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Top 5 Tips for Cost Cutting in E-Commerce Without Losing Customer Loyalty

May 12, 2009 • Top Stories

IT organisations responsible for e-commerce are challenged in 2009 to improve online customer experiences to make up for closed locations and lost sales personnel, while cutting IT expenditures by 5-25 percent, according to Gartner, Inc.

Gartner has identified five tips in which IT leaders in charge of e-commerce operations can meet this challenge in this year¹s tough economic climate. Gartner has also provided associated savings estimates for large businesses with e-commerce budgets of more than $1 million for software and services, and for small businesses with budgets of less than $1 million.

Tip 1 ­ Use off-the-shelf products, not custom development, for commodity functions
By eliminating custom-development efforts for commodity functions (such as shopping cart management, search, product merchandising and management) and replacing these with commercial, off-the shelf, or open-source e-commerce applications, Gartner estimates that large businesses can save 35 percent of ongoing maintenance and licence costs, and small businesses can save 25 percent of these costs in 2009, and 20 percent in the future. The one-time cost to implement this strategy is $250,000 to $350,000 in software, on average, with a one-time cost for implementation services.

Except for market leaders, such as Amazon and eBay, custom development is likely to be a waste of effort and money because it supports functions that do not enable a differentiated online customer experience, said Gene Alvarez, research vice president at Gartner. For example, a developer who supports a commodity function, such as shopping cart management, would be
better to develop rich internet shopping capabilities or improve site design for search engine optimisation so that the site can rank higher in a Google-based search.

Tip 2 ­ Extract more return on investment (ROI) from technology that you own
Businesses that seek to extract more ROI with technologies that are owned by the IT organisation could decrease costs of service, sales, and marketing by 15 percent for large businesses and 10 percent for small businesses in 2009 and 10 percent in subsequent years. Gartner estimates that one-time costs to implement this recommendation are less than 5 percent, because they require only established resources to tune the use. Organisations should consider
eliminating any established technology that does not achieve a use rate of more than 95 percent.

Tip 3 ­ Focus rich internet application tool development on sales efforts with higher conversion rates, and leverage established community websites, rather than building communities in your organisations site.
IT organisations experimenting with rich internet application (RIA) Web 2.0 sales tools, usually developed in Ajax, can scale back their development efforts to only those tools that will lead to higher conversion rates.
Gartner estimates that this strategy will save around 10 percent for large enterprises and about 5 percent for small enterprises in 2009, and 5 percent in future years. One-time development costs will be paid in full by reductions in other projects.

Tip 4 – Negotiate hard with e-commerce software vendors
If an IT organisation is seeking to purchase or already owns e-commerce software, then tough negotiation with vendors is an absolute imperative.
Skilled negotiators can save 20 percent to 50 percent on licence fees in 2009, and an additional 3 percent to 4 percent long term. No additional expenses are required to make this happen. Gartner predicts that vendors will cling to prices during 2009, as they seek to preserve margins, but will offer big discounts to make up for longer sales cycles and increased
competition.

Tip 5 ­ Make organisational changes to eliminate redundancy in job functions
In some organisations, personnel perform the same job tasks on different sides of the business. For example, an organisation may have one marketing person for online operations and another for the bricks-and-mortar side of the business. It may be possible to combine these roles and produce savings in HR. This one-time saving may represent 10 percent to 15 percent of
e-commerce HR expenses in 2009 and 5 percent in subsequent years, with little upfront costs required for training.

Gartner

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