Web delivers big results for Staples

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For many b-to-b companies, the past year has been all about cutting costs and keeping revenues from dropping too precipitously. But the downturn hasn’t stopped the momentum of the Contract Division of office supplies retailer Staples Inc., the company’s main b-to-b arm. The unit has annual sales of $1 billion, and even as the economy has slowed, it has managed double-digit quarterly growth for more than three years. In the past quarter alone, it was able to add 2,600 new business accounts.

Driving Staples Contract’s business forward is outspoken senior VP Jay Baitler. Like the Formula Ford racecars he drives in his spare time, Baitler keeps the unit moving with a precise vision—and at breakneck speed.

Not surprisingly, Baitler relies heavily on new e-commerce capabilities to get closer than ever to his customer base.

"I think electronic intimacy is the key to the kingdom, especially in the contract [b-to-b] space," Baitler said. "My customers come back again and again. I have to make sure they enjoy coming back."

Staples’ b-to-b e-commerce strategy seems to be working. Baitler said 96% of the Contract Division’s new customers do some, if not all, of their business online via the vendor’s b-to-b Web site.

Overall, Staples has managed to Internet-enable 80%of its largest customers, while driving online capabilities to about 70% of its total customer base, Baitler said.

Those are very strong numbers, said Aberdeen Group analyst Kent Allen, who credits Staples’ deep and early commitment to e-commerce and Web technology for the company’s online success.

Largest Internet presence

While Staples’ public Web site may get more attention, it is its closed b-to-b extranet that generates the majority of the company’s online business. Overall, the Contract Division serves more than 14,000 organizations and 3.3 million individual users online. "It’s the largest Internet presence we have,"Baitler said.

The b-to-b site serves Staples National Advantage customers—generally, Fortune 100 companies. It also serves Staples Business Advantage customers—typically, regional companies of more than 50 employees.

More interesting than the numbers is the success Staples is having in collaborating with customers.

"The historical reality in the contract space is that in a recession, the average order size shrinks," said Baitler, adding that’s the wrong move for a customer to make. "In a misguided attempt to economize, a customer orders one dozen pens 12 times rather than 12 dozen pens once."

Staples has launched an electronic marketing campaign to explain to customers how expensive such small orders really are.

The company has worked with customers to create custom Web messages to stop such orders before they are placed. "We’ve agreed on customized messaging that either warns customers placing online orders that their orders have been judged economically unfeasible or, in some cases, we can even place a hard stop on an order," Baitler said.

Staples Contract has been able to reduce small orders by 45% over the last 18 months, while increasing overall order size by 15%, Baitler said. "The message becomes, ‘Mr. or Ms. Customer, we must join together to control price,’ " he said. "That’s only going to happen if we work collaboratively to control costs."

Such "electronic intimacy," as Baitler dubs it, also leads to more satisfied customers. Baitler said Staples Contract has seen a 35% reduction in returns when orders are placed online, compared with orders via phone or paper catalog. He credits the richness of the online experience, better order accuracy and a greater sense of ownership in the process by online customers for that significant reduction.

Indeed, Staples is doing all it can to drive more customers online. It is in the last stages of rolling out a new online feature that will let any customer check order status online, regardless of how the order was placed. Even if customers are stalwart users of paper catalogs, exposing them to the convenience of online order-checking might eventually persuade them to order online, too, Baitler said. That new feature is slated to be available in February.

Staples Contract is also testing an all-Internet service, Links Plus, that lets small customers deal 100% electronically, from self-registration to self-reporting. "We give them all the traditional benefits of a contract relationship with heavily discounted prices," Baitler said. "We’re using it as a test bed to see how far we can push the online model."

Ultimately, Staples aims to get rid of paper b-to-b catalogs altogether. Baitler envisions a simple browse-only site that could replace paper catalogs, backed by more transaction-oriented customer sites. "That would be a real breakthrough for the contract space," he said.

Staples Contract is wrapping up a move onto new IBM WebSphere application and commerce servers, which will give it even more capabilities to do custom pricing and personalized presentation.

The tech enablement of the office supplies business, however, didn’t work out completely as planned. Baitler said customer interest in reaching Staples via online procurement platforms from Ariba and other vendors has essentially dried up.

"Two years ago, everyone was hot to trot into third-party e-procurement," Baitler said. "We were under the gun 18 months ago with a backlog of third-party implementations waiting to get done. The backlog today is zero."

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