FEATURE
Study: E-Tailers Disappointed Customers During Holiday Shopping Period

Recent research suggests that satisfaction among customers of 40 top retail Web sites dropped over the holiday season.

So says the Top 40 Online Retail Satisfaction Index, a study produced by ForeSee Results and FGI Research. The Index measures the top 40 retailers by revenue and provides a comparison of online shopper satisfaction between the holiday shopping period and the rest of the year.

Specifically, the study measured satisfaction among online shoppers who visited but may or may not have purchased from top-rated retailer Web sites. The verdict: Despite increased online revenues, overall satisfaction is down 4 percent from last spring to the 2005 holiday shopping season.

Revenues at Stake

What's causing the decline, and could online retailers be leaving money on the table as they try to navigate the delicate balance between serving the needs of regular customers and meeting the expectations of first-time or infrequent customers?

Studies of this kind breed plenty of questions. Here's what we do know: High satisfaction scores -- how happy people are with all aspects of the online experience when they visit a site -- have been proven to correlate directly to likelihood to return, recommend, and buy, according to ForeSee.

Here is what else we know: Declining online shopping satisfaction affects not only future online revenues, but in-store revenues as well. That's because the ForeSee research shows that the Web site is a strong influencer when it comes to shopping through retailers' other channels.

Reviewing the Ratings

Netflix.com, Amazon.com, LLBean.com and QVC.com were the highest scoring online retailers. Kmart.com and Sears.com performed the lowest in the ratings.

The sites with the biggest drop from spring to the holiday season were ToysRUs.com, OldNavy.com, Sears.com and JCPenney.com.

"Quite frankly, we did not expect to see such consistent drops almost across the board for all the biggest online retailers," said Larry Freed, president and CEO of ForeSee Results. "These are the guys that are supposed to be doing it right."

Keeping Heads Above Water

Buy.com was the only company with a higher score. The company went from a 71 (out of a possible 100) in the spring of 2005 to a 72 over the holidays. BananaRepublic.com, 1800Flowers.com and Chadwicks.com were the only sites where customer satisfaction remained constant with springtime numbers.

Though not included in the ForeSee study, Adagio.com, an online specialty tea purveyor, maintained its ratings on the online shopping comparison site Bizrate.com, even through the holiday season. Michael Cramer, co-founder and marketing manager of Adagio, told the E-Commerce Times that he believes the secret lies in preparation.

"Our holiday planning typically starts in September," Cramer said. "We identify the products and gift sets we'll be heavily promoting during the holidays, and begin assembling and gift-wrapping all. By the time the holiday avalanche hits, we're well prepared to process three times our average volume."

What's Behind the Decline?

Preparation is an aspect that ForeSee saw as a critical dynamic, at least indirectly. One of the two central causes of the declines, according to the company, is the arrival of first-time and infrequent visitors, and retailers' failure to satisfy them.

The survey data show that first-time and infrequent visitors are the least satisfied segments, with satisfaction scores 10 percent below more frequent site visitors.

"During the holidays, it's more important than ever to do a good job at meeting and exceeding the needs and expectations of those new and infrequent online shoppers because you've paid more to attract this audience, you have so many more of them, and the stakes are so much higher," said Freed.

Higher Holiday Expectations

A second reason behind the decline, according to ForeSee, is higher holiday expectations, especially regarding price discounts. Price was rated the lowest of any satisfaction driver across all retail categories measured, in spite of deep discounts offered by retailers to attract customers.

"Something's not right here," said Freed. "Retailers are sacrificing profit margin during the holidays to attract customers, and people are still unhappy with price."

Freed said there is no one-size-fits-all solution. Instead, it depends on what the retailer is hearing from its customers and how improvements are prioritized and implemented, he said.

It may be that if online retailers are satisfying customers better in other areas, price will become less of a factor. Or it may be that online retailers only need to lower price with certain segments of customers. The solution lies in listening to customers.

Quick and Nimble

Internet marketing and design expert Pedro Sostre told the E-Commerce Times that smaller online retailers are currently doing a better job competing with the larger companies.

Sostre credits small retailers' skill in listening to customers, through both direct communication and monitoring consumer interaction with their sites via Web site statistics.

"Updating Web sites and making them better is simpler and more streamlined for smaller businesses," explained Sostre, creative director of Sostre & Associates, a Web consulting, design and development firm.

"When the smaller online retailers identify a problem, they don't have as many hoops to jump through. The approval process involved in making an upgrade to a large well-known site can take months."

Back to Basics

Sometimes the changes and upgrades are merely a matter of getting back to basics, according to Jimmy Duval, director of e-commerce products at Yahoo Small Business.

Duval told the E-Commerce Times that simple things like communicating security, privacy policies and return policies, along with easy to find customer service e-mail and phone numbers, can help increase customer satisfaction rates.

"There are many simple things online merchants can do to keep customer satisfaction numbers high," Duval said. "Part of it is clear product descriptions, and clearly addressing the things that make customers uncomfortable shopping online, like security, shipping charges and returns."

Impact on E-Commerce

How will ForeSee's declaration that customer satisfaction wasn't what it should have been over the 2005 holiday season impact the first quarter of 2006 and beyond? Did some customers enter the new year with a bad taste in their mouths?

The good news is that Freed does not expect to see people shopping less online overall as a result of lower satisfaction with the top 40 retailers. But there is also some bad news.

"We do expect people's loyalty to those specific retailers to suffer as a result of their expectations not being met," Freed said. "Every time a top retailer drops in satisfaction there is a chink in the armor and a tremendous opportunity for smaller, less well-known e-tailers to make inroads."