Brad Wardell's views about technology, politics, religion, world affairs, and all sorts of politically incorrect topics.
Different paradigms
Published on February 14, 2005 By Draginol In Internet

Running an Internet based business is vastly different than running a traditional bricks and mortar based company. This is particularly true if you are running and Internet based business that deals with end users since, at that point, you are running the Internet equivalent of a retail store.

The first reason it is different has to do with a term we call "conversion rate".  The conversion rate of a traditional store varies but is typically around 5%.  That is, if 20 people visit your store, you can expect for one of them to purchase something. 

The second reason has to do with pure masses of people visiting the store.  A typical store at the mall can expect around 500 people to come into the store.  A WalMart can expect many more.  But nothing can touch a popular website. gets in the neighborhood of 5 million unique visitors per day.  That's 10,000 times more. 

This changes the customer/company dynamic completely.  In the early days of retail the phrase "the customer is always right" came into being.  This wasn't based on any sort of noble sentiment but rather necessity. In those days, the family store might only get 50 to 100 people visiting - many of whom were repeat customers. You could not afford to alienate even one of them because one unhappy customer could then talk to 20 other people in their neighborhood about their bad experience.

In an Internet based store the "customer being right" never comes up. A good Internet business tries to maximize the number of happy customers and minimize the number of unhappy ones.  On the surface, this might seem similar to the traditional model. But it's not. Internet based companies merely determine how many unhappy customers they can afford to have statistically and find ways to keep that number at or below that number.  It's a totally different system. 

Where traditional stores did not want any unhappy customers. Internet businesses, because they're dealing with so many people, don't aim for that level of perfection. Instead, customer relations becomes a matter of statistical analysis.  There is no face time between customer and merchant.  It's all virtual. And that virtual relationship lends itself to statistical analysis.

Moreover, the fractured nature of the Internet changes the dynamic further. An unhappy customer of an Internet greeting card making site is not going to have the same impact on business as the unhappy customer of the local hardware store because of the lack of a cohesive customer community (i.e. telling your friends and neighbors about the Internet greeting card making provider being bad isn't going to matter much since none of them were likely to go there in the first place).

And as if these differences weren't enough, you have the unique concept of internet store and community intermixing. Now you're dealing with the proprietors of the products and services you may be purchasing.  In a traditional store, your interaction with a clerk or cashier is the equivalent of a search engine or electronic commerce server. The typical customer in a traditional store doesn't have a long, drawn out conversation about the items available for sale.

The net result is that many end users, particularly older ones, haven't yet come to terms that Internet based businesses are run very differently from stores and shops in their local area. The expectations are different. The policies are different. The experiences are different.  It's a brave new world indeed.

on Feb 14, 2005
As the owner of a service based company in the "traditional sense" I really can't argue your points. I do find myself having to coddle certain clients to maintain their accounts while sometimes having to make other, smaller accounts wait while I move the more critical projects up on the schedule. This can sometimes promote a dissatisfaction among some of the smaller clients and if not attended to can ultimately lead to a loss of overall business. If I was to quantify this group of clients it would probably amount to approximately the same statistical percent that you find yourself able to allow. I think in the long run however, dissatisfaction among some of my customers has a great an effect "percentage wise" as yours. My clients don't have blog sites, forums of competing sites and mass emails to support any kind of smear campaign against my company. I do envy you your customer base. I don't think any other type of business can be run with as limited a staff serving as large a population.
on Feb 14, 2005
I think you are correct. Especially when it comes to "after-sale" service. A lot of Internet based companies fail to provide any support, and they don't care to. They sold you the item, that's all they wanted. They don't care if you're unhappy, they don't care if you're never going to buy there anymore, and they don't care if you tell all your friends about it, because they already receive a huge number of one-time customers and new ones just keep coming. Mostly because the price is right, or because the site attracts a lot of traffic through banners, or other advetisement. But there are exceptions. DELL comes to mind. Their customer service is one of the best outstanding one I've found in any store, physical or virtual.
on Feb 14, 2005
So far, to date, [touch wood], I've never had a problem dealing with online commercial entities, generally computer components and of course books/DVDs from Amazon..... never a problem at all...
on Feb 14, 2005
I've bough software online. Never bough anything else. But so far I'd say my ratio is 50 good/50 bad. The "bad" is most of the times related to the lack of post-sales support if I have a problem.
on Feb 15, 2005
I'm in the process of purchasing software online currently and have found the email responses friendlier and more useful than my dealings with 'real store people'. That and the fact that online is cheaper makes me not want to try 'real' stores in the future for certain products.

This seems to go against what this thread is saying, but it is my experience. Generally I have found traditional stores more determined to please me when dealing directly with those who depend on the store's survival. The people in charge of the store. If you're unlucky enough to deal with staff who are working there because it's the only job they can get, then service can be poor. Which could also happen online I guess
on Feb 15, 2005
Assistance I receive online, whether it be sales support or community this generally much better than what I usually get from the bigbox retailers. I've worked for two of them (Home Depot and Sears), both in managerial and associate roles.

In a sense I agree with scarebear, but I would like to define just a bit who those folks that depend on the store's survival's usually not the management. What I've found in traditional retailers at the store level is that there are three layers of folks that make up the staff.

A. The traditional salaried management (4-year college degrees, management fast-start programs, there are exceptions to this, I was one, because the store manager I worked for was wise enough to set aside educational requirements for my experience, knowledge and work ethic.) These folks are focused on stats and everything they do is driven by numbers and to them customer service level is just another statistic they measure.

B. Entrenched timecard associates and supervisors (usually no college, longterm, this is their career, they understand the nuances of the company's systems and usual have more knowledge about than their managers....these are the folks that run the store, make or break it. When a traditional store starts to lose these folks or these folks get to the point they don't give a damn anymore, the store usually fails.) These folks have a vested interest in the store and they are the ones that will take care of you. A store manager might take your complaint, but it will usually get pushed back down to this level. Complaints that reach the corporate level, always go back to the local store and hence back to these folks to resolve.

C. Everyone else or about 70% of the associates are what I call "Seasonal" associates because most don't stay for more than a season or at most a year and contribute largely to the average turnover rate of a retail store which is around 50%. Training is poor, not because it's not available, but because they just really don't care or aren't eager enough to do more than is necessary to collect a check at the end of the week. Whatever it takes to get by on minimum effort.

When you become aquainted with who the "B" folks are at your local bigbox stores, your experience will generally be better.

So far all my online purchase experiences, except paypal, which I refuse to ever use again, have been excellent.
on Feb 15, 2005
That's a good breakdown Essencay. I think when it comes to large stores I always get Essencay's 'C' group. They always seem to know less than me!
on Feb 24, 2005
It's not really all that different. Online communities are being built that will affect businesses with poor customer relations practices.

But it's always hubris and "It's different this time" that cause people to think that things are really significantly different. The differences can easily fit on the head of a pin, with lots of room for dancing angels.

So says Jack

on Feb 26, 2005
I disagree 100% with this blog.

I've run about 14 different retail stores, ranging from a 250K a year tiny store, all the way up to a 6.5 million a year megastore in a huge mall. I also have a few solid years running a million dollar internet business. The differences between them are pretty minimal, and if you don't think they are, then you probably don't have experiance on both sides of the spectrum.

A single bad customer online, can cost you hundreds, perhaps thousands of customers for your online store. But at the same time, don't overstate the power of a walk-in customer being pissed off in a retail location, its not as damaging as you think. This internet business stuff is really quite similar to having a retail location, if you don't run a business with the primary focus being customer satisfaction, then you won't grow the business to the level of the big boys. It may not effect you in a way you can guage properly, but it will effect you in the long term with the growth of the business in question. There are plenty of real world examples out there to illustrate this.

Also, to correct you on your conversion statistics. Typical Mall stores get about 50-150 people per day, but this can vary depending on the mall and the day of the week/season. I've run stores in the biggest malls in the midwest, and the smallest, but on average, its about 50-150 walkthroughs per day (spikes on holidays and weekends). Conversion rate is actually much higher than 5%, i've touched actual reports showing they are in the area of 15-35% depending on the quality of the sales team. I've personally operated locations that had only about 100 people a day (on average), and conversion rates of nearly 50%.

Theres only really two ways to increase sales in a typical retail business. (internet or otherwise)

1) Grow the amount of customers that come to your location.


2) Increase the amount each of your existing customers purchase. (and this doesn't mean raising prices)

When I take over sagging Retail operations (and one of my job titles was turnaround artist), the very first thing I did was teach people how to "Upsell" and "Addon" to existing purchases. Since in the short term, I cannot increase the actual amount of people shopping at my location, my task was to just make everyone that did shop there, purchase more. A pretty basic business principle, but one that many people/companies just don't understand. Using this practice, I was able to have consistant 60-150% salesgains over a period of 8 years.

Why do you think McDonalds workers ask you "Do you want to "Supersize this for an additional 39cents?"? The concept is quite remarkable when you see how it can affect your bottom line, and successful businesses employ it quite regularly. For example, I renewed my Fileplanet subscription today, and during the signup process, they asked if "Want to add an IGN subscription for an additional $10, which will give me Xxxxxx stuff".. Theres a reason companies do this, Fileplanet has a finite amount of people out there they can appeal to, their business model has shifted to upselling and addons.
on Feb 26, 2005

I can't see how you can really compare a retail business that gets say 150 people walking in the door each day and a business that gets 150,000 people walking in the door each day. It completely changes the dyanmic.

on Feb 27, 2005
150 (customers) x 7000 (number of RadioShack Stores), then you have just over 1 million customers. (read hits)

on Feb 27, 2005

But that's still not analogous to a single site.

The manager of a single store is not having to deal with, on a personal basis, very many customers.  By contrast, on an Internet-based business, the "manager" is more likely to deal with an unhappy customer.

For example, when we announced DesktopX 3 and included DesktopX 3 Pro in the announcement, we had one person who was outraged that DesktopX 3 Pro didn't come with Object Desktop. He was able to vocalize this.  As the numbers of users increases, the odds of someone being unhappy about an announcement approaches 1.

At retail (and I do have some retail experience) there is real emphasis to not alienate any customers.  In an Internet based business, because of the numbers, we're going to deal with unreasonable people much more often.  And because of the numbers, we can take a harder line.

It is, for instance, pretty unusual for a retail outlet to ban a customer from a store. It happens but it's rare.  The manager of the B. Dalton I worked at, for instance, never had that come up.  By contrast, we ban people all the time.  We occasionally forcibly refund people and ban them from purchasing our out if things are getting out of hand.

Now, if a single Radio Shack was getting a million visitors each day, I suspect things would be much more similar then.  But they don't.  Hence the difference.  Internet-based businesses are much much more likely to run into unreasonable people in terms of raw numbers and as a result has to deal with them in a very different way.

on Feb 27, 2005
Why do you think McDonalds workers ask you "Do you want to "Supersize this for an additional 39cents?"?

Slight problem with that statement - McDonalds QUIT offering Supersize because of a lawsuit filed that claimed people were getting fat from McDonalds food - and that McDonalds food is addicting...

Back to topic...

Speaking of Internet based business on a large scale how about Fry's electronics or Newegg? I'm sure they get alot of online customers.

But then again I'm not sure...
on Feb 27, 2005
Brad, I think the dynamic is different online not because of the number of people, but because on the Net people tend to voice more their opinions and get obsessive about it. If you ran a physical store, you might have had one or two customers who would have expected this product to be this or that way. They might even demand to talk to the manager, and let him know that they think that this $200 product is only worth $20. But if the manager refuses, chances are the customer will just leave and never come back. He'll never get obsessive and come back everyday, 10 times a day and talk to every client in the store trying to convince them that the store is overpricing, or whatever. On the Net people do that. The dynamic is different. First it's much easier, the site is only one click away, and second it's easier to rant and whine and hiss a fit when nobody can see your face or hear your voice.
on Feb 27, 2005

I agree. Not having to face the people you deal with allows "customers" to engage in behavior they would not likely engage in if they were actually there in front of the person.


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