Building an E-commerce site?
November 2005

Building an e-commerce site is a challenging process. Certainly there are some technical challenges, but more critical are the challenges related to the customer's expectations. Additionally, how a company manages their offline business practices has a direct impact on how their online system will function. Finally, there are quite a few details that need to be explained and discussed when building an e-commerce site. E-commerce sites tend to have a much broader range of scope, cost, and complexity then other kinds of sites. This month's newsletter will describe various aspects of e-commerce sites and identify the particular ones that tend to complicate e-commerce projects.

Heightened Expectations

Prior to the "dot-com" crash of 2000, the marketplace was filled with businesses that wanted to sell online. Many ill-conceived business plans were enabled by venture capitalists that were simply motivated to get their companies to an I.P.O. Perhaps the most detrimental result of all that hype was that genuine businesses with solid products and markets got caught up in the rush and made many costly mistakes (paid out of their own earnings, not from venture capital). After the bubble burst, e-commerce companies closed their doors having lost the interest of venture capitalists. Companies that invested their own money realized that the online market wasn't as rich as they hoped. Additionally, the expensive and complex e-commerce systems that they hastily built, trying to keep up with the "dot-coms" were extremely buggy and undependable. Many companies were seriously hurt and their heightened expectations were entirely unmet.

Three years later the dust has mostly settled and businesses are beginning to look again to the web for opportunities to expand their market. Fortunately, expectations are much more realistic today than they were a few years ago. Businesses seem to have more realistic expectations about the profits an e-commerce site may provide. However, they still tend to have unrealistic expectations about the relative ease and expense of building an e-commerce site. While it is certainly possible to create a relatively simple and inexpensive e-commerce site, there are some factors, unique to e-commerce, that make such instances a rarity. This newsletter will define and describe some of these factors and provide some guidance in determining the relative complexity of building an e-commerce site.
Transitioning Business Practices to the Web

One overarching reason why e-commerce sites tend to be more complicated than other kinds of sites is that they need to mirror offline business structures, processes, and practices. Because e-commerce sites are usually database-driven they need to be consistently organized and standardized. This presents a problem. Most companies are not extremely organized or standardized in their daily offline business practices. Therefore representing these practices with a database can present many difficulties. In fact, the effort to build e-commerce sites often leads to a company realizing that they have problems in their offline processes. While this can be a good thing, such company-wide reorganization is usually well beyond the scope of a simple e-commerce web site project. There are a few specific ways that these kinds of problems commonly present themselves.

Catalog structure

An e-commerce site usually starts with an online product catalog. One of the difficulties we usually encounter in building web-based catalogs (for both e-commerce and non-e-commerce catalogs) is in establishing a consistent categorization of products. Inevitably we encounter products that don't fit into the categories we've established for the site, or products that can fit into several categories. What's worse is when a particular product needs to be broken down into additional sub-categories that were not represented in the database's structure. Outside of database development such nuances to a product catalog can be overlooked. But a database driven product catalog requires more rigid categorization.

Pricing practices

Another example of how daily business practices tend to be unfriendly to logical database structures is pricing. It's amazing how the pricing of many products change based on subtle attributes or conditions. In one instance we developed a site that sold clothing. After the site was built, we discovered that XXXL shirts required $1.00 to be added to the cost of the item. Suddenly the pricing structure we had built for the site no longer worked. This pricing nuance was something the client handled on a case-by-case basis. They just knew that such orders added a dollar and they added it in by hand. Nevertheless translating this practice into an online structure required the entire database to be reconfigured.

Unique SKU numbers

Related to pricing is the practice of maintaining unique SKU numbers for every product in a catalog. While this is a common and appropriate business practice, many small retailers do not maintain unique SKUs for every product. This is understandable since doing so can easily turn a product list of 100 products into a list of over 1,200 products. Take a company that sells shoes as an example. A particular shoe might be listed as one product with a single SKU number associated with it. In reality, however, each size of the particular shoe should have its own unique SKU number to differentiate it from other sizes of the same shoe. When we factor in color and width attributes of each shoe, what was originally considered one product could actually require over 100 unique SKUs to represent all combinations of size, width and color. Because of this, many small companies do not maintain unique SKU numbers for all their products. It's much easier for them to simply write down the color and size and manually find the correct product on the shelf. Databases though, need unique numbers for each variation in order to properly maintain the catalog and keep track of orders. Database catalogs without unique SKUs easily become convoluted making them harder to build and also harder and more costly to maintain.

Inventory, shipping and fulfillment

We have looked far and wide for the most popular inventory and fulfillment software packages so that we could integrate aspects of WebTop's shopping cart with them. What we have discovered is that there is no dominant product. In fact, it seems that each business niche has its own software solutions, some good, but most bad. In many cases retailers have built their own systems for inventory, fulfillment, tracking, and accounting. Since there are no standard tools, integrating with such systems usually requires significant programming customization. The result is that most e-commerce sites are detached from the internal databases that companies use for inventory control and fulfillment tasks. This limits the real time nature of inventory status on the web. While most small and medium-sized clients do not need real time accounting, they all have had initial expectations that such capability should be easy to implement. The reality is that any level of real-time integration will be complicated and expensive.

Another approach to the problem of integrating inventory, shipping, and fulfillment on the web is to perform all three through the e-commerce web site itself. There are some systems on the market that provide tools for this purpose (Intershop being the best one we've found). Unfortunately, there are usually just as many problems and limitations with this approach as with integrating the other way. This approach usually requires the business to rework how they do business offline to match how they do it online. As you can imagine there can be many difficulties in such a transition.

Shipping rates

Another area of complexity for transitioning normal selling practices to the web is calculating shipping costs. Shipping rates are extremely complex calculations. Variables such as the size and weight of a package, method of shipping, speed of shipping, and the shipping zones between the sender and recipient all must be factored into shipping calculations. Such tables and calculations are well beyond the capabilities of most e-commerce web sites. FedEx and UPS both offer online tools to look up shipping cost in real time. These are useful tools, however e-commerce sites need to contain all the specific information necessary to calculate the cost including the dimensions and weight of every item. Most product databases we've encountered don't include all the information needed to perform these calculations. The best way to manage online shipping calculations is base them on two factors: the overall price (or weight) of an order and how quickly a customer wants to receive the items. This approach simplifies the shipping tables since shipping zones would not be factored into the equation.
Order Taking Versus Order Processing

Understanding the differences between an order taking and order processing e-commerce site will help avoid some common difficulties. The differences between an order taking site and an order processing site are invisible to site users. Their online shopping experience such as adding items to a cart, checking out and providing payment information is the same in both cases. The difference is that once the order is submitted, an order taking system simply alerts the company via email that an order has been placed. After that point, an employee will download the order from the system and process and fulfill it using their standard offline practices. In an order taking environment, a web site is simply responsible for collecting order information. On the other hand, order processing sites actually verify and process credit card transactions. They might also debit inventory levels and provide order information to a fulfillment center. Generally, unless a company expects to receive hundreds of orders per day, an order taking system is sufficient and the most economical place to start.

Credit card verification and processing

One reason that an online order taking system, rather than an online order processing system, makes sense is that it eliminates the need for a special credit card merchant account. For a site to verify and process credit card transactions, a business needs to have a specialized online merchant account. The terms and conditions, as well as the fee structure, for online merchant accounts are typically far less desirable than standard merchant accounts. The company also takes on a greater liability for online fraud and theft. For this reason alone, it's much easier and less expensive to simply collect orders online and then process them through standard offline methods.

Using existing fulfillment, shipping, and tracking software

Another reason that an order taking system makes sense is that the client does not have to reinvent the wheel with regard to their order processing, fulfillment, and order tracking systems. Whatever system they use is likely to be better suited to these tasks than anything that might be built into an e-commerce web site. An order collecting web site allows the client to download orders securely from the site (as an excel file) and then import these records into their fulfillment or financial software. Once in this environment, the orders can be handled in the same manner as orders received by phone, fax, or mail. This allows the company to use the software most appropriate to each task.

Exception to this approach

When a client's product can be delivered to a customer electronically, as is the case with downloadable software and subscriptions to online content, processing credit card information online becomes necessary. In these cases users will expect access to the files or information immediately upon providing their credit card information. A delay can cause frustration and fear that they have been ripped off. In these cases, the client will need an online merchant account so they can verify and process the card upon submission and deliver the product without delay.

E-commerce Questions Checklist

• Use the following checklist as a guide for asking appropriate questions in anticipation of building an e-commerce web site.
  
• Is their current product catalog consistently categorized? What exceptions are there for these categories?
• How many sub-levels are there for each category? For example, in the case of a shoe catalog there might be three levels before actual products would be listed (men’s/dress/loafers/product).
• Does the client maintain individual SKU numbers for each unique product including variations of color, size, etc.?
• Does the client already have an existing merchant account for processing credit card orders? Does their merchant account allow for online orders? Which credit cards will be accepted?
• Are there any irregular pricing rules for the site? Does choosing certain attributes add cost? Do some products offer accessories or packaging options that would add cost to items?
• Does the client currently have their product catalog in database form (ask to get copy of the database file)?
• Can their shipping and handling rates be simplified for the site?
• Are there any special tax issues with the product?
  
  Here are a few details client will need to understand when they build an e-commerce site.
• SSL encryption certificate. In order to accept credit cards online they will need to create a secure encrypted page and purchase an SSL certificate from VeriSign. This certificate will need to be renewed every two years.
• Legal issues regarding the storage of credit card information. Keeping credit card numbers around in a database is not a good idea. WebTop allows clients to download and or printout their orders. We recommend that they delete all order records from WebTop after downloading. There are some potential legal requirements for keeping credit card numbers on file that change from state to state. Make sure the client knows that they are responsible for removing credit card records regularly.
• Batch uploading of product databases. If a client has a large number of products or unique product SKUs they will likely want to batch upload the database into the e-commerce site. This can be done as a one-time upload or, if they want to be able to do this regularly, they will need a database upload bridge customized for their site. This typically adds cost to a project and generally needs to be estimated on a case-by-case basis.
• Store Policies and Procedures. An e-commerce site usually requires the company to state certain policies on the site. They will need to define, write, or adapt a policy for returns, privacy, cookie usage, order status checking procedure, and out of stock terms. These policies may need to be approved by their legal counsel.

Conclusion

One of the reasons that we gave for why e-commerce sites tend to be more complex and expensive than other sites is that here are simply so many details that need to be explained and discussed when building an e-commerce site. At this point it should be clear why this is the case. Many e-commerce projects require just as much time to be spent explaining, discussing, and working through these questions as they do for actually building the web site. Nevertheless, in instances where a product catalog is straightforward, implementing a shopping cart and order taking system can be fairly simple. Working through the checklist and questions above will help to identify where a particular project will land on the complexity spectrum.