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Wall Street Journal

December 2007

"Online Retailers Get Chatty to Drum Up Sales"

Live Talk Helps Track Consumer Behavior, Adds Personal Touch
By Raymund Flandez

Small online retailers are chatting up customers to get them to stick around on a site longer -- and buy something.

A case in point: Backcountry.com, a seller of high-end outdoor gear and apparel. The retailer's staff regularly talks live with customers online about the site's offerings, as well as provides buying tips and addresses any service issue.

"It's an interaction opportunity," says Sam Bruni, director of customer experience at the Park City, Utah-based company.

Backcountry, which has been using online-chat technology from LivePerson Inc. of New York since 2005, normally has 25 gearheads, as they're called, on staff to talk with customers. But with the holiday rush, the company has beefed up the number to about 50 chatters.

Engaging Customers

Retailers of all sizes are using virtual chat technology on their Web sites to ramp up customer service and sell more products. But the programs can be especially helpful to small players with limited marketing and research budgets -- offering a relatively low-cost way to track consumer behavior and concerns and react accordingly. They also allow small online companies to mimic some of the personalized attention that typically give them a competitive advantage in individual bricks-and-mortar stores.

"By engaging these consumers and understanding who they are and what they need, you [can] identify revenue opportunities that weren't there before," says Zachary McGeary, an associate analyst at Jupiter Research LLC, a New York Internet research and advisory firm.

That said, the service isn't for everyone. Because of the cost and manpower, some people say most of these chat interactions are worth it only for retailers selling expensive or highly complex products or those that often require sales representatives in the bricks-and-mortar world.

"You don't put live chat on a site that sells books," says Bernard Louvat, chief executive of chat-technology vendor inQ Inc. of Agoura Hills, Calif. With "the margin you're going to make per transaction on selling a book, you're not going to make enough money to pay for the cost of labor or [the] service."

Ways to Chat

A chat function can be set up in various ways. Some companies like Backcountry.com buy the technology and set up their own staff to do the chatting. Others outsource the talking to the vendors who supply the technology. There even are automated chat features made to look as if real people are behind them. For the most part, chat agents proactively engage visitors when they fail to complete a transaction, are having trouble at a particular page, or have been inactive for a specific period of time.

"You ask questions about what they're looking for and guide them to appropriate products or services that they need," says Kevin Kohn, executive vice president of marketing for LivePerson.

Pricing models vary. Some vendors offer a commission-based fee while others charge per chat. In addition, most have monthly or yearly licensing and maintenance fees. Backcountry.com pays 80 cents per chat to LivePerson, on top of the $10-an-hour salary for its gearheads.

According to Jupiter Research, such virtual interactions have increased conversion rates by as much as 20% -- meaning, two out of 10 Web-site visitors who would have left without buying anything are now staying online and purchasing something.

Live chats appear to be working for WhiteFence.com, a comparison-shopping site for bundled phone and Internet services for the home. When looking to outsource some of its customer-service operations back in May, the Houston-based company opted for an online-chat program from inQ. Instead of using its own staff to chat with customers, the company is using inQ chat agents, who have been trained on WhiteFence.com's products.

The agents can see what page the consumer is actually on in real time, but they can't see any proprietary consumer information. And they can interact with customers only when people are on a certain page for a certain amount of time or if they hit the back button two or three times in a row. "Is there something we can do to help you?" is a standard query. In addition, there's a chat button on the site that customers can click on to seek assistance on their own.

Mr. Louvat of inQ says the firm typically is paid between 10% and 15% of the value of each transaction that results from a chat.

WhiteFence.com expects to double its revenue this year to between $18 million and $20 million, due, in part, to its use of the chat technology, says Jeff Wagoner, the company's chief operations officer.

Preformulated Answers

Some small companies want the ability to interact with consumers online, but don't want or can't afford the costs of hiring a chat staff or outsourcing the work. So, they are turning to automated-chat technology, which can cost about 80% less than the other options, according to Jupiter Research.

With automated-chat technology, responses to frequently asked questions are preformulated and the technology can handle multiple chats at once and around-the-clock. If a consumer asks a question that the program doesn't recognize, it responds with a scripted answer such as a discount offer.

In August 2006, Donna Lynes-Miller, founder of GourmetStation.com of Atlanta, an online seller of prepared foods, started using an automated-chat feature from UpSellit.com, a division of USI Technologies, a Camarillo, Calif., technology company.

Aside from answering consumers' questions, the automated chatters try to entice hesitant shoppers. For instance, when someone leaves GourmetStation.com without making a purchase, a small chat screen pops up offering discounts like $10 off shipping.

"We work real hard to get traffic to our site, and we want to convert those visitors to purchasers," says Ms. Lynes-Miller, 58. "One way to increase conversions is by decreasing cart abandonment through offering a customer an incentive."

The automated-chat feature, she says, has managed to reduce the "abandonment rate" -- the rate at which people go into the site but don't buy anything -- by 10 percentage points to 40%. She adds that overall sales have grown 40% so far this year to $2 million, from the previous year, and she attributes 10% of that growth to the use of the software.


What's Happening: Small online retailers are using live chats to ramp up their customer service and sales.

The Options: Some retailers buy the technology and set up staff to do the chatting. Others outsource the talking or use an automated chat feature.

The Upshot: Live chats can be a relatively low-cost way to track consumer behavior. They also allow firms to mimic the personalized attention that can give them an edge in the bricks-and-mortar world. But some say it's worth it only if the products being sold typically require sales help.

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