You heard it on the grapevine

18 months on from starting up Virgin Wines (http://www.virginwines.com/) and with all the recent gloom and uncertainty in the market, I thought it might be interesting to share with you some of the successes, key learnings and hard facts that have come from my experience in the dot com world.

The industry is now maturing to the point where it is becoming clearer what works and what doesn’t. And the point is, it can work. It can work remarkably well. I’d be interested in hearing back from you what your experiences have been (post any replies here) and I’d also like to offer any UK readers £20 worth of free wine – details at the end.

Below are headings that broadly cover two key areas: 1) the much-hyped Customer Relationship Management (CRM) and 2) the fundamentals of optimising site content and design. If done properly, both pay dividends.

1. Personalisation and Community

Does it work? What’s the return on investment?

We have found that the reward for getting people involved is huge. For customers who have not used any of our personalisation or community features, we achieve an average repeat buy rate of around 20%, which is good though not exceptional. For customers who have been through our CRM program, which is designed to increase loyalty and returns per customer, the repeat buy rate goes up to 50% on average. However, for those customers who have got involved with any of our personalisation or community features, the repeat buy rate exceeds 70%.

So, yes, it does work. Getting customers involved should increase repeat buy rates by a factor of at least 3 to 1. Furthermore, those customers that do have this form of relationship with you naturally up-sell themselves over time. The more involved the customer and the longer they have been a customer, the higher their average spend is over time. As levels of trust and involvement grow, the higher the switching barriers and, correspondingly, the lower the churn rates. It isn’t easy to achieve this level of customer commitment and it is something that you must earn over time, but it is absolutely key to long term strong profitability.

There are, however, two caveats that I would add to personalisation and community:

We do not believe that ‘passive’ personalisation works: the supposed intelligent inference of customer preferences based on where they have been on a site in order to dynamically serve content that will match their preferences. Not only is there a large amount of work required in creating the business rules and processes to support this form of passive personalisation, but there is very little evidence to prove it actually increases conversion rates and much to show that it risks making erroneous assumptions. Much better to allow the customer to state his or her preferences rather than try and second guess them. Anyone have proof to the contrary?

Community for community’s sake is also futile. Token discussion boards to ‘give a sense of community’ have little value and are usually barren wastelands of inactivity. Community is only of any use if it supports and aids the customer’s ability to make a decision and act. Product-related community features, such as drinkers’ comments or ratings, which help people decide if and what to buy, are very powerful. Amazon have long shown the power of this use of community. Motley Fool’s discussion boards are thriving because they are extremely valuable in helping you make an investment decision.

2. Integrated cross-channel marketing

Never before have I been able to achieve the marketing nirvana that is possible with an online business such as Virgin Wines – an exact understanding of return per marketing pound spent, broken down across all marketing channels. By calculating the life time value of a customer and tracking the performance of all marketing activities we can guarantee payback per customer on marketing spend within a year.

How important is it to combine online with offline marketing?

It is extremely important. As an online-only operation it is crucial for customers to feel that there is a real organisation with real people behind it. Clearly the Virgin brand is a big help here, but still we get a number of customers phoning our call centre just to check it exists.

There are a range of things we do to try and optimise the blend of online and offline e.g.

- The call centre phone number features prominently on every page of the site

- We do wine tastings to get out and about amongst customers in the offline world

- Our customer contact strategy involves a carefully integrated program of e-mail + direct mail

E-mail is incredibly powerful for immediate response but once the impulse moment is gone, the opportunity evaporates. Interestingly, we once sent an offer to selected customers of a free case of wine. No strings attached, a completely free case of wine. Surprisingly the response rate was only marginally higher than normal. We can only surmise that many of the customers who received that e-mail did not believe it was a genuine offer, or at least there was enough of a moment of doubt, disbelief or suspicion that ‘Click’ and the offer had been deleted.

Direct mail may not achieve as high response rates but when combined with e-mail builds a depth of customer mind share and gives the marketing a ‘weight’ and substance that significantly increases the customers’ propensity to buy and responsiveness to future offers.

3. Customer Service

Not only is outstanding customer service a cornerstone of the Virgin brand, but it is one of the key differentiators for Virgin Wines. Supermarkets cannot offer the breadth of wine choice that we can online (we have over 17,000 wines to choose from) as they buy in bulk to maximise returns on sales per square foot, and yet still the best selling wine in the UK only accounts for 2% of total sales so customers like a wide range of wines. Equally, a supermarket cannot offer customers personalised recommendations in the way that a smaller local wine merchant who knows his customers can. We use modern technology to offer a friendly, personalised service to large volumes of customers and offer a great breadth and depth of choice.

This is not a new concept. ‘Mass customisation’ has always been one of the Holy Grails promised by the internet. But what have we found has worked in terms of delivering customer service for an online business?

- We don’t believe in automated customer service tools. It is fine to automate processes such as ‘Forgot password’, but where a customer has made a specific enquiry, the only decent way of handling it is through a human. Automated tools may be adequate 98% of the time but it is the other 2% that really frustrates customers. You only have to frustrate them once and you will lose them forever.

- Once, we missed our guaranteed delivery deadline because the company we were using went bankrupt. The apology we sent out, which included compensatory money off vouchers, was the most successful piece of marketing we have done to date. It is not always the end of the world if you slip up, but you must treat people with respect and go overboard to make amends if things go wrong. Perversely, such a mistake can end up working in your favour if handled well.

- We call up our best customers and do free wine tastings with them. We also give them the direct phone number of our wine buyers. We go out of our way to make sure our best customers stay our best customers. Obvious, perhaps, but when it is so easy for customers to go elsewhere this has to be part of any CRM strategy.

- We have spent a lot of time optimising the key processes in the site to make it as easy as possible for customers to purchase. Even the smallest of hurdles, questions or doubts that a customer experiences in the purchasing process risks causing a lost sale. As a result of this constant and repeated scrutiny we have reduced our visit to enquiry ratio from 1.3% at launch to just 0.2% currently as well as raising our conversion rate from 3% to 12% in the same time.

- As mentioned earlier, we have a contact phone number placed prominently on every site page. As much as anything, this gives the customer a sense of reassurance that if they need help from a real human being it is always at hand.

4. Analytics

The key challenge here is to avoid data overload. Online gives you enhanced capabilities for data capture and analysis but this can lead to data paralysis. Surely there can be only one sensible approach – don’t analyse everything just because you can, but work out what you need to analyse to run your business more efficiently and analyse that. What are your key business drivers in maximising profitability? What ‘levers’ do you have to pull and what effect will they have?

We map out our business drivers, creating a tree of levers that contribute towards an end goal of more profit, faster. That, in turn, provides a framework for measurement which has corresponding metrics that allow us to gauge what effect our lever pulling efforts are having. With the required metrics and reporting processes in place it is possible to have unparalleled levels of real time insight into the performance of your e-business. This insight provides the intelligence to make better and faster decisions in the effort to maximise returns on investment.

5. Site Content and design

Below is some of our thinking on how to go about creating a site that works. Bear in mind that these comments are for an e-commerce site targeted at customers with particular needs and purchasing mindsets.

- Shoppers versus Browsers. How far should you try and cater for people who are just browsing rather than shopping? Not at all, in our view. We focus all our efforts on gearing the site to make it as easy as possible for people to find and buy what they want. In some cases, people may need some help deciding what they want, but rather than providing them with an overload of possibilities we give a few easy suggestions to buy. We have found that taking content off the homepage increases performance. The temptation is to try and push all that you have at users but this distracts them from their intent to purchase. Once you have hooked a customer in with a first purchase, it is then that you can begin to communicate with them to open their eyes to everything else that you have to offer.

- Content. As discussed earlier with ‘community’ we believe content is only of any value if it helps a customer act or decide. Product-related content is very useful to customers. However, articles on the merits of cork versus plastic corks are of little value. Consider that the combined circulation of Britain’s top two wine magazines is only 15,000 and you get an idea of the level of real interest there is in subjects such as this. And even then, why would you read this online and not in one of those magazines if you were the kind of person interested in such things?

- The ‘customer journey’. As well as obsessing about customer service, we spend a lot of time and effort making sure that every step of the customer journey is as smooth and painless as possible. The impact that the smallest of changes can have on the bottom line can be substantial. As stated earlier we have raised our conversion rate from 3% to 12% (Amazon are around 9%) since launch. This is due, in part, to repeat custom but it is also because we scrutinise every part of every step of the customer journey to make sure we carry customers along to purchase.

- New content. We don’t actually do lots of qualitative research and validation in order to ascertain what new content we should or should not add to the site. Rather, we generate ideas and propositions intuitively and then test them in a controlled way to see how well they work. This allows us to then iterate and refine before rolling out to the wider customer base.

I hope that has been of interest. What I have said is not meant as a series of definitive answers to common challenges that e-businesses face but as a series of observations, facts and figures that reflect the reality of what it is like to operate an online business. The main point is that it can work. Virgin Wines’ business model, with low variable costs, is well geared towards enjoying continuing growth.

Why not give it a try? We’ll give you £20 off your first case of wine. Go to http://www.virginwines.com choose your wines with the help of our wine wizard and enter these voucher details in the Shopping Basket when prompted:

Voucher Code: ECONSULTANCY
Password: ECRM

Happy drinking

Rowan Gormley
Group CEO
Virgin Direct

A very interesting article. Its always good to hear real world experience. Its also good to hear some positive stories about Internet business models and how the Internet can enhance a business which can exist in an off-line world.

Shame I couldn't use the voucher on a bin-end case.

Best Wishes for the future

I agree with other comments about Rowan's post - an excellent and interesting analysis. Hearing things from the horse's mouth is always of more value than navel-gazing and hypothesising...

I subscribed to Virgin Wines a few months ago after seeing the £20 voucher carrot on Motley Fool & bought a case. It was efficiently delivered and I tucked in. Unfortunately the first wine I opened was sth of a duffer, so I e-mailed them to say I thought it was either corked or had gone off. Rowan's pts below re the value of having real people present and his experience with the delivery company that went bust were amply demonstrated in my own experience. I was promptly offered a credit to my account by the person who responded and the damage was more than repaired.

Rowan comments: "It is not always the end of the world if you slip up, but you must treat people with respect and go overboard to make amends if things go wrong. Perversely, such a mistake can end up working in your favour if handled well."

Abso-bloody-lutely. We're all human and nobody is 100% perfect. But you respect a company a lot more when they acknowledge that about themselves and take every step to rectify a problem. And here I am on this site praising Virgin Wines' efforts to put things right. So job done. It constantly amazes me that more companies (on or offline) haven't got this sussed.

His comment about the value of DM complementing e-mail is also valid. I was one of those people who pretty quickly deleted the e-mail update from Virgin, but opened the letter. There, I found another money-off incentive and - guess what - I took it. OK, you could say that offering people cash should always work, but that's not my point. I wouldn't have known about it if I hadn't received the letter as well as the e-mail. I would suggest that they tweak the letter wording to refer to the fact that I might have already deleted the e-mail and make sure that the letter comes across a tad differently from the e-mail (even if the offer itself is identical).

His comment about the level of content served is interesting, too. It reinforces the view that the industry has matured beyond the content-for-content's-own-sake argument. If you're in Virgin's shoes, you must say "What are we here for?" Answer: to shift as many bottles of this stuff as possible to as many happy punters as poss. Put simply, the content of the site should address these aims and no more. I actually set up a wine company a couple of years ago and spent several months formulating a proposal to set up sth similar with my partners. Conversely, our plan was loaded with a lot more 'magazine/lifestyle-type content. With hindsight, I think Rowan has got the balance about right.

So cheers, bottoms up & all that...

Sam

On 13:48:15 26 July 2001 gormler wrote:
>18 months on from starting up Virgin Wines
>(http://www.virginwines.com/) and with all the recent
>gloom and uncertainty in the market, I thought it might be
>interesting to share with you some of the successes, key
>learnings and hard facts that have come from my experience
>in the dot com world.
>
>The industry is now maturing to the point where it is
>becoming clearer what works and what doesn’t. And
>the point is, it can work. It can work remarkably well.
>I’d be interested in hearing back from you what your
>experiences have been (post any replies here) and
>I’d also like to offer any UK readers £20 worth
>of free wine – details at the end.
>
>Below are headings that broadly cover two key areas: 1)
>the much-hyped Customer Relationship Management (CRM) and
>2) the fundamentals of optimising site content and design.
>If done properly, both pay dividends.
>
>1. Personalisation and Community
>
>Does it work? What’s the return on investment?
>
>We have found that the reward for getting people involved
>is huge. For customers who have not used any of our
>personalisation or community features, we achieve an
>average repeat buy rate of around 20%, which is good
>though not exceptional. For customers who have been
>through our CRM program, which is designed to increase
>loyalty and returns per customer, the repeat buy rate goes
>up to 50% on average. However, for those customers who
>have got involved with any of our personalisation or
>community features, the repeat buy rate exceeds 70%.
>
>So, yes, it does work. Getting customers involved should
>increase repeat buy rates by a factor of at least 3 to 1.
>Furthermore, those customers that do have this form of
>relationship with you naturally up-sell themselves over
>time. The more involved the customer and the longer they
>have been a customer, the higher their average spend is
>over time. As levels of trust and involvement grow, the
>higher the switching barriers and, correspondingly, the
>lower the churn rates. It isn’t easy to achieve this
>level of customer commitment and it is something that you
>must earn over time, but it is absolutely key to long term
>strong profitability.
>
>There are, however, two caveats that I would add to
>personalisation and community:
>
>We do not believe that ‘passive’
>personalisation works: the supposed intelligent inference
>of customer preferences based on where they have been on a
>site in order to dynamically serve content that will match
>their preferences. Not only is there a large amount of
>work required in creating the business rules and processes
>to support this form of passive personalisation, but there
>is very little evidence to prove it actually increases
>conversion rates and much to show that it risks making
>erroneous assumptions. Much better to allow the customer
>to state his or her preferences rather than try and second
>guess them. Anyone have proof to the contrary?
>
>Community for community’s sake is also futile. Token
>discussion boards to ‘give a sense of
>community’ have little value and are usually barren
>wastelands of inactivity. Community is only of any use if
>it supports and aids the customer’s ability to make
>a decision and act. Product-related community features,
>such as drinkers’ comments or ratings, which help
>people decide if and what to buy, are very powerful.
>Amazon have long shown the power of this use of community.
>Motley Fool’s discussion boards are thriving because
>they are extremely valuable in helping you make an
>investment decision.
>
>2. Integrated cross-channel marketing
>
>Never before have I been able to achieve the marketing
>nirvana that is possible with an online business such as
>Virgin Wines – an exact understanding of return per
>marketing pound spent, broken down across all marketing
>channels. By calculating the life time value of a customer
>and tracking the performance of all marketing activities
>we can guarantee payback per customer on marketing spend
>within a year.
>
>How important is it to combine online with offline
>marketing?
>
>It is extremely important. As an online-only operation it
>is crucial for customers to feel that there is a real
>organisation with real people behind it. Clearly the
>Virgin brand is a big help here, but still we get a number
>of customers phoning our call centre just to check it
>exists.
>
>There are a range of things we do to try and optimise the
>blend of online and offline e.g.
>
>- The call centre phone number features prominently on
>every page of the site
>
>- We do wine tastings to get out and about amongst
>customers in the offline world
>
>- Our customer contact strategy involves a carefully
>integrated program of e-mail + direct mail
>
>E-mail is incredibly powerful for immediate response but
>once the impulse moment is gone, the opportunity
>evaporates. Interestingly, we once sent an offer to
>selected customers of a free case of wine. No strings
>attached, a completely free case of wine. Surprisingly
>the response rate was only marginally higher than normal.
>We can only surmise that many of the customers who
>received that e-mail did not believe it was a genuine
>offer, or at least there was enough of a moment of doubt,
>disbelief or suspicion that ‘Click’ and the
>offer had been deleted.
>
>Direct mail may not achieve as high response rates but
>when combined with e-mail builds a depth of customer mind
>share and gives the marketing a ‘weight’ and
>substance that significantly increases the
>customers’ propensity to buy and responsiveness to
>future offers.
>
>3. Customer Service
>
>Not only is outstanding customer service a cornerstone of
>the Virgin brand, but it is one of the key differentiators
>for Virgin Wines. Supermarkets cannot offer the breadth of
>wine choice that we can online (we have over 17,000 wines
>to choose from) as they buy in bulk to maximise returns on
>sales per square foot, and yet still the best selling wine
>in the UK only accounts for 2% of total sales so customers
>like a wide range of wines. Equally, a supermarket cannot
>offer customers personalised recommendations in the way
>that a smaller local wine merchant who knows his customers
>can. We use modern technology to offer a friendly,
>personalised service to large volumes of customers and
>offer a great breadth and depth of choice.
>
>This is not a new concept. ‘Mass
>customisation’ has always been one of the Holy
>Grails promised by the internet. But what have we found
>has worked in terms of delivering customer service for an
>online business?
>
>- We don’t believe in automated customer service
>tools. It is fine to automate processes such as
>‘Forgot password’, but where a customer has
>made a specific enquiry, the only decent way of handling
>it is through a human. Automated tools may be adequate 98%
>of the time but it is the other 2% that really frustrates
>customers. You only have to frustrate them once and you
>will lose them forever.
>
>- Once, we missed our guaranteed delivery deadline because
>the company we were using went bankrupt. The apology we
>sent out, which included compensatory money off vouchers,
>was the most successful piece of marketing we have done to
>date. It is not always the end of the world if you slip
>up, but you must treat people with respect and go
>overboard to make amends if things go wrong. Perversely,
>such a mistake can end up working in your favour if
>handled well.
>
>- We call up our best customers and do free wine tastings
>with them. We also give them the direct phone number of
>our wine buyers. We go out of our way to make sure our
>best customers stay our best customers. Obvious, perhaps,
>but when it is so easy for customers to go elsewhere this
>has to be part of any CRM strategy.
>
>- We have spent a lot of time optimising the key processes
>in the site to make it as easy as possible for customers
>to purchase. Even the smallest of hurdles, questions or
>doubts that a customer experiences in the purchasing
>process risks causing a lost sale. As a result of this
>constant and repeated scrutiny we have reduced our visit
>to enquiry ratio from 1.3% at launch to just 0.2%
>currently as well as raising our conversion rate from 3%
>to 12% in the same time.
>
>- As mentioned earlier, we have a contact phone number
>placed prominently on every site page. As much as
>anything, this gives the customer a sense of reassurance
>that if they need help from a real human being it is
>always at hand.
>
>4. Analytics
>
>The key challenge here is to avoid data overload. Online
>gives you enhanced capabilities for data capture and
>analysis but this can lead to data paralysis. Surely there
>can be only one sensible approach – don’t
>analyse everything just because you can, but work out what
>you need to analyse to run your business more efficiently
>and analyse that. What are your key business drivers in
>maximising profitability? What ‘levers’ do you
>have to pull and what effect will they have?
>
>We map out our business drivers, creating a tree of levers
>that contribute towards an end goal of more profit,
>faster. That, in turn, provides a framework for
>measurement which has corresponding metrics that allow us
>to gauge what effect our lever pulling efforts are having.
> With the required metrics and reporting processes in
>place it is possible to have unparalleled levels of real
>time insight into the performance of your e-business. This
>insight provides the intelligence to make better and
>faster decisions in the effort to maximise returns on
>investment.
>
>5. Site Content and design
>
>Below is some of our thinking on how to go about creating
>a site that works. Bear in mind that these comments are
>for an e-commerce site targeted at customers with
>particular needs and purchasing mindsets.
>
>- Shoppers versus Browsers. How far should you try and
>cater for people who are just browsing rather than
>shopping? Not at all, in our view. We focus all our
>efforts on gearing the site to make it as easy as possible
>for people to find and buy what they want. In some cases,
>people may need some help deciding what they want, but
>rather than providing them with an overload of
>possibilities we give a few easy suggestions to buy. We
>have found that taking content off the homepage increases
>performance. The temptation is to try and push all that
>you have at users but this distracts them from their
>intent to purchase. Once you have hooked a customer in
>with a first purchase, it is then that you can begin to
>communicate with them to open their eyes to everything
>else that you have to offer.
>
>- Content. As discussed earlier with
>‘community’ we believe content is only of any
>value if it helps a customer act or decide.
>Product-related content is very useful to customers.
>However, articles on the merits of cork versus plastic
>corks are of little value. Consider that the combined
>circulation of Britain’s top two wine magazines is
>only 15,000 and you get an idea of the level of real
>interest there is in subjects such as this. And even then,
>why would you read this online and not in one of those
>magazines if you were the kind of person interested in
>such things?
>
>- The ‘customer journey’. As well as obsessing
>about customer service, we spend a lot of time and effort
>making sure that every step of the customer journey is as
>smooth and painless as possible. The impact that the
>smallest of changes can have on the bottom line can be
>substantial. As stated earlier we have raised our
>conversion rate from 3% to 12% (Amazon are around 9%)
>since launch. This is due, in part, to repeat custom but
>it is also because we scrutinise every part of every step
>of the customer journey to make sure we carry customers
>along to purchase.
>
>- New content. We don’t actually do lots of
>qualitative research and validation in order to ascertain
>what new content we should or should not add to the site.
>Rather, we generate ideas and propositions intuitively and
>then test them in a controlled way to see how well they
>work. This allows us to then iterate and refine before
>rolling out to the wider customer base.
>
>I hope that has been of interest. What I have said is not
>meant as a series of definitive answers to common
>challenges that e-businesses face but as a series of
>observations, facts and figures that reflect the reality
>of what it is like to operate an online business. The main
>point is that it can work. Virgin Wines’ business
>model, with low variable costs, is well geared towards
>enjoying continuing growth.
>
>Why not give it a try? We’ll give you £20 off
>your first case of wine. Go to http://www.virginwines.com
>choose your wines with the help of our wine wizard and
>enter these voucher details in the Shopping Basket when
>prompted:
>
>Voucher Code: ECONSULTANCY
>Password: ECRM
>
>Happy drinking
>
>Rowan Gormley
>Group CEO
>Virgin Direct

Excellent article, sounded like an excellent site reinforcing the virgin brand however I have to say I have just spent a confusing 10 mins trying to find some wines that are like my favourites chateauneuf, st emillion and cotes du rhone only none seem to be stocked or even heard of on your search function. Sure I can find red full bodied but as someone who is bang in your target audience (buys and drinks a fair amount of wine, has bought online more times than I care to think of (including wine) I was more than a little disappointed.

I hate call centres so to be fair I haven't called in which may have improved my opinion.

So for what its worth I thought I would look at some of your competition, and whilst we can't compare the actual results they are achieving in terms of conversions etc here's my two pence worth on initial impression.

Oddbins - A store I have always enjoyed visiting - website experience was awful, slow load times, useless search function - was so slow I gave up.

Laithwaites - Ok so I didn't go through to purchase but what a difference, not only could I find my favourite wines but in true amazon fashion "if you like this you might also like etc..." or then find by grape, region etc exactly the sort of functions that add value over and above buying the same old favourites from the supermarket. The other direct wines sites offered similar functionality but site design was in line with the different brands.

Majestic - again another excellent site (v. quick too) one I have used several times.

On reflection revisiting virgin wines perhaps I misunderstood your target audience as highlighting wines at £3.99 is really at the cheap and cheerful plonk end of the market. (not really where I associate the virgin brand)

Hi Rowan

Very impressive post ....The specifications you have given are really appreciable ..Thanks for sharing nice stuff ....

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