Despite the ongoing dot-com shakeout, Web merchants who follow a five-part plan to satisfy customers have a chance to succeed and reach profitability, according to a report released Monday by the Boston Consulting Group (BCG).
The report, “Winning the Online Consumer 2.0: Converting Traffic into Profitable Relationships,” found that most online retailers have hurt their chances of reaching profitability by being “unable to respond effectively” to customer demands.
“Today’s online consumers are more technologically savvy, more impatient and most importantly, want to spend more of their shopping dollars online than they ever have before,” said Michael Silverstein, senior vice president and global leader of BCG’s Consumer Practice.
Silverstein added: “Unfortunately, online retailers haven’t kept pace — consumer enthusiasm for the online channel is growing faster than online retailers’ capabilities. Elusive profits will occur when online retailers get the profit equation right.”
Five Easy Pieces
The Boston, Massachusetts-based research firm advises that Web merchants need to address five critical areas in tandem, noting that a piecemeal approach will not have a strong enough impact on the bottom line. Those benchmarks are:
- Visitor-to-buyer conversion rates.
- Traffic, measured by the number of unique visitors.
- The proportion of repeat customers.
- Orders per customer.
- Ratio of repeat-order revenue to first-time order revenue.
“Converting traffic into profitable customer relationships is a challenge few online retailers have mastered,” said BCG vice president Peter Stanger. “A business model that is based on spending US$100 to acquire a customer who places a $50 order and never returns to the site is destined to fail.”
According to Stanger, online retailers need “to tailor their offerings for the high-value customer segment and cement loyal relationships with those customers by delivering a flawless consumer experience.”
Hit or Miss
As it now stands, some online sectors are doing a better job than others of keeping online customers happy. Two of the best performing categories are books and health-and-beauty, where consumers say they are satisfied with their experiences 31 percent of the time.
At the other end of the spectrum are leisure travel and computer hardware, where customers reported being satisfied only 20 percent of the time.
Even so, more than one report has found that shoppers intend to do more shopping online in the coming years. Last year, 68 million consumers shopped online, according to BCG, and numbers released earlier this month by the U.S. Census Bureau said that US$28 billion was spent online during 2000.
BCG found that online consumers spent in more categories than the year before and were “extremely optimistic” about future online spending. In six major categories — leisure travel, event tickets, music and video, computer software, books, and computer hardware — 20 percent of online shoppers expect to migrate at least half of their shopping online over the next five years.
Unfortunately for e-tailers, even though consumers plan on spending more online, more consumers than ever before are having disappointing online shopping experiences. For instance, 11 percent of consumers said they had ordered and paid for a product online, but never received it. BCG said this was almost double the 1999 delivery failure rate.
Customer dissatisfaction has a chilling effect on e-tail. BCG found that 41 percent of consumers who ordered, but did not receive their purchases, stopped shopping at the Web site in question.
Additionally, in a survey of almost 3,000 consumers, BCG found that the most satisfied customers spent $673 online over the past 12 months, while the least satisfied consumers spent $428 online over the same period.
According to BCG, there is “an almost perfect correlation” between consumer satisfaction and the likelihood that the customer will both return to a site and recommend it to others.
“Making money means retaining customers, increasing their frequency of orders and ultimately reducing pure marketing costs,” Silverstein said. “The technical elements of a superior shopping experience can be delivered.”