Study: Poor Customer Service Costing E-tailers Dearly

According to a report from market analysis firm Datamonitor, poor online service cost Internet retailers a combined $6.1 billion (US$) in sales last year, and could balloon to more than $173 billion.

Shoppers filling up online carts and then clicking away before completing their purchases is a large part of the problem. Some 7.8 percent of abandoned online transactions could have been salvaged and converted into sales if e-tailers had provided better service, the firm said.

"The average company could have improved its online sales figures by almost 35 percent last year if it had provided better online customer service for potential customers," said Datamonitor consultant Steve Morrell. "This will be particularly important for new dot-com companies who are now realizing that they have to produce a profit, and soon."

Managing Customer Relationships

The report states that as online retailers start to beef up customer service, the software makers who offer customer service products will see increased revenues. Companies that help Web sites supply "the right customer at the right time, through the right channels" are themselves in the right place at the right time.

A report earlier this year by AMR Research estimated the market for customer relationship management (CRM) products at $3.7 billion in 1999, and likely to grow to $16.8 billion by 2003. The research firm said that to manage customer relationships, online merchants will need to rely on a variety of communications venues, including phone, fax and "natural-language" computer programs that let users type in questions in plain English, with the computer figuring out which answer is appropriate.

Study after study has shown that customer support is a key part of successful online commerce. However, companies have yet to figure out how to keep their customers satisfied -- as evidenced by the delivery and stocking problems experienced many e-tailers during last year's holiday season. Additionally, the programs that allow natural-language communication between customers and computers have experienced a number of glitches.

Handling Group E-mail

Yahoo! (Nasdaq: YHOO) recently took a step in the right direction when it announced plans to buy e-mail communications company eGroups Inc. for $428 million, according to Datamonitor. E-mail management, the research firm said, is an "essential" part of successful online customer service.

Group e-mail is one of the fastest growing areas of the Internet, according to eGroups President and Chief Executive Officer Michael Klein. Yahoo! said its users have asked for the ability to create and manage groups.

"Companies wishing to do e-commerce must provide e-service," said Morrell. "Otherwise, they will cast away significant amounts of revenue and long-term customer relationships."