Consumers will continue to spend more of their holiday budgets online, despite the shortcomings of e-tailers in recent years, and will spend an estimated $12 billion online from Nov. 1 to Dec. 31, according to Jupiter Communications.
“While Wall Street’s love affair with the online retail sector has ended, consumers continue to spend more money online, which will drive impressive sales gains,” said Ken Cassar, an analyst with Jupiter.
The online holiday season will yield $12 billion in sales in 2000, a 66 percent growth from the $7 billion generated during the 1999 holiday season. Online retail sales will account for $9 billion, and travel products such as airline and hotel reservations will account for the remaining $3 billion. Jupiter attributes the continued growth to two factors: online shoppers spending a larger share of their holiday budget with online merchants; and six million Internet users who will make their first online purchase during the 2000 holiday season, driven by a need for convenience and increasing confidence in the channel.
The 1999 holiday e-commerce season was plagued by e-tailers who did not seem ready for the traffic and orders that came knocking. Many online retailers also did not accurately assess the size of their natural market, leading them to spend excessively to appeal to customers who had no interest in the products that were being offered–an expensive, and sometimes fatal, error.
“With financing scarce, profitability is more important than ever,” said Cassar. “As such, it is critical that online retailers understand the size of their natural market and the costs of expanding beyond it. Only when the Internet retail channel reaches maturity, which is not expected for some time, should companies aggressively invest in extending their businesses outside of their natural market.”
Jupiter analysts expect that online retailers will spend less on their advertising and focus more on marketing efficiency for the 2000 holiday season than they did in 1999. This assumption is based on several factors, such as the fact that traditional retailers, whose brands are well known to consumers, will comprise a growing share of the online retail market. Additionally, the online retailers that invested their marketing dollars poorly last year–and survived to learn from it–will make smarter investments this year. Jupiter also found that online retailers will focus their limited resources on reactivating past customers, which will be less expensive than acquiring new ones if the retailers have served their customers well in the past.
The Gartner Group, which already published its 2000 holiday e-commerce forecast, found that consumers are running low on patience for online stores that don’t deliver the goods. Web merchants that fail to provide a positive Internet shopping experience this year risk being out of business by the second quarter of 2001, according to Gartner.
“After two online holiday buying seasons of lost orders, late deliveries, and broken promises, consumers have little patience for late or lost orders and poor customer service,” said Geri Spieler, research director for Gartner’s e-Business Services. “Brick-and-mortar companies with online channels have some inventory availability advantages over Internet pure-plays, but the point is lost on a consumer who cannot get a question answered or find out where an order went. With the cost of customer acquisition ranging from $50 to $300 each, there is no room for profit without repeat purchases. Without customer loyalty, e-tailers will eventually fail to earn new business.”
Gartner says there are three major Web site problems that are driving consumers away: lack of product fulfillment information; poor customer-centric, intuitive site navigation; and a lack of reasonable, reliable shipping fees and delivery dates.
Most Web e-tail sites do not have real-time information about the availability of inventory or to instantly “reserve” the actual order. “The e-tailers need to have an integrated ‘decrement’ process in which a replenishment order is sent to the supplier when inventory has reached a critical level,” Spieler said. “The customer should be informed of every stage of the order, including order confirmation, out-of-stock or back orders, and shipping notification, and that each state includes a tracking number.”
Web sites that are difficult to navigate, slow to load, and dense in logic are also annoying consumers. Online shoppers must be able to find answers in no more than two clicks. “Good customer service will offer simple-to-locate merchandise, helpful and fast service, a simple transactional process, and cross-channel communication,” said Spieler. “This means a customer can telephone, email, or use live chat to access all their order information from customer service, no matter where the order came from.”
Some e-tailers base shipping on the total amount of the order or attempt to make shipping a profit center. Last year, there were additional failures of online retailers to deliver goods, as promised on the Web site. “Savvy e-tailers can win client loyalty by offering early bird shoppers reduced shipping fees with extended delivery time and plan-ahead shopping strategies,” Spieler said. “Online retailers that attempt to gain customers by absorbing shipping fees do so at great cost to themselves. When they return to standard shipping fees after the holidays, they may fail to create a long-term customer relationship.”