E-Tailers Improving Over Last Year's Performance

Ninety-two percent of attempted holiday purchases over the Internet have been successful this season, according to results of Andersen Consulting’s second annual US e-fulfillment study. The study also shows that the service level gaps that previously existed between e-tailers, traditional retailers, and catalogers are either rapidly closing, or have completely closed.

As a group, across almost every measure, e-tailers and retailers have made buying over the Internet easier, quicker, and more reliable this year, according to the study results. This compares with last year’s eFulfillment study results, which showed that upwards of 25 percent of attempted online holiday purchases were unsuccessful.

“This study, conducted for the first time during the 1999 holiday season and again in 2000, shows that online holiday purchases are a better option for shoppers this season compared to last season,” said Robert Mann, associate partner, Andersen Consulting. “The study suggests that online US e-tailers learned from their mistakes last year, developed strategies to address e-fulfillment and supply chain issues, and more importantly, improved their execution, making great improvements that consumers will value.”

This year’s study attempted to place 563 orders at 97 different Web sites. To conduct the study, Andersen Consulting’s Supply Chain group provided 15 of its professionals with a credit card number, and asked them to place more than 600 orders online. All orders, ranging from books and toys to clothing, were placed over a seven-day period, at different times of the day and delivered to either Atlanta, Chicago or San Francisco.

The participants were able to complete 517 of the 563 orders placed. While that means 8 percent of online purchase attempts still result in failure, it is much improved over the 25 percent failure rate reported in 1999. Reasons for the failures ranged from some sites could not take orders, crashed, were blocked, were under construction or were otherwise inaccessible.

The 1999 study found that e-tailers’ Web sites provided a higher service level than those of traditional retailers or catalog companies. This year’s study, however, showed that the retailers and catalog companies are closing, or have completely closed, the service level gaps found in last year’s study. For example:

• Retailers’ sites still take longer to place orders, compared to e-tailers, but the gap has closed from 3 minutes last year to only 1 minute and a half this year, arguably an insignificant amount of time to consumers.
• Last year e-tailers did a better job than retailers of telling consumers when products were in-stock, by about 5 percentage points. This year retailers are actually one point ahead of e-tailers. Both of them are about 95 percent reliable in actually having the stock they promise.

Customer service measurements also improved significantly across the board:

• 25 percent less time spent shopping (from 12 minutes down to 9)
• 17 percent more sites provide an expected delivery date (47 percent vs. 40 percent last year)
• 23 percent more sites provide an email order confirmation (82 percent vs. 67 percent last year)
• 24 percent more sites provide a shipment confirmation (26 percent vs. 21 percent last year). This number is expected to go up as more items are shipped through the course of the remainder of the study.”E-retailers are being very careful to make sure consumers are more aware of deadlines, even at the risk of losing a sale. They want to be sure they can guarantee delivery rather than try to push the date,” Mann said. “For example, the majority of Web sites surveyed in the 2000 study indicated that lead times for standard shipment modes are averaging nearly 10 days compared to claims of about five days last year. Web sites are reminding consumers that Christmas is on a Monday this year, which may increase the need for late shoppers to pay extra for express shipping.”

  Despite the improvements cited by the Andersen Consulting study, e-tailing is in crisis, according to human computer interaction (HCI) experts at Icon Medialab. And the fault lies almost completely with web designers and marketers who fail to develop usable sites that fundamentally address how consumers shop online.

  “The fact is, many B2C sites fail by the most basic measures of success in retailing, whether in terms of consumer loyalty, profitability or brand-building,” said Stefana Broadbent, Chief HCI Officer of Icon Medialab. “And, for the most part, the situation remains unresolved, as the rising tide of dot-com failures makes clear. What is also clear, in retrospect, is that the e-tailing industry on the whole failed from the onset — and the biggest mistake was ignoring the consumer and how they interact with the computer.”

  The choice of products being sold online has been a problem. It’s much easier to sell books and CDs online than mobile phones — the decision process leading up to purchase of books and CDs is significantly easier to support, according to Icon Medialab. It is also extremely difficult to replicate the experience of shopping in a store on a Web site — tradeoffs have to be made when deciding what’s most important to users at particular stages in the shopping process. The emotional and practical needs of consumers as they decide when, where and how to shop in an online environment have not been met, and having a comprehensive understanding of how users structure their activities is key.

  To offset these problems, e-tailers will spend $460 million on eService solutions this year, according to Datamonitor. Despite this level of investment, online consumers are still likely to abandon their shopping carts because of poor customer service. The main reason is a savvier consumer with higher expectations, according to Datamonitor.

  “Online customer service will have a significant impact on the way consumers make purchase decisions this holiday season,” said Glenn Koser, a Datamonitor analyst. “A poor showing could spell doom for many e-tailers already struggling to come up with capital to continue operations in 2001. It is critical for pure play dot-coms that lack the support of a brick-and-mortar outlets to compensate for lost online revenue.”

  E-Tail Customer Acquisition Costs
  FTD.com	$20
  BarnesandNoble.com	$22
  iPrint.com	$23
  Amazon.com	$25
  CDnow	$27
  autobytel.com	$31
  Travelocity.com	$33
  Buy.com	$36
  Source: Intermarket Group

  Datamonitor also found that the percentage of abandoned online transactions that could be salvaged and converted to sales will increase from 7.8 percent in 1999 to 8.7 percent by the end of the year. This translates into $10.9 billion in lost e-commerce revenues, which could represent 34 percent of any individual company’s online sales.

  One of customers’ biggest complaints with Web sites last holiday season was performance. Many sites had difficulty handling the traffic and consumers were faced with slow or inaccessible sites. According to Keynote, performance overall this year has been better than it was last year. Last year, Keynote measured the performance and availability of 10 of the top e-commerce sites during the holidays. The week before Thanksgiving this year was 66.24 percent better than the corresponding week last year (which was last year’s worst online holiday shopping week); the week of Thanksgiving this year was 10.75 percent better than the corresponding week in 1999; the week after Thanksgiving this year was 23.94 percent better than 1999; and the first week of December this year was 21.32 percent better than last year.

  Improvements in customer service mean that Internet retailers are making strides toward retaining existing customers — good news given the costs of acquiring new ones. Internet retailers are spending almost one-half of their marketing budgets on average to acquire new customers and another 18 percent to retain existing customers, according to The Internet Commerce Briefing by Intermarket Group. The remaining one-third of the typical marketing budget is allocated to building brand awareness.

  Online advertising has consumed an increasing share of budgets during 2000 and now accounts for more than 50 percent of the average Internet retailer’s marketing expenditures. Portals deals, once considered a necessity for pure-play dot-coms, have been renegotiated or cancelled outright in favor of more targeted approaches by 40 percent of advertisers. Portal deals are now ranked by multi-channel retailers among the most effective media for customer acquisition, along with cross-catalog promotion and targeted email. Among pure-play Internet retailers, 44 percent reported that targeted email was the most effective means of acquiring new customers followed in distant second by television advertising and links on partner sites.