Sun, May 18, 2003 page12

• Shopping sites offer automatic shipping for routine purchases

  Auto-replenishment programs, which have a long and successful history in the direct-marketing industry, are now making waves on the Web

  • NY TIMES NEWS SERVICE
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  Now that the Web is a mainstream shopping medium, some consumers are feeling sure enough about the process to put themselves on autopilot.

  A small but growing number of online retailers are rolling out so-called auto-replenishment programs, in which customers sign up for periodic shipments of everything from pet food and steaks to diapers and acne medicine. The programs require a fair amount of finesse on the part of retailers, as they determine exactly how many razor blades a typical man uses in a month, say, or whether to give customers the option of skipping a shipment of vitamins. But for merchants that can get consumers to stay with the program, the resulting revenue stream can be a boom to business.

  Take USA Interactive's HSN.com, the online operation of the Home Shopping Network. Since the company rolled out its Auto Ship program about 18 months ago, enrollment has grown to more than 100,000 customers.

  "This is one of the drivers behind our growth," said Will Keller, senior vice president for off-air sales at HSN.

  Keller said the program began on the television network six years ago, with a line of vitamin products -- an obvious choice for auto-replenishment, since a customer's supply dwindles at a predictable rate. While vitamins still represent the foundation of the company's Auto Ship sales, HSN.com now includes 250 products in the program, including some unexpected items, like artificial tanning lotions.

  "Tanning has become a huge business for us, which surprised me," Keller said. "But it makes sense for customers to want it shipped this way, because if you run out, all of a sudden you don't look quite as tanned as you usually do."

  Bringing benefits

  But sweaters? It turns out that some people are actually willing to sign up for the company's line of collectible sweaters with different motifs, which HSN and the Web site roll out on a regular basis. When HSN began offering the sweaters on Auto Ship early last year at a typical price of $US70 to $US85, "they blew out," Keller said.

  For online retailers, these sales programs can bring benefits, beyond the obvious allure of revenue flow. Because customers grow more familiar with the products as they stay on the replenishment program, for example, they were much less likely to return items. What is more, Keller said, "you have all these orders sitting in your system, so there's very minimal inventory risk."

  When selling a selection of collectible items, for instance, "We'll choose how many items to put into inventory initially," Keller said. "But for the second in the series," he said, "we'll put in an order to our vendor based on the Auto Ship demand."

  When HSN.com executives started the Auto Ship initiative, they feared customers might stop going to the Web site after signing up to receive a given item. "But we found the exact opposite," Keller said. "That box arrives every 60 or 90 days that reminds them of HSN, and they end up buying more overall from us, whether on TV or the dot-com, than non-Auto Ship customers."

  Pet suppliers are also warming to the idea of automatic deliveries. Earlier this year, Doctors Foster & Smith (DrsFosterSmith.com), a catalogue and online pet supply company, began testing the service with dog food, and now ships more than 900 different items to nearly 2,000 customers each month.

  While average order sizes are "quite a bit lower than our typical order," according to Joe Voellinger, a spokesman for Drs. Foster & Smith, "it's a service many of our customers appreciate, so we're happy to offer it to them."

  Auto-replenishment programs have a long and successful history in the direct marketing industry, with companies like Harry and David pioneering the fruit-of-the-month-club idea.

  Flourishing

  Analysts and executives said the idea has flourished in the gift-giving arena, with corporate gift-givers -- hoping to keep clients mollified -- showing a particular fondness for it. The advent of e-commerce has helped retailers attract even more corporate sales dollars with gift-of-the-month programs, since workers can make such purchases quickly online, then get back to work.

  Notably, though, for household items like health care and beauty goods, online auto-replenishment programs have been a tougher sell, said Carrie Johnson, a retail analyst with Forrester Research, technology researchers and consultants.

  "Only the most advanced online shoppers will commit to this, because you have to completely trust everything about the Web shopping experience," Johnson said. "These are things you need, so if they don't come, it's a serious hassle."

  "Now that companies are having some success with this," she said, "it signals a clear shift in Internet shopping, in terms of how advanced some consumers are. And yet, "some of the novelty of these programs might wear off with consumers, once they see that they won't completely save you from running an errand," Johnson said. "You still have to go to the drugstore for certain things."

  Perhaps with that in mind, some Web merchants are devoting extra effort to keeping their auto-replenishment customers happy. Alticor's Quixtar.com, where members pay $US20 annually to shop at wholesale prices, and $US45 to shop and participate in the company's marketing program, is a case in point.

  According to John Parker, Quixtar's vice president for sales and marketing, the company introduced its automated program, Ditto, shortly after the Quixtar site went into operation in late 1999.

  For the first two years, the service logged fairly good growth, Parker said, but some customers complained that they had no way to modify or cancel their orders before they arrived.

  About a year ago, Quixtar, which is privately held, began sending customers e-mail messages before each shipment, giving customers a chance to change their orders or buy different items.

  Satisfaction

  Customer satisfaction has grown, along with sales. Spending by Ditto buyers now accounts for 20 percent to 30 percent of the site's sales, which reached $US900 million in the company's last fiscal year.

  Parker said Quixtar now offers the Ditto program for more than 500 different products, including paper towels, energy drinks and toiletries.

  Just how much toothpaste someone goes through in a given month, though, is hard to gauge. When determining the frequency of shipments for an item, the site "errs on the conservative side," Parker said, "because if we send consumers more product than they need, it'll cost us a sale."

  That is one of the reasons Drugstore.com has not yet rolled out its auto-replenishment program. According to Walter Conner, a company spokesman, the site is in the process of developing such a service, with items for oral care, women's toiletries, feminine hygiene products and shaving supplies.

  He said Drugstore.com was "working with manufacturers to help us figure out how many razor heads someone goes through in a month, and that sort of thing, before we get further into this."

  Significantly, the company does not plan to offer an automatic replenishment program for prescription drugs associated with chronic illnesses.

  According to Jeff Kimmell, vice president for pharmacy, traditional drugstores can offer those services because they can resell the drugs if the customer does not pick them up, but mail-order prescription drugs cannot be returned to the company for any reason -- be it a change of address or change of dosage.

  As an alternative to automatic shipments, Drugstore.com sends e-mail reminders to its pharmacy patients, telling them that their prescriptions are nearly empty, and offering the chance to reorder.
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