Mid-Market Case: J&R Electronics Pumps Up the Volume

By Baselinemag  |  Posted 2007-03-13

Jason Friedman, vice president of e-commerce for J&R Electronics, became a champion of Internet retailing not long after joining his parents' company in 1997 as database manager. At the time, the family-owned business was doing just fine selling an enormous array of consumer electronics from its landmark 250,000-plus-square-foot mega-store in lower Manhattan and via catalog orders.

Even so, in 1998 Jason Friedman convinced the store's founders—his parents, Joe and Rachelle Friedman, thus the "J" and "R"—to make a commitment to the Web, specifically to early versions of an e-commerce software solution from InterWorld Corp., then one of the darlings of the dot-com boom. The first foray into Web sales—by one estimate, about 30% of J&R's approximately $400 million in revenue is currently derived from its online channel—was successful enough that e-commerce is now seen as the company's future.

Today, to secure that future, Jason Friedman and an information-technology team of 50 are rolling out an ambitious relaunch of the JR.com Web site. The initiative is based on a new e-commerce platform from Blue Martini; an on-demand CRM suite from Loyalty Lab, a relationship and retention-marketing vendor; and some of the features that characterize Web 2.0, notably online videos and user participation in the form of customer reviews. If all goes as planned, the revamped site, scheduled to go up this month, will make it easier for customers to evaluate, compare and purchase products.

"We're giving customers the capabilities and features that they want," Jason Friedman says. In turn, J&R is hoping to lock in customer loyalty, leverage many of the strengths that have made its brick-and-mortar business so successful over the years, and differentiate itself in the crowded, increasingly price-driven consumer electronics market dominated by the big chains and franchises.

It won't be a cakewalk by any means. "Their national and retail competitors are pretty tough," says Maris Daugherty, senior consultant, multi-channel practice with global retail consultancy J.C. Williams Group; the firm does not consult for J&R.

First Steps

J&R's initial foray into Internet retailing was not without a downside. In 2000, after two years of using early versions of InterWorld's Commerce Exchange, it migrated to the beefed-up version 3.0 of the platform, which was billed as including an impressive repository of business functions that represented best practices in online merchandising, order processing and customer service. Another plus: an enhanced Process-Centric architecture that enabled businesses to model their existing business processes and extend those processes onto the Internet.

Unfortunately, InterWorld, like so many software vendors in the dot-com arena, went bust the following year. "Because we were developing on InterWorld simultaneously as they went out of business, there obviously wasn't support for the project, so we had to customize it ourselves," Jason Friedman says. He adds that J&R's technology staff made the most of what they had, creating an e-commerce solution that supported the company's 400,000 SKUs (stock-keeping units). The platform lacked key capabilities, however, such as the ability to collect and display customer reviews and provide supporting information such as inventory statistics and shipping time—mainstays on a number of retail sites including Amazon.com.

Even so, JR.com was ranked in 2006 among the nation's 50 top e-retailers by Internet Retailer magazine, based on factors such as success in adapting new technologies and functions, and metrics including the time needed to fully download the site. "We milked the most out of the InterWorld platform that we could," Jason Friedman says.

With development and customization of its old platform maxed out, J&R decided last year to revamp its e-channel in a major way. In May, it launched an online loyalty program to motivate customers to come directly to its Web site rather than arrive via another site. The aim: bolster the number of unique visitors from present levels—an estimated 745,000 monthly.

According to Jason Friedman, the national loyalty program is designed to offset the intense shopping engine-driven price comparison buying that is currently rampant in the consumer electronics business. "We end up fighting over pennies with our competitors," he says. By having customers go directly to JR.com and providing them with incentives equal to 2% of their purchase through the loyalty program, Jason Friedman hopes to minimize customer defections and draw new buyers as well.

The program was launched through Loyalty Lab, whose CRM suite hosts the components needed for a multi-channel loyalty program, including customer sign-ups, accounts and redemptions. "J&R has perfected customer service and relationship building—they wouldn't exist without a loyal customer base that returns again and again," said Loyalty Lab CEO Mark H. Goldstein when the contract was announced. "What was missing was a program to reward shoppers for their loyalty, giving them even more reasons to keep J&R a mainstay."

More recently JR.com has been migrating to a new e-commerce platform, Blue Martini (now part of Escalate Retail). "We're about 80% of the way there," Jason Friedman says.

J&R chose the platform in part because, as Jason Friedman explains, "The ERP vendor that we're going with is very closely tied with Blue Martini. As a result, there was a very clear technical reason why it made sense for us to go to an all-encompassing system, where data was able to be passed back and forth." In line with J&R's penchant for secrecy, the younger Friedman won't reveal the identity of its ERP vendor.

With Blue Martini, J&R is also going all-out seeking to leverage the superstore's most important assets and differentiators—something it couldn't do effectively in the past because of the limitations of InterWorld. "They're making a major commitment to their e-commerce channel," says Daugherty of J.C. Williams Group. "They need the channel to meet one of their biggest challenges: establishing the points that differentiate them from their competitors, growing the awareness of these points among consumers and turning that awareness into trial purchasing." In other words, JR.com needs to turn the consumer in Detroit or Denver on to the same selling points that attract the shopper who visits the New York mega-store.

In addition to its highly competitive pricing and enormous inventory, one of the draws of the brick-and-mortar operation is that it is a "first-shop" showcase for manufacturers' products, meaning vendors will offer the most recent release of an M3 player or the latest version of a video game before it appears anywhere else. J&R is also quick to pick up on technology trends. For instance, Rachelle Friedman takes pride in the fact that J&R created a separate Apple room at a time when most consumer electronics stores were concentrating almost exclusively on PCs. It was also at the forefront in recognizing that DVDs would replace videos.

Equally important, J&R's sales staff has the well-earned reputation of excelling at being able to explain the workings of the latest high-tech gizmo to customers who range from technology neophytes to Wall Street analysts checking out the new trends in consumer electronics. "J&R has always had highly knowledgeable salespeople," Daugherty adds. "It has always picked up the hottest products, the cutting-edge technology, sold at a competitive price."

The Blue Martini platform enables JR.com to leverage many of these strengths. As an example, the platform's Guided Selling application leads users through an interactive product recommendation and selection process, incorporating user input on needs and preferences to present a targeted view of a product catalog. As an example, someone looking for a new plasma TV can shop based on a number of criteria: brand, price, top sellers, screen type and size, and models on which special offers, price drops and rebates are available. For an Internet retailer like JR.com that offers hundreds of thousands of products, many of them new to the market, guided selling and an interactive product recommendation-and-selection process make it easier for customers to understand and compare features.

Jason Friedman says the new site will also offer product pages with extensive details as well as comparison grids to facilitate the selection process. "Customers tell us that deep content in any and all forms helps them make their purchase decisions," Daugherty adds. "Customer reviews, alternative product reviews and comprehensive product descriptions all have an impact on their purchasing."

In addition, Blue Martini supports online videos, which Jason Friedman sees as a boon in leveraging one of the store's strengths—its tech-savvy sales staff—online. The new site will feature several hundred videos of J&R's salespeople explaining the intricacies of, say, a new iPod, or whichever product the customer is interested in. "We shoot our own videos in-store with our call-center salesmen to provide a sense of what it would be like if you were standing in the store listening to them," he says. "We want to translate that to a video experience. We couldn't have done that on the old platform."

"The talking-heads video is another way to reach out to people who find the online purchase process impersonal," Daugherty explains. "Some people learn differently; they learn orally rather than in a written form."


Going All-Out

With the old platform, J&R couldn't really get maximum benefits from some of the software it was using. As an example, Friedman says, J&R has been a longtime customer of Endeca, the provider of advanced Web site search technology that helps customers find, analyze, understand and determine relevancy in search results while giving site operators flexibility in establishing relevancy settings. Gartner recently ranked Endeca as one of the three top providers of site search technology.

"We had Endeca running as a separate piece of software on the InterWorld site, but because of the way we customized, we weren't able to use Endeca or any plug-in to full capacity," Jason Friedman says. With the Blue Martini platform, J&R can integrate Endeca with the PowerReviews customer reviews application the company plans to put on the site. PowerReviews provides customer reviews to multi-channel retailers to help convert more shoppers and attract new buyers. "It will give the customer the ability to refine and sort products, for example, by four stars or five stars," he says.

J&R can now take advantage of Endeca's merchandising functionality so that it can see where the customer is on its site, what he has in his basket, where else on the site he's visited during the session and everything he has purchased in the past.

Jason Friedman is fully aware that as a business located solely in New York, J&R remains at a disadvantage no matter how much firepower he loads onto the Web site. "The whole phenomenon of buying a product online from one of the big-box stores and picking it up an hour later is a challenge that we can't meet outside the New York area," he concedes. "That's the limitation of who we are."

Still, he's understandably enthusiastic about the newe-commerce initiative. "We have a lot of great things we want to do with the new platform, which everyone will be able to see in March," he says. "We're really excited about it."

Daugherty cautions, however, that J&R shouldn't expect too much, too soon. "With the fast product life cycles and the new tech always around the corner, there is plenty of room in this market for a specialist like J&R to make a good living," she says. "But they need to continue to enforce their niche and invest in the resources that are necessary for growth over the long term. It's not going to be a short-term win. They're going to have to have patience to see their plan come together."


Ready For Rich Media?

For electronic retailers like JR.com, rich media—online video and audio files, and product photos that can be changed by the user—is becoming increasingly common as broadband use jumps. A survey of 100 retail Web sites conducted during the fourth quarter of 2006 by The E-Tailing Group, a Chicago-based e-commerce consulting firm, showed that rich media was on the rise in a number of areas.

Among rich media features showing the largest increases in usage: online audio files were found on 41% of sites in the fourth quarter of 2006, up from 15% in the fourth quarter of 2005; streaming video, found on 38% of sites, up from 20%; color change, 46%, up from 34%; and alternative views of merchandise, 57%, up from 45%.

How do you determine if your e-commerce site would benefit from rich media? Lauren Freedman, president of The E-Tailing Group, suggests looking at these factors:

Have your competitors adopted rich media? If features such as streaming video are being used by all or most of them, you've pretty much got to join the parade.

Ccan you use things like video to replicate the best of the store experience? If so, go for it.

Will rich media really help you sell your product? "If you are selling something like Coach purses, you might find alternative photo views beneficial, but do you need video?" Freedman asks. Probably not.

Are elements like video and audio files going to pay for themselves as an investment? "Online video can be expensive," Freedman cautions. "You can expect to pay $100,000 and up."