Home Grown Gift Service Branches Out

By James Maguire | Posted March 16, 2004

Yes, GiftTree sells gifts online, but no, its goal is not to be an Internet gift shop. Instead, explains company CEO Craig Bowen, the site is a gift services company. The difference may be slight to an outsider, but it makes all the difference in the site's e-commerce strategy.

As a gifts services company, GiftTree's focus is the corporate market. "We manage the gifting functions of their business, and have them outsource it to us," said Bowen. The Vancouver, Washington-based site handles all of a firm's gift giving, from baby announcements to holiday perks, sending out anything from fruit baskets and flowers to desk clocks and stationary sets.

The problem, Bowen explains, is that it's a new concept for many companies. "They're not really receptive to it," he admitted. "It's kind of like the idea of a PR firm, which when it was first introduced, people said 'what the heck is that?'"

But, he continued, "We are making headway, and after we make little chinks in their armor, they're like 'Wow, you're right, you can do this for us and it does make sense.'"

Apparently it does make sense to some corporations. GiftTree had $8.5 million in sales revenue in 2002, according to Bowen. Although this can't be independently confirmed because GiftTree is privately held, the Portland Business Journal recognized GiftTree as one of the area's fastest growing businesses. After hiring its first employee in 1998, the site now employs 60 people. The corporate gift outsourcing market has grown crowded, notes IDC analyst Jonathan Gaw. Corporate buyers enjoy the flexibility and ease, fueling the rise of top players like GiftCertificates.com. All these competing sites means "it's a pretty rough market," Gaw said.

Home Grown
In 1996, Bowen and his wife decided to develop an Internet business. Bowen had studied marketing and computer technology in college, and traveled extensively. His wife, whom he met while traveling in Spain, had no previous business experience. They looked at numerous possibilities, including online DVD rental.

"Gifts made sense because of the distributed nature of family and friends and how busy everybody is," he said. The couple also saw the potential for repeat business if software could be developed to aid the site's corporate business. They launched GiftTree out of their house.

Off-the-shelf e-commerce software was scarce then, so they hired programmers to write it from scratch, including an early shopping cart. This provided their first break.

"Yahoo! liked it so much they invited us to be the featured merchant in the 1997 holidays," Bowen said. "The shopping cart had a gift suggestion tool, where you type in characteristics about a person and it suggested a gift. It was more of a gimmick, it worked about half the time."

Although the software was extremely expensive to build, "it launched us into an opportunity mode," said Bowen. The Yahoo! deal attracted publicity and sponsorships from other sites.

Excellence in CRM
GiftTree has learned how to cater to corporate buyers. "In any corporation of any size, administrative assistants place the orders," Bowen says. "So we've built the support they're looking for."

The site sends out e-mail reminders for important gifting occasions, and offers live chat and phone help for gift giving questions. It stores address books, lists of gifts given to employees and corporate credit card numbers. Customers provide GiftTree with addresses and gift card messages and the site handles the rest. The site's software also helps with corporate expense tracking.

For extra peace of mind, the site provides delivery notification. "We have one person who is dedicated to tracking shipped packages. We know within hours if something has not gone out," Bowen says.

"We'll spell check their gift card message, but we don't change it without contacting them. If the message doesn't come off the way they think it will, we give them a call. That gives us an opportunity to say, 'Look how on top of it we are.'"

"We're just killing ourselves to make them look good," Bowen says.

Custom Gifts, Custom Software
GiftTree has three gift designers who work with companies to develop custom gifts featuring the company logo. The site's photographer takes photos of the gifts in development, posting them on a password-protected page for client approval.

This custom service wasn't available in the site's early days. Before GiftTree hired its first employee, Bowen and his wife outsourced everything, routing all orders to other suppliers. Now, GiftTree combines a complex array of in-house resources and outsourced vendors.

To handle it, the company had to bulk up its software infrastructure, which is built on an Oracle database. "In 2000 and 2001 we probably spent a half million dollars developing our software platform," revealed Bowen. The site now boasts four in-house programmers.

This software handles order routing for the company's catalog of more than 500 gifts. About 125 are stored in its warehouse; about 100 perishables like fresh fruit and chocolates are drop-shipped from outsourcers. For the remaining gifts, depending on a number of factors — such as customer budget and schedule — company branded packing material is sent to external suppliers who assemble product and ship it directly, or the gift is assembled in house.

Getting the Word Out
Of the various methods GiftTree uses to increase sales — sponsorships on major portals, search engines, an affiliate program, and coupons — Bowen finds existing customers to be the best resource. To mine customer data, the site's software looks for certain buyer characteristics: shopping behavior, frequency and amount of purchase. After identifying prospects the site may call the customer, or, appropriately, send them a gift. The site's customers include individual buyers as well as corporate customers. Although Bowen says the individual market is not too profitable, it still represents a window to corporate sales. "You never know when someone's going to take us to work with them."

GiftTree has a group of phone salespeople who aggressively sell to the corporate market. Phone sales work better than Web advertising to reach the corporate audience because "we don't have a brand," Bowen said, explaining that since GiftTree is not a high profile company, these buyers need a more direct sales pitch.

The site also has begun printing a paper catalog. "Printed catalogs and direct sales are a lot more predictable," Bowen explained. "The same amount of effort produces a greater amount of return."

Staying Afloat
Like any business owner, Bowen has things that keep him up into the wee hours of the night. In particular, the vulnerability of having most of GiftTree's transactions flow through the Internet. To address this, the company set up redundant power supplies and pipes to the Internet.

Another concern is relying on delivery services for customer satisfaction. Fearing that either UPS or FedEx could disable his business by striking, Bowen set up a system that works with both, at considerable expense.

Finding funds for continued growth is yet another concern. Although the business is profitable, much of the profit is funneled back into building the gifts services concept, Bowen said. And accepting venture funding is something he's loathe to do. He has seen friends lose control of their businesses due to what he calls "venture vultures."

"We always find a way around 'venture funding.' But it concerns me down the road, that eventually it's going to put a damper on how much we can grow in a year," Bowen said. "I'll probably decide to slow down instead of get a boss."

Adapted from ECommerce-Guide.com, part of internet.com's Small Business Channel.

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