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Development of an e-business

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(1)Discuss the strategic issues faced by the company in launching and developing their e-business ventures.
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The CliptomaniaTM Web Store

Cliptomania, LLC, a limited liability corporation, sells clip-
on earrings on the Internet at www.cliptomania.com.
Cliptomania is owned and operated by the Santo family—
father Jim, mother Candy, and daughter Christy. Its business
is conducted from the lower level of the Santo home in
Indiana, but it sells non pierced earrings throughout the
United States, Canada, Ireland, Australia, and New Zealand.

Most people who wear earrings have pierced ears,
so stores offer a limited assortment of non pierced
earrings. Those who want clip-ons have a very difficult
time finding appealing choices. Cliptomania sells nothing
but non pierced earrings, and it offers its customers a
choice of hundreds of different styles of clip-ons.
Although the percentage of people who want clip-ons is
small, the total number of potential customers available to
Cliptomania on the Web is huge. The Santos have found
an underserved market niche. According to Candy:

A lot of our buyers are first-time buyers on the
Internet, and some of them are older women. But
you would be surprised how many teens and young
twenties buy because for one reason or another they
have had trouble with pierced ears. There are young
mothers whose babies ripped the earrings out of their
ears and their ears cannot be pierced again. And
there are people like me who have problems with
scarring forming keloids and don't want any unnecessary
scars. There are people for whom piercing
their ears is against their religious beliefs.

Some women are so thrilled to find us—they
will tell me that they have this problem or that problem
and ask which of the earrings will work best for
them. Because there are several different types of
clip mechanisms, I can often help them out.

Our customers are pretty evenly distributed by
age from pre-teens to the elderly. We had not anticipated
it, but we estimate that we get some 5 percent of our
sales from the cross-dresser and transgender population.

The Santos want Cliptomania to become the first
name someone thinks of when looking for non pierced
earrings. They concentrate on providing a quality product

Copyright © 2010 by E. W. Martin. This updated case replaces an
earlier version © 2007.

at a competitive price with outstanding customer service.
They have worked diligently to provide quality, honesty,
and friendliness through the Cliptomania Web site. For
example, Cliptomania has a very liberal return or exchange
policy that allows customers to return or exchange any
item within 30 days for any reason without question. Less
than one percent of their customers return any items.

First established as a Yahoo! store in November of
1999, Cliptomania has had spectacular growth in sales
during a very difficult period for retailing. Although it sells
only clip-on earrings, by June 2003 Cliptomania was the fifth
largest jewelry store on Yahoo! in terms of gross sales.

Yahoo! store customers are encouraged to rate their
satisfaction (or lack thereof) with their experience with the
store. If they choose to rate the store, in two weeks (by
which time they should have received their purchases) they
are sent an e-mail pointing to an online rating form to complete.
The ratings are on the following scale:

Excellent Better than I expected. Tell everyone that
Cliptomania is a great store.

Good Everything went just fine.

OK There were a few problems, but I would proba

bly still order from Cliptomania again.

Bad There were real problems. I would be reluctant

to order from Cliptomania again.

Awful I had such a bad experience that I want to

warn everyone about Cliptomania.

Although the default rating (already checked) is Good, an
amazing 81 percent of Cliptomania's ratings have been
Excellent! Ninety-eight percent of Cliptomania's ratings
have been either Excellent or Good, so Cliptomania
quickly earned a five-star Yahoo! rating for service.

In addition to a numerical rating, the rating form provides
space for customers to submit specific comments
that are available to the store through a database.
Cliptomania has received a great deal of effusive praise
such as the following:

I am very pleased and satisfied with the service I
received from Cliptomania. The customer service
representative was polite, helpful, and patient with
me being a new customer ordering with a credit card.

The service was superb! I am also very pleased with
the earrings. They are light, comfortable, and no
pinching of my ears. And the cost you cannot beat.
I am so thrilled with this. I plan on ordering more
earrings from them, and have told several of my
friends about this Web site. It is hard to find good
quality clips, and I found just what I was looking
for, and more. Working with the customer service
representative was just like talking to a friend.
I appreciated that.

Hist ory

In the mid-1990s, Jim and Candy Santo were living in New
Jersey near New York City. Candy was the development
director for a large nonprofit organization that provided a
broad continuum of care for the homeless, and before that
she had been executive director of a crisis line. Jim had a
long-time career in insurance sales that he still continues.
According to Jim:

In 1998 I went out to buy earrings for an anniversary
present for Candy, and I could not find a good selection
of nice clip-on earrings anywhere. I looked
everywhere I could think of in the New York metropolitan
area. I could find plenty of earrings for
pierced ears, but it was clear that all the stores had
decided that they could not sell enough clip-ons to
justify carrying an adequate stock in their stores.

I knew that there must be millions of people in
the world who wanted clip-ons and could not find what
they wanted, so this appeared to be a great opportunity
to sell them on the Internet. This intrigued me, but I
knew little about the Internet or jewelry so I started
staying up at night and working weekends doing
research on jewelry and how to sell via the Internet.

After 13 months of research I concluded that the
Internet was the ideal medium for this type of business.
Earrings had a high markup, you could get started with
little capital, and the Internet was the way to access the
widely distributed market for clip-on earrings.

The Santos decided to try to sell clip-ons on the Web, and
Candy came up with the name Cliptomania for their new
Web store. They decided that if the URL Cliptomania.com
was available and the name Cliptomania
had not been registered
as a corporate name, they would go forward with
the endeavor. They employed a patent and trademark attorney
who checked and found that the corporate name
appeared to be available. And they were able to purchase
the URL Cliptomania.com
from Network Solutions, so
they decided to go ahead.

Case Study II-5 • The Cliptomania TM Web Store 309

On Thanksgiving day, 1999, traditionally the beginning
of the Christmas holiday sales season in the United
States, they went live with the Cliptomania store on the
Web, operating out of one small room of their home in
New Jersey. Their total capital investment was $10,000,
which came from their savings. Although Jim had hopes
that Cliptomania would grow, they expected it to be a sideline
activity that they would take care of in their spare time
while continuing their regular jobs.

Setting Up the Web Store

Neither Jim nor Candy had any expertise in the creation of
a Web site, so Jim had devoted a lot of time and effort to
determining how they would go about setting up the
Cliptomania Web site. Jim found that one way would be to
contract with an Internet service provider (ISP) for the
computer resources required, purchase several software
packages to perform the various functions that would be
needed to run the store, and design the site and write the
HTML code to set up the pages. The problem was that they
did not have the personal experience or any IT development
background to design the site and write the code or to integrate
the various software packages. To hire someone to do
all of that would be expensive, and they might have little
control over the process or the result.

The other alternative was to pay a vendor for hosting
a store. For a price, the vendor provides the computer
resources and integrated software as well as templates for
setting up the Web pages that provide the basic Web store
structure but allow you to customize them to suit your
business. The Santos chose this option and contracted with
Yahoo! to establish their Cliptomania Yahoo! store.

Yahoo! provided templates for setting up the home
page and the pages that displayed images of and described
the items offered, as well as for navigation across the site.
Yahoo! made it easy to add and delete items offered for
sale and to make changes in the images and descriptions of
these items. It used a shopping cart approach that holds
selected items there until the customer wishes to place an
order. Then it provides an online order form with the
selected items detailed and accepts a credit card number
and other billing information from the customer. Yahoo!
then sends the completed order to Cliptomania and
presents the customer with a page confirming that the
order has been placed with Cliptomania. By checking a
box, the customer can request that the order also be
confirmed by e-mail.

Another company, Paymentech, is integrated with
Yahoo! to validate the credit card by making sure that the
customer address on the order is the same as the billing
address of the credit card. After Cliptomania accepted the
order, Paymentech collected the money from the credit

Part II • Applying Information Technology

card company and deposited it in Cliptomania's bank
account once a week.

Jim was very concerned with transaction security via
the Internet. When he was doing his research, he had read
that 40 percent of the transactions on the Internet were
fraudulent. He also read that Yahoo! had the best security
among the vendors providing support for Internet stores.
In addition to encryption to restrict access by outsiders
to credit card numbers and other financial data, the
Yahoo!/Paymentech combination detected and eliminated
most fraudulent purchases, and that was crucial to Jim. The
outstanding security and the ease of setting up and operating
the store were the main reasons the Santos decided to
go with Yahoo! as their vendor.

The Yahoo! store also had a "back office" that collected
and made available data about Cliptomania's Web
site transactions. The Santos got a historical report for
each month showing the number of customers that
visited the store, the number of page views, the average
number of page views per customer, the number of
orders, the income, the number of items sold, the average
number of items per order, and the dollar value of
the average order. This report also included daily and
yearly totals. They could also print out graphs showing
the volatility and seasonality of their orders. On many
orders they could find what search engine sent the
customer to Cliptomania and what search terms were
used, and this information could be summarized by
search engine. All of this information was of great value
to the Santos in managing the store and evaluating the
effect of their marketing efforts.

When Cliptomania was started in 1999, there was
only a $100 monthly charge for the Yahoo! store.
However, over the years Yahoo! has changed its pricing
structure and as of 2003 it charged $49.95 per month for
hosting, $0.10 per item carried per month, a 0.5 percent fee
on all sales, and a 3.5 percent revenue share on sales that
originate through a Yahoo! Store search.1 Paymentech
charged $0.20 for each credit card transaction it processed,
in addition to the percentage of the amount of the sale
charged by the credit card company (typically 2.5 percent
to 3.5 percent).

Designing the Cliptomania Web Site

Jim and Candy did most of the set up work on the original
Web pages themselves, with some help from a freelance consultant
they employed to help them with problems that were
beyond their technical capability. Since then Candy has
learned the basics of the HTML language. The consultant

1 For current charges see http://smallbusiness.yahoo.com.

is still available to the Santos via telephone and the Internet
for tougher questions, although they have had to turn to him
less and less often.

Before starting the store the Santos examined a number
of Web stores and they had a pretty good idea of what
they liked and what they didn't like in these Web sites.
Candy explains what they wanted to do:

I designed the logo in the banner at the top of our
page. I wanted the "t" to be dangling down from the
"p" like an earring hanging down. We chose the
burgundy and gold colors for our page because we
wanted to give the impression of a quality jewelry
store and not look like the typical Web store with
bright colors crying for your attention. We put our
names—Jim, Candy, and Christy—on the front page
and we use personal pronouns throughout the site
because people need to know that we are real people.
Some people call before they will place an order on
the Internet because they feel the need to talk to a
real person and have a sense that we are legitimate.
A lot of our buyers have been first-time buyers on
the Web. We are asking them to make a leap in faith
and we want them to feel comfortable about making
that leap.

From the start we put the various categories of
products that customers can click on down the left
side of the page. The names of these categories are
very important because they must guide the customers
to the products that they like. I have set things
up so that no more than six items appear on one
page. I do this because I think that most people don't
like to scroll down a page—they will only look at the
top items. Also, our pages load fast, which is important
when people are coming in through regular
phone lines. Customers often mention how nice it is
that our pages load so fast.

Getting Items to Sell

Initially one of their biggest problems was finding sources
from which they could get earrings to offer in the
Cliptomania store. They searched yellow pages on the
Internet for jewelry wholesalers and manufacturers and
called lots of them. Half of them did not exist any more, and
the rest were not very helpful. They finally found a man in
Virginia who bought overruns and closeouts, so in the
beginning most of their stock was not the most attractive.
Jim remembers:

We were very naive in the beginning. We got any
stock we could get because we were almost desperate.
We didn't know anything about jewelry, about

what styles were popular, or about fashion. And we
are in the fashion industry, so there was a big learning
curve there. But somehow we survived.

I knew there was a jewelry district in
Manhattan, so I took a day off from my insurance
business and went to the city to the fine jewelry area,
the diamond district. I tromped around for five or six
hours before I concluded that I was in the wrong
area. Finally someone had mercy on me and told me
where to find the fashion jewelry area. That was a
major breakthrough.

We finally found the wholesalers that would
provide the kind of product we were looking for.
These wholesalers had the product, but they were
relatively expensive because they were several layers
down from the manufacturers, and each layer tacked
on its expenses and profit. After searching everywhere
for manufacturers, we finally found this
woman manufacturer/wholesaler out on Long Island
who got all excited about what we were doing. We
started getting stock from her and developed a relationship
with her. She told us that we should go to
the manufacturers' International Fashion Jewelry,
Accessories and Gifts (IFJAG) national show in
Rhode Island, which is very difficult to get admitted
to. She got us an invitation that allowed us to get into
that invaluable show that we now go to each
February and September.

Before we went to the show, manufacturers'
reps wouldn't talk to us because at that point we
weren't buying in large enough quantities to interest
them. But when we went to the show and got to talk
directly to the manufacturers, some of them connected
with our passion to offer quality products for
women who don't want to pierce their ears. Some of
the manufacturers would say: "I think you've got a
good idea, and you remind me of my wife and I
when we were your age. We're going to gamble on
you. I'm going to take orders from you that I would
kill any rep of mine if he came in with them." They
started providing stock to us that we couldn't have
gotten otherwise.

That was the beginning of some mutually
beneficial relationships. Since then we have grown
to the point that we are ordering in such volumes that
we are higher up on their customer lists. Some
manufacturers will now make special manufacturing
runs for us. At the 2003 February show one of the
manufacturers said that it was time that we had our
own exclusive earrings, and that manufacturer
designed some for us and we have had our own
special designs ever since.

Case Study II-5 • The Cliptomania TM Web Store 311

Early Growth

The year 2000 showed steady growth in Cliptomania's
sales. The Santos had only three orders in January, but by
the end of the year, they were up to more than one order a
day. In 2001, Cliptomania's sales continued to grow rapidly
to where sales had more than quadrupled over its sales for
the year 2000. Candy recalls:

Jim and I both had full time jobs and Christy was a
student. We took no pay out of the business for the
first two years—we just plowed everything back in.
We started with pure sweat equity.

It started very, very slowly. When we got to
one order a week we were celebrating. But it just
grew and grew. Around October of 2001 I left my
full-time development director job because I was
really burning-the-candle-at-both-ends at that point.
I took a part-time job where I could just go to work
and leave it behind when I came home.

The Move to Indiana

In December 2001, the Santos sold more than they had in
the entire year 2000. They were running out of space for
operating out of their small house in New Jersey. Candy
was originally from Indianapolis, Indiana, and she began
to think about getting away from the high costs of New
Jersey to the Midwest where the costs of space were much
lower. She explains:

I could see after the holiday season of 2001 that we
would not be able to handle the next holiday season
out of the space in which we were working. If you
needed packing material you either went up into the
attic or out into the garage. We didn't have separate
offices—we were all trying to work out of one room.
After we searched for a suitable space in our area and
found that everything available was far too expensive,
it dawned on me that the people on the Internet don't
care whether you are doing it out of high-cost New
Jersey or lower-cost Indiana.

Jim provides another perspective on the move:

Another reason we moved to Indiana was to change our
lifestyle. Candy and I recognized that if I continued to
work 80 hours a week, I was going to kill myself. Our
expensive lifestyle wasn't giving us any quality of life.

Also, I think that the events of 9/11/2001 had
something to do with it. We lost several friends and
some neighbors in the World Trade Center disaster.
Moreover, after 9/11 thousands of people who felt
vulnerable living in Manhattan wanted to move out of

Part II • Applying Information Technology

the city. They bid up real estate by 50 percent in our
neighborhood across the river in New Jersey, so we
could sell our house easily and at a very good price.

In March 2002, we took a trip out to Indiana,
and after that trip we decided to move. We sold our
house in New Jersey and bought our present one in
Indiana. We got twice the house for half the money,
the equity in our New Jersey house paid for our new
home, and we now have no mortgage. That was a big
plus in enabling us to devote the time necessary to
bring Cliptomania to the point where it could fully
support the three of us and enable us to hire adequate
help to make sales 24/7 without having to cover every
day on our own.

When they moved to Indiana, Candy quit her part-
time job. She has been full time with Cliptomania since
then. Also, Jim cut back his insurance agent job to half
time and has since hired his own help to continue to build
his insurance clientele in Indiana.

Later Developments

In 2004 Candy began to question the use of Paymentech to
verify and process credit cards. She explains:

Paymentech proved to be very expensive and difficult
to work with. In credit card processing there are
three costs to us: the monthly fee we pay for the
service, a per transaction fee, and the percentage that
the credit card company gets. In addition to a hefty
monthly fee, Paymentech was charging us 20 cents
for each transaction, and in addition was charging us
30 cents for any credits or voids.

I went to our local bank and they set me up
with a group called Nova that was much lower cost
to us. Nova only charges us 10 cents per transaction
and they charge nothing on the credits. Also, the
monthly fee is less and the percentage that the credit
card company keeps is almost a full percentage point
less than it was with Paymentech. That adds up

Furthermore, I am dealing with either my local
bank or Nova, and they are much easier to deal with
than was Paymentech. They provide much better
support at substantial savings.

Clipt omania' s Oper ations

Candy is Cliptomania's CEO and Christy is Customer
Relations Manager. In addition to sharing responsibility
for receiving and processing orders with Christy, Candy
maintains the Web site, chooses the styles of earrings to

stock, orders the stock, sets the prices, and manages the

Customers access the items for sale by clicking on
one or more of the categories arranged vertically along the
left side of the main page. Therefore, Candy carefully
chooses the categories and selects the words to describe
them. Candy also produces the images of the items that are
shown and writes the descriptions that appear alongside
the pictures. According to Jim:

Candy describes each earring very honestly so that
the customer knows exactly what she is getting. But
she has the gift of wording it in such a way that the
person reading about it thinks that she will look like
a million bucks when she wears our $10 earrings.

The quality of the pictures is critical. The
customer cannot pick up an earring and look at it
like you would in a brick-and-mortar store, so if she
does not feel she is seeing the real thing and is not
attracted to the earring, she is not going to buy it.
Candy also does all of our imaging and her pictures
look great!

Earrings are fashion items, so the market is continually
changing. Candy changes Cliptomania's Web page
almost every day as new items are added, old ones are
removed, items are featured during special times of the
year, items are put on sale, the categories are reorganized,
and so on.

Buying Earrings to Stock

About half of their sales are for fairly standard items that
sell year in and year out. But the other half are fashion
items that are very dynamic. Candy and Christy try to keep
abreast of fashion trends to choose what to stock. There is a
long lead time in ordering and receiving fashion items—in
fact many decisions must be made at the national manufacturers'
show in February. Therefore, they depend heavily on
the manufacturers whose judgment they trust to help them
decide what will be hot for the next year.

With the dynamism and long lead times of the fashion
business, keeping adequate stocks of the good sellers
while not getting stuck with items that don't sell is a continuing
challenge for Candy. She describes the problem:

We do about 60 percent of our business in the last
third of the year—September through December.
September is the latest that I can order fashion items
and expect to get delivery before Christmas, so I
have to make decisions as quickly as I can figure out
what items are going to be hot for Christmas. In
mid-December the manufacturers worldwide close

Case Study II-5 • The Cliptomania TM Web Store 313

down, and don't open back up until mid-January.
They have the IFJAG show in February, so they
won't really start making the stock to fill the IFJAG
orders until March and I will be lucky to get the new
stock in May. When I order in September I figure it
is going to have to hold me until May, but I don't
want to overbuy on something that will have passed
its peak by the time February rolls around so I will
be sitting on it forever.

Many of the newer fashion items are designed and
manufactured in the United States. Many of the standard
items that do not change are made overseas where costs are
much lower. Even the standard items can be difficult to
maintain in inventory because the lead times on them are
long and delivery schedules can be uncertain. Candy
sometimes runs out of some of her standard earrings that
are best sellers because of shipping problems in getting
deliveries from China.

Candy gets lots of helpful information that is
gathered by the Web site, which helps her with stocking
decisions. She can see how many people visited, how
many put items in the basket but have not bought yet, what
they put in the baskets, and which search engine they came
from and what search terms they used. She can get online
graphs showing sales trends by item as well as for total
sales. She can request summaries for various time periods
and sort by gross receipts or number of items sold.

Candy also uses an Excel spreadsheet she developed
that has a line for each item Cliptomania sells. It shows
the Cliptomania product code, the name of the item, the
cost per unit, the total number she has received, the dollars
she has invested in the item, how many they have sold, the
number damaged or lost in the mail, gross receipts for the
item, total net margin, the vendor of the item, the vendor's
product code, the current inventory, and the value of the
current inventory. But even with all this information, there
is still a lot of judgment involved in deciding what to stock
and how much to order.

Processing Orders

Cliptomania operates out of the lower level of the Santos'
home in Bloomington, Indiana. There is a large workroom
that contains the inventory in wide shallow drawers in
cabinets and small plastic containers in cubbies along one
wall. There is also room for assembling and packing
orders, two desks with computers, and workspace for
receiving orders. In addition, there are two offices and a
storeroom for packing materials and reserve stock.

There are four PCs connected by a network, along with
a fax machine and a printer. They have two high-speed lines
coming into a router on the network, one from a telephone

company and the other from a cable company, so that they
can continue operations if one vendor's lines go down for
some reason. Once a month Candy backs up key records onto
a zip drive and puts it into their safe deposit box at the bank.

In addition to the security features provided by the
Web site provider, they have firewalls to deter break-ins to
their own computers. They have many different layers of
security to make it more difficult to break into their store
either physically or electronically, including central security
alarm systems for their house.

When an order comes in on the computer, Candy or
Christy checks Nova's assessment of whether the billing
address the customer has given matches the address for that
card in a central database. If these addresses are not the
same, it is a red flag that the order may be fraudulent. She
also looks all orders over for other indications that they may
be suspicious. If it appears that there might be problems,
she can call Nova to obtain the telephone number of the
issuing bank and call it to determine whether or not the card
is legitimate. If she cannot verify that the card is legitimate,
she can cancel the order, which does occur, but rarely.2 If
everything seems all right, she checks the inventory to
make sure the items are available and, if so, prints out the
picking ticket and the mailing label for shipment. The order
is then assembled. Each pair of earrings is wrapped in
plastic padding; the more expensive ones are also placed in
an attractive box. Once the earrings are protected, they are
placed in a small corrugated cardboard shipping box. For
some kinds of clip-ons, a set of printed instructions for
putting on the earrings is inserted. Then the box is sealed,
and the mailing label is affixed. Once a day, the completed
orders are taken to the local U.S. Post Office3 and mailed.
Most orders go out the same day that they are received. The
shipping options and charges for shipping and handling are
detailed on Cliptomania.com.

After the orders are put into the mail, Christy sends
each customer an e-mail thanking her for the order, telling
her it has been shipped, spelling out the return policy, and
where appropriate, encouraging her to read the instructions
in the box describing how to put on the earrings.
Candy explains:

We found early on that customers were having trouble
with some of the earclips because they didn't
know how they worked—they were twisting them
and breaking them. So I made a graphic and wrote

2 Their credit card verification process has been very effective. There
have been very few instances in their history where they were charged
back on a credit card transaction.
3 The boxes are too small to make it feasible to use a package service such
as UPS.

Part II • Applying Information Technology

directions showing how to put them on properly and

we include these instructions in the box with the


Some customers are not comfortable ordering over
the Web, so Cliptomania also accepts orders by mail or fax.
Such orders are relatively rare (less than 2 percent), which
is fortunate because it is more work to process them as the
information has to be manually entered into the computer
and the credit card processing must be done manually. Mail
orders sometimes include items that were in stock when the
buyer decided to make the purchase but are sold out by
the time the order is received by Cliptomania. Initially the
Santos accepted personal checks in payment of mail orders,
but they have had enough problems with this that they now
only accept credit cards and U.S. Postal Money Orders as

Cliptomania also reluctantly accepts orders over the
phone. They discourage phone-in orders because this
requires someone to sit at the computer and enter the order
while talking over the phone, and this is quite time
consuming for their small staff. Despite the following plea
on the "how to order" page, they still receive and handle
several phone-in orders a week:

Please do not use our phone number to place an order.
We are a small family-run store and that would overwhelm
us. We would be happy, however, to answer
any questions you may have at that number.

One of Cliptomania's PCs is a laptop. The office
printer has two trays, one with plain paper and the other with
mailing labels. Things are set up so that if the Santos go on a
trip they can log onto the network via the laptop, process
orders from the Web as though they were in the Cliptomania
office, and print out the orders and mailing labels.
Workers can come in and pack and mail the orders, and
Cliptomania's operations can continue uninterrupted.

Foreign Sales

About 10 percent of Cliptomania's sales are to customers
outside of the United States. Selling overseas has some
challenging aspects. There is the language problem—
their overseas sales are restricted to English-speaking
countries—Canada, Ireland, Australia, New Zealand, and
English-literate persons in Japan. Initially Cliptomania
sold earrings in the United Kingdom, but because of long
delays in clearing British customs, they no longer accept
orders from there.

The cost to a foreign customer is considerably higher
than in the United States because of higher shipping cost
and import duties that may be charged. A major problem is

verifying the validity of credit cards. On the other hand,
currency exchange is not a problem as the credit cards take
care of that—Cliptomania bills in dollars, and the customer's
credit card is charged in his or her local currency at
a reasonably good exchange rate.

Although Canadian import duties on jewelry make
Cliptomania's earrings cost as much as 60 percent more
for Canadians than they cost for Americans, the majority
of their foreign sales are to Canadians. Overseas customers
may pay even more than Canadians because shipping costs
are higher.

In July 2003, Cliptomania attempted to expand its
presence in Japan. They had been told that Japan could be
a big market for clip-ons. They tried to set up a Japanese
language Web site, but were not successful. Eventually
they wrote off the Japanese experiment as a failure, but
they still accept orders from there as long as they are in

In 2003, a man from Mexico e-mailed Cliptomania
and was adamant about needing three pairs of thin hoop
earrings. Although they do not usually sell in Mexico,
Candy worked with him and describes what transpired in
this case:

Mail theft is rampant in Mexico, and has been for at
least 10 years. As the U.S. Postal Service does not
serve his area, the customer said he would pay for
UPS or FedEx shipping. The shipping costs
exceeded the costs of the earrings as neither company
would ship by ground due to theft problems.
The customer was afraid a money order would not
reach us, so he sent his credit card number by three
different e-mails and the expiration date by a fourth.
And then the whole order had to be manually done.
The time it took to research this and all the e-mails
sent back and forth added up to a loss to us if we add
the value of my time. He was thrilled with his earrings,
but I am convinced we have made the right
choice not to sell in Mexico!

Marketing on the Web

Marketing on the Web is primarily a matter of getting
potential customers to visit your Web store. For several
years, Jim spent half time as Cliptomania's Vice President
for Marketing and half time with his insurance business,
but Jim's son, Greg, has recently taken over most of
Cliptomania's marketing efforts.

The primary way that potential customers find the
Cliptomania store is by searching on a term such as clip
on a search engine such as Google, Yahoo!
Search, or Microsoft's Bing. When Cliptomania got started

in late 1999, search engines on the Internet were still
listing sites by relevance based on the site's fit with the
search terms. In very quick order, Cliptomania was listed
number one on all the search engines when someone
searched for clip-on earrings. But soon the environment
changed radically. Jim explains:

When the dot-coms went "dot bomb" in 2000, the
whole environment got even more dynamic—it
went ballistic. Since I was devoting lots of time to
keeping up with what was going on, I quickly
caught on to the fact that the industry somehow had
to generate revenue and profits instead of just
expanding its customer base. This is when Yahoo!
went from a modest fixed monthly charge to adding
fees based on volume.

About this time the GoTo search engine
started charging for listing position. There was not a
fixed price for the top positions. You stated how
much you would pay per click for each of your
search terms, and if you bid high enough you could
be number one or number two on a GoTo search.
But if you did not pay you might be down on the
second or third page where 95 percent of the people
would not find you. I jumped on this and immediately
agreed to pay GoTo (which changed its name
to Overture and eventually became Yahoo! Search
in 2005). We had an instant increase in our business!
Within a week, it was very obvious that our sales
were up significantly, and they stayed up.

At the start we paid one cent whenever GoTo
sent a person to our site. However, only 1.2 percent
of these clicks resulted in a sale, so the cost was
about 83 cents per sale. That cost was quite acceptable,
but since that time our cost per click has
increased to where the cost per sale can eat up most
(or sometimes all) of the profit on that sale.
However, we are willing to pay a high price because
we view this as an acquisition cost—hopefully a
good proportion of these buyers will be repeat
customers who will come directly to Cliptomania
without going through a search engine (which is one
reason why we encourage people who visit our store
to bookmark us).

People search the Web by entering combinations of
keywords, and the search engine produces lists of Web
pages that are related to these search terms. Today there are
two ways that your Web store may appear on search engine
results—sponsored links and relevancy ranked listings.
The sponsored links appear at the top and along the right-
hand side of the results page. Search results ranked by

Case Study II-5 • The Cliptomania TM Web Store 315

relevancy appear below the top-level sponsored links and
may go on for page after page. A Web site may appear both
as a sponsored link and on the relevancy ranked listings.

Search Engine Advertising

Sponsored links are the major way Cliptomania advertises
on the Web. Your sponsored link is an advertisement,
and you get to write the short description that is
displayed as the sponsored link. You want this description
to attract potential customers so that they will click
on it to visit your store, but you want it to realistically
describe your offerings because you do not want persons
who have little probability of buying to click and cost
you money.

To establish a sponsored link on Google AdWords,
you bid a specified amount that you are willing to pay per
click on a Google search for a specific search term. Thus,
you must specify the search terms that you are interested in
and you may bid a different amount for each of your specified
terms. You may not pay the amount you bid for each
click as you actually are charged one cent more than the
next lower bid on that term. You can specify your search-
targeted keywords as broad matches, phrase matches,
exact matches, or negative matches.4

The amount that you bid determines your position
among the sponsored links for that term—the highest
bid gets the top position, the next bid gets the second
position, and so on. For several years, Cliptomania tried
to be among the top three positions on its major search

The Cliptomania site includes over a hundred
search terms, but most customers access them through a
small number of terms such as "clip earrings" or "clip-on
earrings." Cliptomania only pays for the terms that are
used by most customers because it doesn't make sense to
pay for a search term where a person will click on your
site and find that she has no interest in buying your

The placement of your sponsored links can change
instantaneously as your competitors can change their bids
at any time. If you want to stay at the top of the sponsored
listings, you have to pay close attention to what is going on
so that you can respond to competitors' moves. However,
there are limits to what you can afford to pay per click
without losing money on each resulting sale. The search
engines provide tools that allow you to analyze the results
you get from your sponsored links so that you can make
informed decisions about how much to bid on each of your
search terms.

4 Explanations for these terms can be found on the Google Web site.

Part II • Applying Information Technology

Jim and Candy's son, Greg, has examined their strat

egy in pay-per-click advertising and sharpened its focus.

Greg explains:

In a search for a longer term that includes "clip-on
earrings" we have what is called a general match
which means that if we don't have a specific term set
up that matches the search term then the search
engine will default to a general search on clip-on
earrings. So if somebody does a search on "little girl
clip-on earrings" and we don't have that term there is
no problem—a Cliptomania advertisement still
comes up—but we don't pay the 10-cent minimum.
Instead, we pay what we bid on the term "clip-on
earrings," which is much higher. So I am going
through and adding those more specific terms to bid
on. These terms are converting for us at a higher
percentage because they are very specific terms, and
they cost less per click because there are fewer
people bidding on them.

We have set up specific search terms for any
non-pierced term (non-pierced, clip-on, clip, clasp,
etc.). There are lots of them and we find new ones all
the time. Our conversion rate on these terms once we
set them up is pretty high. We don't have to bid high
on them so we are converting at a lower cost per
click. Also, I am setting up specific search terms that
include the words men, boys, male, guys, etc. A certain
percentage of men, particularly the young men,
are going to be non-pierced, so we want to be in the
top five for those searches. And the child-related
terms are good too, as they will convert at a higher
rate than more general terms. Only one in twenty
women have non-pierced ears, but a higher percent of
children and young men who want to wear earrings
will have non-pierced ears.

The recession in 2009 caused Greg to modify his
approach to advertising:

My approach to advertising Cliptomania on the
Internet is different right now than it was in the
past. Currently, it is mostly like "damage control."
The cost per acquisition for bidding on the top 3 spots
for Cliptomania's most common search terms can
be as high as, and often higher than, the net first-
time sales they generate. There is a lifetime value of
a customer, but in this economy I have to be pragmatic
about how long it will take to realize a profit
from aggressively bidding for customers. So my
goal is to try to keep Cliptomania on the first page
of paid advertising for our most common search

terms, but I avoid the top position unless it is relatively
inexpensive to occupy. The few times in the
past year that I have deviated from this approach by
aggressively bidding for the top positioning have
demonstrated that the extra cost was not justified by
the relatively few extra sales that were generated.

The Relevancy Listings

Although the sponsored links are important, according to
Greg about three-fourths of the clicks Web sites receive
come from the relevancy listings, so it is very important to
appear among the top few relevancy listings. If you are not
on the first page, most of the searchers will not find you.
Therefore it is very important to understand how the search
engines work and how they determine their relevancy
rankings. For competitive reasons Google and the other
Web search companies are reluctant to explain exactly how
their search engines determine their rankings, but each of
them has a different algorithm for determining its relevancy
rankings. As of this writing Google is the dominant
search engine, and it seems to have the most complex
approach to its relevancy rankings. The following excerpts
from the Google Web site explain in general how its search
engine works:

The process by which we find content to include in
our search index is known as "crawling." Google is a
fully automated search engine that uses computer
programs known as "spiders" to "crawl" the Web
and find sites for inclusion in our search index.

The spiders analyze the Web pages for relevant
terms and phrases that characterize the content of the site,
and Google includes these terms in the giant index that it
uses when you perform a Google search. Google's Web
page explains:

Google goes far beyond the number of times a term
appears on a page and examines all aspects of the
page's content (and the content of the pages linking
to it) to determine if it's a good match for your

The following presents what Google reveals on its
Web site about its relevancy rankings.

Search results are generated automatically using
algorithms that weigh numerous factors about the
quality of a given Web page and its relevance to a
user's search query. Google doesn't accept payment
either to include sites in our search results or
to improve or alter the ranking of sites in our
search results.

Google uses PageRank to examine the entire
link structure of the Web and determine which pages
are most important. It then conducts hypertext-
matching analysis to determine which pages are
relevant to the specific search being conducted. By
combining overall importance and query-specific
relevance, Google is able to put the most relevant
and reliable results first.

PageRank Technology: PageRank performs
an objective measurement of the importance of
Web pages by solving an equation of more than
500 million variables and 2 billion terms. Instead
of counting direct links, PageRank interprets a link
from Page A to Page B as a vote for Page B by
Page A. PageRank then assesses a page's importance
by the number of votes it receives. PageRank
also considers the importance of each page that
casts a vote, as votes from some pages are considered
to have greater value, thus giving the linked
page greater value. Important pages receive a
higher PageRank and appear at the top of the
search results. Google's technology uses the
collective intelligence of the Web to determine a
page's importance.

Hypertext-Matching Analysis: Google's
search engine also analyzes page content. However,
instead of simply scanning for page-based text
(which can be manipulated by site publishers
through meta-tags), Google's technology analyzes
the full content of a page and factors in fonts, subdivisions,
and the precise location of each word.
Google also analyzes the content of neighboring
Web pages to ensure the results returned are the
most relevant to a user's query.

In summary, Google combines at least two major factors
to determine the ranking of Web sites in response to a
search: (1) how well the content of the site matches the
search terms and (2) the quality of the Web site defined
primarily by the number and quality of the Web sites that
link to it.

In regard to the page content component of the ranking,
it is important that the crawlers find indications of the
content that people may be searching for on the page. For
example, Cliptomania has a number of what they call
"bead earrings," but many potential customers search for
these as "beaded earrings" and may not find Cliptomania's
store under that search term. Also, Web crawlers cannot
deal with images, so if your content is in images, it will not
show up on searches unless the images are also described
in text. For example, if you are a dude ranch that features
horseback riding and emphasize that in pictures but not in

Case Study II-5 • The Cliptomania TM Web Store 317

text, the Web crawlers will not rank you high on "horseback
riding" searches.

Other Marketing Approaches

Jim experimented with "site-targeted advertising" through
Google AdSense where Google places an ad for you on
Web pages that are found via related searches. These ads
would not appear on one of Cliptomania's competitor's
pages, but might appear on the page of someone who sells
scarves or beauty products or on other categories that Jim
might specify. You may pay by the click or by how many
persons view your ad. Google pays the person who
allowed your ad to appear on his page and charges you for
your clicks or views. After trying this type of advertising,
Jim decided that it was not profitable and discontinued
that approach.

Jim will not accept ads for related products on
Cliptomania's Web pages. He says:

We don't like the idea of cluttering up our store with
links that send people away and they may not come
back. Furthermore, we have worked hard to provide
superior service and achieve an outstanding excellence
rating. We have control over how you are treated
when you deal with us, but if we refer you out to
another site we lose that control. If someone gets bad
service from a store we sent them to, they might associate
that experience with us, and our good reputation
is too important to risk.

The Santos have established another Web site, www.
earringinformation.com, that contains a lot of information
about non-pierced earrings including information on how
to adjust them, what styles are best with different shaped
faces, and other interesting information and ideas. This site
also extols the virtues of Cliptomania and encourages
visitors to click to visit Cliptomania, so this site is a
marketing tool for the Santos. Although Jim will not
accept advertising on Cliptomania.com, he does allow ads
on www.earringinformation.com
and receives some
revenue from this source.

Like many Web businesses, Cliptomania also owns
quite a number of URLs with names that are similar to
Cliptomania or have to do with clip-on earrings. For example,
if someone in desperation keys in the URL www.
cliponearrings.com, his or her browser will pull up the
Cliptomania Web site. Cliptomania gets some business via
these URLs, and it is relatively inexpensive as it only costs
a few dollars a year to maintain a URL.

Another marketing approach involves the use of
e-mail. Cliptomania has a file containing the e-mail
addresses of all its customers. It also has a box on its home

Part II • Applying Information Technology

page where a visitor can provide an e-mail address. About
eight times a year, Candy sends everyone in this file a
promotional e-mail. Candy cites examples:

For the Twelve Days of Christmas (December 26

through January 12) everything in the store is a fixed

percent off. I give our customers a jump on that by

sending out an e-mail that lets them get the discount

a few days before other visitors so that they can get

the most desired stock before it sells out.

These e-mails can be very effective. I sent out

an e-mail around April 25 that said: "Here comes

Mother's Day, graduation, wedding season and

proms. If you or someone you know doesn't have

pierced ears we have what you need for these occa

sions." That produced a tremendous spike in our

sales over a two-week period.

Incidentally, repeat customers provide a lot of
Cliptomania's business. Through their eclectic product
offerings and outstanding service, the Santos have built a
very loyal customer base, so a sale to a first-time customer
is just the beginning of a very productive relationship for
Cliptomania. They also get a lot of new business by word
of mouth from satisfied customers.

Jim is always seeking ways to increase sales so he
continues to search for and experiment with new marketing
approaches so that Cliptomania doesn't fall behind.
However, the Internet is such a dynamic environment that
not all Jim's initiatives work out well. He has spent several
thousand dollars each year on experiments that were failures,
but he realizes that in such a dynamic environment
you must take some calculated risks.

Changing W eb Service Pr o viders

In 2006, the Santos began to have problems with the service
that Yahoo! was providing. Customers were reporting
that they were having trouble placing orders, and
Cliptomania was being charged more than once for some
transactions. They called in their consultant to help them
deal with these problems but were not able to resolve
them all.

To make a long story short, it turned out that the consultant's
company, NetProfits Internet Consulting, had also
become a Web service provider and was serving a number of
former Yahoo! customers. In the fall of 2006, Cliptomania
switched to this new Web service vendor with the URL
The new vendor charged substantially less
than Yahoo! and provided services that in many ways were
better than those Yahoo! offered, so Cliptomania is no
longer a Yahoo! store.

Advantages of the New Store

Jim and Candy's son, Greg, who joined the family business
in 2006, says that the new vendor's software offers a
number of somewhat subtle advantages that he is taking
advantage of to improve Cliptomania's performance. Greg
is particularly concerned with improving Cliptomania's
performance on the relevance rankings on Web searches.
Greg notes:

The new site has two improvements that are helpful.
First, the new store allows for meta-tags for each
product, while the Yahoo! store only allowed a metatag
on the main page. A meta-tag is a description that
the customer does not see, but is available to the Web
crawlers. Second, the Yahoo! store severely restricted
the length of product descriptions, but the new store
can have longer descriptions. Both of these allow us
to include more descriptors that can be picked up by
the Web crawlers and thus increase our relevancy

For example, the meta-tag gives me the
opportunity to be specific about the type of gem
stone in the earring. In the product description that
the customer sees we may describe the earring as a
gem stone, but in the meta-tag I can be more specific
and describe the gemstone as garnet—the
January birth stone—which allows people to do
more specific searches.

As another example, in our product descriptions
we describe our earrings made of beads as
"bead earrings," while some customers may
search for them as "beaded earrings" and not find
ours. In the meta-tag we can call them beaded
earrings and thus be found by searching on either

An Unforeseen Consequence of the Change

When the Santos changed Web service providers from
Yahoo! to NetProfits Internet Consulting, they operated
the two stores in parallel for a while, giving the
new store the URL Cliptomania.net
and keeping the
old one as Cliptomania.com.
When they switched over
to the new store, its URL remained Cliptomania.net
rather than Cliptomania.com.
Although this small
change did not affect Cliptomania's position on its
sponsored links, it had serious consequences for
Cliptomania's relevancy rankings. Before this change,
was among the top five in the
relevance rankings on most searches for non-pierced
earrings. However, by late December the Santos discovered
that neither Cliptomania.com
nor Cliptomania.net
was in the top 100 of the relevancy rankings on the

major search engines—they had fallen off the radar!
The Santos had been so busy handling the Christmas
rush that they had not monitored the relevancy rankings
so they do not know exactly when the rankings

The Santos had retained both the Cliptomania.com
and the Cliptomania.net
URLs, but the information on all
the earrings for sale was on Cliptomania.net.
If someone
went to Cliptomania.com, he or she was automatically
transferred to Cliptomania.net, so the store was indirectly
available via Cliptomania.com.

This change seems to have confused the search
engines, some more than others. Cliptomania.net
rose in the relevancy rankings on Yahoo! Search and
MSN Search to where by February they appeared on the
first or second pages. However, neither Cliptomania.net
nor Cliptomania.com
appeared in the top 100 of the
Google relevancy rankings. Greg tweaked the content of
their pages every way he could think of to try to increase
their relevancy on Google, the most popular search
engine, to no avail. On March 1, the Santos finally gave
up and returned the store content to Cliptomania.com.
about a week Cliptomania.com
was near the top of the
Google relevancy rankings and also near the top of
the other search engines. Things were back to normal, but
the Santos have no idea how many sales Cliptomania lost
due to this episode.


Although the Santos have had to overcome many difficulties
and problems, Cliptomania has been an outstanding
success. During a period where most Internet retailers
have struggled, Cliptomania has done relatively well.
Started as a part-time sideline for Jim and Candy,
Cliptomania is a thriving business despite the downturn
in the economy.

Up through 2005 Cliptomania's yearly dollar sales
grew at least 20 percent a year. However, in 2006
Cliptomania's sales leveled off for the first time. Jim

I am sure that some of our lack of revenue growth
was due to the problem with our search engine relevancy
rankings, but there were also other factors
involved. When the price of gasoline hit $3.00 a
gallon that summer we got the number of orders that
we expected, but they were much smaller. It is obvious
that people were buying earrings with their
disposable income. Although our number of orders
in 2006 was up about 20% over 2005, the total
dollar sales for 2006 was about the same as
2005. Also, the advertising is getting much more

Case Study II-5 • The Cliptomania TM Web Store 319

expensive, so the cost of doing business went up and

our profits went down.

The year 2006 was the beginning of difficult times
for retailers who sell discretionary items such as earrings.
By 2010, Cliptomania's sales were down almost 40 percent
from the peak in 2006. Although many of its competitors
have gone out of business, Cliptomania has remained
profitable because it has a good reputation, loyal customers,
low fixed costs, and (other than the Santos' initial
investment) it has been financed entirely from revenues so
it does not depend on bank financing. Times have been
hard, but Candy is confident that when the economy
recovers Cliptomania will be back on a growth path.

In 1999, when Jim and Candy started Cliptomania,
they had little competition as a specialized Web store.
Today, however, competition is fierce. If you do a search on
"clip-on earrings," you will get over a million responses.
Jim explains his competitive situation:

We have competition from stores that exclusively
sell clip earrings, fashion jewelry stores that sell clip
earrings on the Web, and big portals like eBay,
BizRate and Shop.com that do not stock products
themselves but present the goods of others. All this
competition is vying with us for position on the
relevancy search results and bidding for position of
ads on the Web pages, which is driving up the cost of
our basic advertising.

As an example of the intensity of competition, when
a person types Cliptomania into the Google search box
rather than keying in the Cliptomania.com
URL, the
results page includes advertisements for some Cliptomania
competitors. It appears that these competitors are bidding
on Cliptomania's trademarked name as a search term! On
one of these ads the top line, the one the user clicks on,
contains Cliptomania in large letters, a blatant attempt to
mislead the customer. The Santos don't know how often,
but it seems certain that some people click on one of these
ads thinking that they are going to the Cliptomania store.
One confused lady called Cliptomania to complain about
poor service on a product she purchased from a competitor
that she thought was Cliptomania. Despite repeated
requests from Candy, Google has refused to block ads
from appearing in the results of searches on the
Cliptomania trademark.

The Web is a jungle out there, and it is still evolving
rapidly. Jim explains:

The Web is so dynamic and so competitive that we

have to keep running hard just to keep up. I look at

Part II • Applying Information Technology

other successful Web stores and try to learn from them.
And I devote a lot of time and energy to identifying and
keeping up with new developments and trends relating
to the Internet. For example, an obvious trend in this
country is to go mobile. Everyone has a cell phone, and
the Internet is going on the cell phone. The URL for
mobile ends with .mobi, so we have purchased our
most critical URL terms with the .mobi ending. If
someone wants to shop for clip earrings through her

cell phone we want Cliptomania to be found, so I have
purchased those URLs just to protect our turf.

We are lucky that we started when we did.
Today there is no way that we could be successful
starting Cliptomania from scratch, but we have
reached the point where we believe we can continue
to prosper despite competition, downturns in the
economy, and a few missteps like we had when we
changed service providers.

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Solution Summary

The CliptomaniaTM Web Store case study is explained in a structured manner in this response. The answer includes references used.

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(1)Discuss the strategic issues faced by the company in launching and developing their e-business ventures.
The first strategic issue faced by the company in launching and developing their new e-business venture was to set up the website and make it functional. Jim and Candy decided to pay a vendor for hosing the website and use the computer resources of the vendor for their business. At the inception they used Yahoo Store. However, the services of Yahoo Store gradually became more expensive. Using the services of a vendor made it easy for Jim and Candy to commence their e-business. Since there was not much professional help, the two owners had to design their own website. Another strategic issue was that of credibility. Customers often phoned in to talk with real people before they placed orders.
One of the most important issues that were related to the business was finding the ...

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