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Step-by-Step Guide to Creating an Electronic Commerce Plan

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E-commerce expert Louis Columbus walks you through the steps that you need to take to create a solid electronic-commerce strategy, including whether and how to work with an application service provider.

E-commerce expert Louis Columbus walks you through the steps that you need to take to create a solid electronic-commerce strategy, including whether and how to work with an application service provider.

In creating a business plan for an Internet-enabled business that has an electronic commerce component as a main source of revenue, it's best to begin with the following key information items before beginning a business plan. Having these key components will assist you in clarifying the direction of your electronically enabled business:

  • Define key differentiators for your business relative to others outside of electronic commerce—It's important to get a grasp of your organization's key strengths before integrating electronic commerce into its overall structure.

  • Define your distribution strategy relative to the direct nature of the electronic commerce model—Dell was able to use the Internet to further its reach into its client base, leveraging the existing distribution strategies used for going after large corporate accounts. Dell was able to quickly take the advantages of the Internet and create Premier Pages, which has in turn been developed into Premier Commerce, an approach that Dell now uses for electronically enabling clients to order internally. You can read more about the Premier Commerce offerings of Dell at the Web site http://www.dell.com/.

  • Develop a suite of products that are easily sold over the Internet—The essence of any strong business plan is the integration of return on investment (ROI), return on sales (ROS), and other metrics of financial performance for a product strategy that is driven by the needs of clients. Successful business plans, especially for the Internet, include combining innovative products, which are based on clients' needs with a large potential client base. Taken together, these two attributes can drive the return on investment to levels at which public funding can be generated. The Apple iMAC, the many Gateway portables, consumer desktops, and workstations are specifically designed to be ready-to-run the minute that they are unpacked. From product concept through delivery, more and more products are specifically being designed to be sold over the Internet.

  • Know your clients better than anyone else—Electronic commerce is predicated on the idea of the Internet being available 7 days a week, 24 hours a day. This translates into sales occurring virtually all over the world at every hour of the day, or sales occurring within a specific geographic/economic segment at a specific time of the day. The alluring nature of the Internet is the idea of frictionless transactions, yet for your organization to achieve this efficiency, there needs to be in-depth knowledge of your client base. Who are your customers? What are their preferences? When do they surf the Web for product information? Who are your competitors? Are there options available for you to partner with a complimentary product or service, making your product more competitive in the process? You need to really understand how to reach, motivate, and retain your customers when you embark on an electronic commerce-based business. Spend time during the phases of getting a site up and running to fully understand your existing clients' product needs, preferences for Internet access, and times of shopping online, as well as the needs of potential clients that your product offerings may not be fully providing yet.

  • Develop pricing and margin strategies for the Internet—Many resellers who purchase from Ingram Micro, the world's largest distributor of computing hardware, insist that Ingram Micro lower prices for products purchased over the company's Web site. Ingram operates at less than 5 percent gross margin corporate-wide, and with margins being squeezed from resellers who themselves are selling products over the Internet, margins continue to fall, sometimes to 1 percent. At the same time, Lands End sells its clothes at margins in the high teens or even in the 20 percent range—why? It's because Land End is first the manufacturer and also has developed a more direct model of distribution, which can sustain order rates from end users who simply need a customized item of clothing quickly. The differences between an Ingram Micro and a Lands End are many, yet the comparison brings the point of pricing and margin on the Internet into focus.

    If your organization is migrating from a dual-tier distribution strategy to the Internet, expect to hear from your distribution partners about their needs for you to lower your margin on products that they in turn will sell electronically. Transitioning from one distribution model to another in the context of electronic commerce has pricing implications. If your organization has continually had a direct model, then the pricing strategies that you had in the past will continue to hold true into the future and can actually be revamped for the costing efficiencies of the Internet. Savings from sales, general and administrative (SGA) expenses, distribution and warehousing incentives, and even market development funds paid to a distributor can in turn be reallocated to benefit the pricing structure of your products, yielding a higher margin. In a recent speech, Michael Dell mentioned that there has been a 9-time reduction in selling and support costs for Dell, along with an 11-time increase in sales since the inception of the Dell Web site more than three years ago. Clearly, pricing and margin strategies favor the direct model in the context of electronic commerce.

  • Product strategies for personalization—The Internet is impacting many industries much faster than they had originally planned on. Take, for example, online trading. Just three years ago, Charles Schwab would show you its best and brightest brokers assisting clients with trades, and the concept of an investment team between Schwab and you, the client, was demonstrated. Now consider the commercials and ads that you see for online trading today. Schwab now shows you individual investors—some are working mothers, others are men and women near retirement—and each speaks about using eSchwab to handle trading and accounts. The difference is clear: We are now entering an era in products and services of complete personalization. Gateway's YourWare Programs for Business and also for Education bring the benefits of leasing directly to the end user or client, while also giving clients the opportunity to define the product configurations that they need for their businesses or universities.

Example of an E-Commerce Strategy

Here's an example of a table of contents for a business plan where electronic commerce is the primary focus:

    Executive summary

    Business model definition. The goal of this section is to define how the business being proposed has both a value proposition for clients and a high return on invested capital for the investors, whether they are members of your organization or venture capitalists.

    Marketing plan. This section includes a definition of the company's mission statement in the context of the clients served, a definition of the marketing objectives as defined in both gross margin and unit sales results, and a definition of profitability targets for three to five years. This section also includes a profile of the products, the extent of their personalization for segments of clients, and a definition of the market potential for the products being introduced. There is also a risk/reward segment defined and a Gantt chart showing when specific actions will be taken for the product introduction. Pricing, advertising, and promotion strategies are also included within the section.

    Technology plan and roadmap. This defines the roadmap for the products being introduced and includes a definition of the technologies that will be used for handling the Web site's transactions. This section also includes transition plans for moving legacy data from previous-generation systems to the Web server for handling client transactions efficiently. Goals and objectives for system uptime and response to clients' orders and requests are also defined here, along with a Gantt chart, which defines system implementation schedules and costs.

    Operations plan. This section defines the implementation plan for the Web site and the costs of operating it for the year. It also defines the costs of service and the level of support that will be provided for clients.

    Financial plan. This includes the pro-forma financial statements, including the balance sheet, income statement, and cash flow statements. Also included is the costing and margin data byproduct. In addition, this section includes financial projections for the electronic commerce initiatives and includes a statement showing P & L projections for five years out.

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