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There aren`t many online retailers that wax poetic
about their customers, but at Newegg.com, a retailer of computer equipment
and consumer electronics, they are viewed as members of a close-knit
community. Indeed, Howard Tong, vice president of marketing, credits
the company`s success to the "love and support" of its customers.
That love affair began in 2001 when Newegg launched a web site to meet
the demands of technologically sophisticated consumers seeking computer
components. "When we started out, we really felt like we had a
cult following. It was these enthusiasts, these tech people who didn`t
have a web site or a home to go to to purchase products to sustain their
digital lifestyles," he says.
An online community
Newegg became that home and even today, when there
are plenty of other tech web sites, has developed a bond with its customers
that extends beyond the site, Tong says. In fact, customers are so rabid,
Newegg.com posts 615 pages of customer testimonials on its web site.
"When you go to the forums, the different
tech sites, people are talking about Newegg and about the specials and
deals we have," he says. "It`s an online community."
That avid following helped Newegg sustain close to 100% year-over-year
growth between its launch and 2004. Tong reports that sales at the privately
held company broke through the $1 billion mark last year and are expected
to increase to at least $1.4 billion this year.
Newegg.com focuses its product line on three areas: computers and computer-related
products, including hardware, software, parts and cards; consumer electronics,
including MP3 players and digital cameras; and communications, including
networking and wireless products.
The retailer serves more than 3 million established customers who on
average buy three to five items and spend about $300 each time they
make a purchase, according to Tong. It is among the 500 most-visited
web sites in the world. And with its doubling of sales last year, it
ranks among the 10 largest online retailers, according to the forthcoming
Internet Retailer Top 400 Guide to Online Retailers.
A basic tenet
Newegg.com on average has about 400,000 site visitors
a day. Its conversion rates range from 6% to a little over 7%, Tong
says. Newegg.com`s success illustrates a basic tenet of online retailing:
identify a customer base and stay true in marketing to that base, says
Patricia Freeman Evans, retail analyst at Jupiter Research. "They`re
missing a big component of the consumer base, but that`s okay,"
she says. "Tiffany doesn`t go after every customer either."
Newegg spent little on advertising when it launched the site, Tong says.
"When we started, most of the marketing was word of mouth,"
he says. "Our philosophy is if you have a good product, it will
spread. Once people find out they have a great experience, they`ll go
out and tell other people about it."
Today, Newegg.com uses a wide range of marketing vehicles, both online
and offline, although ad spending still is minimal. Newegg`s marketing
spend has always been under 1.5% of revenues. "We spent approximately
$14 million in 2004 and we plan to spend about $21 million in 2005,"
he says. Newegg expects to spend 1.5% of revenue on marketing this year.
Offline, the site advertises in more than 35 publications, including
Business 2.0, Computer Gaming World, and Computer Shopper. It also uses
billboards and radio advertising.
Online, Newegg.com employs comparison shopping sites, such as Bizate/Shopzilla,
Pricegrabber.com, Pricewatch and Shopping.com, to attract customers.
It also uses more than 20 keyword search engines, including Google,
Yahoo Search Marketing (formerly Overture), Industry Brains and Kanoodle.
And it runs banner advertising and messaging across 50 web sites.
Filling a need
The idea for Newegg emerged from requests from customers of New-egg`s
affiliate, a mail-order operation and PC system integrator. "We
started to get a lot of requests from our customers saying, `I don`t
need a whole new PC` or `I just want to upgrade my computer--maybe more
memory or a video card. Can you help us?`" Tong says. "Our
answer then was `We really can`t.` But we recognized it was a growing
market that no one was really addressing."
Tong describes Newegg`s core customers as do-it-yourselfers. "It`s
the person who is not afraid to crack the case of his computer or build
his computer from the ground up," he says. That group includes
gamers, tech enthusiasts, information technology professionals, and
so-called gadget people.
Customers also include people with what Tong terms digital lifestyles,
typically young consumers who are heavily into digital cameras, PDAs,
and other digital devices. "Fifty percent of our customer base
is between 18 and 30," he says.
And when these youthful customers grow up, leave school and move into
the workplace, they take their loyalty to Newegg with them. That has
opened new markets for the retailer. "When they need something
for their office or work environment, they buy from Newegg.com,"
Tong says. Newegg has used this channel to move into sales to home offices
and small to medium-size offices, he says.
Self-support
Because of the unique nature of its customer base, Newegg takes a different
approach to technical support staff--it has none. "We realized
that our customer base is a lot more savvy on the technical issues,"
Tong says. "We felt we couldn`t do it as well as our customers
could, so we allowed them to take care of each other."
That support takes the form of everything from instructions for assembling
a piece of equipment to troubleshooting, Tong says. Customers also can
research different products by accessing more than 136,000 reviews posted
on the Newegg site.
Customer service is an entirely different matter. Newegg employs a staff
of more than 100 customer service representatives who can do such things
as waive fees or send out replacement parts to unhappy customers without
consulting a supervisor, Tong says. "They have a lot of flexibility
to make the customer happy," he says.
Customers want to know that the company will take care of them not only
during the sale, but after the sale, he adds. To that end, it operates
its own call centers in California. "We do not outsource to any
third parties," he says. "In this way we can always be sure
of the best quality."
Products are shipped from seven warehouses in California, Texas and
New Jersey within a few hours of receiving the orders, Tong says. The
centers are equipped with digital and paperless picking systems using
software that it developed.
Newegg.com ships on average between 20,000 and 25,000 orders per day,
which equates to about 45,000 packages, Tong says. About 98% of the
orders are shipped within 24 hours. It uses Federal Express exclusively
for shipping and often can deliver items in advance of the scheduled
date, Tong says.
Going overseas
With its record of success thus far, it should be no surprise that Newegg.com
is looking to expand. The company expects to open offices in Europe,
Canada and Asia. It recently opened offices in Taiwan and China.
Newegg is beginning to edge into the mainstream consumer electronics
market, although it`s not targeting customers of mass market retailers.
"Those customers who still like to go to a store and talk to somebody
and touch it and feel it, they`re Circuit City`s customer," Tong
says. "But for those who already are researching and shopping online--and
they`re getting more savvy that way--that`s the type of customer we
hope to pull in."
To that end, Newegg on April 20 launched a redesigned site that`s easier
to navigate for new customers who might be less technologically sophisticated
than its other customers. "We`ve added a lot more content, a lot
more information and a lot more functions and features," Tong says.
But Newegg won`t be moving away from its core customer base, Tong says.
"Our goal is to still really cater to our core customers,"
he says. "We certainly don`t want to lose that edge we have of
being one of the greatest sites for all these technical parts and components."
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