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Wednesday - May 24, 2000

Online Retailers Missing Great Opportunity

In 2005, US online consumers will spend in excess of $632 billion in off-line channels as a direct result of research that they conduct on the Web; the amount dwarfs that of the $199 billion that consumers will spend on the Internet, according to new forecasts from Jupiter Communications, Inc., the worldwide leader in Internet commerce. Businesses doubting the importance of the Internet channel must take a broad view of what constitutes success online and focus on building an integrated Web presence in order to capture or influence transactions generated online, as well as those generated off-line.

The new research, unveiled during the opening session of this year's Jupiter Shopping Forum in Chicago, reveals the extent of the Internet's impact on off-line purchasing as well as the power of the increasing number of online users. Web-impacted spending, which includes both online purchases and Web–influenced off-line purchases, will exceed $235 billion this year and reach more than $831 billion in 2005. Consumers who are online represent a large and growing portion of US consumer spending: all told, US online users will account for 75 percent of all expected US retail spending (both online and off-line) in 2005, up from 43 percent in 1999.

"Skeptical retailers eyeing fluctuations in the financial market and the increasing failure rates of Internet companies are often blind to the most important issue—specifically, the degree to which their online efforts will affect their off-line business," explained Ken Cassar, a senior analyst with Jupiter Communications. "Online consumers are a very powerful audience and tend to be channel agnostic. And as consumers increase their use of the Internet, the opportunity for the Web to influence their online and off-line shopping behavior grows. Simply put, businesses must integrate across channels."

While many businesses see their online and off-line efforts as separate and distinct from their traditional channels, online consumers are far more fluid, choosing to do business with a given company across its multiple channels. A recent Jupiter/NFO Consumer Survey found that more than 68 percent of online buyers said they researched products online and then purchased them at a physical store; 47 percent of respondents said they then bought via phone.

Cassar advises that commerce players track their customers across channels zealously in order to understand the true impact of each channel on shopping behavior. "The retailer that does not understand the impact of the Internet on its store and catalog channels is likely to under-invest in the Internet, missing opportunities to capture incremental sales in all channels," he added.

Research shows that retailers are not currently tracking the ability of their Web site to drive sales in traditional channels. A recent Jupiter Executive Survey revealed that only 21 percent of multichannel retailers have the ability to track customers across channels.

However, the window of opportunity remains open slightly. The ratio of Web-influenced sales to online sales will fall as online buying in certain categories grows. Jupiter expects that several immature online commerce categories, such as health, home purchases, and automotive will grow significantly, reducing the ratio of online to off-line sales in these sectors.

Loyalty Programs Fail to Create Loyalty
A new research report from Jupiter Communications, Inc., the worldwide authority on Internet commerce, reveals that more than 75 percent of online consumers participate in some type of loyalty program, but few said that it is a critical motivator to increase online purchases. Commerce players must not rely on incentive programs to serve as the sole mechanism to drive loyalty; instead, they must fill functionality gaps or face losing customers to either more costly channels or to competitors that offer more value.

While specialized programs provide incentives to drive loyalty, commerce players must first address critical issues that affect a broad audience. According to a Jupiter/NFO Consumer Survey of 1,200 US online consumers, only 22 percent of respondents indicated that loyalty programs serve as an incentive to purchase online. Online consumers place a higher value on easy returns (40 percent), customer service (37 percent), and product selection (37 percent).

Even commerce sectors such as travel, an early innovator in developing aggressive customer loyalty initiatives, have yet to extend their retention and loyalty efforts to the Web effectively. Loyalty initiatives must go beyond points; instead, they must offer online consumers compelling service and functionality to coax loyal customers online and develop online relationships with new customers.

"Loyalty is not only about loyalty programs, but also about rather unique and differentiated products or levels of service," said Melissa Shore, a senior analyst for Jupiter Communications. "Consumers return to sites where they receive tangible value for being loyal, whether the value is priority service, personalized offers, or e-mail updates. Commerce players must create an online experience for users in which their customers see transacting on the Internet as a benefit, not a deficit."

Shore recommends that commerce players pursue the following actions:

  • Improve customer service response rates. Commerce players must continue to make investments in customer service and improve response rates to customers' inquiries. A Jupiter/NFO Consumer Survey found that 72 percent of online buyers said that customer service is a critical factor in their online shopping satisfaction; however, only 41 percent indicated that they were actually satisfied with their customer service experience.
  • Streamline product research and purchasing navigation. Commerce players, especially those selling complex products, must address a highly diverse set of questions posed by a broad customer base. Confusing navigation with limited service options will dissuade customers from current and future transactions.
  • Enhance product information. Consumers are seeking comprehensive product information in a customer friendly environment; providing this information remains a critical issue for commerce players. Content must fill the gap created by the inability of consumers to physically touch or see a product prior to purchase. Richer information leads to smarter purchasing decisions; satisfied purchasing experiences deepen the relationship between companies and their customers.
  • Improve product selection and availability. Commerce players that sell physical products must invest in internal systems such as inventory management, while improving external-facing functionality such as product availability and shipping status simultaneously. Stock-outs present an opportunity for competitors to steal even the most loyal customers.
  • Ease the return process. An overwhelming 85 percent of online buyers said that the ability to return merchandise easily is important to them, but more than half remain dissatisfied with the process, the survey found. Commerce players must expand servicing channels by either leveraging traditional retail outlets or partnering with companies that own physical channels.
  • Analyze program viability. Of online consumers that participate in loyalty programs, 65 percent belong to just three or fewer programs. Commerce players must analyze the likelihood of consumers actively participating in their loyalty program, given consumers' low threshold for participating in a number of programs.
  • Leverage information about users. Commerce players must develop an understanding of actual and potential levels of loyalty among their customers. By analyzing demographic and behavioral data, commerce players can identify high potential users and target incentives to induce profitable behavior.


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