From the February 2003 issue of Entrepreneur

Dotcom mania may have ended, but selling products and services online has scarcely begun. In fact, estimates from a variety of sources have total online retail sales increasing approximately 30 percent in 2002. And after years of similarly rapid growth, the absolute numbers aren't tiny either: Projections based on the U.S. Department of Commerce's conservative data reports indicate that online sales of goods and services topped $42 billion in 2002. And the Department of Commerce doesn't include online travel sales, which typically account for 40 percent or more of online revenue.

One thing driving online sales growth is the still-increasing number of people going online. Market trackers at Jupiter Media Metrix forecast the number of online Americans will double in five years to 132 million. Because about half of Internet users buy something online during any particular year, that translates to solid growth for online commerce.

The online market isn't just growing; it's also changing. To begin with, the shoppers themselves are transforming. Once mostly men, they're now mostly women. Though the Net is seen as a youthful medium, seniors are the fastest-growing age group. And though ethnic groups have lagged behind the mainstream in embracing online, they are catching up fast. "While the general market is tending to flatten out a little bit, the ethnic market continues to have rapid growth," says Derene Allen, vice president of The Santiago Solutions Group, a San Francisco multicultural marketing consulting firm.

These groups all have their own reasons for shopping online, their own styles and their own favored purchases. They're buying a broader range of products and services as well. Once, goods were divided into those suitable for sale on the Internet and those not suitable. Supposedly, items such as furniture were not online-ready, for instance. But increasingly, nearly everything is being sold online. Furniture makes up most of the volume at PoshTots, a 16-person Glen Allen, Virginia, online seller of high-end children's products. "Our customers are buying cribs and beds," says Karen Booth Adams, 33-year-old co-founder, "and we sell a lot of playhouses."

Continuing growth of the online market calls for evolving business strategies as well. The frenzy to achieve first-mover advantage that characterized the early years of online retail has subsided. Today, selling online is less about having the latest technology and more about having the best insight into customers. "It's back to tried-and-true principles of marketing," says Keith Tudor, professor of marketing at Kennesaw State University in Kennesaw, Georgia. "Look at your customers' wants, needs and motivations."

Working Women & Male Shoppers

The big news about online retail in 2002 was the emerging dominance of female shoppers. Women now make up a majority of Internet users, and, given the fact that women disburse the bulk of all dollars spent in retail, that is good and important news for e-commerce. It's good because it portends future growth, and it's important because women don't shop like men, and they don't buy the same things.

Generally, women are more interested in health information, services and products, and less interested in financial activities. Home decor, gardening gear, clothing and toys are all product categories women tend to favor. It's also worth noting that because women do the bulk of holiday shopping, their increasing numbers online mean the Internet will get a greater share of the year-end buying rush.

In one trait, women are like all online shoppers. That is, they are using the Net in search of products and services they couldn't locate offline. Ninety-five percent of PoshTots' customers, for instance, are women looking for specialty items that they haven't had the time, energy or opportunity to find in their local brick-and-mortar stores. Says Adams, "It's a matter of time, convenience and selection."

Male Shoppers
Women may outnumber men online, but men still spend more time and money online. The main reason: Men shoppers still mainly purchase costly equipment such as stereos, computers and other electronic hardware. They make up the overwhelming majority of visitors, for instance, at Dell.com, CompUSA.com, HP.com and other high-tech, high-volume online retailers.

It's not all tech, however. Niche markets of many types for men make good opportunities for smaller online retailers such as GroomsOnline, a one-person West Hills, California, company that sells gifts for best men and groomsmen such as silver flasks, money clips and beer steins. One thing founder Mark Walerstein, 41, likes about male shoppers is, they are not especially price-sensitive. He bases the idea, in part, on the fact that his most expensive item--a $56 personalized baseball bat--is also his best seller. "I sell close to 100 bats a month," he says. "They don't balk at the price."

Men still aren't as attractive as women when it comes to building a business, however, because they tend to be disloyal, says Paco Underhill, author of Why We Buy and CEO of New York retail consulting firm Envirosell Inc. "You are looking for a customer base that is repeat customers," says Underhill. "Generally, guys aren't very good customers."

User-Unfriendly
Perhaps the most nearly universal trait of the increasingly diverse population of online shoppers is that they are frustrated.

Fifty-six percent of the time, the average willing online shopper is unable to complete an e-commerce transaction, according to usability researcher Jakob Nielsen. "In other words," he says, "Web sites lose about half their sales by being too difficult to use." That distressing statistic resulted from studies of many e-commerce Web sites, including videos of online shoppers attempting to locate products, complete shipping forms and perform other shopping-related tasks.

Most changes required to improve usability are simple, inexpensive and don't harm Web site performance, explains Nielsen, principal at Nielsen Norman Group. And just as all online shoppers want convenience, all online retailers want repeat customers. That won't happen with a hard-to-handle Web site. "If the Web site is too difficult [to use]," Nielsen notes, "people just go away."

Ethnic Markets & Seniority Rules

Members of minority ethnic groups are in one way the ideal online customers. Because they are living in an alien culture, they find themselves shopping for goods and services that aren't part of mainstream retail offerings. The Web, with its global reach, is ideally suited for filling that sort of specialized need. For instance, music is an especially popular item for Hispanic consumers, says marketer Derene Allen. "Music is one of the top categories, primarily because they're looking for the harder-to-find artist," she says. "You can go online and find those without having to drive all over town." After music CDs, top Hispanic purchases include electronics, clothing, books, computer software and hardware and gifts.

Hot or Not?
Get more hot markets--and trends and industries--in our What's Hot for 2003 center.

Internet use among minorities is still in its infancy. While 60 percent of Caucasians use the Net, just 40 percent of African Americans and 32 percent of Hispanics have online access, according to the Department of Commerce. Only Asian Americans match the Caucasian Net penetration figures. Language is one problem. Hispanics prefer Spanish sites, while English is the dominant language of the Web.

Challenges facing online marketers in this area include understanding there is no monolithic ethnic market. Hispanics, the largest and fastest-growing minority group, have different needs from African American and Asian American consumers. Among Hispanics, there are significant differences by country of origin, says Allen: "Mexicans' top purchases are airline tickets, whereas for Puerto Ricans and Central Americans, it's music, and for Cubans, it's electronics and computer hardware."

Online sellers are exhibiting innovation in coming up with new ways to lure online shoppers. For example, Allen points to cross-border transfers that allow U.S. shoppers to buy big-ticket items for relatives in other countries: "You can go online and purchase a washing machine or DVD player for your family in Mexico or Central America and pay for it online and have it delivered to their door."

Seniority Rules
Senior citizens are under-represented online, making up only 12 percent of U.S. citizens and just over 6 percent of Net users. However, seniors are fast increasing online activity. During a two-year period ending last year, according to research firm Nielsen/NetRatings, the number of online seniors nearly doubled, to 6.8 million.

The increasing importance of seniors presents a challenge because selling to them isn't like selling to other demographic groups. For one thing, seniors are far more likely to engage in information-gathering about products than to actually buy products online. For another, they have much different requirements when it comes to Web site usability, explains Jakob Nielsen, principal with Nielsen Norman Group, a Fremont, California, researcher of Web site usability. Too-small text, confusing pop-down menus and overly restrictive registration procedures are all problems likely to turn seniors away instead of turn them into customers.

Youth of an e-Nation & What's in Store?

Teenagers and the Web have grown up together, so it's no surprise that 76 percent of 14- to 17-year-olds use the Internet, according to Department of Commerce figures. That compares to 54 percent for the general population. Traditional teen purchases, such as clothing and entertainment tickets are all strong sellers in general online, giving the teen market special status among online retailers.

But just like seniors, teens are less likely to buy something than to send e-mail, visit an entertainment site or research a product or service. Just 31 percent are logging on to purchase something, significantly less than Internet users in general. That's not necessarily because teens are reluctant shoppers, says Carol Fitzgerald, 46, CEO and founder of The Book Report Network, a company in New York City that sells books through Teenreads.com and other Web sites. Three teen-oriented titles were among The Book Report Network's top sellers recently. Teens are ready buyers, says Fitzgerald: "They took a look at the page and immediately clicked through."

Teens do present significant shopping challenges to retailers who'd like to tap the market, however. Payment is one problem. Because teens lack their own credit cards, they have to pay with a parent's card or use one of the nascent online payment alternative services aimed at teens. That's why gathering information in preparation for making an offline purchase is still the predominant way the Net figures into teen shopping.

Teens also raise serious privacy and protection issues. Teen online retailers like The Book Report Network are barred by privacy rules from gathering much personal information about teen visitors. Similar legal and safety concerns caused Fitzgerald to drop a chat room she had offered as an ancillary service on her shopping site. "I didn't want to be at risk from some pedophile lawsuit," she says. "And I realized no matter how hard we tried, we couldn't keep them safe enough."

What's in Store?
The market for online selling was probably never the magic carpet that dotcom retail utopians proclaimed it to be. But as the sector continues to grow and evolve, it's becoming clear that e-tailing is a business where there is plenty of growth available for sellers who know their markets. Knowledge of those markets is probably growing even faster than the markets themselves, and--in what may be the most encouraging sign--online retailers are beginning to get a firm handle on the opportunity that lies before them and what it will take to make the most of it.

Fitzgerald could be speaking for all online retailers when she says of her teenage customers: "They are promising and they are problematic and they are fickle. But if you give them what they are looking for and what they're interested in, they can grow with us."

Just Your Type
Marketers have analyzed customers and markets in terms of gender, age, ethnicity and other characteristics for decades. But demographics aren't the only tools for slicing up an online market. San Diego market research firm Miller-Williams Inc. splits online buyers into five categories: sensibles, agonizers, hagglers, loaners and techies.

Sensibles, at 37 percent, are the most numerous of all online shoppers, the easiest to satisfy and probably the best customers, says Amy Ferraro, director of research. Agonizers, representing 10 percent, do lots of comparison shopping, but aren't as price-oriented as hagglers, who make up 34 percent. Loaners, representing 15 percent, emphasize ease of use in their shopping experience. About 5 percent of online shoppers are Web-savvy but fickle techies.

The takeaway of this segmentation is that you need to know who your customers are and make sure you aren't offering something they don't want or need. "If you know your buyers are hagglers," reasons Ferraro, "you know you need to target them with coupons."


Austin, Texas, writer Mark Henricks has covered business and technology for leading publications since 1981.