Tuesday, December 19, 2000

Poor Online Customer Services Kills Holiday Mood

Over half of all consumers expect retailers to respond to email inquiries within six hours, but only 29 percent of online retailers actually meet those expectations, according to Jupiter Research, the worldwide leader in Internet commerce. Delivery issues are the primary reason (53%) customers contact online merchants, according to Jupiter. Online retailers did not set a good customer service precedent last year, leaving over 60 percent of all consumers that shopped online last holiday disappointed with the level of service they received.

Online merchants' failure to understand their own customer service limitations can have potentially serious negative effects, according to Jupiter analysts. For example:

1) Jupiter found that one-third of all online consumers who ordered out-of-stock merchandise were never notified of a delivery date, despite potential FTC imposed fines for failure to notify consumers of merchandise delivery dates.

2) Online retailers face potentially exorbitant phone center costs as nearly half of all online consumers say they would place a call to online merchants who do not respond to first-time email inquiries, according to Jupiter's Consumer Survey.

"Online merchants who try to save on customer service will pay more in the end and not just in a tarnished reputation," says David Daniels, (Analyst), Jupiter Research. "High consumer expectations combined with competitive and marketplace pressures means online retailers need to take customer service more seriously than ever. Online retailers must think beyond the experimental phase, and learn from previous mistakes. This is truly the Darwinian year for commerce sites."

Jupiter Research advises online merchants to understand and communicate potential limitations to customers early to set appropriate expectations. Leveraging available measures to plan ahead, communicate issues internally and make adjustments is key, according Jupiter analysts. For example, an upward trend in live online customer support response times may mean additional staff is needed or may call for different technical requirements.

UCLA Forecasters See Recession on the Horizon
The nation's longest economic expansion is coming to an end, and California's seemingly invincible high-tech economy is once again vulnerable, according to the economists at the UCLA Anderson Business Forecast in their quarterly economic outlook released Dec. 11.

Forecast director Edward Leamer projects a 60 percent chance that the Bush/Clinton expansion will end in 2001, an end brought on by the collapse of the stock markets and by the dot-com bankruptcy cycle. However, the greater stability of the nation's economy since 1982 will most likely make the downturn short and shallow rather than prolonged.

"The business cycle is not dead," said Leamer, a renowned economist who assumed leadership of the Forecast in July 2000. "The 'new economy' has experienced a classic boom-and-bust cycle that is extraordinary only in its amplitude and brevity."

Among the warning signs Leamer sees as signaling the end of this expansion are tight labor markets, scarce capital, meager investment opportunities and a dependence on foreign capital. Those looming dark clouds are made more threatening by an impending change in consumer behavior, as the wealth effect which has driven this consumer-spending binge reverses itself, causing consumers to feel less optimistic about the new economy. Add to that the fact that the United States has seen record sales of automobiles, personal computers and other durable goods in the past few years, and you see a picture of a consumer who is ready to scale back his or her spending, Leamer said.

According to the econometric model used by the UCLA Anderson Business Forecast, the more likely outcome will be slight negative growth of the gross domestic product in the second and third quarters of 2001. This mild recession will bounce back strongly in 2002 because of the underlying productivity gains that have been spurring growth since 1995. There remains, however, a 40 percent chance that the slowdown will be much milder.

The slower growth in 2001 will bring a sharp rise in unemployment, which the Federal Reserve Board will most likely fight aggressively with reductions in interest rates. But a weakening value of the dollar will bring higher prices for imports and a higher core level of inflation. Nonetheless, the Fed will be forced to act with sharply lower interest rates late in 2001.

For California, the slowdown will be milder than that of the nation as a whole, but the San Francisco Bay Area will have the most to lose. Tom Lieser, author of the California Forecast, writes that the Bay Area's "boom has so clearly been associated with stock market gains that have accrued to owners, managers and employees of high-tech businesses" that the area will soon see a tightening of capital and labor markets. A corresponding rise in commercial real estate vacancies and a deceleration in residential real estate values will follow, he warns.

"During the first half of 2001, we expect to see a significant curtailment of new venture capital investments in California, of which about 80 percent have been in the Bay Area. Financial markets will generally be unfavorable for new IPOs in technology firms, and new job growth will be much weaker than in 1999-2000," Lieser writes.

California's employment growth in recent years has been driven by the state's large services sector, particularly business and high-tech services. Growth of services employment is expected to fall to 2.5 percent, about half the increase seen in 2000. This will add about 100,000 fewer jobs, and, by itself, will account for about 0.6 percentage points of the lower growth of jobs in 2001.

"Jobs labeled 'high tech' or 'new economy' are not immune from economic downturns," Lieser said. "The high-tech sector, with its high proportion of young firms, is more vulnerable to the kind of credit cycle on which this forecast is based. Until long-term valuations of many of these enterprises have been validated by considerations more tangible than market share, they will remain vulnerable."

Like the nation as a whole, California will also see lower confidence among consumers and businesses, resulting in weaker retail sales, inventory purchases and capital spending. Taxable sales for the state in 2000 are headed for an 11 percent annual gain, the highest since 1984 and the best since 1977 after adjustment for inflation. These sales parallel the similarly exceptional estimated 11.4 percent gain in California personal income in 2000. "With less wealth-related spending as a stimulus in the next two years, taxable sales will fall sharply back to earth, with gains of 5.5 percent in 2001 and 4.3 percent in 2002," Lieser said.

California's continued population growth, combined with slower job growth, will result in rising unemployment. For the year 2000, UCLA forecasters predict the state will end with a 4.9 percent average annual jobless rate. Unemployment will increase to 5.4 percent in 2001 and 5.9 percent in 2002, with the number jutting above 6 percent by the end of the year.

The UCLA Anderson Business Forecast is the most widely followed and often-cited forecast for the state of California, and was unique in predicting both the seriousness of the early-1990s downturn in California and Southern California, and the strength of the state economy's rebound since 1993.

News Tidbits (appears every day on front page)
- Congress has passed a bill that will force schools and libraries that receive federal financing to apply filtering to Internet connections. The requirement is an attempt to limit the viewing of adult content in these areas. The law will apparently allow individual locations to define what content is adult or obscene.

- While online eBusinesses are seeing a lack of business, their technology is up to par. According to an article in the Star Tribune, "Internet retailers, determined to prevent a repeat of 1999's late deliveries, Web site crashes and slow customer service, devoted many months and millions of dollars to ensuring customers get the right merchandise, on time and with better service."