Wednesday, March 14, 2001

Luxury Shoppers Want Different eCommerce Experience

Luxury retailers spend millions trying to lure shoppers worth millions online. But according to a new Report from Forrester Research, Inc., affluent shoppers -- those with investable assets of $1 million or more -- expect a different luxury experience online. Rather than being dazzled online by exclusivity, extravagance, and entertainment, affluent shoppers expect convenience, confidence, and control -- just like other online buyers.

"Affluent shoppers are a critical consumer segment because they set the pace for eCommerce adoption. They have been buying longer, feel more comfortable buying, buy more frequently, and, of course, spend more money online than anyone else. But at the same time, they buy online for the same reasons that all online shoppers do and care about price and positive experiences with Web stores as much as the less wealthy," said Ekaterina O. Walsh, Ph.D., senior analyst at Forrester. "Despite their readiness to use the Net to purchase everything from prestigious cosmetics to designer clothes, the affluent have held back from buying luxury goods online because they are not getting what they want.

"Online purveyors of luxury goods should quit trying to recreate an offline shopping experience; channels aren't different funnels through which identical experiences can be poured," added Walsh. "Furthermore, by understanding and responding to the demands of affluent online shoppers, retailers will be poised to fulfill expectations of nonaffluent consumers who are right behind them."

Most luxury merchants are designing Web experiences to replicate the look and feel of brick-and-mortar luxury shops by posturing exclusivity, extravagance, and entertainment. Most sites offering luxury goods share barriers to convenience like bandwidth-intensive interfaces, broken links, required plug-ins, and confusing error messages. Obstacles like forcing shoppers to choose a profile name for no apparent reason further undermine the user experience.

To create sites that meet affluent consumers' needs, luxury merchants must deliver convenience, confidence, and control. Convenience must be offered through easy research, consideration, purchase, and returns. Keyword searches, few clicks to complete a purchase, and clearly communicated total cost all improve the convenience of online shopping. Confidence is built through brand equity and consumer trust. Familiar brick-and-mortar brands generate trust in Web stores, while smart pure plays will build their names via partnerships and cost-effective marketing. Control will be delivered with quality service, commitment to customer privacy, and savings.

For the Report "Selling To The Affluent Online," Forrester analyzed data from six surveys of thousands of individuals and households in North America with investable assets of $1 million or more, not including the value of their primary home. Wired affluent households spent an average of $1,466 online in 2000, versus $817 for nonaffluent ones.

B2B Internet Commerce to Reach $8.5 Trillion
Despite the recent slowdown in the economy, the worldwide B2B Internet commerce market is on pace to total $8.5 trillion in 2005, according to Gartner, Inc. While B2B Internet commerce is poised for strong growth, the long-term forecast has been impacted by the economic downturn, especially in the United States, which is projected to be the most heavily effected.

"The economic downturn can be viewed as a reprieve for enterprises that weren't able to keep up with the e-business leaders," said Lauren Shu, research director for Gartner's e-Business group. "This is not a time to retrench, but rather an opportunity to get your house in order, work on internal adoption of e-business and associated change management and prepare to take advantage of and profit from the massive changes that will play out by 2005."

In 2000, the value of worldwide B2B Internet commerce sales transactions surpassed $433 billion, a 189 percent increase over 1999 sales transactions. Worldwide B2B Internet commerce is projected to reach $919 billion in 2001, followed by $1.9 trillion in 2002. In 2003, the market will increase to $3.6 trillion, and at the end of 2004, worldwide B2B Internet sales transactions are forecast to reach $6 trillion.

According to WEFA (formerly Wharton Econometric Forecasting Associates), whose sales transaction data Gartner uses as the basis of its forecast, the current economic downturn will result in a 16 percent reduction in the nominal value of worldwide sales transactions by 2005. Gartner lowered its forecast accordingly, but not as aggressively as WEFA because in this tough economic climate, enterprises will turn to cost-saving measures, such as e-procurement, and hosted software solutions, such as e-marketplaces, rather than in-house solutions.

The economic situation will cause enterprises to be more deliberating and judicious about new IT investments, focussing on where they can get the greatest impact for the lowest cost. Thus, Gartner anticipates that some enterprises will continue to rely on legacy EDI systems and delay replacing them.

"B2B commerce over the Internet is in the very early adopter stage, but companies have been doing business electronically for years using proprietary EDI," said Ms. Shu. "These systems work today, have served companies well enough for years and are deeply embedded in the B2B processes of many industries. With the downturn in the economy, the migration away from proprietary EDI to Internet technologies will be slower than earlier anticipated."

One of the more hyped areas within B2B has been e-marketplaces, but Gartner analysts said it's important to understand e-marketplaces' true impact on the overall B2B industry. E-marketplaces, which faced some difficulties in 2000, are a new phenomenon and are just ramping up. Few had substantial revenue in 2000. They accounted for only a small fraction of total Internet commerce in 2000 and are not representative of all B2B Internet commerce, which grew substantially in 2000.

"With the proliferation of e-marketplaces that had poorly thought-out business plans and inappropriate revenue models, it should not have been surprising that the cards came tumbling down this soon," Ms. Shu said. "A return to the sanity of fundamental, sound business principles, and the resetting of realistic expectations means that going forward, the market can expand in a more rational way with e-marketplace business plans and participation decisions both more highly scrutinized, and thus more viable and more strategic."

"We are also seeing the emergence of private e-marketplace builders; third-party intermediaries, which are building private e-marketplaces and usually hosting them. Over the long run, these market intermediaries will significantly increase marketplace participation and drive greater supply chain integration efficiencies," said Gale Daikoku, senior industry analyst for Gartner's e-Business group. "However, in the short term, their supply chain integration solutions take longer to build and thus will be later to drive significant sales transactions than public e-marketplaces. Thus, their impact on Internet commerce won't be significant until 2003."

Gartner defines B2B Internet commerce as the sales of goods and services for which the order-taking process was completed via the Internet. This includes purchases via Internet EDI, e-marketplaces, extranets and other sell-side initiatives, but excludes activity over proprietary networks. Gartner's forecast is based on the value of B2B non-financial goods and services sold, resold and brokered over the Internet through establishments every time they are turned over. This is significantly higher than forecasts based on worldwide GDP, which includes only the value-added that establishments put into goods and services as they are sold and resold through supply chains.

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