E-COMMERCE AS A BUSINESS STRATEGY: LESSONS LEARNED FROM CASE STUDIES OF RURAL AND SMALL TOWN BUSINESSES

E-COMMERCE AS A BUSINESS STRATEGY:
LESSONS LEARNED FROM CASE STUDIES OF
RURAL AND SMALL TOWN BUSINESSES


by




David L. Barkley
Professor and Co-Director
Regional Economic Development Research Laboratory
EDA University Center for Economic Development
Department of Applied Economics & Statistics
Clemson University


Deborah M. Markley
Managing Director and Director of Research
RUPRI Center for Rural Entrepreneurship
Visiting Scholar
University of Missouri - Columbia


R. David Lamie
Associate Professor and Economic Development Specialist
Clemson Institute for Economic and Community Development
EDA University Center for Economic Development
Department of Applied Economics and Statistics
Clemson University




UCED Working Paper 10-2007-02, EDA University Center for Economic Development,
Clemson University, Clemson, South Carolina. This work was funded through a grant from the
U.S. Department of Agriculture CSREES through the Southern Rural Development Center at
Mississippi State University.

---

INTRODUCTION

The spread of high-speed Internet among communities and the proliferation of electronic
commerce (e-commerce) among businesses create both opportunities and challenges for
businesses in small towns and rural areas. On the one hand, e-commerce may reduce many of
the disadvantages associated with an isolated location by decreasing marketing, communication,
and information costs and increasing access to lower cost suppliers and services. On the other
hand, geographically isolated businesses may find increased competition for their "local" or
"traditional" customers from nonlocal Internet businesses.

Many rural businesses have adapted to the "opportunities" and "threats" created by
advances in information and communications technologies (ICT) by developing an e-commerce
strategy. E-Commerce often is defined narrowly to refer to using the Internet to market and sell
goods and services. E-Commerce is, however, much broader and includes "the electronic
exchange of information, goods, services, and payments and … the creation and maintenance of
web-based relations" (Fruhling and Digman, 2000, p. 13). E-Commerce may be involved in the
design, finance, production, marketing, inventory, distribution, and service aspects of a business'
activities (OECD, 2001). As such, the use of e-commerce by a firm has the potential to both
increase revenues from sales as well as significantly decrease costs through greater efficiencies
of operation.

E-Commerce activities generally are classified as business-to-business (B2B) or
business-to-consumer (B2C). Business-to-business e-commerce involves using the Internet to
facilitate supply-chain operations and include electronic data interchange (EDI), electronic funds
transfer, electronic forms and messaging, and shared databases. Business-to-consumer e-
commerce uses the Internet as a retail market channel and in the case of information (e.g., a
Carfax report or a product service manual), as a product or service delivery channel. B2B e-
commerce dominates B2C e-commerce in terms of value of sales and percent of total sales
(Table 1). Total value of B2B shipments, sales, or revenue for 2005 was $2,211 billion or 22.3%
of all business-to- business sales. Alternatively, B2C e-commerce totaled $189 billion or
approximately 2.0% of total business-to-consumer sales. Both B2B and B2C e-commerce are
increasing rapidly, with the 2004 to 2005 rate of growth of B2C (18.9%) slightly above that of
B2B e-commerce (16.9%).

The rapid growth of B2B and B2C e-commerce reflects their potential benefits to
businesses in terms of increased sales, lower costs, and enhanced sustainability. Yet many
businesses are reluctant to develop e-commerce or they are disenchanted with e-commerce
because their experiences have fallen short of their expectations. The goal of this paper is to help
businesses decide if e-commerce is "right" for them by reviewing the experiences of twenty-five
small-town businesses that are using e-commerce to enhance their business performance. These
case study firms include manufacturers, service providers, and retailers; storefront and virtual
businesses; B2B and B2C e-commerce activities. The lessons learned from these firms provide
insights into the varied ways in which e-commerce may be incorporated into a business plan,
internal and external resources used by firms to establish their e-commerce capabilities,
perceived benefits of e-commerce to the firms, and problems encountered in implementing or
sustaining an e-commerce business.
2

---

The paper is organized as follows. First, we provide an overview of the firms included in
the case studies. Second, we review the potential benefits available to users of e-commerce and
provide examples of realized benefits from the case study firms. Third, we summarize the
lessons learned from the case study businesses and suggest how these lessons may benefit other
firms that are considering e-commerce.


Table 1. U.S. Shipments, Sales, Revenues and E-Commerce: 2005 and 2004



Value of Shipments, Sales, or Revenues
Year to Year
(Measured in Billions of Dollars)
Percent Change

2005
2004

Description
Total
E-Commerce
Total
E-Commerce
Total
E-
Commerce
Total*
19,589
2,400
18,123
2,051
8.1
17.0







B-to-B*
9,912
2,211
9,109
1,892
8.8
16.9
Manufacturing
4,735
1,266
4,309
996
9.9
27.1
Merchant
5,177
945
4,800
896
7.9
5.5
Wholesale
B-to-C
9,677
189
9,014
159
7.4
18.9
Retail
3,693
93
3,474
76
6.3
22.2
Selected Service
5,984
96
5,540
83
8.0
14.9
Source: U.S. Census Bureau, 2007

* The Census Bureau estimates business-to-business (B2B) and business-to-consumer (B2C) e-
commerce by making several simplifying assumptions: manufacturing and wholesale e-
commerce is entirely B2B, and retail and service e-commerce is entirely B2C. The Census
ignores definitional differences among shipments, sales, and revenues. The resulting B2B and
B2C estimates show that almost all the dollar volume of e-commerce activity involves
transactions between businesses.


OVERVIEW OF CASE STUDY FIRMS

In-depth case studies were conducted of 25 rural and small town businesses and three
small business service providers. The businesses were selected to provide diversity with respect
to industry (manufacturing, wholesale, retail, services); business size (2 to 200 employees);
application of e-commerce (e.g., marketing and sales, networking and information exchange,
inventory and distribution management); reliance on e-commerce (virtual or storefront); and
location (region and city size). The names, locations, and principal products of the 28 case-study
businesses and service providers are presented in Table 2, and characteristics of the firms’ e-
commerce activities (B2B vs. B2C, industry, virtual vs. storefront) are summarized in Table 3.
On-site interviews were conducted with founders, owners, or managers of each business in 2006
and 2007. The comprehensive case studies of the firms interviewed are provided in the
3

---

companion publication, "Case Studies of E-Commerce Activity in Rural and Small Town
Businesses" (Markley, Barkley, and Lamie, 2007).

The reader will note that many of the case study firms are clustered geographically (e.g.,
four firms in Iowa, four in Minnesota, six in Maine, and three in Kansas). This clustering of case
study businesses resulted from the attempt to maximize the number of on-site interviews for a
limited travel budget. The firms were chosen because they provided varied examples of e-
commerce activities in terms of business type, geographic location, e-commerce application, and
success of e-commerce venture. The goals of the case studies are to provide instructional and
motivational examples of the application of e-commerce to the business strategies of rural and
small town firms. The case study firms likely are not a cross-section of rural and small town
businesses that use e-commerce, and thus, the findings do not necessarily represent the typical
experience with e-commerce.

The case study businesses are primarily manufacturers (nine) and retailers (nine). The
manufacturers include home furnishings, pottery, and metal works produced locally by artisans
and craftsmen, value added agriculture ranging from llama fibers to salsa to bio-based skin care
products. The retailers are both virtual and storefront. Retail markets include art, art supplies,
antiques, car top carriers, power tools, and appliances and consumer electronics. Finally, eight
of the case studies are classified as merchant wholesalers or service providers. The two
wholesalers include one firm that provides equipment for crop input dealers and another that
sells supplies for making dolls. The services represented are advertising, real estate sales,
outdoor recreation, and tourism promotion. In summary, the case study firms support the
perception that e-commerce is a viable strategy for a wide variety of businesses in terms of
products, sizes, history, and location.


BENEFITS OF E-COMMERCE TO COMPANY


Many businesses adopt an e-commerce business plan because it provides the owner
greater flexibility in terms of operating location and hours. That is, e-commerce may present an
individual with the opportunity to be a "lifestyle entrepreneur" and locate the business where the
entrepreneur wants to live. For some individuals this enhanced flexibility might result in a
move, but in many cases e-commerce permits entrepreneurs to remain in place and benefit from
proximity to family or other local assets. Our case study businesses include examples of lifestyle
entrepreneurs in David Schaefer (Owner/Founder of Lakeland Enterprises), April Adams (Owner
and Artist of Columbia Falls Pottery), Bernard Sund (Owner/Founder of Nautical Antiques), and
Robin Hildebrand (Owner/Founder of Blue Smoke Salsa). Lakeland Enterprises designs and
markets car top carriers and vacation gear. The business has two employees (the owner and his
4

---

Table 2. E-Commerce Case Studies for Rural Areas and Small Towns

Business Name
Location
Product or Service



Black Magic Kennels
Grand Marais, MN
provides sled dog adventure weekends
Blue Smoke Salsa
Ansted, WV
manufactures and markets salsa
Boreal Access
Grand Marais, MN
provides Internet service
Brush Art
Downs, KS
runs full-service advertising agency
Columbia Falls Pottery
Columbia Falls, MA
manufactures and markets pottery and tiles
Dessin Fournir
Plainville, KS
designs and manufactures home furnishings
Eolian Farms
Newcastle MA
produces and sells fibers from llamas and Shetland sheep



Farmchem
Floyd, IA
serves as equipment and service provider for crop input dealers
Gail Golden Jewelry
Arroyo Seco, NM
sells handmade silver, gold, and gem jewelry
Grown Locally
Northeast, IA
markets and distributes locally grown farm products
Lakeland Enterprises
Seneca, SC
designs and markets car top carriers and vacation gear
Louis Williams & Sons
Henderson, NC
operates a multi-purpose home improvement store
Mainely Metals
Gardiner, MA
manufactures metal mailboxes; metal fabrication
Mid West eServices
Salina, KS
uses Internet for real estate advertising and sales



Mountain One
Leland, IA
manufactures and distributes supplies for making dolls and bears
Nautical Antiques
Jonesport, MA
retails nautical antiques and gifts
Silverston Gallery
Grand Marais, MN
sells regional and Inuit art work
Songer Whitewater
Fayetteville, WV
offers and outfits whitewater rafting and adventure trips
Stained Glass Express
Waterville, MA
provides stained glass products, supplies, and repairs
Sterling Biotech
Sterling, CO
manufactures bio-based skin care products
Taos Architectural Copper
Taos, NM
manufactures copper sinks and lighting fixtures



The Missoula Artists' Shop
Missoula, MT
sports retail gallery for local artists' cooperative
Vann's, Inc.
Missoula, MT
retails appliances and home electronics
Villages of Van Buren
Keosauqua, IA
is a nonprofit regional economic development organization
Voyageur Outfitters
Gun Flint Trail, MN
acts as a full-service outfitter for Boundary Waters Canoe Area
WESST Corp
Albuquerque, NM
offers services for start-up and existing businesses
Wintergreen Herbs and Vegetables
Winslow, MA
sells herbs and vegetables, community supported agriculture initiative
Women's Business Center, Coastal
Wiscasset, MA
extends services for start-up businesses, targeted at use of Internet
Enterprises


5

---

Table 3. Characteristics of Case Study Businesses Focus of E-Commerce Activity


Industry
Primarily B2B
Primarily B2C
B2B and B2C





A. Manufacturing
• Dessin Fournir
• Columbia Falls Pottery
• Blue Smoke Salsa
• Sterling Biotech
• Eolian Farms
• Mainely Metals
• Grown Locally
• Taos Architectural Copper
• Wintergreen Herbs and
Vegetables

B. Merchant Wholesalers
• Farmchem

• Mountain One


C. Selective Services
• Brush Art
• Songer Whitewater
• The Villages of Van
• Midwest eServices
• Voyageur Outfitters
Buren

• Black Magic Kennels
D. Retailers






1. Virtual
• Lakeland Enterprises
• Gail Golden Jewelry

• Nautical Antiques




2. Bricks-and-mortar
• Columbia Falls Pottery
• Louis Williams & Sons
• Missoula Artists' Shop
• Stained Glass Express
• Vann's Inc.
• Silverston Gallery
E. Small Business Service
• Boreal Access


Provider
• WESST Corp
• Women's Business Center
at Coastal Enterprises




6

---

wife) and almost all sales are online. Lakeland Enterprises was moved from California to South
Carolina so that the owner and his wife could live closer to family. Similarly, Bernard Sund
moved his online antiques business from Massachusetts to rural Maine, a place that had been a
vacation destination for his family in the past. Alternatively, April Adams owned and operated a
retail pottery store in Columbia Falls, Maine since 1990. Retail sales at Columbia Falls Pottery
declined significantly after 9/11, but an increase in e-commerce sales enabled April to remain in
Columbia Falls by substituting online sales for storefront sales. The founding proprietor of Blue
Smoke Salsa, Robin Hildebrand, developed a thriving business in tiny Ansted, West Virginia
from a treasured recipe for salsa. The use of e-commerce permitted Robin to grow her business
and remain close to home while she raised her family.

Most businesses use e-commerce because it provides the opportunity for increased profits
(through higher sales or lower costs) and thus enhanced sustainability of the firm. E-Commerce
has the potential to significantly improve the efficiency of operations in all phases of the
business' supply chain. As shown in Table 4, e-commerce may benefit a firm in product design,
supply and inventory management, production, marketing, sales and distribution, and customer
service. Examples of the application of e-commerce to the various supply chain stages are
documented in the case studies and highlighted below.

Product Development
The availability of e-commerce and supportive computer software systems and services
enabled Brush Art, Farmchem, and Mid West eServices to investigate new areas of business
(products and customers). Brush Art, a Downs, Kansas advertising agency, now offers
interactive websites for their clients that are designed so that a dealer for a company (e.g., retailer
of lawn tractors) can download company approved marketing information yet customize the
materials for the dealer's specific needs (e.g., items on sale and location and date of sale). Thus
each dealer can have easy access to professionally designed marketing materials with dealer
specific details. Farmchem Corporation of Floyd, Iowa (equipment and service provider for crop
input dealers) developed an electronic monitoring system for liquid levels in the bulk tanks of
dealers and suppliers. Data on tank levels is transferred to a central server, and an Internet-based
data management system provides the data in the desired form to the client. Mid West eServices
(Salina, Kansas) evolved from an eBay seller of salvage and repossessions for banks and
insurance companies to a leading Internet real estate marketer. Mid West eService's product
niche is the marketing of rural properties using a quality of online information not available
elsewhere. Songer Whitewater's (Fayetteville, West Virginia) website allows clients to
customize their adventure packages in terms of selecting from a variety of recreational activities
and lodging options. Many of the available options are provided through sub-contracts by other
area businesses. E-Commerce assisted Songer Whitewater in transitioning from a whitewater
rafting company to a full service outdoor recreation business.

Supply and Inventory Management
Grown Locally, a northeast Iowa grower's cooperative, uses the Internet to maintain daily
contact with members of the cooperative (farmers) to coordinate the farmers' production with the
consumers' demands. Mountain One (Leland, Iowa) is a mail order facility with 7000 items for
making and accessorizing dolls and bears. The company uses an integrated software system for
mail order businesses that manages the inventory and warehouse (including location of items in
7

---

the warehouse) based on information from online sales. The software system also determines the
preferred distribution system (e.g. postal service, UPS, FedEx) and shipping costs based on the
number, size, and weight of the items ordered online. These increases in operational efficiencies
reduced the company's employment requirements from 15 to 5 full-time employees.




Table 4. E-Commerce Opportunities Along the Supply Chain

Product/Service Supply
Manufacturing
Marketing
Sales and
Customer
Development
Management
and Assembly
Distribution
Service







Improve
Reduce
Lower
Strengthen
Reduce sales Improve
product
sourcing
transaction
customer
and
customer
development by costs through
costs by
relationships
distribution
service
capturing
increased
reducing
and improve
costs
customer input
price
double
cost
through
more effectively transparency
handling of
effectiveness
automation -
and
information
through
e.g. sales
competition
targeting
tools, and
printed
material
costs


Enable
Reduce
Lower work in
Research new Promote new Lower
collaborative
inventory
progress costs
user segments products and customer
development
costs through
through
and
services -
interaction
across
shorter
improved
geographies
e.g. cross-
costs
companies and
procurement
forecasting
selling
geographies
process and
delivery
times
Source: McKinsey & Company, 2001 as presented in OECD, 2001.
8

---

Reduce Manufacturing or Production Costs
Dessin Fournir of Plainville, Kansas designs and manufactures fine home furnishings.
Many of the furniture pieces and fabric patterns are designed in Plainville, but the furniture is
manufactured in California and the fabrics are produced in 13 fabric mills in 9 countries. The
Internet permits Dessin Fournir to communicate directly with its production facilities thus
reducing the need and expense for travel to the manufacturing facilities and for external agents to
oversee production in the mills. Production costs also were reduced for the Brush Art
advertising agency (Downs, Kansas) after the switch to e-commerce by cutting the average
"cycle time" required to bring a marketing project to completion from four months to two weeks.

Expand Marketing Efforts
E-Commerce offers cost effective opportunities for expanding and targeting markets, and
all of the case study businesses maintain websites designed to promote the companies' products
or services. For example, Blue Smoke Salsa (Ansted, West Virginia) has an attractive website
for their (and their affiliates) sauces, salsas, and jellies that focus on the small town, homemade
origin of its products. The Villages of Van Buren (Keosaqua, Iowa) and Songer Whitewater
(Fayetteville, West Virginia) are tourism-related businesses that rely on the Internet to attract
visitors to their area and businesses. The Villages was honored with an award at the 2004 Iowa
Tourism Conference for the best website for areas with population less than 10,000. Songer
Whitewater moved from 12th largest outfitter in the state to 4th largest, and much of this
improvement is attributed to its website and accompanying focus on an e-commerce strategy.
Finally, Mainely Metals and Eolian Farms are two Maine companies with historically limited
market areas. Mainely Metals produces a snowplow-resistant mailbox for Maine residents and
Eolian Farms raises llamas and Shetland sheep and sells the fiber at fairs throughout Maine. The
use of websites enables the two companies to expand their markets geographically, and currently
online purchases account for at least 40 percent of the companies' sales. In summary, a well-
designed website can provide potential customers with an image of a business that exceeds the
business' actual physical presence. This advantage is more important for rural businesses than
urban companies because consumers may have the perception that the rural business is too small
and isolated to provide quality products and good service. A "good" website places the rural
firm on a more even footing for competing with urban business.

Increase Sales and Reduce Selling Costs
Business profits can be increased by increasing revenue through stronger sales and/ or by
decreasing the costs associated with constant sales. Gail Golden Jewelry of Arroyo Seco, New
Mexico attributes about 25% of company sales to online customers, and Vann's of Missoula,
Montana (appliances and consumer electronics) reports that approximately 55% of the firm's
sales come from e-commerce. The use of e-commerce also helped to cut selling costs among
case study firms by reducing the need for paper catalogs and sales flyers. The home furnishings
manufacturer Dessin Fournir (Plainville, Kansas) spends approximately $250,000 a year on
catalogs, thus the conversion to an e-catalog offers the potential for significant savings.
Similarly, Mountain One of Leland, Iowa (distributor of supplies for making dolls and stuffed
animals) traditionally mailed 15,000 to 20,000 catalogs a year at an annual cost of $30,000 to
$35,000. Catalog mailings were changed to every other year because of the availability of a
website with a shopping cart. Finally, both Lakeland Enterprises (Seneca, South Carolina) and
Blue Smoke Salsa (Anstead, West Virginia) noted that profit margins were higher on items sold
9

---

online than goods sold through merchant wholesalers. E-Commerce may permit retail
businesses to "cut out the middle man costs."

Improve Customer Service
Customer service can be provided before the sale by making it easy for the shopper to
find what they want or after the sale in terms of addressing order returns, repairs, or operational
questions. The company website can be helpful in providing both before- and after-sale service.
Both Vann's of Missoula, Montana (appliances and consumer electronics) and Louis Williams
and Sons of Hendersonville, North Carolina (Makita power tools) are retailers in highly
competitive Internet markets in which they hope to distinguish themselves through consumer
service. Vann's website provides services to potential customers in the form of extensive
information on product features, product details and specifications, reviews by Vann's
consumers, comparisons to alternative products available at Vann's, and accessories for the
product. Louis Williams and Sons niche in the power tool market is service after the sale. The
company elected not to compete on the Internet as the low cost provider of Makita tools.
Instead, Louis Williams and Sons focuses on carrying the complete inventory of Makita tools
(unlike their low cost competitors) along with providing parts and accessories and repair services
for Makita tools. The company's website contains thousands of pictures of tools and parts and
accessories to assist the customer after the sale.

Strengthen Customer Relationships
For many businesses dependent upon the tourism industry, an e-commerce site provides a
way to maintain and even strengthen customer relationships. Through targeted marketing push
strategies, businesses can reach out to customers even when they are no longer in the area. For
example, Sivertson Gallery (Grand Marais, Minnesota) e-mails notices to customers who have
purchased artwork by particular artists whenever new work by them is featured in the gallery.
Linked with the shopping cart feature of the site, this direct marketing touch allows customers to
purchase products beyond the tourist season and outside the region. Businesses can also use the
e-commerce features of their sites to emphasize customer service and develop an edge over their
competitors. Voyageur Outfitters (Gun Flint Trail, Minnesota) features an online chat and daily
blog to keep customers, old and new, up-to-date on conditions in the region. Customers can plan
every aspect of their trip online, from routes to menus, and pre- and post-trip e-mails provide
customers with information about their trip and the business owners with information about
customer needs and experiences.


LESSONS LEARNED

The cases in this study are a diverse collection of businesses with varied experiences in e-
commerce. They provide, interesting insights into the development of e-commerce activities and
exhibit common experiences with respect to the lessons learned from their endeavors. A
summary of these lessons follows.

Focus on Niche Markets
Marketing and selling products through a designed website on the Internet places
companies in competition with a large number of firms and provides consumers with easy access
10

---