Cruising for Profits
General excellence: First place in Customer Service, ROI, and Innovation
Company: Sumerset Custom Houseboats
Web address: www.sumerset.com
Why it won: The site has found innovative ways to maximize customers' lifetime value to the company.
Company revenues: $31 million
Site-launch cost: $10,000
Judge's view: "Sumerset creates a community between houseboat builders and owners that could never have existed without the Web. It has redefined the experience of buying a boat. The site transforms what might be a mundane activity into a highly engaging form of education and entertainment." --Omar Wasow
It could pass for time-lapse photography, Web-style.
Digital photo 1, August 8: Houseboat #2896 has been in production for three hours. The hull, made of gleaming aluminum sheets, is complete.
Digital photo 4, August 11: Welders lay down joists to support an aluminum subfloor.
Digital photo 8, August 17: A dark, square hole gapes out of the reflective subfloor, into which the inverter batteries will be dropped.
Digital photo 26, August 31: Carpenters erect a network of Georgia-pine two-by-fours and two-by-sixes as the interior framing.
Digital photo 68, September 20: Installation of a four-burner stove and a microwave follows the wiring of the entertainment center.
Digital photo 108, September 22: After a flurry of last-minute photo shooting, the finished 18-by-86-foot craft sets sail on a one-day test on the company pond.
In a seeming sleight of hand, houseboat #2896 has come into being right before its owners' eyes -- and before the eyes of any other visitor to the Sumerset Custom Houseboats Web site. Providing digital snapshots of each in-progress houseboat is just one way that the $31-million boat manufacturer creates customers for life.
It was also a primary reason that our judges gave Sumerset's site top marks in three categories: Customer Service, Innovation, and Return on Investment. The judges were especially impressed with how CEO Thomas Neckel Sr. planned the site using the same goals that have set the company's terra-firma operations apart in a highly specialized yet fiercely competitive field.
The digital photos, for instance, are an extension of the individualized attention that Sumerset has traditionally given its customers -- folks who are spending an average of $250,000 on their nautical escapes. The photos enable customers to stay in the construction loop after they've made their purchase -- no matter how far they live from the manufacturing plant, in Somerset, Ky. And they help current and incipient customers garner design ideas for their own boats, which speeds up the production process.
Our panel was also taken with Sumerset's efforts, both online and off, to build a houseboating community, which not only brings in new customers and benefits current ones but also helps cement a long-term bond between the company and its clientele. The combination of customized information and an accessible Web environment even led judge Evan Schwartz to dub Sumerset "the Dell Computer of the houseboat business."
Selling a lifestyle
Neckel knew from the moment he purchased Sumerset, in 1997, that the company needed to be customer focused. The staff readily agreed. "We're not really selling boats -- we're selling a lifestyle," says Cecil Helton Jr., Sumerset's chief information officer. "The boats are a hideaway that lets customers recapture time with their friends and family. Our business philosophy is to do everything we can to restore time as well."
To hear customers tell it, the company has succeeded. "I've coded two-pound babies and felt less frightened than when I walked into Sumerset to design our boat," says Debra Wollaber, a dean at a nursing college, who with her husband, Bruce, bought a three-bedroom, two-bathroom craft from Sumerset a year ago. "But Sumerset made it totally enjoyable." Another customer, Joe Nunnelley, says he too went with Sumerset because of its culture. "They were definitely the most friendly," he says. "They were persistent without being pushy, and they were always available."
For a Web site to fit in with that customer-centric culture, it would have to at least match, and ideally surpass, the company's already stellar level of service. Which made Sumerset's first foray into cyberspace a decided failure. In late 1997, Neckel invested in the company's first Web site, which he says essentially amounted to a piece of static brochureware. "It wasn't very well done," he says. "I couldn't even get page-view counts at first, and when I did, they weren't consistent."
Fortunately, at about that time, Neckel met Helton, an economic developer and former hospital administrator with an M.B.A. and plenty of Internet savvy who was looking to make a career change into Web development. "Cecil's not your typical geek," says Neckel. "He's a genius, but he actually bathes every day." Neckel took Helton on as a consultant at first and within two months persuaded him to come on board full-time.
Designing a customer-focused site
Neckel and Helton's first requirement for the new site was that it had to be interactive. "When customers look at Web sites, they don't want to just see a picture," says Neckel. "They want to have their questions answered and to get customized information." Neckel knew that for Sumerset, that would be especially important during the sales process, given the complexity of the company's product. But as he and Helton walked through the boat-building process, they realized that that kind of service was also critical after the orders were placed. "If I were building a home, I'd probably want to visit the site frequently to monitor the progress," says Neckel. Why, he wondered, should building a house boat be any different?
Since frequent site visits weren't really practical for customers in the United Arab Emirates, or even Arizona, Neckel and Helton hit upon what they considered to be the next best thing: pictures posted on the Web site that charted day-to-day construction. "We figured if customers could watch their boats being built, we could maybe improve customer satisfaction," says Neckel. The pictures would also pump up site traffic, which the company could take advantage of by adding new products and services. "What better way to get customers to visit every day than to show them something different about their boat every day?" says Neckel.
And then there were the unexpected benefits of the visual chronicling. "There's an interesting phenomenon in the houseboating world," says Helton. "Bigger is better. We've had customers who asked to have their boat extended by one foot just to best another customer's boat."
Helton tested the daily-pictures idea on a few tech-savvy customers. At first he thought it would be best to create a password-protected site for each customer. But when customers began asking to see other boats to get ideas for their own, Helton decided to give everyone access to all the photos and to protect customers' privacy by identifying each boat not by its owner's name but by a code number. "Some of our customers are country-western singers and movie stars, and they don't want their name out there," says Neckel.
The new site was launched in early 1999, and within 120 days it was receiving 35,000 hits a day -- up from the original site's 200 a week. By October, the most recent version of the site was getting 40,000 to 50,000 hits a day.
But the site has done more than simply increase the amount of customer contact. Neckel credits it with enabling Sumerset to put its business philosophy -- to restore time for customers -- into practice. "People used to make six or seven visits to the office after the initial design session," he says. "We've managed to stop the follow-up visits almost entirely." Helton adds that, in the long run, giving that time back to customers is often "even more important than cost savings."
Debra Wollaber says that the interactivity of the Web site helped seal the deal for her and her husband. She says that they were really excited when they finally got the online code for their boat (#2891). The couple began logging in regularly to monitor construction from their home, two and a half hours away from the plant. "It was a daily fix," she says. "One day I asked for pictures of a specific part of the boat, and Cecil posted them the next day."
To Neckel's surprise, the digital shots restored time for his company as well. For starters, because their output was visible for all to see, employees became more productivity conscious. "Nobody wants to have a picture be taken and not show progress," says Neckel. And because customers were constantly checking in, mistakes were more likely to be noticed early. "Four months ago we were building a boat that had the wrong entertainment center," says Helton. "The customer was able to stop us in time. Two weeks later, it would have been major dollars to fix."
With the new site up and running, Helton set out to spread the word to the houseboating public. Neckel encouraged him to be very selective about placing banner ads on boating-related sites. "We're not trying to build numbers just to get numbers," says Neckel. "We want to get our core customer. Someone who visits a marine site might only be in the market for a runabout. But someone who's looking for information on taking a cruise -- that's someone who may be at our income level."
Helton also looked into placing ads and listing the company's products on some heavily trafficked general-interest sites. America Online proved to be a particularly useful ad buy, he says. "As a test, we ran $3,000 worth of banner ads for three months," he says. "AOL told us that normally a click-through rate of 0.5% is very successful, but we got 4.8%. And we sold two boats from that, which more than offset the cost."
He tapped into Amazon.com, too, one of the online companies Neckel admires most, by listing Sumerset boats for sale in Amazon's zShops, a network of independent vendors that sell through the Amazon site. Helton admits that the company hasn't yet sold a single boat through zShops, and that he didn't really expect it would. "There's something about the one-click process and a $200,000 boat that just doesn't go together," he says. But the zShop listings have generated interest. "It's a good traffic builder," he says. "We've probably had more than 5,000 visits from Amazon, which isn't a lot, but it's free. And we've had at least one sale from that."
Keeping customers for life
Fully aware that banner ads take advantage of only a tiny portion of the Internet's networking power, Neckel and Helton have put most of their marketing efforts into expanding Sumerset's houseboating community. "We try to follow what Harley-Davidson has done," says Neckel. "It has a production backlog and motorcycles that appreciate. So it maintains strong customer rapport to get that repeat business." Integral to the strategy are the Harley "road shows," events around the country to which the company invites Harley owners to show off what they have and trade up for what they want.
One of the first things Neckel did when he bought Sumerset was to establish regular houseboating regattas, which now number six a year, to help the company build a Harleyesque sense of community. Sumerset now uses the Web site to publicize, and accept registrations for, the regattas. Customers who can't attend can "watch" the goings-on over the Web, as Helton posts daily updates and digital snapshots. Neckel says that the seemingly passive form of marketing is actually very effective. "By bringing customers together as group, they produce their own testimonials," he says. Debra and Bruce Wollaber are a case in point: Bruce placed their order at Sumerset's Cumberland Regatta last May, after learning from others there about the boat-building process.
The Web site has also sparked other, less obvious, strategies for generating customer loyalty. Among them is the company's insurance program. Neckel knew how difficult it was for customers to find insurance for their houseboats and how prohibitive the premiums were once they did. So he negotiated with United Marine Underwriters, headquartered in LaGrange, Ky., to create a specialty houseboat-insurance product, which Sumerset now markets over its site. Both Sumerset and its customers appear to be happy with the deal. "Customers who were paying more than $3,400 for their previous insurance are now paying $1,200," says Neckel. United Marine pays Sumerset a set fee to market its product on the Sumerset site. "That fee alone pays for the connectivity of our site and more," says Helton.
Warm-and-squishy aspects of building a customer community notwithstanding, what Sumerset is really trying to do when it aggregates past and potential buyers is sell them stuff -- and as much stuff as possible. "In the grand scheme, this is still a niche market," says Helton, who notes that Sumerset builds only about 150 boats a year. "There's only so far it will ever grow. So you have to maximize the profit on the sales you make."
But with the Web site, the company has an opportunity to sell a lot more than just boats, Neckel says. To that end, Sumerset entered into an agreement in June with iiCaptain.com, a third-party online marine store, through which Sumerset's customers can select from thousands of boating accessories, from depth gauges and fish finders to ropes, anchors, and engine parts. Sumerset gets a 20% commission on sales generated by the link. "We've probably done about $10,000 in sales, which isn't a lot," says Helton. "But that's $2,000 we made without really doing anything."
Whitecaps along the way
Of course, beyond the equipment cost of setting up the new site (which Neckel pegs at around $10,000), the company must factor in the cost of staffing it. In addition to Helton, three other employees contribute regular content.
For Neckel, the biggest challenge to being a wired business in Kentucky is, well, being a wired business in Kentucky. With Lexington (the closest large city) 65 miles to the north, Somerset is hardly a nexus of Internet connectivity. "We have more T1 activity here than in the entire town," says Neckel. He reports that it's a battle just to keep the company's Internet connection going. "We once had the site go down because someone hit the wrong switch at the local Dairy Queen," he says. Neckel explains that the wires through which Sumerset used to connect to the Internet passed through a repeater switch in the rear of said Dairy Queen, with a piece of tape over the switch warning the soft-serve jockeys not to turn it off. "It wasn't very professional," he says. "We had to educate the provider on setting up multiple routes and doing maintenance."
Despite such minor setbacks, Helton has big plans for the future of the Sumerset site. He's considering using video in addition to the digital photos to showcase the boat-construction process. But there are more stumbling blocks. Although the company has ample capacity for such a system, Helton is concerned that customers with a dial-up Internet connection will get frustrated waiting for the immense video files to download. And he and Neckel are also concerned about competitors' looking in and stealing manufacturing ideas. Closer to fruition is an online houseboat-rental system, in which customers will be able to sign up for floating vacations aboard a boat from selected marinas with the option of putting the rental cost toward the price of a new boat. "We hope to have the whole thing up by the first of the year," says Helton.
But even if future enhancements don't pan out, the Web site has already had a significant impact on Sumerset's business health. Last year the company sold 44 boats through off-line broker-dealers -- a system in which the boats are heavily discounted. "Now we've completely replaced those brokered sales with Internet sales," says Neckel. "Cutting out the middleman increases our profits on those sales." And overall sales just keep growing. Neckel projects that this year's sales will nearly triple those of 1997.
And all that from a simple URL and a little ingenuity.
Christopher Caggiano is a senior staff writer at Inc.
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