E-tailers: Only One Chance to Survive

A recent AC Nielsen study shows that only 20 percent of all shopping will take place on the Internet over the next five years. This estimate is down from the 30 percent predicted a year ago. What once looked so good and efficient has turned out to be a more complex process than we’d ever envisioned. And this leaves bricks-and-mortar retailers as the second round victors in the battle for consumer loyalty.

You may remember an article I wrote in December, “E-tailer Testing Season,” discussing the tough times e-tailers were facing during the pre-Christmas shopping season. Most e-tailers couldn’t deliver on time or as promised, setting the whole e-tailing trend back months.

Now it’s become apparent that the crises e-tailers weathered in December weren’t restricted to that season alone. More and more e-tailers are facing tougher and tougher times, trying to justify high stock prices when set against sales and potential sales performance.

Drugstore.com and eToys.com are examples of e-tailers juggling stock price against performance and returns. Both pioneers within their merchandise fields, these enterprises have, since their launch, faced a constant decline in stock value.

A Boston Consulting Group study named “Insight into Online Consumer Behavior,” was conducted among 12,000 consumers in the USA and Canada in 1999. It shows that 57 percent of Internet users have shopped online, and 51 percent have actually purchased goods or services online.

The typical online purchaser completed ten transactions and spent $460 online over the previous twelve months. Yet 28 percent of all attempted online purchases failed, and four out of five consumers who made purchases online experienced at least one failed purchase attempt over the same period. These failures resulted from technical problems consumers encountered with the sites, difficulties in finding products, and logistical and delivery problems after the sale.

The study’s results clearly indicate that e-tailers only have one chance to survive. One bad experience almost guarantees a customer won’t return for more. Not so for bricks-and-mortar businesses, which can sometimes get away with bad service repeatedly without losing a customer.

This is partly due to the geographical location of bricks-and-mortar businesses. Even if service is lousy, a customer may be persuaded by a store’s convenient location. But one of the most prominent determinants of return customers is the goodwill factor. Established over years, goodwill can inspire a customer to defend the shop and its bad service five or six times before considering a move elsewhere.

The study also shows that consumers who have a satisfying first purchase experience online are likely to spend more time and money online. The satisfied first-time purchaser typically engaged in twelve online transactions and spent $500 during the previous twelve months. The dissatisfied first-time purchaser spent only $140 on four online transactions. Twenty-eight percent of consumers who suffered a failed purchase attempt stopped shopping online; 23 percent stopped purchasing at the site in question.

Compare this scenario with the bricks-and-mortar parallel where only eight percent of consumers who suffered bad service stopped shopping offline. The scariest data was that six percent of users who had bad online shopping experiences also stopped patronizing the retailer’s physical store. The relationship between off- and online branding. the clicks-and-mortar synergy . is, therefore, clearly a factor which could diminish the harmonious synergy between the brand off- and online.

On the other hand, this synergy also offers some positive prospects. Another recent study conducted in Australia showed that the synergy between off- and online brands is impressively high. A good online experience will, in nine percent of the cases, lead to offline-generated sales in the same brand stores. Consumers having positive offline experiences are, in 32 percent of the cases, open to trying the store online if they have access to the Internet. The synergy is clearly present both for good and for bad.

It takes time to establish goodwill, and goodwill cannot be bought. It must be earned over time. The stakes are high for online retailers who don’t deliver, a fact that can only lead to the conclusion that it’s better not to have a presence at all than to be online without knowing why.

A non-serious presence on the Internet can dilute the value of bricks-and-mortar stores. This is a fact that should be well known to most retailers. Unfortunately, most retailers still think that some online presence is better than none. Hopefully this misconception will soon change.


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