Beyond the Shopping Cart by Alessio Vasta

BEYOND THE SHOPPING CART Sales Tax & the Internet Retailer

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Beyond the Shopping Cart: Sales Tax & the Internet Retailer

If Amazon has taught us anything, it’s that customers will continue to spend billions on online products and services and the companies smart enough to grab their business will reap the benefits of a newer, faster economy. Ecommerce, buying and selling online, is one of the fastest growing sectors of the retail economy. It offers consumers everything from hand-made jewelry to ziplining adventures to last-minute deals on luxury dinners. According to Internet Retailer, global ecommerce is expected to top $1.5 trillion in 2013. Ecommerce is more than a gateway to new markets, however. It’s also a way for merchants to go to market faster, with lower fixed costs and administrative overhead. A recent survey by international marketing firm IPSOS backs this up. 73% of retailers believed going online actually lowered their administrative expenses; 48% felt the Internet helped them reach more customers; and 64% reported increased sales and revenue. But if selling online is so great, why do so many etailers fail? Why are some websites more difficult to navigate than the autobahn on a Vespa? Finding a shopping cart that works for business objectives can be similarly harrowing. Whether you’re a very small business selling paper mache statues of James Bond, or a multi-national corporation offering wholesale products to distributors, the capabilities an ecommerce cart must address through or via the cart include: • Acquiring new customers. • Displaying products/services. • Processing orders and payments. • Shipping orders, and more. A series of in-depth conversations with industry insiders culminated in this brief, which identifies how companies can frame questions to more quickly and affordably get going and succeed online. These four key questions are: 1. What does your company need a shopping cart to address? 2. How important is product catalog to your larger ecommerce goals? 3. How can shopping cart software address abandoned shopping carts and increase customer satisfaction? 4. Does the shopping cart support core business functions and help ecommerce merchants comply with applicable local, state, and federal regulations? Page 1

BEYOND THE SHOPPING CART. ©Avalara.2013

What does your company need a shopping cart to address? Picking the right technology for your ecommerce objectives seems pretty straightforward, but the sheer number of shopping cart options can be overwhelming. Understanding shopping cart characteristics and knowing which questions to ask will make picking a cart far less onerous. Whether virtual or brick-and-mortar, companies may use some combination of manual and/or automated processes to run core business functions, and the same applies to ecommerce shopping carts. For many growing ecommerce merchants, automation is the only scalable solution to address future plans. The following chart highlights some of the advantages of automated versus manual processes.

What do you need a cart to do? 1. Is my company introducing a product that will disrupt the status quo? Is the product highly unusual or unique? A build-your-own shopping cart solution might be required.

Running a successful ecommerce shopping cart depends both on the technology used and the fundamental questions triggered by the search for a shopping cart. Given that

MANUAL

Ecommerce Shopping Cart

2. Do we want to sell a high volume of products at the cheapest price? A hosted, commercial solution might be best for merchants running a price-led, ecommerce-only business.

Acts as integration point between customers and business.

3. Are we trying to build a social element that builds more brand loyalty into the customer experience? Many commercial and open source carts connect to social commerce options. Build-it-yourself carts often have this option as well.

Cart pushes order to applicable process centers (inventory, sales tax, purchasing).

AUTOMATED

Presents catalog of items.

Provides customer touch points— order status, loyalty program, discounts, coupons, deals, announcements, etc.

there is a cart for every price point and for every need, the more important question to ponder isn’t which cart, but what do you need the cart to do? And what you’d like to automate vs. what is manually handled. For some great cart options, go here.

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Additional shopping cart questions to consider:

P Is it hosted or not hosted? P How readily available is online support? P Is the data secure? P Can it scale as your business expands? P Is it feature rich – does it have add-ons? P Does it require an additional investment in hardware (servers, computers, etc.)?

P How much will it cost to purchase, implement and operate annually?

P How does the cart address sales tax compliance? P What kind of IT resources will be required? P Is the shopping cart automated (in the cloud) or does it require manual updates and administration?

A successful ecommerce shopping cart decision obviously includes a technology choice, but it should also incorporate the overall brand, values, and strategy of an organization, all while providing customers with a robust search and intuitive and appealing presentation. Yet even with all of these elements in play, if an ecommerce merchant doesn’t present products and services in a cohesive, accurate, and timely fashion, all these efforts will be in vain.

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How important is product catalog to your larger ecommerce goals? According to some industry experts, many people assume assembling a functional catalog is straightforward and that inputting additional data points somehow happens automatically. Putting together product listings and presenting features and specs seems straightforward. Who doesn’t know how to catalog a series of items? Yet the success of an ecommerce shopping cart—and the ecommerce venture itself—depends on the product catalog to upsell, cross-sell, personalize, and integrate with website content via micro-sites or landing pages.

“The e-retailer that gets the sale today is the one that convinces the shopper it offers her something she perceives to be more valuable than what she can find elsewhere on the web or in a retail store.” — Internet Retailer

Setting up and gathering data for an ecommerce catalog often takes 30% more time and money than is typically budgeted for shopping cart development. Gathering the content for the product catalog is extremely time-intensive and is the “nuts and bolts piece people often overlook,” according to one industry expert. Developing the supporting data tables includes: 1. Gathering content. 2. Producing effective product images. 3. Identifying product features, including numbers prices, discount prices, and product benefits. Catalog maintenance and integration into the inventory control system impact customer satisfaction. Sales can easily be lost when a customer orders a product online that is listed as available but is really back-ordered for two months. According to one analyst, “It’s important to focus on the items that matter the most. Generally, 80% of customer demand is generated by 20% of your catalog items. Focus on that 20% and you’ll be on your way.” Each product should have an easily identifiable core benefit, according to the analyst. “If I’m looking at a golf-club, I want to see the specific benefits first—such as the grip is the same one used by Jack Nicklaus.” Other recommendations include creating a catalog mock-up, identifying the size of the catalog and how much memory it requires (server size), as well as forecasting the number of products to be offered in future. Database failures relating to catalogs can dramatically undercut profitability. A good product catalog makes customers want to come back, which leads to more money and more profits. However, customer satisfaction involves much more than access to a well-presented and accurate product catalog.

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How can shopping cart software address abandoned shopping carts and increase customer satisfaction? Shopping carts must perform well within all elements of user experience, including speed, usability, and attractive product display, in order to avoid the dreaded abandoned shopping cart. Customer satisfaction is correlated to abandoned shopping carts and there are a host of theories about how to prevent them.

The vast majority of over 1,600 ecommerce customers recently surveyed identified order tracking as the most important aspect of online shopping.

79% 45% 39%

Online Chat or Instant Messaging

Video Demos of Product Assembly or Installation

Tracking Delivery

There are as many opinions about the key elements of customer service as there are ecommerce portals. Some think that customer service hinges on order accuracy, while others believe data security and speed are more important. Common traits shared by successful businesses include: • Addressing every request and fulfilling customer needs. • Letting the customer choose how they want to interface with customer service (via chat, phone, email or instant message). • Notifying customers of key policy changes or upcoming campaigns. • Establishing a customer loyalty program so that the site becomes more than a deal aggregator. • Consistently leveraging social media. Other elements of excellent customer service include live shipment tracking, referral bonuses, order history, and loyalty programs. The methods used to communicate with customers—whether social media, forums, reviews, or mobile applications—can create or interfere with customer loyalty. Once a company has established the kind of ecommerce experience it wants to offer customers, the approach it will use to manage data, and how each of these elements will integrate within existing systems, it might finally be time to consider which cart makes the most sense.

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Does the shopping cart support core business functions and help ecommerce merchants comply with applicable local, state, and federal regulations?

“The shopping cart software must incorporate compliance functions, either through a native service or an add-on, or companies face an increased risk of audit.”

Most ecommerce merchants are aware that their cart needs to be PCI compliant (Payment Card Industry Data Security Standard), by maintaining a secure environment. Other crucial tasks, like applying the correct sales tax rate or managing exemption certificates are often overlooked. Let’s face it. Someone looking for an affordable easy-to-use shopping cart to sell goods and services online is not likely to prioritize compliance capabilities unless they’ve been on the wrong end of an audit. Business leaders consistently identify adherence to government regulations as a significant barrier to growth. Regulatory rules regarding sales tax, reporting, shipping, receiving and payroll, can undermine ecommerce efforts unless proactively addressed. And automating those processes so they do not have to be integrated manually saves time and money. The shopping cart software must incorporate compliance functions, either through a native service or an add-on, or companies face an increased risk of audit. To address compliance, the ecommerce shopping cart software needs to integrate with core business functions. Something many companies don’t consider until it’s too late, especially since questions of design and customer engagement, usability and brand presence often dominate shopping cart strategy. Technical issues are often relegated to IT. Yet the overarching strategy of choosing the right shopping cart becomes more fragmented and arduous if lines are drawn between marketing and IT, accounting and fulfillment. For an ecommerce venture to be profitable, it must integrate elements of IT, marketing, accounting, compliance, and operations. If it doesn’t, problems will continually arise. A few considerations by department and core business function include the following: From an IT perspective, implementing a shopping cart that lacks integration with current systems can create a technological nightmare. If the software lacks the ability to scale or fails to function as claimed, the IT department must dedicate endless hours and resources to solve the issue. On the other hand, a shopping cart solution that integrates shipping, mail management, sales tax, brand management, and predictive analytics will ultimately make the work of the IT department far less onerous. From a marketing and creative perspective, it is difficult to create an amazing design and maintain brand consistency between ecommerce and other channels, including the company’s main website. Marketing and creative teams are often left with patch-together solutions that often undercut each other. The failure to integrate the ecommerce solution into the overarching goals of the marketing teams can create a disjointed and dissatisfactory customer experience and negatively impact customer acquisition and management.

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From an accounting and compliance perspective, the nuts and bolts of implementing an effective shopping cart solution can create synergies if done well, and mountains of additional tasks if not. Companies will be exposed to audit risk and customer complaints unless the shopping cart integrates with inventory, purchasing, catalog and fulfillment aspects of the business. Calculating sales tax, shipping, and tracking exemption certificates correctly within the cart means finding a solution that integrates tax calculation and address verification, handles tax exempt transactions, manages exemption certificates, and so forth. As more and more states collect online sales tax, more and more ecommerce businesses will be required to remit it. Shopping carts should support rather than detract from core business functions such as marketing and IT, accounting and order processing. A truly exceptional shopping cart does more than sell products and services quickly and securely. Ecommerce shopping carts should integrate (through native or add-on capabilities) with core business functions. The shopping cart you choose should support how you want to (or do) address customer acquisition, customer management, catalog management, customer communication and business systems. Each core task of the cart should integrate with key departments within an organization (either manually providing required information, or allowing integration and automation with business systems such as sales and marketing and accounting and/or compliance).

Core business functions within a shopping cart

Customer Management

Customer Communication

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Customer Acquisition Catalog Management Business Systems

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Sales tax:

Automating the sales tax processes within the shopping cart software itself solves one of the key challenges facing ecommerce—how to accurately collect, file, and remit sales tax to the right jurisdiction at the right time. In the U.S. alone there are over 11,000 taxing jurisdictions, many of which (e.g., Florida, Texas, California) are requiring out of state ecommerce companies to collect sales tax for the first time. If the national effort to effectively end sales tax-free online shopping succeeds, the already difficult risk-prone sales tax problem will worsen. The solution? Automating the process with a cloud-based sales tax solution that resides within the shopping cart itself, or is easily added on. Once ecommerce merchants expand to global markets, VAT (value added tax) adds another component to the tax rules puzzle. Sales, use, VAT rules and rates require a comprehensive transactional tax solution, one that integrates seamlessly with your shopping cart (Avalara products have over 150 shopping cart connectors).

Conclusion

Finding and setting up a world class ecommerce shopping cart to take your business to new markets in the U.S. and abroad doesn’t have to be overly complicated, but strategic planning and research can set the stage for easier implementation. Wait to sell your niche product online and you lose first-to-market advantage. Dive in too quickly, without a business plan or a scalable strategy, and you might flame out before you become profitable. Ignore compliance issues or fail to integrate your shopping cart with core business functions and you stand to lose everything.

Get Started.

To learn more about pricing, view online demonstrations, or chat about AvaTax’s capabilities, visit:

www.avalara.com or call 877.780.4848 today.

Just as “location location location” drives brick-and-mortar merchants to want the building at the corner of First and Main, the right shopping cart positions ecommerce merchants for success or failure, easy implementation or massive IT headaches. Finding the right shopping cart may be exciting, but it’s not always easy. If it were, more ecommerce ventures would succeed. Be warned: No matter what tool you use, ecommerce isn’t a set-it-and-forgetit affair. Testing, fine-tuning, integrating, and addressing customer process problems or data errors saves time and money. So carry on, ecommerce warrior! The world and all its customers are in your grasp.

About Avalara A privately held company, Avalara was founded by a team of tax and software industry veterans to fulfill a vision of delivering an affordable, scalable sales tax solution. Thus making what was not economically feasible in the past for mid-sized business not only affordable, but more accurate as well — all with the latest and most innovative technology available. From Bainbridge Island, close to Seattle, Avalara’s knowledgeable staff works tirelessly to help customers put the hassles of sales tax compliance out of mind. Avalara’s mission is to transform the tax process for customers by creating cost-effective state-of-the-art solutions. The company does so through integrated on-demand, Web-based software services that provide transparent transactions, accurate tax compliance, painless administration and effortless reporting.

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