders may actually be more confident than online shoppers in other parts of the world. “All New Zealand sites are growing. And of those that offer online transactions, a good number are leading the way,” he says.

Relevant Reading

• Abandoned carts litter the net
  Consumers are adding items to shopping carts at a slightly higher rate than last year - 9.4% in Q2 2004 compared to 8.3% in Q2 2003 - but cart abandonment rates are higher too, reports DoubleClick…
  Read more

For information on online setting up an e-Commerce site click here

Content Mangagement
Whatever a businesses chooses to use a web site for, it’s likely to have a detrimental affect on business without dynamic and intelligent management of the content, marketing and presentation of the site. Some content management issues are so obvious they could be missed. For example, Gazwon Noori, director for Waysoft New Zealand, says Waysoft had to change the URL for its site from diapersexpress.co.nz to babyonline.co.nz because ‘diapers’ was not a New Zealand term and people had trouble spelling it.

“Of course, this led to trouble with them accessing the web site,” he says. Noori says Waysoft tries to make it easy for customers to navigate the site and updates content weekly. “Some competitive web sites haven’t been updated for four months,” he says. Sam Morgan, director for the Trade Me online auction site, says Trade Me employs a technology team of 15 for site maintenance and content management. “It’s a big effort. We store auctions records back forever and copy them of to different media depending on how old they are. The Electronic Transactions bill requires us to do this.”

Keith Norris, managing director of the New Zealand Direct Marketing Association says the quality of a website needs to be as good as any physical commercial premises, advertising, or products. “Web sites are considered the purest form of direct marketing. But you have to have established a good relationship first; people have to know who you are and what the web site stands for.”

Stephen Spencer, managing director for web developer NetConcepts, says web users shouldn’t have to think about how to use a site. “Just stay with the web norms with content and design; things like putting the search box in the top right hand corner. Hopefully, the business will have an administrative interface that allows it to add, remove and update website content itself.”

Zarbo’s Diane Dolan agrees. The Newmarket Delicatessen café owners have experienced first hand the impact a dynamic content management system can provide when they implemented Cyberglue’s eCommerce suite. “visitor traffic is up 300% and the suite enables us to analyse traffic patterns - where they have come from and where they go within the site, which search engines do they arrive from and where do they exit the site.”