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CASE STUDY II-5

The CliptomaniaTM Web Store

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 com-

plete. 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 pro-

vides 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.

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 unnec-

essary 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 prob-

lem 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

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

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.

History

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 selec-

tion of nice clip-on earrings anywhere. I looked

everywhere I could think of in the New York metro-

politan 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 reg-

istered as a corporate name, they would go forward with

the endeavor. They employed a patent and trademark attor-

ney 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.

On Thanksgiving day, 1999, traditionally the begin-

ning 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 side-

line 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 inte-

grate 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

310 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 operat-

ing 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 col-

lected 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 aver-

age 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 con-

sultant 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

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 num-

ber 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 cus-

tomers 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 impor-

tant 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 desper-

ate. We didn’t know anything about jewelry, about1 For current charges see http://smallbusiness.yahoo.com.

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

what styles were popular, or about fashion. And we

are in the fashion industry, so there was a big learn-

ing 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 every-

where 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 rela-

tionship 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 con-

nected 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.

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

312 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 diffi-

cult 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

quickly.

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.

Cliptomania’s Operations

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

inventory.

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 contin-

ually 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 manufac-

turers’ 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 fash-

ion business, keeping adequate stocks of the good sellers

while not getting stuck with items that don’t sell is a contin-

uing 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 secu-

rity 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 instruc-

tions in the box describing how to put on the earrings.

Candy explains:

We found early on that customers were having trou-

ble 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.

314 Part II • Applying Information Technology

directions showing how to put them on properly and

we include these instructions in the box with the

earrings.

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

payment.

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 over-

whelm 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 cus-

tomer’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

English.

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 com-

pany 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 ear-

rings, 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

earrings on a search engine such as Google, Yahoo!

Search, or Microsoft’s Bing. When Cliptomania got started

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

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 immedi-

ately 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 accept-

able, 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

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 adver-

tises on the Web. Your sponsored link is an advertise-

ment, and you get to write the short description that is

displayed as the sponsored link. You want this descrip-

tion 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 spec-

ified 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

terms.

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

product.

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.

316 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 cer-

tain 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 prag-

matic 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 rela-

tively 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 rele-

vancy 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

query.

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 pay-

ment either to include sites in our search results or

to improve or alter the ranking of sites in our

search results.

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

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 impor-

tance 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 consid-

ered 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, sub-

divisions, 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 fac-

tors 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 rank-

ing, 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

text, the Web crawlers will not rank you high on “horse-

back 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 excel-

lence 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 asso-

ciate 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 exam-

ple, 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

318 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 fail-

ures, but he realizes that in such a dynamic environment

you must take some calculated risks.

Changing Web Service Providers

In 2006, the Santos began to have problems with the serv-

ice 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 con-

sultant’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

Cliptomania.net. 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 meta-

tag 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

rankings.

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 spe-

cific and describe the gemstone as garnet—the

January birth stone—which allows people to do