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Everything eCommerce

Wednesday, June 08, 2005

The Importance of Customer Service

I frequent thisisbroken.com to learn about ways to establish better customer experiences and user interface designs. Today a topic on customer service unleashed a storm of people frustrated with the lack of good shopping experiences. The original post detailed a customer who went to purchase two pairs of shoes and found out that they only had one pair. Ordering another pair was offered, but only after the customer inquired about the ability, and the customer was told their would be an $8 shipping fee. The customer got angry and ordered them onlin. Below is my comments detailing the supply chain logistics of physical and online stores.

This clearly isn't ideal customer service, but I think I can explain a little from the merchant side why this happens, and why you're much better off ordering directly online.

Successful merchants tightly control supply chain and ordering so that they always have the appropriate number of items in stock at any given time. For perishable goods, or things that go out of style this is especially important, because the merchant could end up with a bunch of merchandise that is almost worthless. Because of this, normal employees do not place orders for their departments or manage inventory. This function is usually performed by the department manager, store manager or in some cases the district manager. Then then place these orders along with all of the new items they order and receive the appropriate quantity discounts, and shipping savings by buying in bulk.

Now when a customer wants to order one extra pair of shoes that are not in stock, this order has to bypass the normal order fulfillment, supply channel route, and a special order is made that then incurs additional shipping charges by the merchant, or they add it to their total order and then the customer is made to wait longer for the item.

One thing I don't know is the price of these shoes, and the shipping method being used, but if they were being overnighted, the $8 charge is understandable although I would prefer to see the option of shipping directly to the customer's house.

Now if you look at this same order from an online perspective things change dramatically. Their are basically 2 types of online stores, those that warehouse their inventory and those that use distributors to drop ship the items. When ordering from an online store that directly warehouses their orders, your order comes into the system, generates a pic list and is packed and shipped. Your order is moving through the regular channels used by the online store, and the costs associated with this method of ordering are factored into the price.

Overhead for stores increases in the following manner online < catalog < retail location. The lowered overhead of warehouse space vs. retail space allows the online stores to profitably fulfill orders in small quantities. If they only had one pair instead of two, the customer would still need to wait on the delivery of the second pair entering into a "backorder" situation. It's likely that when the item is backordered the customer could wait 4-6 weeks for the order to receive the second pair, since they order from their manufacturers in bulk. Most online merchants would have computer systems in place that gauge inventory and automatically order new stock at a low watermark threshold.

This method works extremely well for most items, although the occasional fad item will deplete their inventory, and by the time their stock is replaced the fad may be over.
The other thing that can occur is that as their warehouse stock is depleted, they automatically forward the orders over to their supplier who then dropships the items to the customer. The shipping rates associated with dropshipped orders is typically higher than those directly from the warehouse, but often the online store will eat the difference to preserve good customer service.

It's also useful to note that in ordering online you are also paying a shipping fee, or shipping has been factored into the price.

I understand that you did not have an ideal customer experience, and assuming that both pairs of shoes were from Nordstroms, one in store and one online, I'd be interested in learning the price paid for both. Was one higher than the other? What was the shipping charges on the online Nordstrom order? It would have been nice for the CSR to offer to order the second pair for you and have it shipped to your house for an additional $8, before learning more about the price differential of the shoes and the shipping charges you paid, this experience seems more annoying than broken.

Whenever a customer encounters an out of stock issue, there is bound to be frustration, the important thing is for all merchants to do a better job of managing that frustration.

Now, what can we actually learn from this situation as merchants and providers of ecommerce related services?

1. Set the customer's expectation for items being instock or out of stock.
2. If an item goes out of stock, let the customer know when it will be back in stock.
3. Offer alternatives - we're sorry this item is out of stock, here are some other options you may like.

Here is a customer that does all of these things to keep their customer as much information before purchasing as possible. ISquaredInc.

You'll notice on the home page a number of items with different time tables for order fulfillment and in stock or out of stock status.

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