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Safeguarding your Web store from scammers, signing a private-label deal.
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Q. Scammers have been downloading software from my website using stolen PayPal accounts. What can I do?

Jerry Montealto
Ecommercemax Solutions, Winnetka, Calif.

Those PayPal accounts may have been swiped with the identity-theft technique known as phishing. Unfortunately, it's your business that's on the hook. PayPal's seller-protection policy covers only physical goods, leaving digital dealers, who must refund scammed customers, out of luck. PayPal is considering extending coverage to digital goods this year, says spokesperson Amanda Pires.

Your best bet is to beef up security. A number of tools let vendors vet orders before granting approval. For example, most shopping cart software can be customized to flag certain orders for rejection or further review. Companies such as Cybersource, based in Mountainview, Calif., also offer souped-up antifraud services. Rates vary, but prices start at $495 a month, plus 12 cents per transaction.

How can you tell if a transaction looks hinky? First, check a map. Flag any order with a shipping address more than 50 miles away from a billing address (a must even for downloadable orders), says Doc Vaidhyanathan, VP of Product Marketing & Corporate Development for Arcot Systems, based in Sunnyvale, Calif. Computer IP addresses are also revealing. Last year, for example, online novelty store ThinkGeek experienced a surge in fraudulent credit card orders from computers in Singapore and Nigeria. So director William Vandais set the site to reject orders from those countries. The site also weeds orders from places with small upticks in fraud for manual review.

Once you've directed an order to step out of line, give it the once-over. For example, make sure that the information on the order form matches that on the shopper's PayPal account. Check that orders from repeat customers aren't out of the ordinary: a guy who shells out $50 a pop suddenly slapping down $1,000, say. If an order still smells phishy, call the account holder for verbal authorization, explaining the fraud problem. "You don't want to make it difficult for people to buy your merchandise," says Vandais. "But you can't give it away, either."

You should also estimate how much you spend on refunds each quarter and set aside funds to cover that loss. A few bad orders are going to sneak in no matter how many bouncers you station at the door.

Q. I sell lampshades to niche retailers. Recently, some big chains have approached me. Should I sell to them under private label?

Brandon Grinwis
A'Homestead Co., Lapaze, Ind.

The public doesn't know from private. If your shades are sold under one name at Wal-Mart and another at Lamps Unto My Feet, consumers won't get that it's the same product. As a result, private-label deals have proliferated along with big-box stores, allowing manufacturers to play the field without coming off as a cheap date.

But beware: A rose by any other name smells. At least it will to your existing customers if you try to keep them in the dark, says Todd Maute, vice president of marketing at Daymon Worldwide, a marketing firm based in Stamford, Conn., that specializes in private labels. Maute recommends telling your niche customers if you plan to go mass market, assuring them that the private label will protect your brand's equity. You can further reassure them by adding value to the products you sell to specialty clients. Mary Swaab, CEO of Colorlab Cosmetics, based in Rockford, Ill., sells $5 lipsticks in plain silver tubes to mass retailers that package them as in-house brands. Swaab sells the same lipsticks to such high-end stores as Saks Fifth Avenue for $11 each. But Saks also gets colorful packaging and the Colorlab logo.

Before signing a deal, determine whether the mass market is for you. Two years ago, Mark Dwight, CEO of San Francisco-based bag maker Timbuk2, backed out of an agreement to sell messenger bags at CompUSA stores under his own label. Sales were great, he says, but his $6 million business couldn't handle the slim margins and CompUSA's insatiable hunger for product. Dwight has turned down private-label offers as well; instead he is pursuing a larger share of the specialty market under the name Timbuk2. "The magic and the value of what you are creating in your business is in your brand," he says.

Looking for answers? Stumped by a thorny business problem? Let Inc. help. Send your questions to Askinc@inc.com.

Last updated: Jul 1, 2005




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