Online Retailers Could Do Better

06/10/2005

A new study finds that many of the nation's top retailers are performing well below their potential online.

ForeSee says that many of the top online retailers, despite the strong financials, are not performing as well as they might. Financial data is backward looking, said Larry Freed, CEO of ForeSee. "Customer satisfaction is a forward-looking measure that shows what aspects of the website experience are driving satisfaction and in turn, driving the behaviors that online retailers care about: return visits, future purchases (online or offline), recommendations and intent to make the next purchase of similar merchandise with their company," he said.

Bad customer service may actually be driving away some people who would otherwise make purchases, and depressing overall online sales figures.

To find out why people are satisfied and what makes them satisfied, and using the methodology of the University of Michigan's American Customer Satisfaction Index (ACSI), ForeSee created a benchmark of browser satisfaction among the leading e-retail web sites — The Top 40 Online Retail Satisfaction Index.

Here are the top 12 performing online retail sites, rated by customer satisfaction. Netflix, Amazon, and QVC are the standout performers, and (not shown) Costco and K-Mart came out at the bottom of the pack.

Among the key findings of the report: High satisfaction scores — how happy people are with all aspects of the online experience when they visit a site — correlate directly and tightly to likelihood to return, recommend, and buy.

Among the top five retailers with high satisfaction scores, the likelihood to purchase online is 36% higher than the rest of the pack, and the difference in satisfaction is 19%.

Not all of the lowest-scoring Web sites are undermining offline sales. Costco and Target are exceptions to the loyalty rule in that their site satisfaction is extremely low, but their visitors' likelihood to purchase offline is exceedingly high. For these companies, there is a significant "cross-channel satisfaction gap" that suggests their offline brands are strong enough that their Web sites do not undermine the purchase process — still, their sites, are not functioning at their full potential.

Traditional retailers are under-utilizing the opportunity to increase their sales both online and off using the Web channel. Most brick and mortar players — with the exception of Barnes & Noble — have a huge gap between likelihood to purchase online and offline, with customers still preferring the offline channel by a wide margin.

The most surprising finding of the study is that the Internet has not become as price-sensitive a channel as expected, and is not being driven primarily by price competition.

"In many cases, companies that are competing primarily or largely on price are competing on the wrong thing," said Mr. Freed. "Our study shows price matters some of the time but key aspects of the site experience matters 100% of the time. Navigation, selection, all kinds of other things are what's driving the buy decision — but many of the online retailers have not isolated the right factors to drive purchasing behavior."

While price can have a positive effect on satisfaction, loyalty, and buying behavior, it is seldom the key determinant of how satisfied a site visitor is.

Source of Article: eMarketer

Date of Article: June 6, 2005